Crocs Stock

Good day, and welcome to the Crocs Second Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Abbey Ritter, Investor Relations. Please go ahead.

Good morning, and thank you for joining us to discuss Crocs Inc.'s second quarter 2026 results. With me today are Andrew Rees, Chief Executive Officer; and Patraic Reagan, Executive Vice President and Chief Financial Officer. [Operator Instructions]

Before we begin, I would like to remind you that some of the information provided on this call is forward-looking and, accordingly, is subject to the safe harbor provisions of the federal securities laws. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to differ materially. Please refer to our most recent annual report on Form 10-K, quarterly report on Form 10-Q and other reports filed with the SEC for more information on these risks and uncertainties.

Certain financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. All revenue growth rates will be cited on a constant currency basis unless otherwise stated.

At this time, I'll turn the call over to Andrew Rees, Crocs Inc.'s Chief Executive Officer.

Thank you, Abbey, and good morning, everyone. Thank you for joining us today.

We delivered a stronger-than-expected second quarter, driven by broad consumer demand for both brands and consistent execution of our brand strategies. This fueled our powerful value creation engine, generating strong free cash flow, which returned to shareholders in the form of debt paydown and meaningful share repurchases. While Patraic will discuss our quarterly performance in more detail later, I would like to start by sharing several financial highlights and reviewing our performance by brand.

For the second quarter of 2026, we delivered record enterprise revenues of $1.2 billion, up 2% to prior year, including Crocs brand up 4% and HEYDUDE down 6%. This quarter marked an important inflection for both brands, including a major milestone as the Crocs brand exceeded $1 billion in quarterly revenue for the first time ever.

Another quarter of strong direct-to-consumer growth for both brands. Crocs brand DTC up 12%, including reduced promotional activity, and HEYDUDE DTC up 7% despite lower performance marketing spend. Crocs brand international revenue growth was 7% and North America returning to slight growth, a key milestone for the Crocs brand.

Meaningful return of cash to shareholders with approximately 2.3 million shares repurchased for $251 million and debt paydown of $31 million. Furthermore, earlier this week, we received Board approval for an additional $1.5 billion share repurchase authorization, which Patraic will speak about later today.

Now to performance by brand, starting with Crocs. The second quarter continued to build on our strong start to the year as consumers responded positively to product newness and marketing activations across channels and geographies. This is evidenced through the progress we have made against our 5 strategic pillars.

First, we are driving brand relevance globally as the clog market share leader. During the quarter, we saw strength within our sport and fashion clog franchises: Crocband, Echo and Crafted. These franchises enable diversification of our overall clog portfolio, allow better segmentation and drive category relevance outside of our classic franchise.

Starting with Crocband, demand has been broad-based across colors and iterations, including our latest introduction, the Crocband Runner. This focused introduction, which features our take on a retro sneaker trend, has been a strong performer amidst an exciting time for sports globally.

Our Echo franchise continued to outperform globally, led by the Echo RO and Mary Jane silhouettes, and we are building on this momentum with the recent launch of Echo 2.0 earlier this month. The Crafted franchise continues to be led by our canvas and embroidery uppers. And as we head into fall, we're further differentiating our assortment with a more distinct cold weather offering.

As for our Classic franchise within North American wholesale, we are on plan with our strategy to tighten inventory and channel and further segment our business across key partners. These actions, along with the green shoots we're seeing in our domestic DTC business, give us confidence in the stabilization and future growth of our Echo.

Second, we're scaling our product pillars outside of clogs through new category expansion. Starting with sandals. This category represents our largest near-term diversification opportunity, and we continue to take material market share.

Within our 3 core style franchises, The Miami, Getaway and Brooklyn, we're building on the success of prior seasons through new introductions and innovation. One standout example of this success is within The Miami. New introductions such as the platform and round toe as well as new materializations like The Miami Jelly are driving heightened demand from consumers. Digital search trends further validate that this franchise is becoming increasingly well known to new consumers.

As we spoke about on our first quarter call early this year, we launched a Saturday sandal, a personalizable 2-strap silhouette. The initial launch drove exceptional response from our consumers and retailers globally, led by the metallic buckle iteration. As we look forward, we expect this franchise to continue to build meaningfully.

More broadly, the momentum we have seen in our sandal category has strengthened the trajectory of our North America business, contributing to the return to growth we reported today. We expect this category to become an even more meaningful growth driver of our global business in 2027 and beyond.

Outside of sandals, we are driving strong consumer engagement within our lifestyle category, led by the Classic Ballet flat, which continues to see notable sellouts globally, particularly in Asia.

Within recovery, we leveraged New York Giants players, Jaxson Dart and Cam Skattebo to launch 2 new silhouettes within our Mellow franchise, a clog and a closed-heel offering, which features an updated look and comfort proposition. The early demand we're seeing has been encouraging and reinforces the confidence we have in our overall diversification strategy.

Turning to personalization. As a category leader in this space, we aim to push the definition of what personalization can be beyond traditional Jibbitz Charms. We have begun testing several innovations in the category, including sandal charms, which allow consumers to personalize franchises that don't support traditional Jibbitz Charms. We launched the program on a limited basis through our own dot-com and select stores, where we saw an encouraging consumer response. The ability to personalize a growing portion of our product offering remains a powerful driver of consumer engagement and a key competitive advantage for our brand. In addition, we're intentionally expanding into categories like bags and accessories, both of which saw meaningful growth during the quarter.

Third, we are fueling consumer engagement through disruptive social and digital marketing. During April, we launched the Glad You Noticed campaign, leveraging creative partnerships and a fully integrated media strategy to spotlight our sandal business. The campaign was a key driver of the strong momentum we saw in the category during the quarter and reinforces the power of our socially-led storytelling to drive growth.

As we continue to integrate our brand into entertainment and media, we leveraged the success of our first micro-drama on Reel Shorts, Charm To Meet You, to launch Charm To Meet You 2 during this quarter. Together, these micro-dramas have garnered nearly 20 million views, reaching both new and existing consumers. Looking ahead, we will continue to leverage one of Crocs' core strengths, our ability to identify and capitalize on emerging platforms early to connect with consumers in new and disruptive ways.

We also launched several iconic collaborations during the quarter, including our partnerships with 2 globally recognized brands: BAPE and F1 Red Bull Racing. Starting with BAPE, this collaboration leveraged the Echo RO and sold out within minutes globally, underscoring Crocs' versatility and ability to appeal to streetwear culture. To amplify the launch, we took over Shibuya Crossing in Tokyo, bringing our brand to one of the world's most visible consumer stages.

Turning to F1 Red Bull Racing, this collaboration was supported by global strategic partnerships, which fueled meaningful social media engagement and, in turn, drove strong new customer acquisition to the brand. To round out the quarter, we were front and center at Paris Fashion Week, showcasing new innovation with our EXP line and building momentum ahead of our Echo 2.0 launch through a partnership with Brain Dead, an influential brand within fashion and culture.

Fourth, we are creating compelling consumer experiences across channels. Starting with social commerce, we continue to build our leadership position in this channel, including a successful execution of TikTok Shop's first-ever global Super Brand Day in July. The event exceeded our expectations and demonstrated the strength and scalability of Crocs' social commerce model.

As we continue to push the boundaries of digital commerce, we've also become the first brand to launch a shoppable series within TikTok Shop. The series, titled Deja Shoe, brought content and commerce together in a seamless, digital-first experience. This coincided with the replenishment of our Ballet flat and Saturday sandal on the platform, amplifying demand for both franchises and creating a meaningful halo to our own dot-com.

In addition, we began testing AI-enabled shopping experiences across platforms such as ChatGPT and Copilot during the quarter. While still early, we're seeing encouraging results with consumers responding well to more personalized product discovery and converting at higher rates through these channels. We're excited about the opportunity to further expand our presence across these emerging platforms.

As we look ahead, these channels are becoming increasingly important to how consumers discover and shop brands. We have developed a diverse network of partners, which allow us to pivot our focus to platforms where we can further our leadership position at the intersection of commerce, content and technology.

Fifth and finally, we're continuing to gain market share internationally. In the second quarter, we saw broad-based strength across our Tier 1 markets, led by DTC. We saw double-digit growth in our high-priority markets, China, India and Japan, followed by key markets in Western Europe.

Beginning with China, the second quarter was a record revenue quarter, including another successful mid-season festival. Importantly, we leveraged our read-and-react abilities to quickly bring China-for-China products to market, including unique iterations of our Ballet flat.

Turning to India. We leveraged celebrity and brand ambassador, Rashmika Mandanna, to celebrate the monsoon season, featuring our new Classic Buckle and Ballet Flat franchises. In Japan, performance continues to be broad-based across channels, supported by strong consumer affinity for personalization and successful launches of both new and licensed products.

Western Europe, which includes the U.K., France and Germany, continues to be led by direct-to-consumer channels where newness within our Echo and Crocband franchises have driven outsized response from consumers. Lastly, during the quarter, we opened approximately 160 mono-brand stores and kiosks, including 34 owned and operated stores internationally.

Now turning to HEYDUDE. The second quarter marked another significant milestone in our progress returning the brand to growth, anchored in a focus on our core consumer and building off the momentum we saw entering the year. Both our DTC and wholesale channels contributed to the brand's improving performance despite ongoing pullback in performance marketing spend and the thoughtful management of in-channel inventory. This progress is evidence that our 3-pillar strategic plan is working.

First, we are laser-focused on our core consumer. During the quarter, we launched our first ever global summer campaign, Take A Vacation. The campaign was grounded in the key attributes of our core consumer: comfort and relaxation. Our Hey2O, Stretch Sox and sandal products anchored the messaging and helped drive upside to our top line expectations in the quarter. Building on this, we arrived at Stagecoach for the fourth year in a row, this time with partner, TikTok, which drove higher conversion to our own dot-com versus prior years.

We then celebrated Father's Day to round out the quarter in our most disruptive way yet. We leveraged Home Depot to launch the ultimate dad shoe, the Stride S, designed by Steven Smith. Looking forward, we plan to build on this launch to introduce a broader range of sneakers and casual footwear.

Turning to collaborations. During the quarter, we launched several relevant partnerships, beginning with Burlebo, an outdoor lifestyle brand. During the initial launch in April, this collab sold out in less than 24 hours on our own dot-com, and we're chasing demand for a second release in May. In addition, we released collaborations with Sims Fishing, Minecraft and Toy Story, all of which exceeded expectations.

Before turning to product highlights, I would be remiss not to mention our newest partnership with the National Hacky Sack League. Amidst the national resurgence, HEYDUDE icons, the Wally and Wendy, were banned from tournaments due to the design of the shoe, which was deemed to provide players with an unfair advantage. Core to Crocs' DNA, we worked swiftly to capitalize on the virality of the moment and have now entered into a partnership as the official shoe of Hacky Sack for 2026.

Second, we're building the core and thoughtfully adding more. We're amplifying our leadership within the slip-on category, led by our icons, the Wally and Wendy. Stretch Sox remains a driver of our core business, along with the increased momentum in our Stretch Jersey franchise. Patent iteration of these core silhouettes, such as those included in the Americana launch were consumer favorites ahead of America's 250th anniversary and demand outpaced inventory during the quarter.

As we grow our business outside of our icons, we continue to see strength in sandals, particularly for her, led by the Maui Breeze and the Austin Slide. Also within sandals, we're testing H2O flip, which appeals to him and has been on a positive trajectory. Beyond sandals, we're seeing notable consumer response to our work offering. Importantly, this consumer is new to the brand and purchases at a higher frequency. We have begun to take meaningful shelf space at key retailers in this category and look forward to scaling further as we move into the fall and winter seasons.

Third, we're focused on stabilizing the North America marketplace. As I shared earlier, our second quarter results were ahead of expectations, and we're confident in our strategy to return to growth in the back half of this year. During the quarter, direct-to-consumer revenues increased 7%, led by strength in digital marketplaces. Within this, we saw outperformance from TikTok Shop, in part driven by our Super Brand Day, as well as the benefit from a record Amazon Prime Day, led by products, including the Karina. Wholesale was better than anticipated, down 17%, supported by higher at-once demand and thoughtful management of in-channel inventory. Against this progress, we are receiving positive feedback from our key partners in both new as well as core products as we head into the back half of the year and beyond.

To conclude, we're focused on executing our near-term initiatives to drive diversified growth across both brands, direct-to-consumer and wholesale channels as well as domestic and international markets. We have clear and achievable strategies to grow our brands enabled by consumer focus, innovative products and marketing and our global go-to-market capabilities.

I will now turn the call over to Patraic.

Thank you, Andrew, and good morning, everyone. During the quarter, we again made meaningful progress against our strategic priorities for both brands. This reinforces the confidence we have in building sustainable long-term growth. The second quarter built on our strong start to the year, delivering better-than-expected results, driven by broad-based consumer demand and disciplined execution.

At Crocs Inc., our teammates across the globe are playing to win every day. With the mindset of ambition, decisiveness and agility, we are moving with purpose to aggressively action our strategic priorities, and we are making progress.

Now let's move to our results. For the second quarter, we delivered record enterprise revenue of $1.2 billion, up 2% to prior year and ahead of our expectations. Our results were led by strong direct-to-consumer growth for both brands as consumers continue to respond favorably to new product offerings. This was offset in part by anticipated wholesale declines as we continue our managed approach to optimize the channel and support long-term profitable growth.

For the quarter, Crocs brand revenue of $1 billion was up 4%, the first time the brand has exceeded $1 billion in a quarter. This is not only an exciting milestone, but one that underscores our brand's continued resonance with consumers globally. Results were led by our international segment, up 7%, including double-digit growth in China, India and Japan. North America returned to growth, up slightly to prior year. Within North America, the direct-to-consumer channel was up 5% to prior year, led by marketplace outperformance and despite our continued year-over-year reduction in promotional activity. This growth was in part offset by the aforementioned wholesale decline.

The HEYDUDE brand delivered revenue of $179 million, down 6% to prior year, exceeding our expectations and marking another meaningful step in our return to growth journey. Direct-to-consumer sales were up 7%, ahead of our plan, driven by robust digital marketplace performance and new store openings. Notably, this growth was achieved against a continued lower level of year-over-year performance marketing spend. The wholesale channel was down 17%, also ahead of plan, as we continue to thoughtfully manage our in-channel inventory levels. The HEYDUDE team has been executing the strategy with speed and rigor, giving us continued confidence in returning to growth in the back half of this year.

Now moving to adjusted gross margins, enterprise adjusted gross margin of 60% was down 170 basis points to prior year, driven by 160 basis points of incremental tariff impact. Crocs brand adjusted gross margin was 63.1%, down 100 basis points to prior year, driven by tariffs and product mix, offset in part by the benefit of our cost savings initiatives and international price increases. HEYDUDE brand adjusted gross margin was 43.7%, down 650 basis points to prior year, driven by tariffs, channel and product mix, offset in part by benefits of our cost savings initiatives.

Moving to expenses. Adjusted SG&A dollars were $412 million, up 3% to prior year as we recognized benefit from our cost savings initiatives, offset by choiceful direct-to-consumer channel investments aimed at connecting with our consumers and driving revenue.

Adjusted operating margin of 25.1% was down 180 basis points to prior year. This excludes $10 million of specific costs related to the implementation of our cost-saving initiatives and a distributor takeback during the first quarter. Adjusted diluted earnings per share of $4.55 was up 8% to prior year and ahead of our guidance of $4.15 to $4.30 per share. And finally, our non-GAAP effective tax rate was 18%.

Now turning to a discussion of our strong balance sheet and cash flow. We ended the quarter with just over $170 million of cash and cash equivalents and approximately $870 million of borrowing capacity on our revolver. Our inventory balance as of June 30 was $389 million, down 4% to prior year. Notably, this included the impact of higher tariffs. Inventory footwear units were down high single digits to prior year, reflecting our decisive actions to manage inventory flow into the marketplace. Enterprise inventory turns were above our goal of 4x on an annualized basis.

The power of our business model drives exceptional free cash flow, which provides us with significant flexibility in how we allocate capital and generate shareholder value. During the quarter, we repurchased approximately 2.3 million shares for $251 million, another proof point of our commitment to returning capital to shareholders.

Reflecting our confidence in the business and future cash flow generation, earlier this week, our Board approved an additional $1.5 billion share repurchase authorization, bringing our total available authorization to approximately $2 billion. This substantial increase underscores both our confidence in the business and our commitment to returning excess capital to shareholders.

At the same time, we continue to strengthen our balance sheet. During the quarter, we paid down an additional $31 million of debt and ended the quarter with net leverage at the low end of our target range of 1 to 1.5x.

Now moving to our full year 2026 outlook. We expect enterprise revenue growth for the full year to be 1% to 2% versus prior year, up from our previous guidance and assuming currency rates as of July 27.

Moving on to revenue guidance by brand. For the Crocs brand, we now expect revenue to be up 2% to 3% versus our previous guidance range of flat to up 2%, led by international growth. We continue to expect North America to be down for the year with declines led by the wholesale channel.

Now before turning to HEYDUDE guidance, I want to speak to a business model change that we will be implementing with one of our largest marketplace partners beginning in Q3. This will affect how we recognize Crocs brand North America revenue between our D2C and wholesale channels and will have the following impacts. One, we will recognize lower revenue in our D2C channel. Two, conversely, we will recognize higher revenue in our wholesale channel. Three, the net of these revenue shifts will be lower overall revenue. Four, this will be neutral from a units sold and market share perspective. And five, we will see an improvement to operating profit. We have fully contemplated the impact this will have to revenue and our latest top line expectations for the Crocs brand. Finally, and in line with our prior guidance, North America D2C is anticipated to be positive for the year excluding this change to revenue recognition.

Turning to HEYDUDE. We now expect revenue to be down approximately 2% to 4%, another improvement from our previous guidance range of down 5% to 7%. This increase reflects our confidence in the brand returning to growth in the back half of the year. We are also raising our bottom line expectations for adjusted diluted earnings per share to now be in the range of $13.70 to $14, up from our previous guidance range of $13.20 to $13.75. Consistent with our previous guidance policy, this range does not assume any impact from future share repurchases.

Moving on to margin guidance. We continue to expect adjusted gross margin for the year to be slightly up versus last year, including the impact of tariffs, offset in part by our cost-saving efforts, primarily in our supply chain. Adjusted SG&A dollars are implied roughly flat to prior year, in line with our prior guidance, including benefits from our previously announced cost savings programs, offset by investments into growth drivers for the enterprise. Taken together, we continue to expect adjusted operating margin to expand modestly from the 22.3% level we reported in fiscal year '25. This excludes approximately $25 million of nonrecurring costs.

For tax, we continue to expect our underlying non-GAAP effective tax rate which approximates cash taxes paid to be 18% and the GAAP effective tax rate to be 23%.

For the year, we continue to expect capital expenditures to be in the range of $70 million to $80 million. Regarding capital allocation, as I highlighted earlier, we are committed to, first, investing behind both of our brands to fuel long-term growth; and second, returning our significant free cash flow to shareholders through share repurchase.

Now turning to our third quarter outlook. For the third quarter, we expect revenues to be approximately flat at currency rates as of July 27. Within this, Crocs brand revenues are expected to be up approximately 1%; HEYDUDE revenues are expected to be flat to down 3%. Adjusted operating margin is expected to be approximately 21.5%, which embeds adjusted gross margin up approximately 170 basis points to prior year. Adjusted diluted earnings per share is planned to be in the range of $3.20 to $3.30.

Before closing, I want to provide a few shaping considerations implied in our third versus fourth quarter guide. For revenues, the strategic actions we made in the back half of last year for both brands were more weighted towards Q4. And for margins, the fourth quarter of 2025 had a larger tariff headwind of 300 basis points versus Q3 at 230 basis points.

To close, we are pleased with our strong first half performance and the momentum we continue to see across the business. The results we delivered reflect the strength of our brands, broad-based consumer demand and disciplined execution by our teams around the world. As always, we remain focused on driving long-term profitable growth while generating and deploying our exceptional free cash flow through our best-in-class value creation engine.

At this time, Andrew and I are happy to take your questions. Operator?

[Operator Instructions] our first question comes from Jonathan Komp with Baird.

Patraic, I wanted to start regarding the business model shift that you mentioned, could you maybe further quantify any impacts you're expecting on D2C in total revenue, maybe both for the third quarter and then how should we think about that on an annualized basis?

Yes, Jonathan. Maybe what I'll do is I'll hit the mechanics of it as it relates to kind of revenue, revenue recognition, and then Andrew will kind of pick up and contextualize a little bit. So let me just kind of start off by saying that overall, what we aspire to do is kind of meet the consumer where they shop and take friction out of the shopping experience. So what we are talking about here today is a means to the end of that.

But more specifically, as it relates to the financial side of it is it's really, as we described in the prepared remarks, it's really a revenue recognition in the topic. And so just to kind of reiterate, what you'll see is you'll see lower revenue recognized in our D2C channel as we make the evolution. We'll see higher revenue recognized from a wholesale perspective. The net of those will be lower overall, but there will be no impact to units sold in to market share, et cetera. And then we'll see a slight benefit from an operating profit perspective.

And so I think the backdrop against this and how to think about it in terms of our guide and balance of the year, Q3, Q4, is you saw the confidence in terms of taking up the guide for Crocs Inc. in both brands. And specifically for Crocs brand, despite the headwinds of this revenue recognition shift has for us in the short term, we still have great confidence in terms of where we are. And that gave us the confidence to take up the guide today. And I think Andrew has got a few more comments on just contextualizing this.

Yes. Thank you, Patraic. Yes. As you know, Jonathan, for a long time, we've been focused on leaning into marketplaces. It is where the consumer goes first, both in this country and in many countries around the world, when they're searching for brands that they know and love. And we've seen us grow our business very meaningfully.

I would say it's critical as we kind of think about each region and each country to make sure that we're doing business with those marketplaces in the way that is, I would say, most in sync with their business model. So I think this brings us a little bit more in sync with the key marketplace here in North America. But as I think about the consumer takeaway, we continue to gain share on these marketplaces. We continue to offer a very clear and coherent assortments to our consumers. And I would say it's very clear over the long run, this strategy has been really effective and it's working well for us. So we plan to continue it.

Okay. That's helpful. And maybe just as a follow-up, when we think about the new annual guidance for Crocs brand up 2% to 3% for revenue, which you raised, what should we take away in terms of the updated second half outlook for Crocs North America? If you could maybe clarify how the underlying revenue in that projection has changed.

