Welcome to the Crocs Incorporated Second Quarter 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Corinne Lin, Vice President of Corporate Finance. Please go ahead.

Good morning, everyone and thank you for joining us today for the Crocs second quarter 2022 earnings call. Earlier this morning, we announced our latest quarterly results and a copy of the press release may be found on our website at Crocs.com. We 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 include, but are not limited to, statements regarding the acquisition of HEYDUDE and the benefits thereof, Crocs’ strategy, plans, objectives, expectations, financials or otherwise and intentions; future financial results and growth potential; anticipated product portfolio, our ability to create and deliver shareholder value and statements regarding potential impacts to our business related to the COVID-19 pandemic. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the Forward-Looking Statements. Crocs is not obligated to update these Forward-Looking Statements to reflect the impact of future events, except as required by applicable law. We caution you that all Forward-Looking Statements are subject to risks and uncertainties described in the Risk Factors section of our annual report on Form 10-K and our subsequent filings with the SEC. Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs annual report on Form 10-K as well as other documents filed with the SEC for more information relating to these risk factors. 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. Joining us on the call today are Andrew Rees, Chief Executive Officer; and Anne Mehlman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. At this time, I will turn the call over to Andrew.

Thank you, Cori and good morning, everyone. I’m pleased with our very strong second quarter results and the strength of our brands as we continue to navigate a dynamic consumer environment. Both of our brands are incredibly well positioned relative to the core consumer needs of comfort and value. We are very confident that we will continue to gain significant market share, resulting in industry leading growth, profitability, and cash flow. I want to also thank all of our teams across the world for all of their hard work as they respond to the many opportunities in front of us. Looking at the second quarter of 2022, Anne will review our financial results in more detail shortly. But here are a few highlights. Consolidated revenues of 965 million, growing 56% on a constant currency basis. The Crocs Brand had another great quarter growing 19% constant currency, negatively impacted by Russia and the China COVID lockdown, which offset approximately three percentage points of growth. HEYDUDE exceeded expectations generating revenues of 232 million an impressive growth almost doubling compared to last year. In July, we launched a new brand campaign for HEYDUDE, that we think is compelling and introduced as an updated brand identity. Adjusted operating margin on a consolidated basis remains best in class at 30%, despite currency, inflation and supply headwinds. Adjusted diluted earnings per share increased $1.01 to $3.24. Finally, we are very proud that Crocs’ recently earned a number three spot on [Forbes] (Ph) list of America’s best employers for women. We are particularly pleased with our Q2 results in the context of the overall market. While market data is not as complete and timely as we would like, based on a variety of sources, we believe that the footwear market in the U.S. track in the first…

Thank you, Andrew and good morning, everyone. I will begin with the short recap of our second quarter results. All revenue growth rates will be cited on a constant currency basis unless otherwise stated. For a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts please refer to our press release. As you have already heard, both brands performed well during the second quarter, amid many headwinds, we delivered strong revenue growth of 19.4% within the Crocs Brand taking our first half revenue growth to 20.3%. HEYDUDE revenues continue to exceed our expectations and almost doubled from last year. Gross margins remain strong, particularly for the Crocs Brand despite freight and FX headwinds. While consolidated SG&A leverage led to another quarter of industry leading adjusted operating margins of 30.1% and strong adjusted EPS growth. Second quarter consolidated revenues were $965 million representing 55.6% growth over last year. The Crocs Brand had a record breaking quarter with revenues at an all time high of $732 million up 19.4% on top of 88.4% growth last year. The Crocs Brand growth rate was negatively impacted by currency of 510 basis points in the quarter. HEYDUDE revenues of $232 million also a record were up 96%. During the second quarter, the Crocs Brand sold 32.4 million pairs of shoes, an increase of 11.4% over Q2 2021. The Crocs Brand average selling price during Q2 was $22.39, a year-over-year increase of 2.5% driven primarily by higher pricing and product mix offset in part by channel mix and currency. Let’s review a few Crocs Brand highlights by region. In North America, second quarter revenues increased 7.8% to $423 million on top of over 132.3% growth last year. This growth was driven by digital channels, including our own eCommerce, where we saw strong growth in…

Thank you, Anne. Through the remainder of 2022, the strength of our brands continues to position us perfectly to take significant market share during these uncertain times. Our thoughtful management will drive strong profitability and cash flow and create tremendous shareholder value over the long-term. Operator, please open the call for questions.

