Footwear specialist Crocs (CROX -1.97%)reported earnings for the third quarter of 2024 on Tuesday, Oct. 29, that matched or exceeded management's expectations on several metrics. Adjusted earnings per share (EPS) of $3.60 outpaced guidance of $2.95 to $3.10. Revenue for the quarter reached $1.06 billion, marking a growth of 1.6% year over year and hitting the midpoint of management guidance.
The integration of the HeyDude brand continues to pose challenges, as the brand reported a revenue decline of 17.4%, which was worse than expected. Overall, Crocs' performance this quarter can be seen as mixed, with strong results in its core brand being offset by difficulties with HeyDude.
| Metric | Q3 2024 | Management's Expectations | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $1.06 billion | $1.07 billion to $1.05 billion | $1.045 billion | 1.6% |
| Adjusted EPS | $3.60 | $2.95 to $3.10 | $3.25 | 10.8% |
| HeyDude revenue drop (YOY) | (17.4%) | (16%) to (14%) | N/A | N/A |
| Adjusted operating margin | 25.4% | 24.5% | 28.3% | (220 bps) |
| Gross margin | 59.6% | N/A | 57.4% | N/A |
Source: Crocs. Note: Expectations based on management's guidance provided in the Aug. 1, 2024, earnings report. YOY = Year over year.
Overview of Crocs' Business and Strategic Focus
Crocs, a global leader in innovative casual footwear, is recognized for its iconic and colorful clogs. It has diversified through its acquisition of HeyDude, aiming to enhance its footprint in the United States. The brand focuses on international expansion, digital sales, and product innovation to sustain long-term growth.
HeyDude, acquired in February 2022, offers a more comprehensive range of casual footwear, primarily sold within the U.S. Crocs also emphasizes digital sales, with significant portions of revenue derived from online channels. International expansion remains a focal point, with efforts directed towards penetrating markets in Asia and Europe.
Quarterly Performance Insights
During Q3 2024, Crocs reported solid numbers overall. Its adjusted earnings per share of $3.60 exceeded internal expectations by about 15%. Andrew Rees, CEO, highlighted the company's strong operational efficiency, which permitted increased strategic investments. Revenue was driven primarily by improvements in the Crocs brand, which achieved a revenue rise of 7.4%, outshining the guided range of 3% to 5%.
On the other hand, HeyDude faced setbacks with a notable year-over-year revenue decrease of 17.4%. Although strategic refinements are underway, the brand's wholesale business particularly suffered, declining 23% year over year. Management remains focused on recalibrating HeyDude's market approach to bolster its relevance and performance.
Looking at other financial metrics, the adjusted gross margin improved to 59.6% from 57.4% in the prior year. This enhancement demonstrates the company’s ability to manage costs efficiently while still achieving desired profitability levels. However, the adjusted operating margin saw a decline of 220 basis points, suggesting mixed outcomes in operational performance.
Financially healthy, Crocs repaid $110 million in debt and repurchased 1.1 million shares worth $151 million during the quarter. Such moves show strong cash flow management and a commitment to enhancing shareholder value, positioning the company for sound fiscal strength moving forward.
The Path Forward
In its outlook, Crocs adjusted its annual revenue growth forecast, now expecting a rate towards the lower end of its previous guidance at approximately 3%. The Crocs brand is projected to grow by around 8%, while the outlook for HeyDude remains dimmed with an expected decline of 14.5%.
Management plans to continue its investment in digital expansion and international growth. Specifically, it intends to push further into Asian and European markets and enhance its digital channels to capture shifting consumer buying habits. Upcoming quarters will see an emphasis on revitalizing HeyDude through improved marketing and physical retail strategies to rectify its performance decline.