And I guess, bigger picture question, what's your confidence in being back to growth in North America? I think there's some concerns about retail generally for July, maybe some questions for the Crocs brand as you get past core sandal season. So just any other color there would be helpful.

Yes. Great. So I would say to start with, we are supremely confident in the future growth trajectory of both of our brands, right? We just closed out a record quarter for our company in terms of revenue and raised our guidance and expectations for growth into the future. Returning to growth specifically in North America for both brands is also a very high priority. And from a Crocs perspective, we will not be returning to growth here in 2026, but we will meaningfully reduce the rate of decline that we saw in 2025.

And that has been driven by, I think, very important and sustainable underpinnings. Number one is diversification. We've been diversifying our product offering, allowing both the consumer more choice and greater segmentation between our wholesale partners in a couple of meaningful ways. Number one, sandals, which you highlighted in your question, we've had a blockbuster sandal season for the Crocs brand here in North America and around the world and has driven meaningful revenue upside. We've also -- well on the trajectory of diversifying our clog portfolio, which was heavily oriented towards our core Classic. And I think in our prepared remarks, we highlighted all the other clogs we're bringing to market and seeing really great success, whether it be bringing back Crocband, introduction of Echo 2.0, introduction of a materialized clog to Crafted, and most recently, recovery clog and recovery shoe in the Mellow.

In addition, I would say, emerging our other diversification opportunities for the Crocs brand, the Ballet Flat, which we include in our lifestyle segment, has been a really great success around the world, more in Asia than the U.S., but that's another opportunity to further diversify.

So I think the things that we have done that are seeing very positive trajectory, we have complete confidence will yield the end result, which we wish, which is obviously return to growth in North America.

I'd also highlight a couple of things. I know the market and the investment community is super focused on North American growth. But we have, over many years now, yielded very sustainable and strong international growth. Obviously, the number of consumers outside of North America in some of these big markets are very substantial indeed. We continue to see a long runway of strong international growth. And I would highlight, and I think we've highlighted this a couple of times, the flow-through of that growth to profitability from our international business is as strong as our North American business. So we see our ability to drive very meaningful growth in shareholder value from both growth internationally and growth here in North America.

And the next question comes from Adrienne Yih with Barclays.

I guess going back to the business model change, I'm still unclear. This is something that will actually take place starting in the third quarter, Crocs specific. So can you give us more color, Patraic, maybe the guide for Crocs in the third quarter is to slow quite a bit against easier compares, guided 1% versus the 3.7% constant currency. Should we assume that all of that or the vast majority of that is from this revenue recognition change? Or is there something about kind of what's happening in wholesale? So just some color there, maybe from a quantitative standpoint, obviously, this is just Crocs, confirming that. Number two, what percentage of your marketplace partners is this happening with? And then I guess really getting to what percent of sales does it actually impact, to help us with the color on that.

And then on tariffs, just post 7/20 or 7/24, whichever date you want to take, we're now at kind of 12.5%, what's your assumption as you go up against those big tariff numbers? How much of the -- do you recapture from the 300 basis points in the fourth quarter?

Okay. Great. Adrienne, so let me kind of start with the marketplace shift and then will kind of progress through. So first of all, you're correct, beginning -- the marketplace shift begins in Q3. And so as Andrew had mentioned, we really view this as a shift going into Q3, Q4 that we want to communicate today because, ultimately, trying to be transparent in terms of where it's going.

As it relates to kind of the guide for the year, let me again take you back to the fact that we raised guidance in the Crocs brand for the year. So the underlying strength of our business is significant and gives us the confidence to raise despite the revenue recognition shift that we're seeing.

As it relates, kind of back to your question and just to be overwhelmingly clear, this relates to the Crocs brand and just North America within the Crocs brand. So that's kind of where we are. And from an evolution standpoint, overall, we feel good about where this is going.

What I'd say in terms of percentage of marketplace shift, we're not going to get into the quantification exactly of those numbers. Obviously, it's large enough that we want to make you all aware of it, but it's not so large that it negatively impacts our confidence to guide up on the year. So trying to put the brackets on that hopefully is helping.

From a number of partners standpoint, I mean, listen, we've got dozens of marketplace partners across the globe. Obviously, highlighting this means it's one of our more strategically significant partners. And so I think about it through that lens. But again, overarchingly, the shift that we're communicating in that today, fundamentally, it does not impact or affect anything as it relates to units into the marketplace, market share, health of our business, et cetera. It is simply a revenue recognition between channels.

And then finally, before I'll turn it over to Andrew if he wants to add anything on here, from a tariff assumption perspective, where we are is we feel confident in terms of how we've guided. We've embedded the latest information that's come from the administration into our guide. We do expect that there are likely to be some additional twists and turns as we go through the balance of the year, and our guidance that we put forward today anticipates and reflects that. So with that, anything to add?

No, I think you covered it. Thank you, Adrienne. I appreciate your questions.

The next question comes from Rick Patel with Raymond James.

I was hoping you could double-click on Crocs North America wholesale. So nice to see the sequential progress there. Given the momentum and the accounting change, is it safe to assume that you expect declines to narrow further in the back half versus what you saw in Q3? And then just bigger picture, what do your wholesale accounts need to see before getting more constructive with demand? And if we exclude this revenue recognition change, would you see further progress based on the strength of newness?

Yes, Rick, what I can do is I'll hit the revenue recognition side of it and then turn it over to Andrew for some of the strategic actions and what we're seeing in the channel. So you kind of alluded to it. Given this is solely just a revenue recognition shift and it benefits from a rev rec standpoint, wholesale, you can expect the wholesale compares on a year-over-year basis to narrow and benefit from the shift, and conversely, D2C be impacted adversely in the shift.

And so that's kind of the underlying mechanics to the shift, and Andrew can speak a little bit more to what we're seeing with wholesale and wholesale partners in the North American marketplace.

Great. Thanks, Patraic. Yes. So I would say, from a North American wholesale perspective, I think we're really pleased with our business, and we're pleased with the trajectory that it's on. There's a couple of -- there's probably 3 critical things that are -- that we plan to happen and that we've executed well against. Number one is really maximize the growth of sandals, and we've been able to do that both in DTC, but also very strongly within wholesale.

I would also say that some of our wholesale partners did under-anticipate or underplay some of the growth in our sandal business, and we've been chasing incremental inventory to supply at once across a range of styles that have performed really, really well, which also gives us really great confidence in an even better sandal season in 2027.

The second important thing is segmentation. So diversification of the clog, from the classic clog to a broader range of clogs, I think, suited to some of the key channels within our wholesale landscape are allowing us to improve segmentation and give each of our partners some differential offering on which to engage their consumers. I think that is also on a very good trajectory and will also give us confidence in even stronger growth in 2027.

And then I think the third thing I'd say, as we look at the consumer landscape that our wholesale partners are dealing with, I think they're planning the business relatively conservatively. I know you speak to many of them, and you'll be hearing that, as I would if I was in their shoes as well. But when they have new product that is working, they are very proactive in terms of chasing, right? And we have been working, I would say, tirelessly with a good number of them to chase key programs and key styles that have been selling through very effectively.

So I think we're prudent relative to a consumer landscape that remains a little bit uncertain. But what it is very, very clear to us that when we deliver winning product, particularly new winning product, it gives us a great opportunity to continue to grow our business.

And the next question comes from Tom Nikic with Needham.

Wanted to ask about the recovery in HEYDUDE and, I guess, the expectation for growth in Q4. It seems like a pretty steep acceleration that's embedded. I mean based on my math, it's something like mid to high single-digit growth in Q4. And I'm sorry if this was touched upon already, but is that a function of like wholesale becoming a lot less negative? Is it an acceleration of DTC? Like what's the level of confidence in that acceleration? Just would love to get more color there.

Yes. Yes, Tom. I would say, look, we're really happy about the trajectory that the HEYDUDE brand is on. I think we've seen kind of 4 sequential quarters of improved performance. And I think for the last 3 to 4 quarters, it's also exceeded our expectations. A lot of that has been driven by DTC growth where we are seeing really great growth on our marketplaces, on our dot-com and also -- and obviously, we're getting some growth because of the stores that we've opened and servicing our consumer.

We've also been resetting the wholesale channel and managing carefully the quantity of inventory, have the makeup of inventory that our wholesale partners have to ensure that their inventory turns accelerate. And I think we've reported a couple of quarters in a row now that that has meaningfully changed and meaningfully improved. So the wholesale drag has been due to that reset.

As we look into the back half of the year, we're confident in HEYDUDE returning to growth here in North America. And you are right, there is a steep increase in Q4, and that is relative to 2 things. One is confidence we have in growing in both channels. And two is the reset actions that we took last year that created a very weak compare. So if you -- I think we gave you all the breadcrumbs associated with how much that was in Q3 and Q4. So if you factor that in, I think you see that it's a -- it looks like, at the top line, a very steep return to growth. But if you factor that in, it's obviously much more sensible.

Yes. And Tom, just to add on, what I would say is, first of all, I just want to -- thank you for asking the question about HEYDUDE. We've been really pleased with what we've seen from the team and the actions and how they've been executing throughout the year. Fundamentally, from an internal standpoint, they've been meeting and exceeding all of the milestones that we set forth as we turned into the year. So as Andrew mentioned, very confident in both where we are, what we've done to get to this point and what the future looks like for HEYDUDE.

And the next question comes from Brooke Roach with Goldman Sachs.

I was hoping we could dig into the sandals business performance in a bit more detail. How much of the revenue upside in 2Q relative to your plan was driven by the sandals category? And as you look on a medium-term basis, how large do you think this business can become over the next 1 to 3 years as a percent of Crocs brand sales, particularly in North America?

Brooke, yes, look, the sandals did well in Q2. We're very pleased with our sandal season. Our growth rates, I would say, are well ahead of the category. So we continue to gain share in sandals within the Crocs brand. I also would highlight we're actually probably gaining a lot of share within sandals within HEYDUDE also.

It was a strong contributor to the beat in Q2, but not the only thing. I would definitely highlight there are very clearly other silhouettes that are working well within North America and across the globe. The sandal business this year will be $0.5 billion on a global basis. So that is a meaningful business. And if you look at $0.5 billion relative to the sandal market share, there are a few key players that are bigger than that, but we're certainly in the top echelon of sandal players on a global basis.

And to your sort of future point, we do believe there is a multiyear significant growth pathway here for the Crocs brand, and it provides a very meaningful diversification. And I think, you may not recall, but as we articulated a number of years ago, why we got into this category, I think the key strategic factors remain very clear. Number one, it's a large category on a global basis. We estimate it's in excess of $30 billion on a global basis.

It's an annual refresh category, particularly for women. They refresh their sandal assortment on an annual basis. Our manufacturing techniques and the product that we make, particularly molded, really lends itself to this category. We can bring newness, we can bring fun, we can bring color and we can bring tremendous comfort to the category. And it remains competitively fragmented. And so I think those are the key strategic reasons why we identified this, and we're thrilled that it's playing out as it is, and we're very optimistic for the future.

And the next question comes from Kendall Toscano with Bank of America.

I just wanted to follow up again on this revenue recognition shift. I think it's really important to have some visibility on this in order to make sure we understand the relative momentum in your North America D2C business as well as the split between D2C and wholesale. So maybe if you can at least just tell us what the second quarter North America D2C number would have been excluding the shift? Or sorry, if you had applied this revenue recognition shift to the second quarter, what would the North America D2C number have been? Would it still have been positive?

Yes. Look, Kendall, I think, look, we wanted to be as transparent as we can be on the shift. I don't think there's any more information that we can give you at this time. But I think we've been really clear. What I would say to your specific question, if this had been in place for the first half of 2026, we would still have been positive in DTC and the Crocs brand in North America.

Okay. That's helpful. And then just as a follow-up, I wanted to see on gross margin. It looked like it was down 170 basis points year-over-year, which was a little bit light versus guidance for 150 basis points. Just curious what drove the surprise in the second quarter?

Yes. I mean, Kendall, I wouldn't categorize it as a surprise. I would say more evolution. Really the major impact, as it has been for a number of quarters now, overwhelmingly, has been the impact of year-over-year tariffs. And so that's kind of where we are from a fundamental standpoint.

What we are working through, and this is a very positive thing and something that we're very excited about and confident in internally as we look at our business, is if you look at our strategic pillars in terms of how we're running the business now and, more importantly, for the future, diversification is a significant pillar of where we're going and part of what we're driving our business towards.

And as we move towards ever-increasing diversification, there are some twists and turns along that path where our product mix gets a little bit more complicated, our channel mix gets a little bit more complicated. As Andrew mentioned earlier, we're very fortunate in the fact that one of our major strategic pillars, which is international growth, is exactly on par from a profitability standpoint with North America. So overwhelmingly, where we are from a margin standpoint, the biggest impact by far is the tariff landscape, and that's one that we continue to obviously focus on intently as well as everybody else that's in our place. But really, what we're focused on is diversification and driving our business forward through that diversification lens.

And the next question comes from Anna Andreeva with Piper Sandler.

We wanted to follow up on the 3Q guide. Basically asked differently on the underlying basis, excluding this accounting treatment, are you seeing any change in demand in North America DTC at Crocs quarter-to-date? Obviously, very nice momentum in the business for the past 2 quarters, and you called out a number of franchises that are working well. So definitely, diversification there.

And then secondly, on wholesale, you've talked about segmentation for some time. Just curious, what are you seeing at both brands with new versus existing partners? The family channel for Crocs has been challenged, I mean, really for some time. Any improvement in demand from those retailers?

And Andrew, I think you mentioned you saw some green shoots with classics in DTC. Just curious if we should think this franchise has troughed and we could be back to growth in the medium term in classics.

Great. A lot of questions there, Anna. Let me try and hit the high notes on those. So I think the first one that you're trying to get at is, is consumer takeaway from DTC strong and building, right? And I would say, ex the sort of revenue recognition, absolutely. We see growth in consumer takeaway from our sort of DTC channels.

And that is really driven by 2 things. One is newness, because we can bring newness to our DTC channels far faster. So whether that newness is in sandals, whether that's in clog diversification, whether that's in Ballet Flat. And there's also new channels, right? So our expansion into social selling on TikTok Shop here in North America, and I would add, increasingly, key markets around the world, is super important, right? I think you actually have been probably at the forefront in trying to quantify and understand that. But that has been meaningful.

We also see a super important halo from that to our other DTC channels. So when styles or key creators promote a style on TikTok, we can see that demand going to marketplaces. We can see it going to dot-com. And to some extent, we can also see that going in the store. And we hear from our wholesale partners, why is X, Y and Z spiking? And we can relate it back to that.

In terms of wholesale strength, I think I talked about the segmentation. I would say they are increasingly focused on our innovation and newness and are bringing that in more rapidly than they have in the last several quarters. So we're excited about that. I would say the sporting goods channel has been a particularly strong channel for both of our brands. We've seen really great sporting goods support and acceleration both within Crocs and within HEYDUDE. And I actually think that some of the big partners in that channel are some of the most effective and forward-looking retailers that we deal with.

And then the last question you had was Classic. Yes, I think we definitely see some stabilization in classics in our DTC business. And while we're diversifying our clogs, we're also very conscious and have some exciting programs coming up where we need to drive innovation into our Classic business as well. We continue to do partnerships and collaborations and licensed products on Classic, which also continues to perform very well.

And the next question comes from Aubrey Tianello with BNP Paribas.

I wanted to ask about the EBIT margin guide for the year, which you reiterated. Given your comments about the marketplace changes being a benefit to EBIT, is there any help you can give us on the magnitude of that accretion, and if there's any other offsets to EBIT margin this year, any other puts and takes to consider on the reiterated guide in the context of marketplace helping?

Yes, Aubrey.As you saw, we reaffirmed our guide and feel really confident in terms of where we are for the year. As it relates to kind of magnitude of the revenue recognition shift, we expect a slight improvement from -- as a result of this. But within what we are guiding for the year, we feel that we're in the range. And so what we've previously guided, we feel like, is the best kind of measure of where we are today.

So I think more importantly maybe is you see the building confidence in terms of our revenue raises and our sequential EPS raises as we've gone through the year. That's given us the confidence to kind of not only just reiterate, but be very confident in terms of, number one, our ability to generate profits as we're returning to growth in both of these brands. And then number two, just the power of our cash creation and valuation machine, which further underscored, we haven't talked about this on the call today, but the announcement of the $1.5 billion buyback is underpinning the significant message that we have confidence in our business for, not just today, but the foreseeable future, and the ability of us to return significant benefit to our shareholders via stock buybacks.

This concludes our question-and-answer session. I would like to turn the conference back over to Andrew Rees, Chief Executive Officer, for any closing remarks.

So as we close out, I just want to thank everybody for the interest in our company and listening to us over the last hour, and probably just reiterate one key point that Patraic just made, which is we remain incredibly confident in the trajectory of our business. I think the cash-generative capabilities of this business are unbelievable and will allow us to create meaningful shareholder value growth over a sustained period of time. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Okay. We're ready to get started here. Welcome, everyone. Thanks for joining. I'm Jon Komp, Baird's Senior Analyst covering the active lifestyle sector. Very pleased to be joined by Crocs and CFO, Patraic Reagan. Welcome.

Great. Thanks, Jon.

Crocs, as many of you, I'm sure, know, a company that generates roughly $4 billion of annual revenue from the iconic Crocs brand as well as HEYDUDE. The company has been focused on improving marketplace health and really leaning into product and marketing and beginning to show the fruits of those efforts, especially in the direct-to-consumer channel. Patraic is EVP and CFO, joined Crocs last September.

That's right.

Came from SharkNinja and had a long career before that at Nike. So...

That's right.

Welcome again, Patraic. I want to start off and really talk about the actions the company has taken, started second half of 2025 to really reduce inventory risk and start to position the company for product and marketing that's now heading in the D2C channel. So maybe just lay out the current landscape for the company and then we'll go from there.

Yes, yes. So first of all, Jon, thanks for inviting me in and nice to see everybody. Let me start with -- in response to your question, the second half of last year was a really important time in the period of our company in terms of setting us up for future growth. And so for those of you who might not be as familiar with the story, we were at a point in time where we had a little bit too much inventory in the marketplace.

And we had to take some short-term painful decisions to make sure that we positioned ourselves for longer-term future growth. And we did that with the focus of knowing that as a product-driven company that we had quite a bit of new innovation coming in the first part of 2026 for both of our brands. And so that kind of level set us in terms of where we -- what we needed to do as we turned into 2026.

So as we've come into this year, what we've been positioning ourselves to do is, number one, being very aware of what's happening from a more macro standpoint. There's pressure on the consumer, although we feel good about our positioning within the consumer space from a pricing standpoint and a price-to-value perspective on our product. We also knew that coming in, our industry footwear is one that's very competitive.

And so our focus on product, product innovation always needs to be front and center in terms of what we do. So those actions from last year, that really kind of paved the way to what we're seeing happen in the marketplace in this year. And what we're focused on is really from a growth driving standpoint, really a couple of things. Number one is we -- as a company, we're known for our Classic Clog. So if you close your eyes and somebody says, think of Crocs, you're going to view that Classic Clog, 13-hole which is really our icon.

And for us, what we're focused on is a couple of things in terms of diversification. Number one is within the Clogs category, which is a growing category globally, we're diversifying within that space. We're the market leader by a pretty significant margin. We drive the innovation. We drive taste in that space. And so we're really kind of driving continued innovation there. And that's one of the reasons why it was so important for us to get the marketplace in a good spot as we turned out of '25 and into '26.

And the second component is from a diversification product-wise outside of the Clog business, we're really focused on areas like, for example, sandals, where for the last couple of years, we've been developing our sandals programs, and we're now starting to get to a place where we've got real scale in that. So as we go through 2026, we're going to be at a point where we're roughly about $0.5 billion Sandal business across both brands globally.

And from a footwear perspective, there's not a lot of companies that have $0.5 billion in sales overall. So really from a size and scale standpoint, the innovation that's going on from a product perspective in that space has really been helping to drive growth. So Jonathan, back to your original question, kind of where we're going, where we're positioned as we turn from '25 into '26, it's really been and is continuing to be driven by a focus on innovation on behalf of the consumer.

That's a great way to kick it off, and I know we'll talk more about international, too, because I know you're excited on the international side. But maybe sticking with the theme of U.S. and the core Crocs business. Maybe just expand a little further some of the changes from a marketing perspective. And then if you're willing to share some examples of the product that's working and presumably, that's in your D2C channel here to start.

Yes. So great question. It is -- as we think about who we are as a company, number one, at our core, we're a product company, right? As I mentioned, we're very focused on innovation across both brands for our consumer. And we feel like we're really well positioned with some of the products that we're bringing to market. We continue to invest in innovation. It's a priority for us.

However, and this is back to your question, Jon, is it doesn't do us much good to bring that great new product, innovative product to market if we're not telling those marketing stories effectively. And so what we're doing, and this has been some really exciting work is we've been on what I would call the cutting edge in terms of digital and social marketing, particularly through some of our marketplace channels as we've been bringing new product to the market and reinforcing who we are as a brand.

And so you can think about this is some of the work that we're investing in marketplaces like TikTok Shop and some of the other social selling platforms. We've been the #1 selling footwear brand on TikTok Shop for 2 years. I get the question like, are you going to remain there? I'm like, no, somebody Nike or [ adi ] or somebody is going to come by and just volume-wise be bigger. But from an agility standpoint, we're learning, and we're learning quickly in terms of how to engage and communicate with that consumer.

So that's been a lot of focus that we've been putting on. We've also, towards the second half of last year, we pulled back quite a bit on our performance marketing spend and investment. And for those of you that are familiar with how that works, that's what we call lower end of the funnel. It's an expensive way to drive revenue. And we've kind of repositioned that into telling more of our product stories and more of our brand stories.

And so that's all happened with a key leadership change that we had in the business as we've brought Terence Reilly back, I think, roughly about 2 years ago, initially running HEYDUDE. But if you're familiar with Terence and some of his work, you may not be, but probably many of you have got a very expensive Stanley coffee cup or beverage holder, and Terence was really the mastermind of bringing that to life. And he worked with Crocs before. He's now back. We're happy to have him, and he's really driving some very focused and very cutting-edge marketing stories to help us with product.

Maybe to go a little further on the channel performance in North America. Q1 highlighted a pretty big divergence Crocs direct-to-consumer positive, wholesale still negative. Just talk about the dynamics across the channels and how that's embedded looking forward as well.