Thank you. [Operator Instructions] Our first question comes from Tom Nikic from Wedbush Securities. Please go ahead.

Hey good morning. Thanks for taking my question. I just wanted drill down a little bit on the slowdown that you are expecting for Crocs Brand. I mean, sounds like a pretty significant step down in Q4 kind of backing into something more like a mid-single digit growth to high single digit and constant FX. I just want to make sure I kind understand what is happening here. Like, is it a combination of DTC and wholesale? Where you are assuming more conservative assumptions? Is it something that you have been heard from the wholesale partners, I just kind of want to make sure I understand what exactly is happening in the North American market?

Yes. Let me kind of give the sort of high-level Tom, and then I will hand it over to Anne more specifics. I think the backdrop, as we talked about a little bit in our prepared remarks is we are just anticipating that the consumer continues to soften through the remainder of the year. As we look at the consumer over the past several months, we have definitely seen very concrete signs of this in softening. I think, we are very optimistic about back-to-school and feel good about that. But we anticipate as the drag of high interest rates, high inflation and uncertainty continues to impact the consumer that will soften as the years are gone. So we are trying to be more prudent and build that into our expectations, by building that into our expectations, we can manage our inventory, we can manage our costs appropriately so that we kind of orientate towards our number one priority of maintaining very high levels of profitability and strong cash flow. And Anne can give you kind of a little bit more cover on that as well.

Yes. I think, that is exactly right. When we were thinking about the full-year, we have obviously absorbed several headwinds, so about a $100 million of currency pressure, which is about 440 basis points. The shutdowns in China and Russia for the full-year accounts for about 180 basis points. So we tried to incorporate all of that into our full-year from a Crocs perspective, as well as just readjusting where we think the consumer could go for Q4. We wanted to make sure that we planned prudently, so that we could also plan our inventory and cost structure around that.

Yes. And maybe I will come back on the flip side we see very strong growth internationally. We don’t see some of those same pressures in some of our international markets. And so we are excited about continued growth internationally. And then obviously, we have only owned HEYDUDE for a relatively short period of time now, but that continues to perform extremely well above our expectations. And as we look forward, we - as we talked about, we are getting a little bit more confidence in security or supply that. So we think there is more upside deck too.

If I could just quick follow-up, you made a couple of references to managing cost structure and despite a more conservative top-line, you maintain the margin rate outlook for the year. Can you just kind of talk a little bit about how you are able to kind of maintain the margin rate for the year despite some of these kind of mounting top-line?

Yes, I think, we have a pretty flexible cost structure and we have adjusted investments to be in line with where we think the top-line is growing, and we are obviously still growing our business strong double-digits. So, it is easy to kind of pull back a little bit and still invest in marketing, which we are still planning on doing at the same rate as we were previously, which is for the Crocs Brand approximately 8% to the year. So that allows us to kind of take advantage of that. Also gross margins underlying for the Crocs Brand remain strong as well. We have air freight tapering off in the back half of the year. We do have some cost pressures coming in from a gross margin perspective, but we do lose the air freight headwind in the back half of the year, as we spent $75 million of that air freight investment program that is concluding in Q3 and we don’t have - I think we only have about $15 million left.

And just as a point of strategy, we believe that we maintain - we create the most future shareholder value by maintaining profitability. So we are not anxious to sacrifice profitability to drive less profitable growth.

Understood. Thanks very much and best of luck for the remainder of the year.

The next question comes from Jonathan Komp from Baird. Please go ahead.

Yes, hi thank you. Maybe just a follow-up, as we think about the Crocs progression throughout the year, could you maybe share a little more specifically on how you are planning especially North America for the fourth quarter? And then as you think of the Crocs Brand holding on to the gains from the last couple of years, especially in the Americas, is your confidence in that outlook changed at all? I know you are still projecting a $5 billion long-term target. So I just want hear how you are thinking about - any differently about the Crocs Brand.