Yes. So I think as we came into the year and again, kind of going back to some of the moves that we made in the second half to make sure inventory was right within the marketplaces, part of what we're really trying to do is make sure that we are positioned well for '26. And as it relates to like the channels of distributions that we have, knowing that we are leading through innovation and new product, it was our expectation, and this is what is actually happening, that we would see the acceleration from a consumer standpoint first through our digital and social channels within our D2C business, then within our direct-to-consumer stores.

And we knew that, that kind of ecosystem of direct-to-consumer is going to lead in terms of growth. That's what we saw in Q1. That's what we're seeing in -- or that's what we expect to see as we continue to go through the year. And we knew that the wholesale channel was going to lag because that's just kind of how the marketplace works. That's not to say that our wholesale partners are not important. They are critically important to us. We aim and we leverage our wholesale partners to make sure that we've got our product, both Crocs and HEYDUDE, available to our consumers without friction in terms of having to find us.

And so wholesale plays an exceptionally important place in how we get that product to consumer. But we knew that, that was going to be a couple of season lag in terms of wholesale partners investing in some of that newness. And we also knew that what we would start to see if we indeed had green shoots in that space was that we would see our at-once business, which is wholesalers being able to make specific kind of smaller orders that would take off before some of the bigger buy investments that they would have, and that's exactly what we've seen.

That's great. Very encouraging. Maybe shifting to international since it's around half of your business. I know you're excited. The momentum looks good. D2C was very strong in Q1. So highlight some of the -- what gets you excited about the growth in international?

Yes. I mean it's -- I don't know if it's super well known that half of Crocs revenue globally has come from international. And so we've got a very -- the beginnings of a very strong footprint internationally. And so for me, what's exciting is a couple of things. One, the team has done a really good job in terms of planting the seeds of international growth, which I think is from a business model standpoint, in some of the more developed markets, say, like France, Germany, U.K., we've gone in owning our business.

In some of the lesser-developed markets, maybe think Southeast Asia, Latin America, we go in through a distributor model where we partner with a local distributor that knows the market a little bit better. But in all those marketplaces, we're still in very much a nascent place of marketplace development. Just a nice little data point for you all is China is our second largest international market, but it accounts for just 4% of our global sales.

So there's a lot of people in China. There's a lot of feet. Our product plays really well to that consumer. The price is really well positioned in terms of where we are from a consumer standpoint. And so we've got a lot of runway internationally with both brands. Crocs is a little bit further advanced in terms of establishing some of those beachheads and kind of leading with product. But HEYDUDE was actually a company that was founded in Italy. To date, we have, I think, roughly about $60 million -- $50 million, $60 million in sales internationally for HEYDUDE.

So we don't really have a presence yet. But you can see where that is going to be strategically a step to come. And so Jon, coming back to your question, I mean I'm super excited about the international side of our business. We'll see a lot of growth coming from there in the -- both immediate and kind of midterm.

That's great. Why don't we talk a little bit more about HEYDUDE. Coming in last fall, your view of the brand, the leadership changes, the state of the business. You've also seen D2C inflect positively there. So maybe a rundown of where HEYDUDE stands?

Sure. Yes. I mean from a HEYDUDE standpoint, I think, again, for those of you maybe not familiar, acquisition that was made 3 years, I think, 3 years ago, maybe 4 years ago. And like a lot of acquisitions, there are some growing pains. And so kind of straight on after the acquisition, some really strong growth. And now we're in a position where we're kind of rightsizing some of that inventory that's in the marketplace.

And so I think there's some learnings around that. But overall, when we look at HEYDUDE, a couple of things I'd like to be top of mind, number one, if we think about HEYDUDE relative to Crocs, HEYDUDE has got a much, much larger total addressable market or TAM in terms of consumer. And so that gives us continued confidence that there is a business, a sizable business there. Number two is that HEYDUDE, even though we're in the middle of kind of a marketplace, adjustment is -- it's a $700 million footwear brand.

And again, similar to my example on sandals, there's not a lot of $700 million brand. So we're already at scale. And we're at scale in a profitable way. HEYDUDE's been profitable from day 1 and continues to be profitable for Crocs. And then third, I think where we are right now is as Jon alluded to, and there's been a few leadership changes. We've brought in a gentleman by the name of Rupert Campbell, long-term adidas executive that's driven adi from a growth perspective in a number of areas around the world, a true inspirational, operational leader in terms of marketplace and marketplace management.

And he's taking the reins, is driving, also making key investments in that team from a product standpoint, product innovation standpoint. merchandising standpoint. So really kind of building out the core of that leadership team. And then the third is within kind of the Crocs, HEYDUDE shared service ecosystem, we're really pulling the supply chains for those respective brands more closely together, number one, to gain efficiencies in reference to kind of time and speed to market. But with that also comes a significant amount of cost savings and efficiency that help us from a bottom line standpoint.

Just a follow-up on the financial implications for HEYDUDE turnaround. The brand is still declining in revenue, but you guided to less of a decline after the first quarter. And I believe you're embedding growth at some point in the second half. So just confidence getting that brand back to growth. And I won't put you on the spot, but there's some viral elements out there that -- for HEYDUDE today, could any of that help?

Sure, sure. Yes. So the plan has been kind of a sequential improvement from the back half of last year into the second half of this year. And so what we've been messaging to investors is that we want the investment community to kind of take stock in that, we're doing what we said we're going to do. And with HEYDUDE and with some of the stories in Crocs as well, we are doing what we said we're going to do.

And so if you look at the sequential improvement from a revenue perspective for HEYDUDE, we're on a multi-quarter improvement. And with that, that gives us the confidence in the second half that as we guided expectations for the year, we made a clear statement that we would return to growth for HEYDUDE in the second half of the year. That's on track. The data points and the proof points are out there, and we continue to feel exceptionally confident with that.

I think Jon's kind of like teasing me a little bit here on the virality. We had some fun controversy in HEYDUDE over the last maybe a week or so, where our shoes got banned from the -- I don't know if it was an international Hacky Sack tournament. But for those of you who've got kids of a certain age, Hacky Sack is back in a big way. And there's some tournaments going on. And apparently, some of our shoes are designed in a way that given unfair advantage, we didn't design them like that.

That's just kind of an outcome. But we're seizing on the moment in a way that Crocs Inc. is really good at seizing on viral moments, and it's making a fun kind of play in terms of being banned from Hacky Sack tournament. So we're just having a little bit of fun with it. But it's all really pointed at kind of keeping the brand top of mind for our consumers. So it's been a little bit of fun over the last week or so.

I can only imagine the ideas that Terence is formulating some of the potential there. Maybe spending a minute on the 2026 guidance. I mean your guidance raise after the first quarter stood out in light of uncertainty with the Middle East and freight and tariffs and health of the consumer. So just talk about the visibility you have for 2026, the key assumptions and the confidence to raise the guidance after the first quarter?

Yes. It's -- I mean you're right to say there's a lot going on from a macro standpoint right now. And we fully contemplated all of that in terms of our guide. And so for the folks that are maybe not as familiar with the story, some of the headwinds that we see in that space are, one, obviously, with the Iranian conflict, we had our distributor stores in the Mid East, many of them shut down, some of them partially operating.

And so we've constrained the flow of inventory into those markets. So that has a direct impact, but that was fully contemplated in terms of the guidance that we raised. The second component of that is like most all other companies, we're seeing some headwinds from a distribution logistics perspective in terms of fuel prices, both outbound, inbound. Those aren't super significant. We don't expect them to be super significant from a 2026 standpoint, but we're monitoring it.

But this -- for me, it falls under kind of the work that we have to do. The world isn't getting any less dynamic or less chaotic. These shocks to the system seem to be coming -- they used to come like once every 3 or 4 years, then once every couple of years. Now it seems like they happen every couple of months, if not weeks. But from a management team standpoint, we pull that responsibility close to ourselves.

We view that as the things that we've got to solve and not really kind of [ harping on, oh, woe is us, ] we've got another headwind. We just got to go out and solve it. And so that's kind of how we position ourselves from a resiliency and an agility standpoint. And we're really confident that as we continue to go, we don't go forward. We don't know what the next thing is going to be, but we know there's going to be the next thing, and we'll respond to it.

Sticking with margin a bit. I get asked often how Crocs' gross margins are so high. So maybe you could start there about some of the structural gross margin drivers. And then really for 2026, you've embedded slight operating margin expansion. So include some discussion around the cost structural changes you made and how that's flowing through.

Yes. For us, our profitability, which is really kind of best-in-class from a peer set standpoint, it all starts with product and kind of our price-to-value equation with our consumer. And so with that and how we're able to engineer, produce at scale our product, we're in a position that we've got really healthy product margins. And so it kind of all starts there.

And so you heard me earlier in kind of our time together talk about the importance of product innovation. First, important to innovate on behalf of the consumer, but it's also equally as important for us to innovate profitably on behalf of the consumer. And so we're always obsessing what that price-value equation looks like and then how that relates to our product profitability. And so it starts there. Then as we look down through the P&L, there's really 3 areas that we prioritize from an investment standpoint that we protect. And so those are, one, product innovation. I've hit that pretty hard, so I won't go deeper into there.

Second is marketing. We talked about that a little bit earlier. It doesn't do us any good to tell or develop great product without telling the stories. We've got to educate the consumer in terms of what we're bringing into the marketplace. So very focused on that. And then the third is continuing to invest in our supply chain. And so those 3 areas are the ones that really get the outsized investment. And then as we look across the rest of the P&L, that's where we try and are very, very successful at driving efficiencies to keep our operating margins in a very healthy space. And then you see that translate into, obviously, our cash flow generation, which is best-in-class.

And to follow up, I know you took out some costs at the start of the year. Just talk about how those are flowing through, how that impacts your ability to leverage at moderate top line growth here?

Yes. So really 2 cost savings initiatives. One -- well, both kicked off in 2025, initial $50 million earlier in 2025 and then a second $100 million exercise that was later in 2025 and continues into 2026. And really, what it's focused on is just being a leaner, more efficient Crocs. Some of that -- well, number one, all of that's been identified and actioned. So that's like check the box.

The second component of that is that we'll drop some of that to the bottom line. We'll reinvest some of that in the business. And we're also looking for additional opportunities to continue to reinvest. And so it's just -- it's another example of being able to quickly and nimbly adapt to bring a little bit more efficiency into our P&L without sacrificing and actually prioritizing the investment that we make in product innovation, marketing and supply chain.

Not to save one of the better topics for last, but in the last few minutes, maybe talk about the cash generation, the capital allocation strategy. You're at the lower end of your target net leverage ratio. So how much cash you're going to generate here? And what are you going to do with it?

Yes. So we've got a very powerful cash generation machine, and it starts really with the profitability of our products. This is an area that I don't feel like we get enough credit from an investor standpoint. We're trying to communicate this more effectively. But I think what's happened over the years is over the last few years, a lot of our cash generation has gone to pay down the debt associated with the HEYDUDE acquisition.

And so it was kind of like cash that was being deployed, but obviously, in a way that wasn't really returning value to shareholders at that point in time. We're now in what I call kind of the Goldilocks zone of our leverage. We don't have too much. We don't have too little. I feel really good about where we are as a consumer company with the level of leverage we have. We're at the lower end of our target of 1 to 1.5x. So we feel great there.

And so what we've been able to do over the last 6, 12 months or so is aim the power of that cash generation to truly returning value to shareholders through buybacks. And so over the course of the last year, we bought back roughly about 10% of our outstanding shares. We are positioned to be aggressive in the space in 2026. We don't formally guide our buyback program, but we've been aggressively in the space post Q1. And so it's something that is looking at our stock and personally believing it's a buy and that we're undervalued, we'll continue to be in the space.

I couldn't think of a better way to end. Patraic, thank you. I think you've covered a lot of ground, and I appreciate you being here today.

Great. Thanks, Jon.

Patraic will be with us over in the Aster Suite for a few minutes afterwards for a breakout session. If you could all join me in thanking Crocs [indiscernible].

Good day, and welcome to the Crocs, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Abigail Ritter, Investor Relations and Strategic Finance for Crocs, Inc. Please go ahead.

Good morning, and thank you for joining us to discuss Crocs, Inc. First Quarter 2026 results. With me today are Andrew Rees, Chief Executive Officer; and Patrick Regan, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask you limit to lumber caller. Before we begin, I would like to remind you that some of the information provided on this call is forward-looking and accordingly is subject to the safe harbor provisions of the federal securities laws. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially.

Please refer to our most recent annual report on Form 10-K, quarterly report on Form 10-Q and other reports filed with the SEC for more information on these risks and uncertainties. Certain financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. All revenue growth rates will be cited on a constant currency basis, unless otherwise stated. At this time, I'll turn the call over to Andrew Rees. Crocs Inc., Chief Executive Officer.

Thank you, Abby, and good morning, everyone. Thank you for joining us today. We delivered a better-than-expected first quarter fueled by broad consumer relevance for both of our brands. Patraic will discuss our quarterly performance in more detail, but first, I will share a few financial highlights and a review of our brand strategies. For the first quarter of 2026, we delivered better-than-expected Enterprise revenue of $921 million with a cross-brand down 2% and HEYDUDE brand down 13% as we work to return both of our brands to growth. Healthy direct-to-consumer growth, including Crocs brand up 11% despite pulling back on promotional activity and HEYDUDE up 8% despite lower performance marketing spend. International revenue for the Crocs brand was up 7% on a reported basis, consistent with our expectations despite an unanticipated impact of the war in the Middle East.

Best-in-class inventory management with total footwear units down high single digits and overall inventory turning up more than 4x. Our powerful value creation model continues to support meaningful return of cash to shareholders in the form of repurchases. With second quarter repurchase is now underway. To date, we have bought back 800,000 shares.

Now turning to a discussion by brand and starting with Crocs. We had a strong start to the year as consumers responded positively to product newness across all categories. We continue to make excellent progress against our 5 strategic pillars. First, we are driving brand relevance globally as the cloud market share leader. During the quarter, our focus clog franchises, Crocband, Crafted and Echo performed well enabling diversification of our overall cloud portfolio. The reintroduction of Crocband has been well received with strength seen across channels, colors and iterations -- the crafted franchise is building globally and consumer response has been strong with canvas and floral embroidery uppers. We continue to scale our existing Echo franchise with new CRO colorways and expanded distribution. Within our Classics franchise, we are prioritizing maintaining tight inventory control and driving further segmentation across our key partners in North America.

Second, we are scaling our product pillars outside of clogs through new category expansion. Our sandal business started the year off strong, and we expect this pillar to approach $0.5 billion in revenue this year, up double digits from 2025. Our 3 core style franchises, Getaway, Brooklyn and Miami are capturing incremental shelf space and winning with consumers. Earlier this spring, we introduced our personalizable 2 strap Saturday saddle across channel and saw exceptional response from both consumers and retailers.

Moving beyond sandals. We launched the classic Vale flat, we saw a notable sellout globally. In response, we're chasing supply, and we further strengthened our assortment within this trending style. Momentum was further amplified by our first quarter Love Shack fancy collaboration was sold out completely. Our broader personalization pillar saw a standout performance within bags and accessories during the quarter, led by the Disney collaboration featuring Mickey Mouse on a number of products.

We also saw continued strength in elevated EBIT during the quarter. Third, we are fueling consumer engagement through disruptive social and digital marketing. In February, we kicked off a multiyear global partnership with the LEGO brand by launching the highly disruptive LEGO brick clog, which quickly became one of our best-performing partnerships on social media, and drove significant consumer engagement and digital traffic. Also in February, we released Charm to meet you, our first micro drama miniseries on real shorts a platform where Gen Z consumers are increasingly spending time consuming bite-size content.

The launch drove over 10 million views, reinforcing our ability to engage with consumers through bold, innovative and disruptive channels. Fourth, we continue to create compelling consumer experiences across all channels. Beginning with social commerce, we're continuing to scale and deepen our consumer touch points across both digital and social. In fact, Crocs was recently awarded top seller of the Year on TikTok shop for 2025, underscoring our ability to continue to reach consumers on their preferred social channels. In March, we activated at the NBA All-Star week and introduced our updated Echo Clog, the Echo 2.0, a key second half product launch this year.

We also released the Ripple Boillet designed to engage the sneaker community through a number of events from complex icon in Hong Kong to our SoHo store in New York City. Globally, we continue to expand our presence on TikTok shop as this is a critical social selling platform over the medium to long term. During the quarter, we scaled meaningfully in the U.K. and Malaysia, and looking forward, we were launching in Japan landing Crocs as a first major footwear brand on the platform in the country.

Fifth and finally, we're continuing to gain market share across the world in our international markets. In the first quarter, we saw broad-based strength across our Tier 1 markets, led by direct-to-consumer channels. We saw outsized growth in our high-priority markets, China, India, Japan and Western Europe. In China, we hosted our first ever super brand day on Doyon, which not only outperformed our expectations, but also drove strong consumer touch points through celebrity live streaming. In India, performance was led by growth in our digital traffic stimulated by let them talk campaign, which introduced the CORO for a local cricketer and celebrity KL Rahul.

In Japan, performance was driven by strengthening brand presence in Tokyo retail with high consumer affinity for personalization in our DTC channels. Lastly, Western Europe saw notable growth across the U.K., France and Germany led by digital marketplace performance. Sandle started the year strong in the region, and we see meaningful opportunity to scale this category going forward. During the quarter, we opened approximately 40 monobrand stores in kiosks, including 6 owned and operated stores internationally. To strengthen our international opportunity further on April 1, we converted our Malaysia distributor business to a directly owned and operated, which resulted in the absorption of 21 highly productive retail stores. We see this as an opportunity to take further share in this vibrant market in 2026 and beyond.

Now turning to HEYDUDE. The first quarter came in ahead of expectations tied largely to outperformance in DTC and despite a significant reduction in performance marketing spend as we continue to deliver against our 3-pillar strategic plan. First, we are building a community laser-focused on our core consumer. During the quarter, we launched several relevant collaborations, including our partnership with the Houston Rodeo. This was supported by retail presence at the rodeo for the third consecutive year as we continue to drive authentic connections with our core hatred consumer. In addition, we released collaborations with Chevy, Jelly Roll and erode, while accelerating the growth of our HEYDUDE community through scaling social commerce.

In fact, during the quarter, HEYDUDE received the top growth seller of the year award on pick-up shop and not to the progress and commitment we've made to scale the strategic channel. Second, we are building the core and thoughtfully adding more. We're building our leadership within the slip-on category, led by our icons, the Hale and Wendy. Stretch stocks continues to drive our core business, and we are seeing momentum building in our newest stretch Jersey franchise. This style, which we formally referred to as a T-shirt for your feet, launched in all channels during the quarter and outperformed expectations.

As we look into spring, we're seeing our sandal business start to gain material traction with key highlights, including the Maui Breeze franchise and sandal extensions of some of our already successful lines, the Austin slide and the [indiscernible] flip. Beyond sandals, we continue to see strong response to our work offering led by the Wall Com to, and we are excited to expand further into this category as we move throughout the year. Third, we are focused on stabilizing the North American marketplace. Our first quarter outperformance signals a meaningful step in our journey to return the brand to growth in the back half of this year.

During the quarter, direct-to-consumer revenues increased 8%, led by strength in digital marketplaces. Wholesale declined as anticipated, while we remain laser-focused on managing our in-channel inventory levels. Wholesale sellouts are still below our aspirations, improved sequentially versus the fourth quarter. Importantly, we're receiving positive feedback from our key partners around new products like our H2O work and sandals offering as well as our core products like stretch good franchise and new introductions of our stretch SOX platform.

Turning back to the enterprise, I wanted to address the conflict in the Middle East as it relates to our business. As of today, it's too early to fully quantify the impact However, we see this affecting Crocs in 3 ways: one, reduction of revenues from our Middle East distributor business, which has been contemplated within our annual guidance; two, increased raw material and transportation costs associated with elevated oil prices; and three, a broader impact to the global macro economy, which is uncertain at this time. Patraic will speak to our guidance later in the call. which we feel prudently captures the current environment to the best of our ability.

Before concluding, I wanted to highlight the publication of our 2025 [indiscernible] comfort report being released today. This annual report highlights our commitment to and progress against our is to create a more comfortable world for all. To conclude, we are focused on executing our near-term initiatives to drive diversified growth across both brands, DTC and wholesale as well as domestic and international markets. We believe we have compelling strategies to grow both brands enabled by a clear consumer focus, innovative product and marketing and our global go-to-market capabilities. I will now turn the call over to Patriac.

Thank you, Andrew, and good morning, everyone. During the quarter, we made continued progress against both brand strategic initiatives, which I'm confident will continue to lay the groundwork for sustainable long-term growth. We're off to a good start in 2026 and finishing Q1 slightly ahead of our expectations on both the top and bottom line. And while we're encouraged by the positive start to the year, we recognize work remains to return the business to growth. Now let's move to our results. For the first quarter, we delivered Enterprise revenue of $921 million, down 2% to prior year on a reported basis or down 4% on a constant currency basis. Our results were led by the direct-to-consumer channel for both brands as consumers responded favorably to new product offerings across categories. This was offset by planned wholesale declines as we continue to optimize and manage this channel for long-term profitable growth.

For the quarter, Crocs brand revenue of $767 million was down 2%. Results were led by our International segment, up 7% on a reported basis, including strength in China, India, Japan and Western Europe. North America was down 6% and including DTC, up 5% despite a meaningful reduction in promotional activity, offset in part by wholesale declines. The HEYDUDE brand delivered revenue of $154 million, down 13% the prior year. D2C was up 8%, driven by outsized digital marketplace performance and new store opening contributions. Notably, this growth was delivered against a continued lower level of performance marketing spend, thus driving higher profitability.

The wholesale channel was down 26% as we continue to carefully manage our inventory to sell-through levels consistent with our return to growth plan. I'll now move to adjusted gross margin. Enterprise adjusted gross margin of 56.9% was down 90 basis points to prior year, driven by 100 basis points of incremental tariff impact as well as product mix, offset in part by brand mix. As Andrew mentioned, we saw accelerated success in our new product offerings in both brands. This success is an important driver of top line performance and is key to our diversification strategy. As a reminder, select new products come with slightly lower product margins. Crocs brand adjusted gross margin was 59.5%, down 120 basis points and HEYDUDE brand adjusted gross margin was 44.5%, down 210 basis points.

Moving to expenses. Adjusted SG&A dollars were flat to prior year as we recognized a partial benefit from our 2025 and 2026 cost savings initiatives, offset in part by choiceful direct-to-consumer channel investments aimed at driving revenue. Adjusted operating margin of 22.3% was down 150 basis points to prior year. This excludes $5 million of specific costs related to the implementation of our cost savings initiatives. Adjusted diluted earnings per share of $2.99 was ahead of our expectations and flat to prior year, and our non-GAAP effective tax rate was 18%. Now turning to a discussion of our strong balance sheet and exceptional cash flow. We ended the quarter with $131 million of cash and cash equivalents and over $800 million of borrowing capacity on our revolver. Our inventory balance as of March 31 was $398 million, up 2% to prior year, including the impact of higher tariffs.

Inventory footwear units were down high single digits to prior year, reflecting our actions to manage inventory flow into the marketplace. Enterprise inventory turns were above our goal of 4x on an annualized basis. While we ended the quarter with $747 million remaining on our existing share repurchase authorization, our powerful value creation engine has enabled our second quarter repurchases to be underway. Quarter-to-date, we have repurchased 800,000 shares for $74 million, and we continue to deliver against our commitment to return meaningful cash to shareholders. Net leverage ended the quarter at the low end of our target range of 1x to 1.5x.

Now moving on to our full year 2026 outlook. Based on our better-than-expected first quarter results, we now expect enterprise revenue growth for the full year to be up 1% to down 1% on a recruit basis, assuming currency rates as of April 27. The our updated guidance also reflects the country-specific impact from the war in the Middle East as well as related pressure from elevated distribution and logistics costs. Moving on to revenue guidance by brand. For the Crocs brand, we continue to expect revenue to be flat to up 2%, led by international growth and offset in part by declines in North America. Our guidance continues to anticipate direct-to-consumer outperforming wholesale globally as evidenced by our first quarter results. For HEYDUDE, we now expect revenue to be down approximately 5% to 7% and an improvement from our previous guidance of down 7% to 9%.

This revenue range embeds our increasing confidence in both direct-to-consumer and wholesale channels returning to growth in the second half of the year. We continue to expect adjusted gross margin for the year to be slightly up versus last year despite the impact of tariffs, which are partially offset as a result of cost-saving initiatives, primarily in our supply chain. Adjusted SG&A dollars are implied roughly flat to prior year, in line with our prior guidance as we recognize the benefits of our previously announced cost savings programs while also investing in growth drivers for the business. Taken together, we continue to expect adjusted operating margin to expand modestly from the 22.3% level we reported in fiscal year 2025. This excludes approximately $25 million of nonrecurring costs.

Moving to tax. We expect the underlying non-GAAP effective tax rate, which approximates cash taxes paid to be 18% and the GAAP effective tax rate to be 23%. We are raising our expectations for adjusted diluted earnings per share to be in the range of $13.20 to $13.75. Consistent with our previous guidance policy, this range does not assume any impact from future share repurchases. For the year, we continue to expect capital expenditures to be in the range of $70 million to $80 million. Regarding capital allocation. As I highlighted earlier, we are committed to, first, investing behind both of our brands to fuel long-term growth. And second, returning our significant free cash flow to shareholders through share repurchases.

Now turning to our second quarter outlook. For the second quarter, we expect revenues to be down slightly at currency rates as of April 27. Within this, Crocs brand revenues are expected to be up 1% to 3%, and HEYDUDE revenues are expected to be down 12% to 14%. adjusted operating margin is expected to be approximately 24.7%, which embeds adjusted gross margin down approximately 150 basis points to prior year, driven by the impact of tariffs consistent with the commentary on our last call. Adjusted diluted earnings per share is planned to be in the range of $4.15 to $4.35.

Finally, before closing, I want to provide an update on the February Supreme Court rulings on tariff refunds. While we believe we are well positioned to collect refunds on the incremental tariffs we paid in 2025 and into this year, we have not currently embedded any upside from this within our guidance. To close, while we are pleased that our first quarter results exceeded our expectations, we continue to remain focused on managing the business for long-term profitable growth while generating and deploying our exceptional free cash flow enabled by our best-in-class value creation model.

At this time, Andrew and I are happy to take your questions. Operator?

[Operator Instructions] Jonathan is your line you

Can you hear me? .

Yes. .

Okay. Andrew, could you talk more about the recent trends you're seeing in sell-through for the Crocs brand in North America in both channels and how are you thinking about D2C and particularly looking forward here? And do you see any risk that momentum slows as you get past the core sandal season? And then, Patriac, just more broadly, the financial outlook as you get closer to the embedded second half ramp in revenue and profitability. Just can you highlight the factors that are giving you confidence in the second half projections here?

Thank you, Jonathan. So let me kick that off. So I think -- look, I think the biggest and most important thing, I'll address it for Crocs, but it frankly is also true for HEYDUDE, right? -- is newness -- the consumer is responding to newness. As we've introduced newness, and I'll keep my comments focused on Crocs for a second, and I'm sure we'll get to HEYDUDE we've introduced units in sales, in clogs. And I think we talked also in our prepared remarks around Vale flat and other styles. We definitely see the consumer responding. We see them responding here in North America with accelerated demand and strong sell-through. And frankly, we're also seeing response for the Crocs brand and those same new products in many of our international markets. So I think that gives us some strong underlying confidence. And I would emphasize, as you kind of alluded to your question in your question, some of that newness is in Sandel, but some of that is outside of sandel. It's in Crocs and it's in other silhouettes. So I think that's really important. I also think from a relative -- from a DTC perspective, we're also continuing, as you would hope any company would continue to get better about how we execute our DTC business, whether it be

[ Audio Gap ] [indiscernible]

At least embedded in our base. And so as we think about second half and as it relates to tariff, while not providing any guidance specifically right now, I mean, how you can think of it as a high level is that if we get some good news related to tariff from the administration, we'll have a bit of tailwinds if we get more challenging news in terms of escalation then we'll have a little bit of headwinds. And I think the more important thing around this is that everything that we know today that is included within tariffs and is embedded in our outlook is embedded in our guidance and as we continue to see more clear direction coming through, we'll update and make sure that we're providing clarity to the investment community. Hopefully that answers.

And the next question comes from Kendall Toscano with Bank of America.

So the return to growth in North America, D2C for the Crocs brand was obviously a very positive surprise. It sounds like a lot of that was driven by a strong response to new product offerings. But curious now how you're thinking about the balance of the year and whether that level of growth, 5% for North America D2C is something that continue -- could continue.

Yes. I mean what I would say, Kendall, we're obviously not guiding channels by country, et cetera, in terms of giving you specific numbers on that. But what I would say is, look, I think the underlying drivers of that performance, and we agree it was great to see it as an important signal of what we're doing as a brand from a product marketing and distribution perspective, an important signal that it's working. We feel like that they're at the fundamental level and should continue, right? So the drivers of the DTC performance, as I kind of alluded to in an earlier question, we're I think introduction of newness and it's broad-based newness. It's Crocs, it's candles, it's new products, it's personalization, it's accessories. And we do believe that DTC will continue to outperform wholesale. And I think there is also some element of effective execution within that as well, right? So we feel good about it. We think it's an important signal, and we hope it continues, but we're not providing specific guidance at that level.

Got it. Okay. That's helpful. And then other question was just on gross margin. And the third quarter came in down 90 basis points versus the expectation for flat year-over-year trends. It sounded like the tariff headwind came in in line with the 100 basis points that you expected. So curious what kind of drove the downside. Was it all in relation or was it mostly in relation to new product offerings you called out carrying a lower gross margin? And if so, how should we think about the impact of that for the remainder of the year?

Yes, Kendall, it's a bit of that, and let me elaborate just a bit. So I think, first and foremost, we were really happy with Q1 performance in both brands. And a lot of it really goes back to talking through what we discussed earlier in terms of new products and the green shoots that we're seeing and consumers responding favorably. As it gets into the gross margin results for the quarter, there's really two components that were driving that. Number 1 is new product mix as you alluded to and important from a strategic standpoint and I want to make sure that I emphasize this extremely important from a strategic standpoint as we execute on our diversification strategy that new product is hitting for us.

From that, we can start to look into profitability of new product, et cetera, over the longer arc of time. But first and foremost, from a growth standpoint, important that we're landing from new product and innovation perspective. And so that turned out to be a little bit more headwind than we thought it was going to be when we planned the quarter but not necessarily a bad thing. The second component is related to brand mix. And so during the quarter as it relates to what we thought 90 days ago, we saw the dude brand outperform our expectations in the quarter which, again, although a drag on gross margin rate within the quarter, it is very much aligned in terms of our return to growth strategy within HEYDUDE and gave us the confidence to actually raise our guidance on ad revenue growth for HEYDUDE the balance of the year. So as you think about the 2 key components of the margin performance versus what we talked about last in our last quarter call, those are the 2 key drivers in the quarter.

The next question comes from Tom Nikic with Needham..

I wanted to follow up on North America wholesale. And I recognize that you're not guiding by channel, geography, et cetera. But Obviously, it's been negative for quite a few quarters in a row. And I think by the end of this year, depending on how the rest of the year shakes out, it will be something like 30% below peak. But do you feel that given some of the improvements that you've seen in the DTC business that potentially you've got line of sight into the North America wholesale business stabilizing, potentially over the near to medium term?

Yes. So I think the short answer is yes. right? So we feel like the North American wholesale business is exactly where we expected it to be at this point in time, right? So the work that we've been doing with our partners in the channel is, I would say, moving along exactly as we thought it would, which is rightsizing inventory in the channel, making sure that inventory is turning at the appropriate rate, introducing newness, whether it be sandals, clogs or other styles. And then also working with them effectively on what they're going to prebook and making sure that we have kind of appropriate inventory to be able to capitalize and maximize that once.

So we think it's playing out exactly as we thought it would. And the short answer is, we definitely see it stabilizing. And as we continue to build the brand, diversify the brand and provide more and more reasons for consumers to purchase. We're quite confident we can grow the business for Crocs in North America.

The next question comes from Brook Roche with Goldman Sachs.

I wanted to follow up on Rick's question on the Middle East. Is there any way you can unpack your expectations for input costs if higher oil prices persist if oil remains at this level, how long would it take you to begin to see those higher product costs flow through the P&L? Can you frame the magnitude of the potential cost headwind that you might see and then lay out the key levers that you're thinking about to pull to protect profitability? How important would price be in the situation relative to other levers of opportunity .

Okay. That's a very detailed question, Brook. So -- and we're not going to provide all that detail. So -- but we can give you some qualitative input that hopefully helps you to understand it a little bit, right? So -- what I would say is that absolutely, the high oil prices for a sustained period of time does provide some upward cost pressure to the resin component of the business. I actually probably might point you to transportation as a bigger cost pressure to be quite honest. Because if you look at transportation, both in and out, I think that's potentially a bigger impact.

But I would say we have a very well diversified supply chain, sourcing engine, transportation, contracts, relationships, et cetera, we're very well equipped to manage this. There are some components that will provide upward cost pressure. But I would also say we've been extremely proactive over a couple of years -- a number of years now, and we'll continue to be proactive about looking for opportunities to save cost in our supply chain, whether that be cost of goods based on country of origin, whether that be tariff optimization due to tariffs -- differential tariffs by country whether that be investing in automation and robotics within our DCs. We have lots of strategies to mitigate cost. So what I would say is I think Patriac mentioned earlier, we've kind of baked all of that into the guidance we're providing, and I think we're well able to manage this.

Yes. Brook, just to kind of add on to Andrew's comments, as you said, at the tail end, everything that we know today has been fully contemplated into our guidance, which is why we alluded to it in prepared remarks. And I think the other thing to think through is as we've gone through the last year in terms of leaning into our agility, flexibility within how we manage the business. We've now got a track record of being and having very demonstratable success in terms of squeezing out efficiencies within both supply chain and within SG&A. And so while we don't necessarily want to be leaning into those areas based on what's happening in the Middle East, we know that we can. And so I think we're in the same boat as a lot of other companies where we're anxiously waiting to see what happens over the next 30, 60, 90 days or so. And we'll continue to adjust accordingly. So -- but I think the big message here is that all that we know today is reflected in our guidance for 2026.

And the next question comes from Anna Andreeva with Piper Sandler.

Great. Thank you and good morning. We wanted to follow up on international wholesale at Crocs. It's come in softer for the past couple of quarters now. And you guys have mentioned controlling the sell-in. Can you just elaborate on that -- is there any door rationalization that's taking place internationally? And just how should we think about the progression in this channel in '26? And then just a follow-up on gross margin. Should we expect the Crocs brand to continue to pull back on promotions in DTC, you will lap the beginning of those actions. I believe next month. Obviously, a lot of the newness you guys talked about that's resonating. So just additional color on that. .

Yes. Yes. Thanks, Anna. So what I would say about our kind of Crocs international business is it remains very strong, right? So our overall across international business, we see growing strongly for the remainder of the year. And frankly, we see a multiyear pathway for continued growth in our significant international markets. I was just recently in both Japan and China. I'm really pleased with how our brand is performing in those markets, and we highlighted that in our prepared remarks, very strong growth in both of those markets and obviously, 2 of the largest international markets. DTC growth has been stronger than wholesale. And some of that is a result of the countries where we're seeing the most growth because some of the countries where we're seeing the most growth rely on a DTC driven distribution model and have very strong digital penetration.

The consumers have -- the overall digital penetration is really high in those markets. And in most places where we're operating on digital, we manage that ourselves and the DTC revenue. I think the wholesale business has been exactly on track with where we expected. It was one exception. We do see impacts from the Middle East, right? So our business into the Middle East, it is a distributor business. There was a wholesale sale for us. So that's a drag. It was a small drag and that it will be a drag through the remainder of the year, and we've anticipated that and built that into our guidance. And then -- so I think those are the things I'd probably highlight from an international perspective, okay? I'll let Patriac address your additional question on gross margin.

Yes. From a gross margin standpoint, as it relates specifically to promotional cadence and overall promotionality. And what we're seeing in -- maybe more broadly in the marketplace is we're still seeing that the consumer is stressed in that retailers are leaning into promotions is a way to drive both traffic and sales. Now as it relates to us, slightly different in terms of where we are. So as we think back to second half of last year, we made a conscious decision in really both of our brands to pull back on discrete promotional components within both Crocs and HEYDUDE. We are still on that journey as we kind of go through the first half of this year. We expect it as we get into the second half of the year that will continue to kind of function at a more, what we call, normal level of promotionality, which is what we're executing on today.

And so I think the way to think about it is we've been on this journey, which is a multi-quarter journey in terms of pulling back second half -- we also feel that effect in the first half of this year, which also has an impact on revenue compares on a year-over-year basis, and we'll start to see that more normalized as we get into the second half of of this year.

The next question comes from Peter McGoldrick with Stifel.

Andrew, you discussed consumer resilience in Europe, Asia and North America despite Middle East disruption -- and in the past, you've given some really helpful commentary around the consumer backdrop. So -- this commentary sounds like things are holding up better than anticipated. So I'm curious if you could tell us how the consumer backdrop has evolved to today? And what's embedded any changes that are embedded in the outlook, if any?

Yes. Thanks, Peter. Yes, I think what I said, and I'll just reiterate that. We don't -- I wouldn't say resilience is quite the right word. I said -- we don't see a discernible negative trend. It's probably the way I would say it, right? So given that, I think how our potential to succeed to do well, to drive sales and profitable sales. I think is good, right? So we -- in an environment when the consumer is not discernibly negative. We believe we offer incredible value to the consumer. We have a great roster of new product introductions that are clearly gaining traction with the consumer. And if we offer them a great value, a compelling new product, new colors, new colorways, new augmentations, the ability to personalize their products, we can get them to transact and purchase.

So we do feel good about that. I think sustain $120 oil does provide a drag, a differential drag on some different markets. I think the ones that we are most concerned about or thinking a little bit -- I would say, observing closely would be kind of Western Europe and some parts of Southeast Asia, where we see governments putting in place some degree of energy control measures. So what I would say is that, look, I do appear to be holding up, right? We see that here in North America. We see that in many of our markets. and we continue to succeed. So I think we're focused on doing what we need to do to succeed in this consumer environment.

The next question comes from Ari Tanello with BNP Paribas.

I wanted to follow up on Crocs International. Is the 10% revenue growth for the year that you guided to 90 days ago still the right way to think about it? And then what does guidance assume in terms of FX, I think it was about 100, 120 basis point benefit at the enterprise level last time you guided.

Yes, I'll take that question. So let me just kind of level it up a little bit to -- on the international basis. So international is -- as we continue to talk about is a key strategic pillar for us. It's a key growth area for us. And within 2026, it will be the first year that Crocs Inc. is predominantly an international-driven company. So our revenues will be slightly more international this year for the first time than North America, and we feel great about that. From an international perspective, before I get into guidance, I just want to also just reiterate that we feel like we had a really strong quarter from an international perspective. When we think about our growth countries like China, Japan, et cetera, we're double-digit growth in our key Tier 1 countries. So we continue to see and believe that we've got a lot of white space in those areas.

As it relates to guidance, I think roughly about a quarter ago, we guided to 10% and -- and we're -- I would say that we're still very much in the high single digits to approaching 10% within international. The only area that I would say has given us a little bit of friction is what Andrew alluded to earlier is Middle East. And I think that's how we're thinking about it. So we're very bullish on international and continue to be bullish. The other example I would say just from a quarter standpoint is you see our continued commitment in terms of the take-back of our Malaysia distributor business. And I was actually in the market towards the end of last year, and you've got to see a number of the over 20 stores that come with that take back and we're really excited about this, very productive, very profitable business in an area of the world that has got a high affinity for Crocs. And so I think if you think about those few components, Peter, we feel really good about where we are. And as it relates to finally in terms of where we are today versus 90 days ago. The FX is slightly worse, but it's not impacting our guidance and outlook on the year in a meaningful way.

The next question comes from Janine Stitcher with BTIG.

Just on the flat SG&A dollars guide, that includes the cost saving program. Maybe speak to some of the areas you're reinvesting in and some of the benefits you're seeing and then how we should think about your willingness to reinvest more if you see a return? Or on the flip side, are there areas where you could still pull back? And then on wholesale, you talked to your retail partners doing more at once. Maybe just speak to your supply chain flexibility in the case that there is more demand on your ability to meet that?

Yes. So what I'd say, so I think the most important thing from an SG&A perspective is the a couple of different rounds of cost-saving initiatives that we've talked to you about have all been completed, right? So we have attained those cost-saving goals -- some of those are in SG&A, and some of those savings are in are in cost of goods or in COGS relative to go up in gross margin. So we've achieved those cost savings. That has given us some flexibility as we go into the year to invest in some critical areas. Those areas are generally some of our DTC capabilities, whether that be physical stores or more likely -- or more importantly, sorry, digital selling.

So we're investing in in a higher proportion of DTC sales, which carries more SG&A. And -- but also carries some strong gross margin and strong operating profit. We're also investing in marketing for both brands to make sure that we create future demand for a lot of those new product introductions that are working. So I think -- and in terms of supply chain flexibility, look, I think this is a bit of a balancing act. We're really good at managing our inventory and managing our supply chain. We keep lean inventories, which I think is an overall strength for the company. It allows us to flow a lot of our operating profit through the cash flow and use that to reward shareholders. And -- but we do also try and forecast some of our newer products and best-selling items to have some backup inventory to lean into at once.

And frankly, that's on both brands. I think our entire conversation this morning has been on cross. Nobody's asked a single question about HEYDUDE those capabilities apply to both, and we are able to capture some nice additional business based on our at-once performance.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you. I would just like to thank everybody for their great questions, their attention and their interest in our incredible companies. So much appreciate it.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Crocs, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Erinn Murphy, Senior Vice President, Investor Relations and Strategic Finance for Crocs, Inc. Please go ahead.

Good morning, and thank you for joining us to discuss Crocs, Inc. fourth quarter and full year 2025 results. With me today are Andrew Rees, Chief Executive Officer, and Patraic Reagan, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask that you limit yourself to one per caller.

Before we begin, I would like to remind you that some of the information provided on this call is forward-looking and accordingly, is subject to the safe harbor provisions of the federal securities laws. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially. Please refer to our annual report on Form 10-K filed with the SEC for more information on these risks and uncertainties.

Certain financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. All revenue growth rates will be cited on a constant currency basis, unless otherwise stated.

At this time, I'll turn the call over to Andrew Rees, Crocs, Inc. Chief Executive Officer.

Thank you, Erinn, and good morning, everyone. Thank you for joining us today. 2025 ended on a strong note, as we reported a better-than-expected holiday season, fueled by new products and authentic consumer connections. Our powerful value creation model drove strong free cash flow, which we return to shareholders in the form of repurchases and debt paydown. We continue to invest thoughtfully and strategically behind our brands in support of building an even stronger foundation to fuel long-term profitable growth.

For the full year of 2025, we delivered revenue of over $4 billion with approximately $3.3 billion from the Crocs Brand and $715 million from HEYDUDE. Crocs Brand grew for the 8th consecutive year. International revenues, which comprise almost half of our Crocs Brand sales grew double digits. Direct-to-consumer was over half of our Enterprise revenue and grew faster than our Wholesale business. Strong free cash flow generation of $659 million enabled us to pay down $128 million in debt and buyback approximately 6.5 million shares for $577 million representing approximately 10% of our shares outstanding.

Before going further into 2025 highlights, I would like to start by taking a moment to reflect on a milestone we recently achieved. Earlier this week, on February 8, we surpassed the 20-year mark as a public company. Since our IPO, we've established ourselves as a world leader in innovative casual footwear for all. In addition to creating one of the greatest and most recognizable icons of our time, the Classic Clog, we have built a powerful and defensible business model that is increasingly diversified across brands, products, channels and geographies with distribution in over 85 countries. We have emerged as a disruptor in social and digital marketing and commerce, while building strong communities of loyal brand fans.

In the last 20 years, we have relentlessly served our consumers, selling approximately 1.5 billion pairs of shoes, while delivering 14% sales growth on a compound annual growth basis. Our high margins and cash flow generation give us great flexibility to continue to invest in and grow our business while returning a considerable amount of cash to shareholders. Since our IPO, Crocs shares have generated a total shareholder return in excess of 700%, almost 2x that of the S&P 500 over the same period. While I'm exceptionally proud of these accomplishments and the way we have consistently show up for our consumers, I'm even more energized for what I believe lies ahead for our company.