Yes. Great question John. So look, the Crocs Brand is absolutely holding onto the gains that it achieved over the last couple of years. In the first half of the year, the Crocs Brand grew about 20% globally. It grew in the U.S. marketplace, and the market was flat to down. So, we are gaining share, we are continuing to gain share. And I think the guidance that we are providing we anticipate will also be strong share gain for the Crocs Brand. So I think, we have definitely holding onto the gains that we have been successful in acquiring for the last couple of years. As we look at the Crocs Brand, I would say all of the brand metrics remain extremely strong. So our own internal brand studies give us great confidence that the brand continues to strengthen over what it has been. You can see that in organic search. And we also hear that from our wholesale partners, as we discuss the brand and we discuss future strategies and how we are going to continue to gain share shelf in our major wholesale partners, both here in the U.S. and in key international markets. DTC, if we look at DTC in the first half, particularly in Americas, I know people are focused on the Americas that grew 10% on a constant currency basis. So again, significantly better than the market and growing over last year, which was an absolute record for the Crocs Brand. I would say we continue to see very strong demand for the core cloud that is driving a big part of our revenue growth and that is particularly here in the U.S. and also internationally. So I think, everything that we are seeing really supports long-term thesis, and even given I think what is a softer consumer environment today and we are anticipating over the near-term. We still have great confidence in our ability to hit the $5 billion Crocs Brand growth target that we put out there by 2026.

If I could just add to the full-year, we did guide that all of the regions would grow. So all of our Crocs regions will grow for the full-year.

Okay. And just to clarify and that is full-year, not specifically to the fourth quarter which -.

Yes. We didn’t guide fourth quarter specifically.

Okay. Thank you. And then maybe, Andrew. One follow-up on HEYDUDE, you obviously, the message has changed pretty dramatically, even though you have only had it for one full quarter here with respect to the longer term outlook. So I want to maybe just ask more specifically what you are seeing early on for that brand to give you much more confidence in the potential and some of the early relationships you have engaged from wholesale partners, what are they seeing and what type of feedback are you getting? Thanks.

Yes. So I think maybe kind of - I will try and start at the top. So as we did our consumer research in due diligence, and as we look, as we speak more-and-more to the consumer over the last several months, once we have owned the brand, we see like a tremendous brand love from the consumers. The consumers absolutely love the brand. They are passionate about it. They talk to everybody about it. The viral component of the brand communication is extraordinary. And we think that is due to what is a relatively unique product. It is lightweight, it is comfortable, it is easy on and off. It comes in hundreds, if not thousands of different materials and flavors, so they can buy multiple pairs. So there is a tremendous brand and consumer connectivity. That has not been created by brilliant marketing in the past. It is just the product and then finding and loving the product. And so as we look at our plans, I think we were cautious initially, because we were taking over a founder led very entrepreneurial company. It wasn’t really clear to us the degree to which we could get supply in the near-term. I would say that has achieved. There is gone a lot better than we thought. And so we have been able to shore up their supply, manage the supply, and really satisfy a lot of short-term demand. So that was kind of our cautiousness in the short-term. As we look to the longer term and specifically receptivity from sort of major wholesale partners, we are seeing I would say exuberant enthusiasm from wholesale partners that have taken on the brand. We have shipped a substantive amount of product to a number of key partners so that they could be in business for back to school. And I think the comments that we are hearing are things along the line, it is the standout brought back to school. It’s really performing above almost any other brand we have in our portfolio. So we are seeing very, very strong performance from that, which obviously then gives us confidence to plan, share a shelf in those partners and to plan our growth for the future. We are not yet ready to talk about what we think that looks like, it is very early days. But I think, you can be confident that we will follow - the playbook that we followed Crocs. We will build a strong and thoughtful domestic business here in the U.S. And we think we are pretty confident. The brand has a lot of likes internationally as well. So, we are pretty excited.

Great. Thanks again.

The next question comes from Abbie Zvejnieks from Piper Sandler. Please go ahead.

Thank you for taking the question just on inventory. Can you talk about the composition of the inventory and then how we should kind think about the promotional cadence and the back half and how if that will have an impact on margin at all. And then are there any differences in product availability between Crocs and HEYDUDE? Thank you.