We will continue to build on our promise of creating a more comfortable world for all, through driving innovative casual for and personalization at scale across our two uniquely positioned consumer beloved brands. Our diversified revenue streams today are powerful, and we have already built multibillion dollar-plus revenue pillars. In fact, our Digital, International and non-clog product categories each represent a revenue stream in excess of $1.5 billion, which we see as compelling drivers for future growth. We will attack the next 20 years with ambition, decisiveness and agility and stay on the offense by leveraging our product innovation engine, our social disruptive marketing and multichannel distribution.

Now turning to the Crocs Brand. We had a strong holiday season with positive consumer response to our new product introductions. International grew double digits, and sales in North America outperformed our expectations. While improving the trajectory of North America remains our top priority in 2026, we're making good progress against our five strategic pillars for the Crocs Brand. First, we're driving brand relevance globally as the clog market share leader. During the year, Clogs represented 74% of our mix with sales up slightly to last year, led by strong consumer response to our diversified Clog franchises. We scaled existing franchises like our sports inspired Echo by introducing newness such as the Echo RO. We also introduced The Bay, a platform height style for her to create success internationally.

We have seen strong early reads in our DTC channels for our Crafty Clog which will add a wide variety of [indiscernible] materializations that we plan to scale in 2026. We're excited about the short- and long-term prospects for this new franchise. During the fourth quarter, our line business was particularly robust in both North America and international, fueled by strong consumer response to newness, including The Unfurgettable Clog.

In North America, we're carefully managing our Classic franchise, focusing on maintaining tight inventory control and driving further segmentation across our key partners. Internationally, The Classic Clog grew nicely in 2025. Second, we're making strong inroads in scaling our product pillars outside of clogs through new category expansion. Sandals had a very good year and represented 13% of our mix closing in on the $450 million mark. Sales growth was robust in North America, where we not only took market share but also took advantage of an extended selling season beyond the traditional spring/summer period. In 2025, our Style Sandals led the way, fueled by strong full-price selling of our Brooklyn, Getaway and Miami franchises. Our Sandal awareness is roughly half that of Clogs, we saw an encouraging mid-single-digit increase in Sandal awareness during 2025 versus 2024. Looking forward into 2026, we believe continued newness in our existing franchises, along with the introduction of our new Saturday franchise and updated personalizable two-strap sandal underscores an opportunity to gain further market share in this category.

Jibbitz, our unique vehicle for self-expression represented 8% of sales. Within Jibbitz we have seen continued growth of our Elevated Charms. Beyond Jibbitz, we have expanded what personalization looks like and introduced a collection of bags, bag chums and accessories. Third, we are fueling consumer engagement through disruptive social and digital marketing. In 2025, we launched many high-impact partnerships. Examples included our multiyear NFL partnership, which continues to scale successfully. The launch of Stranger Things, which promptly sold out and the cold classic Twilight collab, that is currently selling for 3x the MSRP across the resale marketplaces.

At the end of January, we announced an extremely exciting multiyear global partnership with LEGO, bringing together two icons of self-expression and originality. Last month, we teased our disruptive LEGO Brick Clog at Paris Fashion Week, and next week, this Clog will be available to consumers. We have a robust pipeline of new product launches together with LEGO that will be centered around footwear and, of course, Jibbitz. Rounding out January, we debuted our new omnichannel global brand campaign, Wonderfully Unordinary.

Fourth, we'll continue to create compelling consumer experiences in all our channels. In 2025, we leaned into our first-mover advantage in social commerce, which is a powerful channel to reach consumers and also increasingly a commerce engine. We remain the #1 footwear brand on TikTok shop in the U.S., and we anticipate significant future growth in social selling, including on this platform. In 2025, we launched 7 new markets globally with TikTok Shop and have more on our road map for 2026.

Finally, we're continuing to gain market share across the world in our international markets. During 2025, International grew 11% on top of 19% the prior year. Broad-based strength was led by our direct-to-consumer channel, which grew 23%. In China, our second largest market, we grew 30% on top of 64% last year, and the country now represents approximately 8% of sales. During the fourth quarter, we had a successful [ Double-11 ] shopping festival fueled by strong acceleration of our [indiscernible] Clog offerings. We believe we have significant future growth opportunity internationally. Our average market share in China, India, Japan, Germany and France represented approximately 1/3 of the market share we have in our established markets. We ended the year with approximately 2,600 Crocs mono-branded stores and kiosks. In 2026, we plan to continue expanding our footprint internationally and see an opportunity to open between 200 and 250 stores both in our Tier 1 markets and within distributor markets around the world.

Now turning to HEYDUDE. We prioritized our efforts in 2025 around stabilizing the brand in North America, with a renewed focus on our core consumer. While we're doing the work to return the brand to growth, we're encouraged by the progress we have made in 2025. Let me share more about what gives me conviction in our strategic plan. First, we're building a community laser-focused on our core consumer. Our HEYDUDE Country Campaign plays into our brand affinities, including music, travel and pre- and post-sports while appealing to our layback no fuss consumer. We are also building our community through social platforms. In 2025, HEYDUDE was the #2 footwear brand on TikTok shop. We're encouraged that our brand awareness ended the year at 39%, a healthy 9 percentage point gain from 1 year ago. We have also seen an uptick in brand purchase intent amongst our core male consumer.

Second, our product direction is clear. We are building the core and thoughtfully adding more. We are strengthening our leadership within the slip-on category, led by our icons, Wally & Wendy. In January, we launched our Stretch Jersey across all channels, following a successful test during the holiday quarter. This product that we formerly refer to as a T-shirt for your feet is already appealing to both him and her. Stretch Sox is continuing to perform well in its second year with favorable consumer and retailer response. As we look into the spring, we will scale our Sandals across various price points and expand our successful HEY 2.0 program that caters to a broad range of outdoor activities, important to our target consumer. We also see an opportunity to significantly grow our already successful Work Program as we bring comfort and safety to hard working Americans.

Third, we're focused on stabilizing the North America marketplace in the back half of 2025. We took two decisive actions: one, accelerated returns and markdown allowances to our retailers to improve inventory health, while elevating our brand presentation at wholesale. And two, we pulled back on unproductive performance marketing. While these two actions constrained our revenue growth by approximately $45 million in the second half of 2025. They have been effective in cleaning up the channel and establish a more profitable foundation for future growth. The fourth quarter was the 10th consecutive quarter of positive ASP growth year-on-year, supported by channel and product mix.

In conclusion, we're focused on driving the next chapter of our growth story. We believe we have compelling strategies to grow both of our brands, driven by a clear consumer focus innovative product and marketing and our multichannel global go-to-market capabilities. I'm incredibly confident in our talented team's abilities to continue to execute against these strategies.

I will now turn the call over to Patraic.

Thank you, Andrew, and good morning, everyone. During 2025, we made significant progress against several strategic initiatives that I'm confident will lay the groundwork for sustainable long-term growth. Looking back, we took several decisive actions to build upon our already strong foundation. These actions included one, recalibrating our promotional activity in Crocs brand DTC channels; two, managing sell-in across wholesale for the Crocs brand; three, reducing unproductive performance marketing spend within HEYDUDE and four, accelerating wholesale cleanup actions for HEYDUDE.

In addition, we effectively executed our $50 million cost savings program and actioned $100 million of additional cost savings for 2026 as we previously communicated. Now let's speak our results.

For the full year, Enterprise revenue of just over $4 billion was down approximately 2% to prior year. Crocs Brand revenue of $3.3 billion was up 1% to prior year driven by DTC up 3%, partially offset by Wholesale, which was down 1%. Growth was driven by units, up 2% the prior year to a total of 129 million pairs sold while brand ASPs were roughly flat to prior year. North America was down 7% to prior year at $1.7 billion. This was tied to both the decision to pull back on promotional activity in our DTC channels earlier in the year as well as carefully managing our sell-in to the North American market. For North America, DTC and wholesale revenues were down 5% and 9%, respectively, as we work to better manage channel sell-in.

To reiterate Andrew's comments, expansion in international markets is one of our key strategic pillars, and we are pleased to report another year of double-digit growth. Revenue was up 11% versus prior year to $1.6 billion, led by DTC up 23% and wholesale up 5%. We gained market share in China, which grew revenues by 30% to last year, with balanced growth across partner comparable store sales, digital and new store openings. Importantly, we also saw another year of double-digit growth in Western Europe, while Japan returned to growth.

Turning to HEYDUDE. During the year, we took aggressive actions to stabilize the brand in North America. As such, revenue was $715 million, down 14% from prior year. DTC revenues were up 3%, supported by strength in digital marketplaces and the addition of 23 new retail stores, offset in part by the impact of lower performance marketing spend. Wholesale revenues were down 27% as we accelerated our cleanup actions and more aggressively manage sell-in. For the year, ASPs were up 4% to just under $32 and while unit volume was 22 million pairs, down 17% the prior year.

Now switching to the fourth quarter, we delivered Enterprise revenue of approximately $958 million down 4% to prior year and a 3 percentage point improvement from the third quarter. This performance was fueled by both brands, particularly during the holiday season in North America. Crocs Brand revenue of $768 million was up slightly on a reported basis, led by 11% International revenue growth, supported by strength in China, Japan, Western Europe and India. The HEYDUDE brand delivered revenue of $189 million, which was down 18% to prior year. For HEYDUDE, DTC was roughly flat to prior year in wholesale was down 42% in part driven by the planned cleanup actions we took in the quarter.

I'll now move to adjusted gross margin. For the year, Enterprise adjusted gross margin was 58.3% down 50 basis points from last year. This was primarily driven by a 130 basis point tariff headwind. The overall decrease in gross margin was offset in part by lower negotiated sourcing costs. Crocs Brand adjusted gross margin was 61.3%, down 30 basis points from prior year, while HEYDUDE brand adjusted gross margin was 44.8%, down 290 basis points. Moving to fourth quarter. Enterprise adjusted gross margin of 54.7% was down 320 basis points to prior year, driven by a 300 basis point tariff headwind. Crocs Brand adjusted gross margin was 57.8%, and HEYDUDE brand adjusted gross margin was 39.7%.

For the year, adjusted SG&A dollars increased 7% to prior year largely tied to 2024 investments in talent, marketing and DTC, which anniversaried into the first half of 2025. In the fourth quarter, SG&A dollars were down to prior year, reflecting the benefits of our $50 million cost savings program. Full year adjusted operating margin of 22.3% was down 330 basis points from prior year. In the fourth quarter, adjusted operating margin of 16.8% was down 340 basis points from prior year, excluding approximately $14 million of specific discrete costs primarily associated with a recent reduction in force.

Full year adjusted diluted earnings per share of $12.51 and decreased 5% to prior year, and our non-GAAP effective tax rate was 17%.

Now turning to a discussion of the balance sheet and cash flow. We ended the year in a strong liquidity position with $130 million of cash and cash equivalents and over $900 million of borrowing capacity on our revolver. Our inventory balance as of December 31 was $369 million, an increase of 4% versus prior year on a dollar basis, including the impact of higher tariffs and product mix. It is important to note that inventory units were down high single digits to prior year, reflecting our actions to manage inventory flow into the marketplace. Enterprise inventory turns were above our goal of 4x on an annualized basis, continued competitive strength of our business model. In 2025, we generated free cash flow of $659 million, which enabled us to repurchase 6.5 million shares for a total of $577 million, ending the year with $747 million remaining on our existing share repurchase authorization. We also repaid $128 million of debt, which puts us at the low end of our net leverage target range of 1x to 1.5x.

Specifically, in the fourth quarter, we repurchased 2.2 million shares of our common stock for a total of $180 million at an average cost of approximately $84 per share. Before turning to guidance, I wanted to provide an update on our cost savings initiatives for 2026. As we previously communicated, we have identified $100 million of cost savings which include organizational simplification, deliberately reducing spend in noncritical areas and further optimizing and modernizing our supply chain. We expect these savings to be relatively balanced between our cost of goods sold and SG&A.

Now moving on to our full year 2026 outlook. For the full year, we expect Enterprise revenue growth to be in the range of up slightly to down 1% on a reported basis, assuming currency rates as of February 9. As you think about the shape of the year, I want to remind you all that the accelerated strategic actions we took in 2025 were largely second half weighted, and as such, we'll continue to have an outsized impact on the first half of the year. Said another way, we expect our year-over-year Enterprise revenue growth on a reported basis in the second half to outpace the first half. For the Crocs Brand, we expect revenue on a reported basis to be flat to up 2%, led by approximately 10% International growth, offset by declines in North America as we anniversary the strategic actions we took in the second half of 2025. We anticipate the year-over-year revenue rate in North America to improve slightly from 2025 run rate as our guidance anticipates that the DTC channel outperforms the wholesale channel.

For HEYDUDE, we expect revenue on a reported basis to be down approximately 7% to 9%. We expect that HEYDUDE brand to return to growth in the second half of 2026 as we anniversary the impact from the strategic actions we took that started in 2025, primarily in the second half. DTC is expected to outperform the Wholesale channel and improve throughout the year. We expect adjusted gross margin for the year to be up slightly to prior year despite an anticipated approximate 80 basis points of incremental tariff pressure for the full year, which we expect to materialize in the first half. Based on current tariff rates and sourcing mix, we now see an unmitigated tariff headwind of approximately $80 million on an annualized basis, which is down from our previously provided figure of $90 million. We believe our diversified sourcing mix and nimble supply chain position us well as we enter 2026.

Adjusted SG&A dollars are anticipated to be roughly flat to prior year as we recognize the benefits of our previously announced cost savings programs offset by investment in the direct-to-consumer channel. Taken together, we expect adjusted operating margin to expand modestly from the 22.3% level in 2025. This excludes approximately $25 million of specific discrete costs related to the implementation of our cost savings initiatives. We expect the underlying non-GAAP effective tax rate, which approximates cash taxes paid to be 18% and the GAAP effective tax rate to be 23%. We expect our adjusted diluted earnings per share to be in the range of $12.88 to $13.35. Consistent with our previous guidance philosophy, this range reflects future debt repayment, but does not assume the impact from potential future share repurchases. We are committed to maintaining net leverage in the range of 1x to 1.5x while deploying excess cash flow towards opportunistically buying back shares. For the year, we are planning capital expenditures to be in the range of $70 million to $80 million.

Now moving on to Q1. For the first quarter, we expect revenues to be down 3.5% to 5.5% at currency rates as of February 9. Crocs Brand revenues are expected to be down low single digits. We expect growth to be led by International with a quarterly growth rate modestly below our full year run rate. For HEYDUDE, we expect revenue to be in the range of down 15% to 18%, given the dynamics I spoke to earlier, the percentage decline for HEYDUDE's first half revenue is anticipated to be similar for the first quarter. Adjusted operating margin is expected to be approximately 21.5%. In the first quarter, we anticipate adjusted gross margin to be flat despite the continued impact of incremental tariffs. Given the visibility we have today, our Q1 incremental tariff headwind is estimated to be approximately 100 basis points, while the Q2 headwind is expected to be closer to 200 basis points. Adjusted diluted earnings per share is planned in the range of $2.67 to $2.77.

Before we move to the question-and-answer portion of our call, I wanted to close by reiterating our confidence heading into 2026. We are already seeing positive signs as we continue to execute on the fundamental strategic pillars for both Crocs and HEYDUDE. In summary, we are doing what we have said we will do, and we are managing our brands for the long term. As Andrew mentioned, while we have accomplished much in the first 20 years as a public company, we are even more excited about what the future holds. At this time, Andrew and I are happy to take your questions. Operator?

[Operator Instructions] Our first question comes from Jonathan Komp with Baird.

I'm hoping you might unpack the North America Crocs outlook a bit here. Could you share a little bit more drivers for the first quarter. And as you think about the shape of the year, is there potential to get to back towards growth later in the year? And any visibility you have there would be great.

Thanks, John. I'll let Patrick give you some shaping for the year, and then I'll give you kind of strategic rationale.

Yes. So John, as you heard in prepared remarks, we feel that for North America, we'll see run rate improvement as we move throughout the year. But for the full year, what we're really thinking is slight improvement from what we saw in 2025. Just as a reminder, what we did in the second half of last year, was really beginning to take some strategic actions so that we would improve our outlook as we got into 2026. And with that, what you'll see in first half is kind of continuing to lap those un-anniversaried actions. And then as we get into the back half of 2026, we'll start to see some slight improvement as we go through the year.

Yes. And I think what I'd add to that, John, is, look, it's a very clear priority for us to return the Crocs Brand to growth in North America. As an element of context, I would also remind everybody that the Crocs Brand in 2026 will actually be bigger internationally than it is in the U.S., and we're very confident in about a 10% growth rate for our international business. What we think is going to return Crocs North America to growth is really kind of three strategic pillars. Number one is Clog iterations and innovation, right? So we are managing the inventory, the Classic Clog carefully in the marketplace. We've pulled back on discounting, particularly on the Classic Clog on our digital channels, which is creating some of the headwind but we are introducing a significant number of new innovative products into the marketplace that are Clog-based, right?

So our Crafted Clog, we're introducing the Crock Band, and we're also introducing a 2.0 version of our very successful Echo franchise later in the year. In addition, diversification. So growth of Sandals and growth outside of Clogs, including slippers and personalization. We took market share in slippers last year. We're very confident we'll continue to take -- sorry, took market share in Sandals last year. Very confident we're going to continue to take market share in 2026 in Sandals.

And then the last thing is really disruptive, I would say, social and digital selling. We continue to outperform and be the #1 and 2 brand footwear brand on TikTok shop, and we're very confident that our digital prowess and our ability to ignite the I would say, innovative channels and reach our consumers extremely effectively will allow us to continue to lead. So that's what we're doing to address it. And I think we've given you what I describe as a very prudent guidance for this year.

The next question comes from Adrian Yi with Barclays.

It really is nice to see the improvement in holiday and then the expansion for this year. Andrew, I was wondering if you can help just to follow on your comments from the last question. Can you help contextualize the amount of newness that you're bringing to market this year, both Crocs and HEYDUDE. We saw a lot of it at [ Fannie ]. So that was very promising. But just kind of contextualizing that with regard to how much newness you've brought to the market in the past couple of years and how this year is quite differentiated?

And then kind of just following on that, I mean, I have to ask about AI-specific investments. How much of your CapEx are you allocating to tech investments to support AI? And do you have any benefit of that kind of playing into the guidance this year?

Yes. So yes, let me try and add a little color to the newness point, and then I'll hit on AI. So from a newness perspective, I did add up in my response to John, a fair amount of context there. But I think there's probably -- two critical pillars for Crocs in terms of newness. They are the diversification of our Cloud franchise. So adding those other clog pillars. We've been particularly excited about The Crafted because it adds a materialized upper to our cloud, which we think broadens the wearing occasion. I would add the Clog category continues to grow around the world. We can see it being a very on-trend silhouette and a strong growth category. And we are, by far, the market share leader in that category. So we can exploit that growth on a global basis.

And then from a sale perspective, I think there's two aspects there. One is core Style franchises. So Getaway, Miami and Brooklyn will continue to grow in scale, and we've added patents within those franchises. We've added colors, and we broadened those franchises, and we think they have global growth trajectory. But we're also introducing and we're quite excited about some of the early reads a very compelling two-strap -- and we look at -- we've got early reads on that in Asia and here in North America, and we're quite excited about that. Obviously, two-strap is a very popular sandal silhouette, and we think that's a nice growth opportunity, which we add into our Sandal mix.

From a HEYDUDE perspective, again, a lot of newness there. We introduced already this year Stretch Jersey, which is we kind of talk about it as a sweat shirt for your feet, T-shirt for your feet, very flexible, very lightweight and super comfortable. It's a bit of a lower price point than our Stretch Sox as well. So as an entry-level option for consumers. We're excited about that. The runway of that product or that franchise within HEYDUDE.

And then we're also building on Sandals for HEYDUDE, our work program is working really well for HEYDUDE. So there's a lot of newness. And I think what we're trying to get at is it more than last year, I think, yes, it's definitely more than last year, and we're very confident.

From an AI perspective, it's not really CapEx as much, right? So we are experimenting with a whole host of AI applications, whether they be on the front end in terms of marketing, in terms of product development, in terms of product creation. We're also looking at efficiency opportunities more in the supply chain and the back end of the business. A lot of it, frankly, is SG&A investment. It's investment in people, it's investment in talent, it's investment in key capabilities and leveraging, frankly, other people's CapEx investments. I don't think we're ready to declare breakthroughs based on AI yet, but I think we are leaning in and experimenting to a high degree. And when we see breakthroughs, we'll be happy to let you know about them.

Yes. And just to put a just to put a bow on this one, sorry. So one of the reasons that we're going after the $100 million in terms of cost savings, that we've been talking about now for a couple of quarters is to give us flexibility as we identify what Andrew mentioned earlier in terms of all the experimentation we're doing in the space. So definitely, we're not embedding anything from an upside standpoint into the P&L for the year for AI initiatives, but we are actively in the space.

And the next question comes from Rick Patel with Raymond James.

Question on Crocs guidance for North America in 2026. Can you talk about the assumptions underpinning the new guide as we think about pricing versus units? Just any color on pricing in particular and any changes that have been made in any on the horizon? And also pulling back on promotions, factor and continued ASP improvements and driving a slight improvement in margin for the year.

So okay, I think Patrick gave you pretty clear color to the North American Crocs guidance. I think your specific question is really about pricing. I would say there are no significant price price changes implied in the North American guidance. We have taken select price increases on select products are probably more internationally than North American -- and we have taken some price increases on select products within HEYDUDE. But I would say price is not a material driver of our intended 2026 performance.

In terms of promo pullback, the other piece that you highlighted, the key thing there is just the anniversarying of the strategic decisions that we made sort of mid last year. So those will anniversary through to the first half of 2026, and will represent some drag to our sales trajectory during that period, which we have embedded in the guidance we provided.

The next question comes from Tom Nikic with Needham.

So I just wanted to clarify something on the gross margin. So I think you said flat in Q1 with a 100 basis point tariff headwind. Can you just kind of clarify what the offsets are in Q1? And I think you said a bigger tariff headwind in Q2. So given that Q1 is flat, should we assume Q2 down and then getting better in the back half?

Yes. So it's a great question and obviously, a lot going in the space. So first, let me start off by saying, obviously, we're guiding up slightly on the full year, and that is a result of all the hard work that we're doing within supply chain to really kind of build out efficiencies as it relates to not just tariffs, but just continuing our focus on being as efficient as we can in the space.

I heard Andrew mention price is not a big component within what we're planning to do this year in terms of margin margin expansion. So it's all really kind of centered around the work that's going on. So with that as a backdrop, as it relates to the first half or the first quarter in your question, really need to think about it as a bit Q4 to Q1 to Q2.

And why I say that is you heard us talk about the slightly higher-than-expected tariffs in Q4. The fact of the matter is, this is obviously -- it's a challenge to kind of predict from a flow standpoint. And so we saw a little bit higher than expected in Q4 as we flowed inventory through. We've actually seen a little bit lower than we expected 90 days ago as it relates to Q1. And so we wanted to be transparent with you all in terms of the 100 basis point headwind that we're seeing, that's actually below what we were thinking just 90 days ago. And then Q2, we think is closer to what a real run rate as it relates to tariffs. And so that's roughly up about 20 basis points of headwind.

And then as we get through Q1, Q2, with that nuance, we start to get into the second half and then all of this is in the base as long as there's no changes from a tariff policy standpoint, everything is in the base, and then we get to a much more normalized run rate. So hopefully, that gives you a little bit more context around the challenge that we've gotten in this space.

And the next question goes to Aubrey Tianello with BNP Paribas.

I wanted to ask on the cost savings program. Last quarter, you mentioned it was too early to say how much of the $100 million will drop through to the bottom line. I would love to know if there are any updates on how you're thinking about flow-through and what's included in the guide?

Yes. So great question. As you heard a little bit earlier, one is we're just continually focusing on being as efficient as we can. And so part of that is that we're building these cost savings initiatives into our plan so that we're able to fuel investment. We spoke a little bit earlier about what we're doing with AI. We're doing these programs to both be able to capitalize on some of those opportunities and frankly, things that we may catch an edge on that we don't have visibility to just yet. So we're reserving a little bit of flexibility into what we're doing as well as flowing dollars to the bottom line.

And so where we are right now we're planning SG&A flattish to the year, as you've seen. So certainly, some of the programs that we've put in place around org efficiency around spend efficiency is cutting through from that standpoint. And as you see our gross margin guide, some of the cost efficiency work that we're doing there is helping to offset some of the headwinds that we talked about tariffs, et cetera, and we're flowing that into our gross margin outlook. So that being said, all of that is embedded into the guide for the year, and we'll continue to work through this as we make our way through 2026, but we feel great about where the work is to date.

The next question comes from Peter McGoldrick with Stifel.

As we think about the double-digit international Crocs brand outlook, can you help us think about the regional brand development? You showed some nice commentary on China growing from an 8% base. I'm curious to know about the other regions as well and countries as we think of the 2026 embedded outlook.

Great. Thank you, Peter. So -- so yes, let me just kind of give you some details, but also put it all in context. So during 2025, we grew international 11% top of 19% prior year. So it's been a sustained double-digit growth driver for us. From China, you already highlighted that you captured that, but we grew 30% in '25, and we continue to be confident that we can grow across all of our channels in China. It's a tricky market in China right now. But clearly, our brand is resonating and we have the ability to continue to grow.

Other markets where we've seen strong growth, and we expect to see strong growth in '26 are Japan returned to growth in we've been putting considerable time and effort in Japan over the last couple of years. It's a big footwear market large population, highly affluent population. So we're excited to see that return to growth, and we think we're on the right trajectory there.

Western Europe is also performing well. U.K., France and Germany, in particular, again, double-digit growth in '25, and we're confident about continued performance there into '26. And look, India is also important to us. We've been focusing on and making some strategic investments in India in terms of setting us up for future sustained growth, and we're excited about the prospects for India in '26, but also, frankly, for the medium to long term.

And the next question comes from Brooke Roach with Goldman Sachs.

Andrew, I wanted to dive a bit deeper on the North America wholesale channel. How are conversations trending regarding shelf space preservation and order books for the year? And how do you view the health of the consumer in that channel amidst the competitive environment?

Yes. Let me take that in reverse order. So health of the consumer, I would say, I think our view on the consumer is that they remain bifurcated, right? So the higher-end consumer, I think, has plenty of disposable income and is shopping the lower-end consumer, I think, is still a bit tentative. So -- and we think that likely continues through 2026. There has been plenty of talk about tax rebates and things like that. That has not been a significant factor for us historically. -- and let's see what happens. And the market remains super competitive. So if I took both of our brands from a shelf space perspective, I would say we've been, I think, fairly clear about we're working hard to make sure that both of our brands have the right inventory in the right retailers, and we're well positioned relative to our future consumer demand.

We're working hard from a Crocs perspective to make sure that our classic our key core franchise is appropriately positioned but also getting new products into the marketplace that we talk about diversifying The Club franchise. So we feel good about where we are from a Crocs perspective, but that does represent a drag to sell-in as we articulated in our guidance.

HEYDUDE, we worked really hard and spend quite a lot of money in the back half of last year to rightsize inventories. And we think with that, right, we look at sell-out relative to our inventories on hand and they are at parity at this point. So we're excited to be at that point and be able to strategically rebuild the business from a wholesale perspective for HEYDUDE.

So and I think the other thing I'd just say is an overlay, it's all about newness, right? So when we introduce new products that resonate with consumers, we can see really nice trajectory in terms of sell-out and sell-in. And the consumer is definitely receptive to newness. And so that's the important driver of success in this business.

And the next question comes from Anna Andreeva with Piper Sandler.

Congrats, nice results. Just wanted to follow up on the actions at HEYDUDE between the wholesale cleanup and the performance marketing change. Andrew, I think you just said the cleanup actions are fully behind us. Can you talk about if you're adding more partners in wholesale to the brand at this stage? And just what are those conversations looking like?

And just as a follow-up on Crocs. As you guys think about the adjacent categories, I think you said with Sandals, penetration was still at 13%, which I think implies mid-single-digit growth category and you called out strength in the U.S. Can you talk about how international performed? And how do you think about that penetration over time?

All right. So a lot of questions there. Let me try and hit some of them and kind of double-click on the important ones. So I think we've talked about the HEYDUDE cleanup. So I think you've got that. I guess the derivative question there was, are we adding more partners?

I would say we're not really adding significant more partners for HEYDUDE, but we do think there is significant growth in key partners. So I think that will come through more shoes on our shelves and more shoes in more stores, right? But we've got to earn our way back to that growth pathway and -- but we're very focused on that.

So then I think the second piece was around Sandals. So 13% overall share for sandals grew nicely in North America last year. We're confident in growth next year. We took market share. Our growth was significantly above the market for North America. And I would say growth in sandals internationally was slower than North America last year, but we have, I think, strong aspirations for sandal growth internationally in 2026. And part of that was by design, right? So we were very much focused in some of our key developing markets on really penetrating the market with the Classic Clog and landing our icon. And so when you've got relatively small footprints in some of these key markets, you've got to be strategic about what you put on the shelf, but we do think there is a nice Sandal growth available to us in key markets like India, Southeast Asia, where we're confident about future trajectory 2026 and beyond.

And then, Anna, I just want to jump back to HEYDUDE for a moment. So number one, as you saw in the prepared remarks, we are calling HEYDUDE return to growth in the second half of this year. So that goes back to all of the strategic actions that we took in the back half of 2025, we'll then start to bear fruit in terms of where we're going with with the brand. And I just want to reiterate, we feel very confident about the trajectory there. The other component is in terms of just cleanup, cleanup is continuing to make progress. And everything that we're looking at from a KPI standpoint related to inventory, inventory on hand, sellout rate versus sell-in rate is all moving in the right direction. And so we feel like a little bit more than 6 months into the efforts. What we're seeing looks very positive, and we're [indiscernible] on where we're going. But we also know that we've got to finish, the play part of finishing that play as the work that remains to be done in the first half of the year.

And the next question comes from Jim Chartier with Monness, Crespi, Hardt.

Can you talk about the performance of HEYDUDE stores and what the store opening plan is for 2026?

Yes. I would say, look, we're pleased with the performance of our HEYDUDE stores. As you know, the majority of stores, in fact, almost all the stores opened are really outlet stores. We think that's a pretty unique opportunity to do multiple jobs for the brand, which is keep our inventories clean and fresh, as well as benefit from strong graphic in the outlet malls to drive commercial success. So we're pleased with the stores. I think we opened 23 stores last year, a to a total of 75 at year-end. Our opening rate in 2026, we probably a little bit less than that. But we think our stores do a really nice job in terms of generating strong commercial outcomes as well as broadening consumers' perspective about the brand.

Great. And then international wholesale, it looks like it was up about low single digits in constant currency over the last 3 quarters. Anything to highlight as to why that channel has slowed? And then what kind of opportunity do you see for international sale going forward?

Yes. I think as we highlighted, the growth in international driven by DTC and that is really two components. One is our digital prowess, which is extends across the globe and also store openings. Stores we have and store openings on an international basis, that's where we've focused our store openings. As we look at a lot of international wholesale the vast majority of their sales go into our distributors. So there's any real story about why it slowed, but we're confident in future international wholesale growth.

And the next question comes from Mitch Kummetz with Seaport Research.

I guess, first question, I just wanted to drill down a little bit more on the comment of HEYDUDE returning to growth in the back half. I mean how much of that is just lapping kind of the $45 million cleanup that took place in the back half of '25 versus other factors? And I'm curious if you can speak to kind of what you're seeing in terms of the fall order book from a wholesale perspective.

Yes, Mitch, great question. So as we mentioned earlier, it's been some great progress that we've made in terms of HEYDUDE, and we continue to feel really bullish about where the brand is going. As it relates to the $45 million in the second half of the 2025. We felt it was important to quantify as best we could. The actions that we took and what resulted in coming out of the marketplace, as so you think about now as we've been doing the hard work cleaning up inventory. We're doing the hard work of kind of looking at our consumer base, and as a note, we were [indiscernible] brand has improved 9 percentage points from 30% to 39% just in the last 6 months or so.

So we feel like we're gaining a lot of traction as it relates to consumer as it relates to product, product newness. And so as you think about the second half, part of that, obviously, we'll be lapping what we took out. But we're also excited about what we see in terms of product newness coming and continuing to sell in from a greater breadth standpoint on the products that we introduced in the back half of last year and into the first half of this year.

And can you say if you've got a positive fall order book?

Yes. We don't comment on our order book, Mitch. We haven't done it for many years now.

All right. That's fair. And then a second question, just on the SG&A, thinking about the shape of the year, I know that you said dollars flat year-over-year. Do you expect that to be kind of consistent across the quarters? Or would you expect kind of the the dollar spending to kind of mirror the sales growth per quarter?

Yes. I mean it's the -- as we think about the shape of SG&A through the year, obviously, we've got cyclicality in our business as it relates to quarters. And so as we go through from an SG&A standpoint, we see that kind of ebb and flow as a percentage of sale. From an SG&A perspective, Q1 will be up slightly as we kick off the year. And as we work our way through, we'll start to see a bit more traction from these programs that we're putting in. In addition to I just want to stress again, I know I said it earlier, but I just want to reiterate, it's the $100 million that we're targeting or we've targeted, actually, we've identified and are in the process of delivering.

It is one, yes, through the lens of dropping some to the bottom line, but it is really focused on giving ourselves investment flexibility as we make our way through the year. When you think about the complexion of '25 to '26, what we're seeing is we're re-pivoting both brands, and we are reserving the flexibility to deploy some of those savings back into the P&L to accelerate Crocs Brand, HEYDUDE and some of the other areas that we're experimenting from an investment standpoint. I mentioned AI earlier, but there's a bunch of others. So that's a little bit more color in terms of how we're thinking about things.

We have time for one more question and the final question goes to Jonathan Komp with Baird.

Just any more color as we think about first half and back half progression from an operating profit standpoint, it looks like Q1 implied the first half, you're down year-over-year for operating profit. Second half looks like it could be implied up double digits. So any more color just as we think about the shape and anything that would be helpful for modeling.

Yes, John, I think you're hitting it. As you think about the collection of the year, similar to '25, it's -- there's a big first half, second half story. Second half of last year, we've talked quite a bit about the actions that we took that impacted second half of last year, that's -- we're rounding that out in the first half of 2026. And so you'll see some of the headwinds from a revenue standpoint. And so if you think about that, trajectory of '25 into '26. How you're thinking about the year in terms of -- from an EBIT standpoint is how we're thinking about it as well. So there's really a bit of a first half, second half story.

This concludes our question-and-answer session. I would like to turn the conference back over to Andrew Rees for any closing remarks.

Yes. Just want to say thank you very much for joining us today. I appreciate everybody's interest in our company and the thoughtful questions. So thank you very much, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to Crocs, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Erinn Murphy, Senior Vice President of Investor Relations and Strategy. Please go ahead.

Good morning, and thank you for joining us to discuss Crocs, Inc. third quarter results. With me today are Andrew Rees, Chief Executive Officer; and Patraic Reagan, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask that you limit to one per caller.

Before we begin, I would like to remind you that some of the information provided on this call is forward-looking and accordingly, is subject to the safe harbor provisions of the federal securities laws. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially. Please refer to our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed with the SEC for more information on these risks and uncertainties.

Certain financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. All revenue growth rates will be cited on a constant currency basis unless otherwise stated.

At this time, I'll turn the call over to Andrew Rees, Crocs, Inc. Chief Executive Officer.

Thank you, Erinn, and good morning, everyone. Thank you for joining us today. Before we discuss the quarter, I would like to start by welcoming our Chief Financial Officer, Patraic Reagan, to his first Crocs, Inc. earnings call.

Our third quarter performance was driven by managing both of our brands in a disciplined fashion, streamlining our cost structure and controlling our inventory in the marketplace. We deliver very strong profitability and cash flow, which enabled us to repurchase 2.4 million of our outstanding shares and paid down $63 million of debt. These are fundamental levers of a value creation model. While our results came in ahead of our expectations, I acknowledge that this performance is not up to the standards that we expect for ourselves. We are working to regain momentum in the marketplace, and our teams have already begun executing against our strategies. With this in mind, I would like to begin the call today by elaborating on the progress we have made on our strategic pillars for both Crocs and HEYDUDE and the speed at which we are driving further simplicity and cost reductions across our enterprise. Patraic will then provide a more detailed overview of our financial results and outlook.

Starting with the Crocs Brand. As we communicated last quarter, we elected to take 2 strategic actions to protect the long-term brand health. First, we pulled back on the breadth and depth of promotional activity across our digital channels in North America. This promotional pullback has had the greatest impact on our classic clog business as we work harder to protect our icon. Second, we continue to reduce receipts into the wholesale channel to better match supply to demand and ultimately drive a demand-led model.

While these actions are impacting near-term sales, we expect them to enable a foundation for future growth. Further, we have seen a net positive benefit to our gross profit dollars in North America as a result of our pullback on promotions.

Our return to growth in North America will be based on greater product innovation, diversification within clogs, growth within sandals and new categories. We have carefully managed our Classic Clog franchise with the desired outcome of creating clearer segmentation, while leaning into innovation within new clog and sandal introductions. While improving the trajectory of North America is a top priority, we are making good progress against our 5 strategic pillars for the Crocs Brand. First, we will continue to drive brand relevance through clog iterations and innovation. During the quarter, we introduced the Crafted clog starting at $60. This new franchise incorporates a non-molded comfortable upper with a Jibbitable backstrap as we put personalization to the forefront of our design.

We featured LolaTom, the actress of hit show to summer I turn Freddy to bring this to market. Following our initial sell-out on Tiktopshop, we have seen strong consumer response in all channels. We're also focused on scaling existing cloud franchises, including crop brand and Echo. Within the Echo franchise, we launched the EcoRo during the quarter and saw immediate success. Looking to 2026, we will expand our crafted franchise with new materializations, launch a new and improved crop brand, which is already an established fan favorite in our portfolio and introduce Echo 2.0 clog.

We expect product diversification within our clog pillar to enable greater channel segmentation and drive long-term growth in our clog franchise. Second, we're focused on diversifying outside of clogs through new category expansion.

Our sandals pillar outperformed the broader portfolio and took market share in this quarter with strong full price performance across our style franchise, including Brooklyn, Getaway and Miami. Retailers have continued to chase these key styles beyond the back-to-school season. As we look into 2026, these franchises paired with the reintroduction of an updated personalizable 2-strap sandal underscores our opportunity to gain further market share in this category.

We are also excited with the response we have received around our new cozy franchise, the unforgettable, which we launched in partnership with Actress, Millibabbi Brown. This style has already seen a very positive response on tiptop, resonating particularly well with the gen Z female consumer. The unforgettable along with broader newness in our Cozy assortment has catalyzed our line business so far this season.

Third, we will fuel consumer engagement with disruptive digital and social marketing. During the quarter, we launched a multiyear agreement with the NFL, which featured our classic and classic line clogs as well as Jibbitz. This release exceeded our expectations with particularly strong sell-through across the board, leading to multiple restocks. Other highlights in the quarter included a disruptive launch with Crispy Cream and our newest release on roadblocks.

In the quarter, we launched a Pan Asian monsoon campaign, Your Crop, Your Splash. This campaign positions a classic clog as the footwear of choice for the rainy season and stars 2 prominent actors from South Korea and India. The campaign video generated approximately 575 million views across Instagram and YouTube. These partnerships are prime examples of how our brand excites, inspires and connects with a wide range of consumers across the globe.

We'll continue to create compelling consumer experiences across distribution. Year-to-date, we've accelerated our first mover advantage in social commerce. We remain the #1 footwear brand on TikTok shop in the U.S. and the growing adoption of this platform is gaining momentum with the younger consumers. This month, we created further disruption in the market by live streaming both of our brands on TikTop shop and our own.com throughout the month of October. Through this initiative, we have seen an uptick in our followers and influx of new consumers. In fact, Crocs was the first fashion brand to Livestream 24/7 for an entire month across TikTok and .com. We're continuing to expand this partnership and have launched TikTok shop in the U.K., Germany and Brazil.

Fifth, we see significant opportunity to capture greater share across our international markets, many of which are still in their infancy of growth. In the third quarter, we saw broad-based strength across our Tier 1 international markets. China delivered revenue growth across all channels and was up mid-20% to prior year, outperforming the overall market handily. During the quarter, we launched a unique pop mark, Times Skol Panda collaboration, which included a Doyon live stream on Popma's page and was a smash head in China. In addition to China, we saw a strong growth in Japan and across all of our key markets in Western Europe.

In summary, our priorities are clear: driving product innovation in clogs and sandals, staying agile and consumer-focused while sharpening segmentation and accelerating international growth, but penetration opportunities remain.

Turning now to HEYDUDE. We delivered third quarter results that came in ahead of expectations. We are encouraged by the progress we're making in stabilizing the brand in North America to return to profitable growth. Let me share more about the actions we have taken and what gives me confidence in our ability to reestablish brand growth.

First, we're focused on building a community. Our recently refreshed consumer insights work underscores that we have a passionate group of brand fans, ones that identify as laid back and no fuss, but clearly seek the comfortable and lightweight products we have to offer. We launched our HEYDUDE country campaign in June, which plays to our brand's affinities, including music, travel and pre-and-post sport and is centered around this laid back no fuss consumer. Relatedly, we are encouraged to see the brand's return to the top 10 preferred footwear brands among males in the Piper Sandler taking stock with Team survey this fall.

Second, our product direction is clear. We're building the core and thoughtfully adding more. Within our Wale & Wendy franchise, we launched the stretch stocks and its performance has already surpassed legacy socks on a like-for-like basis. In 2026, we will launch Stretch Jersey, a sweatshirt for your feet and retailer response to this product has been very strong as it appeals to both her and him. Outside of a core, we are seeing continued traction of our pool franchise, which plays into address casual sneaker space, and we're solidly building on our slipper success again this holiday.

Earlier this month, we launched our third collaboration with Jelly Roll, featuring the fan favorite Bradley boot in 2 colorways. The initial launch on TikTop shop drove the largest single day for HEYDUDE on the platform to date. We see this call up as serving to halo, our broader boot offering as we move into holiday.

Third, we'll focus on continuing to clean up channel inventory in the North America marketplace. During the third quarter, we accelerated returns and markdown allowances to our retailers to improve inventory health, while elevating our brand presentation at wholesale. The nature of these cleanup actions has had an impact on revenue in the third quarter through vendor returns, and we're planning for continued markdown support in the fourth quarter. These actions have been effective in cleaning up the channel and establishing a foundation for future growth.

On an enterprise basis, we're working to quickly rightsize our cost base. As we shared on our last call, we've already taken action on $50 million of gross cost savings this year and have since identified another $100 million of gross cost savings across the business to simplify the organization. While Patraic will go into more detail shortly, we expect these cost savings to generate greater flexibility across the P&L, enabling future investment to drive growth for our brands.

At this time, I will turn the call over to Patraic to provide more detail around our third quarter financial performance and our fourth quarter outlook.

Thank you, Andrew, and good morning, everyone. Before I review the quarter, I'd like to say how grateful and excited I am to have the opportunity to serve as Chief Financial Officer of Crocs, Inc. This is a company I have long admired professionally and as a consumer, one whose profitable growth has been built on an enduring cultural icon. For Crocs and HEYDUDE, I see strong potential, both domestically and globally and I look forward to working with our talented teams across the world to further drive the company's strategic and financial goals.

Now let's get into our results. Our third quarter revenue of approximately $1 billion were down 7% to prior year. Crocs Brand revenue of $836 million was down 3% the prior year, with wholesale down 8% and D2C up 1%. The North American revenues were down 9% to last year as we continue to intentionally pull back on discounting within our digital channels during the quarter. This was partially offset by strong digital marketplace performance. These actions, in part resulted in D2C down on 8%, while wholesale was down 11%.

International revenue was up 4% to prior year, driven by direct-to-consumer, which was up 23%. D2C performance continues to reflect broad-based strength across both digital and retail. International wholesale was down 7% based on timing shifts we communicated last quarter. Within our Tier 1 international markets, we saw a broad-based strength led by China and Japan, while Western Europe also drove strong results across the U.K., Germany and France.

Now turning to HEYDUDE Brand. revenue of $160 million was down 22% to prior year, but ahead of our expectations. D2C was better than planned, down 1% the prior year. This was driven by the addition of new retail stores and strong digital marketplace performance, most notably on TikTok Shop, offset by the planned reduction in performance marketing spend as we work to enhance profitability, albeit with negative revenue impacts.

Wholesale was down 39%, reflecting the previously communicated wholesale cleanup actions we took in the quarter. As a result of these actions, we started to see an improvement in wholesale sellouts, which are now in line with our inventory levels. This is an important data point as we position HEYDUDE for a return to growth.