I will talk about the first part and then I will let Andrew talk about product availability. So, inventories were up in the Crocs Brand, but bear in mind that, last year at this time, our inventories were exceptionally lean, especially in the Americas where we see most of the increases today. So if you exclude the HEYDUDE inventory, Crocs inventory was up about $125 million, about 60%, about 30% of the increase is due to in transit. And then we have about another 30% due to inflation sitting in inventory resulting from that is from thus far the higher freight costs, the fob and duties that are all sitting in that inventory. So while it is a little bit heavy, we do think that we will get back to four terms and we are working really hard to do that, including in transit. If you exclude in transit now, we are still turning above six times. And then the remainder of the inventory of increases really related to HEYDUDE and that turns very quickly and that is very efficient, as that mostly wholesale, a lot of it is pickup and then related to our comp business for HEYDUDE.

Yes. So, Anne also embedded in question I think was sort of future promotional environment and availability differences between HEYDUDE and Crocs. So let me kind of hit on those. So, look, I think, we have already seen the retail environment, particularly here in the U.S. become more promotional, certainly more promotional than it was last year. I would still love to get back to sort of pre pandemic levels. And as we said on our last call, we think it is important as a democratic brand and both of our brands that democratic, we reach a very broad base of consumers. We, we need to participate in those events and you saw that at 4th of July, et cetera. And as we look through the back half of the year, we will continue that strategy of participating in those key events. In terms of inventory availability, I think we have pretty strong availability on the Crocs side associated with our core products. And as you look across wholesale, e-com, E-tail and our own source, which we are very much in stock and trading strongly on our core product. We are still lacking a little newness, particularly I would say within sandals. So we have a strong pipeline of newness through the back half of this year, as we catch up from the factory closures back end of last year. And I would say, as we look to 2023, we have a record cadence of newness for the Crocs Brand in particular. So we think that is particularly important. On the HEYDUDE side, the key issue for inventory availability is flow through. So we are getting strong shipments from our factories in Asia. And we are investing in our distribution capabilities to provide stronger flow through to our customers here in the U.S. and abroad.

Thank you. It is super helpful.

Thank you.

The next question comes from Sam Poser from Williams Trading. Please go ahead.

Good morning. Thanks for taking my questions. I got a whole pile, so I will start with gross margin. What is the - can you give some color on the gross margin for HEYDUDE in the quarter? And can you tell us sort of what the gross margin expectation is for the balance of the year, or year gross margin expectation are we looking down 600 basis points or somewhere in that world?

Yes. So let me start with the adjusted gross margins for the quarter were impacted by the addition of HEYDUDE, which accounted for about 250 basis points of decline for the quarter. So from that they were impacted kind of - HEYDUDE was impacted by two pieces, impacted by heavy wholesale demand in Q2 shifting the channel mix from DTC to wholesale, as well as very high freight rates. So the inventory we were bringing in was the old shipping contracts for HEYDUDE, which was at very high spot rates. We have now shifted them to our Crocs freight rates and that will significantly improve in the back half and into next year as we start landing inventory at our freight rate. So that that is kind of HEYDUDE do piece. We do believe those were an anomaly and that build strength in the back half. And then the remainder from a Crocs standpoint, the underlying margin, if you exclude freight was actually up. So the freight and FX were the biggest pressures on the Croc side. And if you exclude those pieces we were up, and again that includes the air freight associated with the air freight investment we made related to Vietnam. As you remember, that was $75 million. I think, we said 15 to 18, less to spend in Q3. So that implies that back half margins will be higher than first half margins, from a gross margin standpoint. And that would all be incorporated into our 26% to 27% operating margin guide for the full-year.

So could you give us a gross margin percent for the full-year?

I think we are just not going to guide that piece because we are already giving operating margin percent and EPS guidance.

Okay. Alright, so secondly, Andrew, you hinted at the fact that the - about newness. And the question is did you have newness issue in clogs as well? Did like the delay of the crush clogs and those platform clogs when the bay went away, did you need more newness there and how quickly is that being corrected if that is a issue?

Yes. So Sam, good question. So yes, newness has definitely been a problem during the first half of this year. Having said, we did achieve 20% growth in Crocs during the first half of this year. But the cadence of our brand is such that we need to bring more news to the table. I would say it was most poignant in sandals and that was particularly around the fashion sandals. So we lean heavily on our icon sandals, classic slide, the classic flip which were frankly easier to produce. And those have done really well. They are up strong, double digits over prior trading, but we missed the fashion sandals. But yes, we also lack some newness in the cloud arena. I would say the crush, which you highlighted in your question introduced I would say tentatively here in the U.S. over the last couple of months, we don’t have huge amounts of supply. You can see that this crush family is already sold out on e-com, and we are currently introducing into the major Adrian markets is doing extremely well. So that formula of height is working very well. And as we look at the clogs newness, we have new clogs in the back half of this year, and we have a number of significant new clog programs early next.