Moving back to Crocs, Inc. Enterprise adjusted gross margin of 58.5% was down 110 basis points to prior year, including a 230 basis point headwind from tariffs. The tariff impact in the quarter was 60 basis points higher than we previously anticipated based on higher receipts and country mix. Excluding tariffs, our adjusted gross margin would have been up reflecting lower negotiated product costs, higher ASPs for both brands and brand mix.

Crocs Brand adjusted gross margin of 61.8% and was down 70 basis points to prior year, driven by tariff headwinds. HEYDUDE Brand adjusted gross margin of 42.3%, was down 560 basis points to prior year driven by tariff headwinds and fixed cost leverage, which was partially offset by higher ASPs.

Importantly, the third quarter represents the ninth consecutive quarter of ASP increases for HEYDUDE. Adjusted SG&A rate was 37.7%, up 350 basis points compared to prior year. Adjusted SG&A dollars increased 3% to prior year, a notable improvement from the 15% SG&A increase in the first half of the year. This was driven by investments in talent, D2C and marketing, significantly offset by cost savings under the $50 million initiative that we announced earlier this year.

Taken together, adjusted operating margin of 20.8% came in ahead of our guidance of 18% to 19%, but was down 460 basis points compared to prior year. Adjusted diluted earnings per share of $2.92 was down 19% to last year our non-GAAP effective tax rate was 16.9%.

Moving on to inventory. At the end of Q3, our inventory balance was $397 million, up 8% to prior year, including the impact of higher tariffs and product mix. Importantly, inventory units were down low single digits to prior year. Our enterprise inventory turns were above our goal of 4x on an annualized basis as we proactively managed our inventory receipts.

Our liquidity position remains strong, comprised of $154 million of cash and cash equivalents and nearly $850 million of borrowing capacity on our revolver.

Our strong profitability and free cash flow enables us to return value to shareholders through buybacks and debt paydown. During the quarter, we repurchased 2.4 million shares of our common stock for a total of $203 million at an average cost of approximately $83 per share. This represented approximately 4% of our float. Year-to-date, we have repurchased 4.3 million shares of our common stock for a total of approximately $400 million. We ended the quarter with $927 million remaining on our buyback authorization.

Total borrowings at quarter end of $1.3 billion, included the paydown of $63 million of debt during the third quarter. Our net leverage ended the quarter at the lower end of our targeted range of 1 to 1.5x.

Now turning to our fourth quarter outlook. For Q4, we expect revenues to be down approximately 8% and currency rates as of October 27. Within this, we expect the Crocs Brand to be down approximately 3%, with acceleration in our international business from a mid-single digit in Q3 to a low double-digit rate in Q4. North America revenue is expected to be down low double digits to prior year, reflecting a wider range of outcomes, including our view of a choiceful consumer, a highly competitive holiday season and lower inventory receipts in the wholesale channel. For HEYDUDE, we expect revenue to be down in the mid-20s range, including the impact of reducing performance marketing spend in the DTC channel and the investments we are making in wholesale marketplace cleanup.

We expect adjusted operating margin to be approximately 15.5%. This excludes approximately $10 million related to cost reduction initiatives we referenced earlier. Our adjusted operating margin embeds gross margins down approximately 300 basis points, driven almost entirely by tariff headwinds. In addition, our adjusted SG&A dollars are expected to be below that of prior year as we continue to see the positive impact of our cost savings. Adjusted diluted earnings per share is expected to be in the range of $1.82 to $1.92. For the year, our capital expenditures are expected to be in the range of $70 million to $75 million. While it is too early to provide 2026 guidance, I do want to provide more context on how we are thinking about further cost savings.

As Andrew mentioned, we are already benefiting from the previously actioned $50 million of gross cost savings in 2025. In addition, we have identified $100 million of incremental gross cost savings that we expect to benefit 2026. These savings include simplifying our organizational structure, deliberately reducing spend in noncritical areas and further optimizing our supply chain. It is too premature to share how much of these savings we will choose to flow to the bottom line. However, we are committed to managing our adjusted SG&A base to ensure we drive operating leverage in 2026, while creating greater flexibility across the P&L.

To conclude, we have already taken several strategic and tactical actions to improve the momentum of our brands. We have also taken steps to provide flexibility in our cost structure, and we are intently focused on driving consistent profitable growth in the future.

At this time, we will now turn the call back over to the operator to begin the question-and-answer portion of our call.

[Operator Instructions] The first question comes from Jonathan Komp with Baird.

I want to ask first about the incremental cost savings initiatives. It looks like you're obviously preserving margin here, but are there structural deficiencies in the organization you're also trying to address, when you look at the structure of the organization? And as you think about 2026 and the comment around driving operating leverage, could you achieve leverage in a scenario where revenue still is down in the first half and maybe not significantly growing for the year?

Thank you, Jonathan. I'll address it to start with and Patraic will pick up anything that I miss. So what I would say in terms of the cost savings, there's several buckets we're looking at. I think number one is we've got a significant benefit from some efficiencies we've now to drive in supply chain. We've invested quite a bit in our supply chain in the last several years, and we're now reaping some of the rewards of those efficiencies. And we've also integrated both our HEYDUDE and our Crocs supply chains more fully. So that's given us some really nice benefits.

Number two, we have looked at some structural key components. We've been quite thoughtful about this. where we've been able to reorganize kind of how we go to market and how we run some key parts of our business. We think that is going to give us more speed and more efficacy as well as generating a lower cost. And then we've also just been, I would say, rigorous around looking at where we're spending on vendors, outside services, et cetera, and consolidating that. And I think there's probably a small component in there. is trying to use AI and some of the technological advances that we're seeing across the globe to make us more efficient and effective.

In terms of the last part of your question, we will reinvest some of those savings in key areas around product innovation, around some things that we think will drive the top line. And we do believe that on an annual basis, we can absolutely provide -- we can achieve operating leverage in 2026. If revenues are down a little bit in a quarter, that may be harder. But for the year, we're quite confident we can get operating leverage.

Yes, Jon, just a couple of things to add from a perspective -- from my perspective, what I would say is that our language in the prepared remarks were really intentional. So what we're trying to do is drive flexibility as we turn into 2026. And I think what's been great to see in terms of the response of the organization is that we've really been able to turn very quickly, efficiently into identifying some of the areas that we're going to provide that flexibility in. And just to reiterate what Andrew said towards the end is we're clear that we need to protect product innovation and brand marketing, right? It does us no good to just cut cost through the P&L at the expense of what is the core of our business. So what we'll do as we go through this is continuing to look at all areas of the organization, but product and innovation and communication to our consumers through brand is an area that we're going to bring fence.

That's really helpful. If I could sneak in one more. Can I just ask Andrew, is portfolio management consideration in your capital allocation strategy? And I ask in the context of coming up on the 4-year anniversary of owning HEYDUDE and still seeing significant challenges here.

Yes. Thank you, Jon. No, I would say at this point, look, we believe, HEYDUDE is a strong brand. It's a strong scale brand within -- particularly within the U.S. casual footwear space. We absolutely acknowledge the challenges that we have had in running and operating this brand over the last several years. But I think I feel like we're doing the right work. We've made the right decisions, and we are confident in its future trajectory. We've definitely been focused on returning it to profitability, cleaning up the marketplace, making the right strategic decisions relative to promotion discount and also the amount we're investing in digital marketing.

We have retooled the management team, and I'm very confident in the strength of our management team and its ability to drive the future. And -- so I think we're not contemplating any portfolio changes at this time. And I would say we're confident in returning HEYDUDE to the right level of profitability and also growth in the future.

The next question is from Chris Nardone from Bank of America.

Great guys. So just on Crocs North America, can you help identify some of the actions you're taking to help drive some improved results in this portion of the business? And in particular, it would be really great if you can elaborate on both your pipeline of new product and also how you think about the ramifications of potentially losing some of your core customers, given your pullback on promotions?

Yes. Thank you, Chris. So look, I would say returning the North American -- Crocs North American business to growth is a top priority for our overall company. As a reminder, some of the lack of growth or the decline in sales are based on some strategic decisions we've made. One is reducing digital discounting. I think we elaborated on this in prepared remarks, but also reducing wholesale sell-in. So we -- and in that, we're making sure that we're appropriately positioned to grow in the future and not eroding our brand and particularly not eroding our core iconic franchise.

We do think, and that is embedded in our guidance. We do think the North American consumer is bifurcated. There is a portion of our North American consumers that are highly affluent. They're buying Crocs. They're buying other high-end brands, and they are in great financial save. But there is a large portion of consumers who are nervous. They are in less good financial shape, and they're being super cautious about their spending and certainly spending closer to need.

Given all of that and that -- the impact of that, I think we believe we're seeing in our business, I think others have talked about that, and that is embedded in our future expectations. But what are we doing, which I think is the core of your question? Number one, we're focusing on clog innovation and brand relevance. We're introduced -- we have introduced and are introducing a number of key product categories or key product franchises, crafted, echo and reintroducing Crocs brand, to diversify our clog platform and allow greater segmentation across our wholesale partners, and we're quite excited about the impact that this will have.

We're also continuing our diversification into new silhouettes and new categories. We had a strong sandal season in 2025, and we have a very strong pipeline of products going at '26 and a comfort about continued sandal growth, continued growth in personalization. And we're in the heart of slipper season right now. And as you can see, we have a tremendous lineup of slippers and line product actually on both of our brands.

And then continuing our, I would say, disruptive social and digital engagement, we're a leading brand on TikTok for Crocs, the leading brand on TikTop for Crocs, but also a close second for HEYDUDE. And you probably have seen during October, we launched a live streaming initiative where we live stream both of our brands, 24/7 with the prior month and gained -- and achieved all of our objectives from that perspective and learned a tremendous amount about how the consumer is migrating from traditional shopping to social shopping. So I think we have a well-rounded and robust strategy to return Crocs to growth in North America and are very confident in our ability to do that in short order.

The next question is from Tom Nikic with Needham.

I wanted to ask about the marketplace cleanup for HEYDUDE. I know there was quite a bit of action that happened in Q3, should we assume that there's kind of more marketplace cleanup that has to happen in Q4? And would you think that by year-end this year, you'd be relatively clean and that we wouldn't see as much in 2026?

Yes. Good. Tom. I'm glad you asked about this, Tom. So this is important. In Q3, we invested actually a considerable amount of money in terms of the marketplace cleanup. That was primarily return. So we took back edge and slow selling product from some of our large wholesale partners, and it was a substantial amount. We felt this was important to reset how the brand looks at wholesale.

There is more in Q4, which is already embedded in the guidance that we provided. And that is primarily discount -- that is discount support where we're looking to complete some of the cleanup activity. And the majority of it will be done during 2025. I think there's some ongoing inventory health management that will happen in 2016, but it will be far less impactful than we have seen in the last 2 quarters. And in fact, we've been doing this for some period of time.

What I would say is as we look at the impacts of these investments we've made, I think we're quietly encouraged that sell-through is improving based on a reduction of aged inventory in the marketplace, a stronger presentation of HEYDUDE and a stronger presentation of new and current products. We particularly called out stretch socks. This was a franchise that we introduced earlier this year. And as the year has gone on, as our partners are more fully set on stretch stocks and the socks product that was the precursor has sold down and is eliminated, we're really happy with the sell-throughs of that franchise, and it's a really core and backbone franchise for the brand.

Yes. And Tom, just 2 quick things that I would add is that as you can see from prepared remarks, we highlighted that the sell-in and inventory levels are much in much better line for HEYDUDE. So that's a very encouraging sign. And then Secondly, we called out that for the ninth consecutive quarter, ASPs have increased with the HEYDUDE brand, which is also a key metric to watch as we continue to pivot the brand to return to growth.

Very helpful. And Patraic, welcome on Board and looking forward to working with you.

Thank you, Tom.

The next question is from Adrienne Yih with Barclays.

Andrew, I wanted to ask about sort of some of the choicefulness that you might be seeing in the fourth quarter. We've heard from other discretionary companies generally that this -- there's been a little bit of a weakness in the 25- to 35-year-old cohort. Back-to-school generally has been very strong and then a little bit of an exit kind of weakness coming out of the quarter. So if you can talk to that.

And then Patraic welcome to Board. Quick question on the end-of-quarter inventory. The spread looks like it's about 10% between dollars and units. So that seems like it's reflective of maybe the April tariffs. How should we think about on end-of-quarter inventory entering the new year? Does that then express kind of the August tariffs? And how should we think about early spring the pass-through on the gross margin?

Okay. There's a lot there, Adrienne. So let me -- let's take it in the order you asked that I'll do the consumer and then Patraic can give you some color on inventory. I think -- look, I think you're hearing -- you're going to hear from us essentially what you've been hearing from a lot of other people that the consumer is clearly being more cautious about spending, and it's particularly -- I wouldn't categorize it by age group so much. I probably identify it more by socioeconomic strata. We definitely see it in our mid- to lower channels. There is less traffic to stores, right? So they're not even going to the store, right? They don't have the same level of disposable income or flexible income. So they're being more choiceful about what they're buying. They're making fewer trips to the store, and they're also shopping closer to need, right? So we expect -- we're anticipating to see that in the fourth quarter, where typically, even a constrained consumer does release the perk strings a little bit as they celebrate the holidays, whichever holidays, they do celebrate, but they will shop a little closer to need. So those are the things that we're seeing. So I think it's the lower end consumer. It's being more choiceful. They'll be more cautious about what they spend, and they're shopping closer to need. That's how I would categorize it and think about it.

Yes. And Adrienne, thank you for asking the question about inventory. First of all, I'd start off by saying that how we manage inventory here, matching demand to supply is really a strength of the organization. And frankly, it's a competitive advantage in terms of the speed in which we can evaluate and react to consumer demand, in both good times and bad.

You're right, as you call out the spread, that's directionally correct. And what you can think about is that optically with inventory up roughly about 8% as we close the Q3, that was almost entirely on a dollar basis driven by the impact of tariffs. What you really see is in terms of our diligence of managing inventory is on the unit side where we're actually down low single digits. So we feel really good about where we are from an inventory position as ended Q3. We'll continue to exercise that muscle. Honestly, as we are in Q4, we're aggressively managing inventory. Like I said, it is a core competency of what we do.

So we feel like as we turn into Q4, we'll continue to manage inventory from a unit standpoint similar to what we saw in Q3. And then in 2026, too early to comment really on '26, but I think you can take our history as an indicator in terms of how tightly we will continue to manage inventory and at the same time, making sure that we're serving our consumers across the globe.

The next question is from Peter McGoldrick with Stifel.

Welcome, Patraic. I'm interested in the market share in the under $100 assortment. I was curious if you could talk more about the current positioning of both of your brands and then any competitive dynamics that maybe playing out as the consumer feels prices going directionally higher across the marketplace.

Yes. I mean, I think I can talk about that directionally. We don't -- we can't -- it's -- we'll kind of give you precise numbers around kind of market share. I think the strength of both of our brands is that they are extremely democratic in nature, right? They service a very broad range of consumers. Both brands attract consumers for whom this is a very -- a great value. Our brands are of a great value. They also attract consumers that are -- that see these brands as aspirational. So we service a very broad consumer base.

The -- I would say the vast majority of our products are under $100, right? So obviously, you're well aware that the Classic Clog, essentially MSRP 50 and the majority of our HEYDUDE product is between 60 and 70. So from a price point perspective, we give the consumer excellent value.

I think what you're kind of alluding to a little bit, we have seen competitive brands that sell at higher price points, being pretty quick to elevate price points further and capture greater price or elevate pricing pretty quickly to compensate for tariff impact that they're seeing. We see less of that, I would say, a lot less of that at the price points that we compete at. So I think the less than $100 arena remains relatively competitive.

And I think the other thing that you might be alluding to is in terms of competition at these price points, we do see the athletic brands, particularly the big ones, leaning back into these price points and increasing distribution at the, say, the sort of good to better tiers of the market.

The next question is from Rick Patel with Raymond James.

Congrats on the new role, Patraic. We have questions on the North America wholesale channel. First, any color on the spring wholesale order book and how that's shaping up? And second, can you point to any product or innovation wins that would give you particular confidence in being able to reinvigorate the wholesale channel as you look out to 2026.

Are you looking for both brands, Rick? Or are you primarily focused on Crocs?

Primarily on the Crocs brand.

Yes. So we don't provide details on order book, as you know. But a little color we can help you with. As we look at the North American Crocs wholesale order book, there's 2 things going on. One is, number one, our retailers are planning cautiously, right? They're not expecting -- they're not seeing traffic growth, and they're not expecting significant growth in the short term. And I actually don't believe they're going to plan significant growth into the early part of 2026. So they're planning cautiously.

As we talked about last time, and as I just articulated a little bit to Peter's question, we do see athletic gaining some share in the good to better portions of the market, so there's some open-to-buy go into athletic. So there's pressure. We're also managing that carefully. So we would expect, I would say, continued declines in our wholesale sell-in for Crocs in North America. That is embedded in our guidance that we provided in Q4. So that's kind of the framework.

And then the last part of your question was what are we doing and what product innovation that we think is going to counteract that? I would say, number one, we have a really strong lineup from our clog perspective in 2026. We just introduced crafted, which is a clog with a materialized upper. It's a soft materialize upper. The current iteration that you can see in the marketplace have canvas uppers. There are some -- and there is also some leather uppers coming in fact, it's a vegan leather sway coming to the market right about now. We think that franchise has a lot of legs because it makes the clog, the classic clog, which has a molded footbed, more approachable and more accessible to a broad group of people.

Right now, unforgettable, which is our fuss, our highly exaggerated fuss product. And the other lined products that we have in the marketplace, we believe are performing well, are performing well, and we're excited about that. Next year, we're going to be introducing or reintroducing to the market Crocs brand. This is a fan favorite. I think if you look on Amazon, there's something like 200,000 4-star and 5-star reviews for the Crocs Brand. So we've been -- we've downplayed Crocs Brand for some time deliberately to focus on classic where we're introducing Crocs Brands. So we think that has a multiyear trajectory.

And then lastly, we're bringing new Echo 2.0 to the market later next year. And I think the other piece that is important, and I mentioned already, is building on sandals. Sandals were a really strong driver of growth in '25 and we have additional product and enhancements to key franchises as we think about sandals later into '26.

Yes. And hey Rick, just one final comment from me as we close this one out is we talked quite a bit about the wholesale channel. Andrew alluded to that and went into some great detail. I would say that we were seeing D2C accelerate as we go from Q3 to Q4. So we take that as a great sign in terms of how our products and our innovation pipeline are resonating with our consumers. So I don't want to drive past what's happening in the D2C channels.

And to clarify, you're seeing North America D2C accelerate?

That's right. Yes.

The next question is from Jay Sole with UBS.

Great. Andrew, I want to ask about some of the actions you took on Crocs Brand in Q3, specifically with pulling back on promotions. Could you do that across the entire quarter? Or was there a moment during the quarter where you went back to promotions, whether it's feedback school season just to compete?

And then maybe, Patraic, just on the Q3 gross margin, was there a tariff impact on the gross margin in Q3? If so, what was it? And then I think to the 300 basis points you talked about for Q4, is there any mitigation that's a part of that? Or you basically how much of the gross tariff costs are you absorbing?

Yes. I'll be quick and then Patraic can get into your tariff question. So from a North American digital promotional pullback, that was across the entire quarter, right? It didn't go to 0, obviously. But we did both have many more days that were nonpromotional and also the depth of the promotions that we run were typically substantially less than we had run previously. So it was across the entire.

Yes. And then to answer the question on tariffs. So first of all, I think it's been really impressive to see all the actions that are taking place across Crocs as it relates to mitigating tariffs. And so the organization has been on the front foot in terms of identifying where we're able to mitigate, where we can, the impact of tariffs. Specific to Q3, roughly, we had about 230 basis points of tariff headwinds in the quarter. Obviously, we had several mitigating actions, whether it relates to negotiate with our vendors, with our input costs. et cetera, in our supply chain. So we're able to mitigate a good portion of that.

And as we go into Q3 -- or I'm sorry, as we go into Q4, the headwinds that you see there are almost entirely due to tariffs. And the mitigating actions will still be present, but in a slightly muted way, especially as we look at Q4 and the nature of kind of promotional nature of the quarter, and we alluded to that. In the prepared remarks is we're talking about anticipating a highly competitive selling season in.

The next question is from Brooke Roach with Goldman Sachs.

I was hoping to follow up on Jay's question about tariff mitigation. And just get your latest thoughts on pricing as you look to offset some of these tariffs, particularly given the stronger AUR results you've recently materialized. What are your plans for pricing as you move into next year? And then as a follow-up, Patraic, can you provide a little bit of color on how you see that tariff headwind directionally shaping into the first half of next year versus the 300 bps of gross margin pressure that you're forecasting for the fourth quarter?

Yes. Thanks, Brooke. So pricing, so from a conceptual perspective, we don't price the cost, we price to market, right? So I think we've talked about this a lot over the years, right? What we think about from a pricing perspective, we look at both the strength of our brand, the trajectory of the brand and the competitive dynamics for products in the marketplaces in which we compete. And we do this around the world based on the local market. So what we have seen most recently, so in the back half of '25, we have actually taken select price increases on key products in some markets around the world. And we do have a number of those incrementally planned in the early part of 2026.

At this point, though, we are not planning to initiate price increases, for example, in our core classic clog here in North America. We think that is well priced and that portion of the market is still -- is more price sensitive and more competitive. So I think we've got a great pricing framework. We're very precise and dynamic around this and -- but that's kind of where we sit at this point.

Yes. And Brooke, just building on Andrew's comments nature of pricing here at Cross is very dynamic and quite a bit of muscle built in that in that space. So we feel really good about how we're kind of pricing from a value standpoint to our consumers' price to value standpoint.

As we turn into 2026, obviously, we're not providing any sort of guidance at this point in time. That will come in the next call. But directionally, what I can say is impact in tariffs for us and really any other consumer brand or footwear brand that's operating in the countries that we operate in is most felt in the second half of this year. And so what you can directionally think about is that we'll continue to feel some of that pressure as we get into the first half of 2026.

The next question is from Aubrey Tianello with BNP Paribas.

Wanted to ask on stores. And if you can give us an update on the store growth strategy for both brands, but especially Crocs, where there's been a pickup in store openings over the course of this year? How should we be thinking about store growth going forward?

Yes. That's a great question, Aubrey. Glad you asked it. So starting with Crocs, there has been a bit of a pickup in store openings. A lot of that is driven out of our European store base, right? So we've very successfully opened a number of stores in Europe. Those are almost all outlet stores in the U.K. and France principally. And I would have to say they are performing incredibly. So we're super happy about that.

Also some store openings in Asia and a small number here in North America. So as you probably know, our store base is incredibly profitable, very high sales per square foot, high margins and a very good strong flow-through. The other thing I would also highlight for those of you in New York is we did open our SoHo store earlier this year. It's performing very, very well indeed, super happy with it. And it's also I would say, the pinnacle presentation of the brand. And you may have seen on social media that we were live streaming from that store during October. Cerence Riley, our Chief Brand Officer, did an amazing job live streaming from the store and also featuring some celebrities, including Jack no. So it's been a great investment for us.

From a HEYDUDE perspective, we have also continued to open stores here in North America. Again, outlet stores, which is the 1 thing that we have done this year is shifted where we've opened the stores suddenly, and they're a little bit more in what we call HEYDUDE country, the HEYDUDE Heartland. And again, those stores continue to meet our expectations.

Yes. And Aubrey, the only thing I would add and just kind of emphasize in terms of Andrew's comments are the profitability of the Crocs stores, both domestically and internationally, super impressive. And you can kind of see that in the cascade of the financials and something we haven't talked about as much on the Q&A portion of the call is generating the free cash flow that is just inherent into the -- in what is the strength of our financial model. And so our stores are an important part of that, and they draw off and they generate a lot of cash, which allows us then to both invest back into the business and return capital back to our shareholders.

The next question is from Anna Andreeva with Piper Sandler.

Great. Welcome to Patraic. We had a question on $100 million in savings. Just any color on how we should think about the cadence of those as we go through '26. Is the expectation that these are scaling as we go through the year or more equally divided? And what's the amount of savings we should expect for the fourth quarter?

And then just as a follow-up, Patraic, you mentioned North America DTC accelerated quarter-to-date at Crocs. It is pretty impressive considering fewer promos. And I know Crocs is a big deal for the business. Anything you did differently this year? Is this driven more by TikTok, just any color you could provide on that? And what's implied in the guide for North America DTC at Crocs for 4Q?

Yes. So Anna, let me hit the cost savings first, and then we'll get into the second part of the questions. So first of all, the $100 million number, that's a gross number, right? And so what we mean by gross is we have identified $100 million of savings across the entirety of our cost base, whether that's in cost of goods, SG&A, et cetera. And we are -- we've done that, number one, to make sure that we're operating as efficiently as we can, of course.

But then secondly, to provide us with the flexibility to make choices as we get into 2026. And those choices could be flowing those savings to the bottom line. Those choices could be. investing in areas that we see in terms of outsized growth that we're able to chase into. And so I'm not going to get into a cadence of kind of quarterly at this point. It's too early in that. We'll provide a little bit more detail on that when we get into 2026 during the Q4 call. And I think the second part of the question, Andrew, is going to hit on.

Yes. So just a point of clarification, we did not say that DTC accelerated during Q3, right? So we actually don't comment on trajectory within the quarter. But what we did say is we believe that DTC in North America will be stronger in Q4 than it was in Q3.

This concludes our question-and-answer session. I would like to turn the conference back over to Andrew Rees, Chief Executive Officer, for any closing remarks.

I just want to say thank you, everybody, for joining us today and your continued interest in Crocs, Inc., and we look forward to continuing to speak to you in the future. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Great. Good morning, everyone. Thank you for -- I guess, good evening. We've been here so long. I still thought it was morning. So -- anyway, great to see you all. Thank you for coming to the Crocs fireside chat.

My name is Kerry Burke. I'm a Managing Director here at Goldman. And I'll be speaking today with Andrew Rees, Director and CEO of Crocs, a global leader in casual footwear with 2 iconic brands. Thank you for being here with us today.

Thank you, Kerry.

I believe you have a few statements you'd like to make it to open before we turn to Q&A. So I'll ask it to you.

I'll try and wrap those up quickly. So my lawyers would like me to read a little short safe harbor. So we will make some forward-looking statements that are not historical facts. These statements are subject to risks, et cetera, et cetera, and the replay of this will be available on our website.

So just to kind of set the stage for 2 minutes. Some of you are very familiar with Crocs, some of you are not. We have 2 brands despite the name of the company. One is Crocs. That's about 80% of our business. That is diversified across a broad range of footwear from clogs to sandals and also personalization. The Crocs brand trades around the world in over 80 countries and is very well diversified from a geographical perspective.

We also own a second brand, HEYDUDE, which many of you are probably less familiar with. HEYDUDE is a casual footwear brand. It's iconic styles, the Wally and the Wendy, which are loafer styles. We bought it a number of years ago. HEYDUDE is about 20% of our overall sales. It's primarily sold here in the United States, so with a nascent international business that is emerging. And it's profitable today, but is a brand that we're investing in for future growth.

As a company, one of the most important characteristics of our company is that we are incredibly profitable, very high cash flow, and that is a key part of our shareholder return strategy in terms of being able to leverage that cash flow to buy back stock and return equity or return monies to shareholders.

Recently, we announced our Q2 earnings. We had a very solid Q2, performed very well really in the first half of the year. As we look to the back half of the year, a couple of things going on. We are increasingly cautious around the consumer. We see signs of the consumer being more cautious than they have been historically. And potentially, what might differentiate us from some other companies that sell into the footwear space is we have a very broad consumer base from the very high-end consumer to a very moderate consumer.

We particularly see that concern around pricing and around the constrained budgets with that moderate consumer. We also see retailers, our wholesale customers acting cautiously in this environment, and we see a little pressure from an athletic trend. So as athletic is taking a little bit of open to buy in some key channels, it's really squeezing the casual portion of the business.

In addition to some of those headwinds, we've also made some important strategic choices around protecting our brands for their long-term success, long-term growth and long-term position in the marketplace, reducing discounts in terms of how much -- so trying to get some benefit or get some money back to compensate for tariffs by focusing on net price, so reducing discounts on the Crocs brand. And we're also taking some strategic steps on the HEYDUDE brand to clean up distribution.

So as we look to the rest of the year, our guidance is more muted. We talk -- we think about Q3, guidance we provided for Q3. Overall sales will be down 9% to 11% and the majority of that compression would really come from HEYDUDE, with the Crocs brand in the low single digits in terms of decline with growth internationally. So hopefully, that kind of sets the stage. I'm going to take too much of your time, but...

Perfect. Well, you were one of many companies that had announcements over Labor Day weekend and on Friday. So why don't we start with the Friday announcements on the CFO transition?

Yes. So we were really happy to announce a new CFO for Crocs, Patraic Reagan, will be starting as CFO in -- on the 22nd of September, so in just a few short weeks. Patraic joins us most recently from Shark Ninja, which I think were also here at the conference today and where he was CFO. But prior to that, he was -- he spent 14 years with Nike in a variety of positions, including some international placements. So we're excited that Patraic brings, I think, a wealth of footwear experience. And as he said in his -- in our quoting process was Crocs is one of the companies he really dreamed about working for. So we're excited.

Great. You also reaffirmed your quarterly guidance.

Absolutely.

Any insights you can share on back-to-school, how you're seeing trends so far?

Yes. I think -- I would say back-to-school in the third quarter has really much played out as we expected it to, right? So obviously, we reaffirmed our guidance. I think back-to-school is not necessarily the hugest time for our brands, right? It's very much an athletic or a key brand period. Our brand is doing well in back-to-school, but it's not a significant peak.

We did see back-to-school tighten up a little bit in terms of the number of weeks that the consumer was out shopping. The other thing that did happen in Q3, which was beneficial was the tax holidays. They're often timed with back-to-school, but we saw many states across the country extend their tax holidays. For example, Florida was essentially had a tax holiday for a month this year, and it was a week last year.

So that was another dynamic that was going on during the quarter. I think we still see the consumer behaving as they behave to this point in the year, the low-end consumer is choiceful and cautious. The high-end consumer has got plenty of money and is shopping. But I think we've kind of calibrated about right from a guidance perspective.

Yes. Why don't we double-click on the Crocs brands first? Some of the areas of focus for investors as of late has been your more cautious tone on North America. What are some of the key drivers of that slowdown? You just mentioned the consumer being a little bit more easy.

Yes. Maybe I'll kind of double-click on that and then also say what we're going to do about it, right, which is -- so really the key driver of that more cautious tone in North America is that consumer concern. And I think we're appropriately thinking that the consumer, there's no -- we don't see a pivot point in the near future for the consumer to change their current trajectory. So we plan that forward.

And then additionally, the strategic actions we've taken. So trying to get net price by reducing discounts on the Crocs brand. That's particularly within our DTC channels where we can control that directly.

So in terms of how we're reacting to that, I think it's important that we can continue to diversify our clog business. We're introducing a number of new clogs over the current remainder of this year into next year with Echo RO, with Crafted, which is a classic clog covered with materializations. Those continue -- those appear to be performing very well out of the gates.

And then also fuzz and line product for the winter, where we have some significant renovations and innovations of the products that we had in the marketplace there.

Sandals performed very well in 2025 during the summer sandal season, particularly here in North America as we expanded distribution on sandals and wearing occasions. And we have, I would say, a pretty significant enhancement to our lineup for next year, and we anticipate sandals performing well in North America and Rest of World.

And then personalization, we continue to lean strongly into personalization, continues to be an incredible megatrend. We -- a fun fact, we opened a store several weeks ago here in SoHo, New York, where we massively expanded our personalization offering. And it dramatically increased the percentage of sales. Erinn will yell at me if I tell you how much, but dramatically increase the percentage of sales that we do on personalization. And as everybody is probably intuitively aware, that's an incredibly high-margin category. So that's exciting.

On your Q2 earnings, you highlighted that improving athletic trends could pose a headwind to casual footwear more broadly. Could you explain your thought process behind that a little bit more?

Yes. I mean it's just really the dynamics of open to buy, right? So if I think about our large wholesale customers, family channel, sporting goods, they -- I think they're planning their business appropriately cautiously, particularly the family channel, the sporting goods, I think a little bit more optimistic.

But essentially planning the business is down as they think about the remainder of this year and early part of next year. So that constrains open to buy. And then if they need and want to give a bigger share to athletic, it further constrains open to buy. So it's just the dynamics of where they think the consumer is going to be. Now obviously, our job is to give the consumer incentive to purchase Crocs and get them into the store to purchase Crocs.

And I think they're also taking a little bit of a wait-and-see approach, which is they're not essentially spending all of their open to buy. They're keeping some in their pocket and not chase the things that are working. So if we can drive consumer demand larger than the purchases, we can potentially get some opportunity there.

Great. Crocs is more international than I think most people probably realize. Where do you see white space internationally? And what gets you excited about your continued momentum there?

Yes. We see a lot of white space internationally. So another fun fact in Q2, Crocs sales were actually bigger outside the United States than they were inside the United States. And if you went back to -- I'll get this wrong, but I think it's 2014, 2015, Crocs was about 60% international sales, 40% domestic. And what's happened since then is the domestic business, the U.S. business has just grown extremely rapidly, and now we're growing the international business rapidly. So it's obviously a big world.

So what we do is really focus on the big markets. So the biggest footwear markets are really China, Japan, Western Europe, India is important. South Korea is important. So we have a series of markets we call Tier 1 markets. Those markets have full multichannel distribution. They have teams on the ground, and they have top-tier marketing spend in terms of generating the brand in the markets.

We also use distributors in a lot of markets where we don't want to put all of those resources on the ground or there's something unique about the market or risky about the market that we don't want to take on. So South Africa, for example, which happens to be a really good market for Crocs and HEYDUDE, but it's not a market that we want to have feet on the ground and investments in the local currency.

So that's our kind of approach to thinking about the international business. But the macro point is that the average penetration, the average market share we have in our international markets is about 1/3 what we have in our major leading markets like the U.S. So if you were to believe that you could get to the same market share, there's a lot of white space in the majority of the globe.

Right. Let's switch to HEYDUDE. So you're taking some significant actions to reset the brand in the near term. Can you speak a little bit about some of the changes that you've made and where you see the company going?

Yes. So let me sort of step all the way back again for HEYDUDE. We bought the brand almost 3 years ago -- actually over 3 years ago now. And the reason we bought the brand and the reason we bought a brand that was significantly scaled already is we wanted to give some diversification to shareholders and investors in the Crocs Inc. company.

Because historically, if you invested in Crocs, you were buying a company that was a single brand and very highly concentrated in a relatively small set of products. So we heard very strongly from investors that they wanted more diversification, and we felt this was a compelling brand to drive that -- to enable that diversification because it's sold at a similar price point and similar distribution and felt like it was a consumer that we understood, but yet enabled a much bigger market size for us to focus on.

We definitely had some challenges since we purchased the brand since we operated over the last 3 years. At this point, I think we're doing really a number of critical things. Number one is we're cleaning up the wholesale market here in the United States. As I mentioned at the beginning, the majority of HEYDUDE sales are here in the United States. And we felt like we were over distributed, and we had too much aged inventory in the marketplace in the wholesale marketplace.

We've taken a number of -- made a number of investments to clean that up over the last several quarters, but we decided to make a bigger investment in the remainder of this year and get that behind us. That was one thing.

The second thing we decided to do is as we looked at the performance marketing spend, we figured -- we saw that we felt like we're spending too much money on performance marketing and not enough on brand marketing. So we've taken the performance marketing budget down, which does have a cost in terms of we missed sales that we might otherwise have been able to attract. But as we looked at the marginal profitability of those sales, it was very, very low, if not negative. So we're improving the profitability of the brand, taking a bit of a sales hit, but resetting for the future. So those are the actions we're taking right now.

More importantly is what we're trying to do for the future. So we've got a significant number of new team members. So we've retooled the team for HEYDUDE, brought in a Head of Commercial from Adidas several months ago, Rupert Campbell, is doing extremely well. We brought in a new head of product for the brand actually came over from Crocs, who is doing an amazing job and really strengthened the team internally with HEYDUDE.

So as we look at our product pipeline, we look at our marketing strategies, we look at what we're planning to do over the next 12 months, I think we feel really good about the trajectory we're on. And I would say from an investor perspective, I think just be assured, we recognize this is something we need to fix, and we're going to focus on it intensively to fix it.

And no one in the room is wearing a cowboy hat, but if you want to talk a little bit about your new HEYDUDE Country launch, that could be interesting as well.

I know. So HEYDUDE Country is really a pivot to the core consumer, right? So we spent some time over the last 12 months really trying to attract a new consumer to HEYDUDE. And those investments while productive, we're not sufficiently productive to counteract for the distraction they provided in terms of talking to the core consumer.

Now you might say that's a tautology that pretty much always happens. Well, it's definitely occurred. So HEYDUDE Country allows us to pivot as an umbrella back to our core consumer. So for those of you that are not aware, the HEYDUDE brand is most strong in select areas of the country. So if you think about kind of the Midwest running down to Texas and then what I call a lower case ' h ' going up through Tennessee and the Carolinas down into Florida, that's HEYDUDE Country, right? So those are the places where the brand has the highest awareness, where the product on the shelf in a store that we might operate or a store that one of our wholesalers operate, it sells at a very different trajectory than it does in the Northeast or the West Coast.

So what we're doing with HEYDUDE Country is celebrating our core consumer. We're focusing our marketing investment on them, encouraging them to come back and buy new pairs. We're then also looking for people that look like them in other parts of the country, so we can expand the brand. We're looking more towards him than her, but not ignoring her because he is definitely the core of the consumer. And I would say early signs, our relationship with Riley Green, some of the work that we've done to date, some of the work that we're doing at college football with NIL athletes, et cetera, and also producing SEC branded shoes, we're really seeing -- we're seeing early signs that it's getting traction with the consumer, and it's encouraging.

And moving from marketing for HEYDUDE over to marketing for Crocs, any other brand strategies or marketing on that we should think about?

Yes. I think we're definitely focused on -- we made some strategic choices around personnel. So Terence Reilly, some of you -- a name some of you may be aware of. Terence was with us a while ago, and he was the Chief Marketing Officer for Crocs as we really invented the marketing strategy that we've been pursuing for Crocs.

Terence took a break from us and went to Stanley, the drink company, not the tool company, and really drove the incredible popularity and growth of the Stanley business. He came back to us a year ago. Initially, we had him as Head of HEYDUDE, but now we moved him to a position called -- where he oversees marketing for both brands. And I think what Terence's secret sauce is really all about marketing innovation. How do you reach the consumer in new and innovative ways that you can stand out relative to other people who are trying to reach the consumer and get in their ears.

And I would say a few things that we are focusing on that we're liking the trajectory of is social selling. The Crocs brand is the #1 brand, #1 footwear brand on TikTok Shop here in the U.S. The HEYDUDE brand is the #3 brand on HEYDUDE on TikTok Shop. Actually, it was the #1 last week. So both of our brands are performing extremely strongly, and we're leaning into social selling.

Now why are we leaning into social selling, you might ask, because a couple of things. One is you -- it's basically marketing that you get paid for, is the way to think about it. So we can make money and the margins are very appealing in terms of selling the product and we are able to measure a halo from that activity to our other channels. So we can measure a halo over onto our website.

We can measure a halo over on to Amazon. We can measure a halo into store. So we're really excited about that. We've always done a lot of this in China over the last several years, but we're delighted that, that channel is available here in the U.S. today. And TikTok shop is opening quite quickly around the world. So we've already opened in the U.K. We're opening in Western Europe and some of the biggest markets are in Southeast Asia from a consumer connectivity.

The other thing that we're also experimenting with is live streaming, again, comes over from China where it's a really critical selling tool. And again, it's a selling tool. So there's a commercial aspect to it, but more importantly, there is storytelling aspect to it.

And as I think about the consumer today, the consumer is receptive to authentic messages and storytelling from people like them or people that they can relate to versus TV commercial. So I would say really focused on the innovation associated with marketing and reaching the consumer in new and expected ways.

Great. One question that we're asking every company at our conference is the health of the consumer. And do you expect the health of the consumer to be better, the same or worse in 2026 versus '25?

I would say in the U.S., I think the consumer will be the same as they are in the back half of '25 and '26. I don't see any significant pivot point that I believe is going to make them be worse or better. So my assumption is they'll be the same.

But obviously, it's a relatively unpredictable landscape today. On a global basis, the answer could be a little bit different. I think on a global basis, I think in Asia, the consumer actually could be more buoyant than it is today because the China economy is quite a pressure on the China [indiscernible] consumer, but also the broader Asian economies because so much of their commerce flows to those economies. And I think that they're very proactively stimulating that consumer in those economies. So I think there'll be some improvement there.

And with that as a backdrop, how are you thinking about the competitive landscape today?

It's dynamic. I think as we think about the places that we compete we see competition from above and below, right? So we see smaller brands coming up that are maybe trying to take a piece of our business, whether it be on the molded side or on the HEYDUDE side. But we also see some of the bigger brands as we scale trying to address the wearing occasion that we address.

So I think there's always competition. But as we've gotten bigger, we do see more competition and I think the onus is on us is to continue to innovate from a product perspective and bring new and unexpected and successful products to market, but also innovate from a marketing perspective and engage the consumer in ways that other companies wouldn't be prepared to do.

So TikTok Shop, for example, right, like we are a pretty modest-sized brand in the U.S. marketplace. It's sort of mind blowing that we'd be the #1 brand on TikTok Shop relative to all those others that exist. And so I think that's just a testament to the speed at which we can move and the willingness to experiment and take risks, which doesn't exist in other brands.

And how are you feeling about your ability to take price? Do you think you have price [ elasticity ] either in Crocs and HEYDUDE or is it by SKU? How are you thinking about that?

Yes. It's a tricky question because obviously, we've got that headwind of tariffs. And I think we've talked publicly, we believe our headwind for tariffs about $90 million next year. We'll get some of that back from supply chain efficiencies. We'll get some of that back from manufacturing efficiencies, but price is going to be a key equation to that as well.

We are pretty strategic about price. We're really looking for on a couple of different dimensions. One is what is competitive price today. And in this case, we've got to think about what competitive price might be in the future because we do believe there will be a systemic rise in footwear prices over the next 12 to 18 months.

We haven't seen a ton of that come through yet, but we do believe it's coming. And then the other thing we're looking at is what are the places in our product portfolio that consumer is less sensitive. So a limited release or a collaboration has a lot of pent-up demand. Obviously, they're much less sensitive. And also what is the state of the brand and the heat of the brand in the relevant market. So we have historically, over the last 7 years, taken a lot of price in the U.S.

Over the last 2 to 3 years, we've been taking quite a bit of price strategically around the world on the Crocs brand. And over the next year or so, I think you'll see us strategically move prices. We're not anxious to be the leader in that price increase game. We think we -- one of the powers of the Crocs brand is we give incredible value to our consumers. So we will go up when the competition goes up, but we're not leading them up.

I appreciate that you're sitting here without your CFO, but I'm still going to ask one question on margin. Recognize you don't currently have guidance for 2025. But previously, you had guided towards long-term margin of 24%. Should we still be thinking about that over the longer term?

Yes. So look, I think there's a couple of things in there. Number one is the 24% obviously just accentuates to everybody what an incredibly profitable company this is, right? So we generate incredible profit margins and cash flow that goes with that.

The 24% that we did -- were very clear when we articulated that, that was in a normalized trade environment and normalized FX environment because FX is meaningful to this company given how much business you do outside the United States.

I don't think we're in a normalized tariff or trading environment in 2025. So I don't think we should be thinking about that as the right margin performance for the company. But when those things do normalize over time, we do think that's a viable in the future, but I don't think it's right now.

Perfect. That concludes my prepared questions. Do you have any closing comments or thoughts you'd like to leave with the audience?

Yes. I mean I think probably the most -- fairly generic, but I would say the footwear space is an incredible space, right? As I think about all the different businesses I've worked within over my career, the footwear space is an incredible space. It's a high margin. It's branded. It's global in nature. It's a great marketplace to play in.

So we're excited to be participating in this market. And as I think about companies that I invest in, I think about markets that are really great markets to participate in and the wins at your back. And then we're excited about our company. We have 2 incredible brands, I think, give the consumer incredible value. They play into what we think are global megatrends associated with the footwear space, comfort, easy on enough, high value, and we add an element of personalization and excitement, which comes through most strongly on the Crocs side. So we're very optimistic about our ability to continue to grow these brands in a long-term sustainable way around the world.

Perfect. Well, thank you so much for taking the time with all of us today. We appreciate it.

Thank you so much.