Okay. And then does that mean the - so in your guidance and this is for both of you, and then I have one other one does. Is the guidance given sort of the macro impact and the improvement of newness coming, is this a discretion is the better part of valor guidance given the macro or, I mean, how much of this is the macro versus supply - timing of product and so and so forth?

Look, we just think Sam, I think we are very clear in our prepared remarks. We just, we - I would say primarily it is the macro. We believe the consumer environment particularly in the U.S. will soften sequentially as we go through the year. And I think there is lots of evidence and lots of accomplished economists talking about that. And so we think it is prudent to plan for that. If we plan in that way, we can maintain our profitability and our cash flow, which is our primary requirement. We are very confident in the Crocs Brand where the Crocs Brand sits, the fact that we will continue to gain share in that environment.

Thank you. And then lastly, you said that you felt good about - you felt positive about back-to-school. Can you tell us or give us some indication as to what you are seeing for back to school, so far to give you that confidence and any color would be awesome.

Yes. I’m not going to provide specific metrics, but I think what I would say is, as we look across all of our channels, as we look across e-com, E-tail, our own stores and our wholesale customers, uh, we feel like the consumer is out shopping for back-to-school. And we have also seen that in prior sessions. So the consumer generally prioritizes their children, strongly during a constrained environment. And back-to-school we feel like is off to a good start.

Thanks very much and good luck.

Thank you.

The next question comes from Jay Sole from UBS. Please go ahead.

Great, thank you so much. Andrew I’m just wondering, you can elaborate a little bit further on your comments about HEYDUDE. Given the brand is turning toward a billion dollars, faster than probably the market expected. And that is sort of like the high bar that you originally said you made the deal. Any thought about bigger picture what this brand could achieve in terms of growth - revenue growth at the same time if you talk about the North America business a little bit, obviously there is a lot of new doors that seems like the brand has entered whether it is like the famous footwear - a family channel type of doors, but how much more new door opportunity is there for HEYDUDE at this point in North America, relative to the number doors you turned right now?

Yes. So let me take the second bit first. So what I would say is we have tentatively shipped new doors. So, yes, you can see HEYDUDE in places. You haven’t seen it before, whether it be a - as you said, famous footwear rack room shoes, academy, et cetera, some sporting goods, et cetera. We have shipped them what we have available and that is by no means what we consider to be a full assortment or by no means penetrating all of their doors. So, I would say, the door expansion opportunity is very substantive for HEYDUDE, not only the door expansion, but the assortment in those doors and the ability to turn quickly. So I think there is lots of runway there. We are taking orders for spring 2023, and hopefully, we will be able to create much more compelling assortments for our major wholesale customers early in 2023, it is really a little bit hand to mouth today. But I would say, as I said earlier, where we are present the results are very good. They are pleasing to us. And I think the wholesale customers are very pleased. In terms of the longer term, it’s just early days, Jay. As you said, we have achieved or very close to achieving kind of the billion dollars number that we put out there. And really the reason put out there, we just wanted people to understand this is a scale business. This is not a sport business. And we just wanted people to understand that quickly, because clearly when we bought the business, we heard from the analyst and investment community, they didn’t understand what the brand was. And we wanted to understand that this is a scale brand. So clearly, we are just getting started. So I think the scale is much bigger than where it is today. But I think it will be kind well into the next year before - leverage apparently. We have got a lot of planning to do, got a lot of work to do before. We are ready to talk about that.

Got it. And maybe I can ask one more just on the Crocs Brand. In retrospect now, given that you are lapping a quarter, you lapped a quarter in Q2 with fiscal stimulus, it probably drove a lot of growth in your DTC business, how did you see the effect of that on the business in 2021, and then what was the impact here in 2022in Q2 in DTC and sort of, how do you see the business trending in a normalized growth rate? Like what is the outlook for DTC growth for Crocs Brand North America?

Yes, I think, let me start on this one, Jay. I think, we actually saw a lot of the stimulus more heavily waited to Q1, into Q1 beginning of Q2. I would say from a stimulus perspective. I think we started to move through that pretty quickly, and I’m really happy with our 10% - over 10% direct-to-consumer performance in Q2 in North America. I will also say we had really good retention rates. Our retention rate was up on our us e-com so also speaks to the strengths of North America and also that wasn’t just stimulus spending coming in from customers, because they came back. So that I would say all leads to the fact that we have a really strong sustainable, direct-to-consumer business in North America. And I don’t think that is just stimulus driven, as I said, I think we lack most of that in Q1.

Yes. The only things that add two things, Jay, is one we comp up, we talked about comping up in the first half for our North American and DTC business by 10%. So record performance in 2021, driven by stimulus. We grew on that in 2022. So we didn’t shrink we grew. The second thing, I would say one of the bigger impacts that we are seeing is actually return of seasonality. And by this, I mean, I think in 2021, the constraints, the availability constraints were so high, consumers bought when available. And I think we are seeing in 2022 and anticipating in the future. We are going back to more kind of seasonal components. So they will buy a key events where there be promotional events or holidays or travel or vacation. So we are seeing some shifts in the patents of the business, and we are also planning for those to continue to revert to pre pandemic patents.

Got it. Okay, super helpful. Thank you so much.

The next question comes from Jim Chartier from Monness Crespi Hardt. Please go ahead.

Good morning. Andrew, kind of reiterated your expectation for your 2026 outlook for Crocs, a big part of that is the sandals business. Wonder if you could talk about what - kind of reinforces your confidence, and that large sandal opportunity, what are you seeing the performance today and then you mentioned a lot of innovation for next year. What is the wholesale reception to that innovation for next year and wholesalers investing behind sandal category for you for next year?

Thank you Jim. So couple things. One is I would just start the question -. Look, we were disappointed in sound performance during the first half of the year. We have definitely studied it. We feel like we understand what happened and really lack of newness and lack of supply. And some of our key style, channels really hurt us. As we look at the back half of the year, we do see newness accelerating. We do see that accelerating into 2023. We have got very strong plans and so that gives us confidence around reversing that trend of the decline that we saw in the first half. As we look forward, longer-term and kind of more strategically, we also feel like we are seeing what we anticipated in this category, which is when times get tough, other brands are retrenching. So we do see other brands pulling back on their sample programs, pretty substantially, and some shifts in what the consumer is looking for within sandals. And I think this was part of the thesis that we laid out. It is a big category, it is an unimportant category to some of the major players and when times are tough, they are going to de-emphasize it and we feel like we are seeing that. So we feel like there is a newness opportunity, there is a competitive opportunity. And I think the other thing is it wasn’t a strong sandal season in the U.S. this year. Spring was a little slow and coming, and so we kind of saw some overall softness in the category. So we still feel very strongly about our opportunities within the sandal arena.

Great. Thank you.

The next question comes from Laura Champine from Loop Capital. Please go ahead.

Thanks for taking my question. It is on the Crocs Brand. I mean, I understand that you are taking guidance for back half growth just on macro. How does that impact your promotional marketing strategy in the back half given that you also have, I think some products introductions you are excited about as well?

Yes, that is super important. So, we are taking our guidance down to reflect, I think the macroeconomic environment and our desire to position ourselves strongly. We are protecting all of our marketing activity. So you will see Crocs Brand marketing activity accelerate in the back half. We have a record makeup in terms of collaboration schedule. We are protecting all of our dollars and cents that we plan to spend on marketing, both in the U.S. market, but also importantly in our major international markets, including China. So we will continue to spend to support the introduction of all of those new products and to engage our consumers very proactively.

Got it. Thank you.

The next question comes from Jim Duffy from Stifel. Please go ahead.

Hi good morning. Andrew thanks for mentioning the Crocs North America direct-to-consumer growth 10% currency. Was that a second quarter number or is that for the first half of the year?

First half.

And I’m curious on the digital performance, can you give us the North America direct-to-consumer number for the second quarter? The digital channel has been challenging for many in North America, if you could comment on the Crocs Brand digital performance in the second quarter as well, that would be helpful?

Yes. I don’t, I think we are not going to be disclosing those specific numbers, Jim, but I can tell you it grew and we are very happy with the performance.

Yes. Our overall digital growth for the second quarter for the Crocs Brand was up 21% in constant currency. And for Q2, for the Crocs Brand, we are up 7.5% from a DTC comp perspective. So and that obviously, the biggest kind of piece of that is the U.S. so you have to grow.

Okay. And then, I’m curious within the digital channel, what you are seeing between new and existing customers, have you seen any fall off in recruitment of new customers or any fall off in contribution from existing customers? And this question is mostly geared toward North America, if you are willing to share.

Yes. So from a North America standpoint, we saw actually retention up plus 30% and we also saw acquisition up. So double-digit. So I wouldn’t say that we have seen a follow-up either and prepared remarks. We actually see really nice growth our e-com growth growing because of both of those things.

Next question, the board does a very nice job of aligning incentives with strategic objectives. We won’t get a view on this until the proxy, but can you give us an idea of some of the key metrics for management compensation in 2022, where the board has you focus?

Yes. I would say, look, you will see it later, Jim, but our program for incentives and management compensation is very consistent to what it has been in the past. So it is focused on profitability. It’s focused on growth. It is focused very strongly on cash flow, which I think is super important. And it does call out kind of specific growth strategies, whether they be-it digital, whether they be sandal whether they be Asia. But it is very consistent with it is in the past. And we think it works extremely well. It guess the whole the whole team here at Crocs focused on the most important aspects to drive shareholder value.

Okay. And then last one for me, I just wanted to ask on HEYDUDE, risk been in his chair for a couple of quarters now, can you give us just an update on the vision for positioning of HEYDUDE, both from a branding standpoint and from a merchandising standpoint?

Yes. So, you have started to see a little bit of that. So in July, we launched a new brand identity, which is starting to get out there. We think that is been - we actually can see that is been extremely well received by the core consumer. And I think it is more consistent with where we want to take the brand. We are also doing some brand advertising for the first time in the brand’s history. And that is actually, early days, but also performing extremely well, we are very happy with that. And, I think, Rick and his team, which we are building out rapidly have started to develop product architecture that will probably be back half of 2023 before you start to see some significant evolution in product architecture. And we will continue to develop consumer messaging and brand advertising that will start to play out earlier in 2023. So we are really happy with how that is going, and I think it will be very, very strong.

Thank you.

The next questions from Mitch Kummetz from Seaport. Please go ahead.

Thanks for taking question. I guess, I just have a few hopefully as - quickly. I know a year-ago with HEYDUDE there are lot of retailers that relied on product. So do you sense as to how much of the year-over-year growth you are seeing there is kind of filing that pipeline? Is there catching up with where they want to be? And do you have any metrics on kind of wholesale sell through support what kind of what is happening at retail with those partners and I got couple of others.

Yes, I think the best way of getting at the core your question is wholesale sell through. We get that from obviously our major partners, we don’t get it from all the smaller partners. But I think the retailers that do stock, HEYDUDE, would say sell through is exceptional.

Okay. And then, Andrew you reference Spring 2023, a couple times, I think in some remarks, do you have any sense as to kind of what the order spring order book is looking like for the Crocs Brand in the U.S.? I’m wondering if it is going to be up or down. And then lastly, on margins. and you talked about kind of the HEYDUDE pressure on gross margins, but I’m guessing that likely helped from an SG&A leverage standpoint. So is there any way you can kind of break out the operating margins by each brand? And that is it. Thanks.

Thanks Micth. So, I will let Anne talk about operating margins for each brand, but from an order book perspective, look, it is early days on that yet, but we also don’t disclose order book ahead of time. We stopped doing that quite a long time ago. So but we are selling in spring summer 2023, both here in the U.S. and globally. And we are pretty excited about a lot of the newness that we have to offer our customers.

Yes. And then from an operating emergency standpoint on each brand, remember, these are unadjusted for HEYDUDE. So that includes a 35 - this is going to include a $35 million, inventory write up in Q2 related to the acquisition. So HEYDUDE operating margins were 17.9% that is GAAP, Crocs was 35.7%, and then our consolidated obviously and that is a GAAP margin.

Okay. Thank you.

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

Really appreciate everybody joining us today. And thank you for your continued interest in Crocs.

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