Crocs, Inc. (CROX) Q4 2024 Earnings Report, Transcript and Summary

Good morning, and welcome to the Crocs Fourth Quarter 2024 Earnings Call. All participants will be in listen-only mode. [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 Corporate Strategy. Please go ahead.

Good morning, and thank you for joining us to discuss Crocs, Inc. fourth quarter and full year results. With me today are Andrew Rees, Chief Executive Officer; and Susan Healy, 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 annual report on Form 10-K 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, Erinn, and good morning, everyone. Thank you for joining us today. 2024 was another record year for our company fueled by our employees, our brand strategies and our deepening connections with our consumers. For the full year of 2024, we delivered revenue growth of 4% to prior year, achieving $4.1 billion in total revenues. This performance was supported by adjusted gross margins of 58.8%, a 230 basis point gain over the prior year. With our adjusted operating margins of 25.6% and strong deployment of our free cash flow, we delivered adjusted diluted EPS of $13.17, 9% above the prior year. By brand, Crocs Brand revenues of $3.3 billion grew 10%, with international up 19% and North America up 3%. 2024 marked the seventh consecutive year of Crocs Brand revenue growth in North America. HEYDUDE revenues of $824 million with direct-to-consumer channel inflecting back to growth for the fourth quarter. Our strong cash flow generation of $923 million allowed us to pay down $323 million in debt and buyback approximately 4.3 million shares for $551 million. Susan will provide more detail on our fourth quarter, full year results and guidance for 2025, but first, I would like to walk through our individual brand strategies and notable highlights for 2024. Our Crocs Brand is governed by four strategic pillars: one, drive brand relevance through icon iterations; two, gain market share outside of clogs through new wearing occasions; three, fuel disruptive and authentic social and digital marketing; and four, gain share in markets around the world. First, we are driving relevance globally as the clog authority. In 2024, our Classic Clog was named one of the Greatest Shoes of All Time by Footwear News, a testament to the iconic nature of our hero style. In January, our original Classic Clog went on display at the Museum of Modern Arts in New York City. This is part of a broader exhibit showcasing iconic products that have made an impact on consumer and culture. Overall, for the year, clogs grew 10%, led by the Classic Clog with outsized growth internationally. We continue to deliver icon iterations and introduce new clog franchises. Today, we have six major franchises within clogs. Overall, clogs made up 75% of our sales mix during the year. Our Echo Clog is now a top three franchise and continues to usher in a younger male consumer. During the holiday season, our Classic Clog was a standout with strength in both adults and kids. The Classic Platform clog and other height iterations drove robust results in several of our markets across Asia. We have a strong pipeline planned for 2025. Our InMotion Clog combines two of our most innovative technologies, LiteRide and our Free Feel technology, delivering incredible value and lightweight comfort for just $60. Based on the success of our DTC test last fall, we're scaling the InMotion Clog globally and in select wholesale distribution in North America. Importantly, we partnered with NFL player George Kittle and his wife Claire as spokespersons for this launch as we lean into the pre- and post-sport comfort. In addition, we are further scaling the Echo franchise through a new-to-market mule, the Echo Wave. This is currently selling in our own channels and planned for select athletic specialty retailers this spring. Second, we're continuing to fortify our product pillars outside of the clog through new wearing occasions. During the holiday quarter, the Cozzzy Slipper was a standout performer and we could not keep the product in stock as demand surpassed supply. Sandals remain an important focus for our brand to drive strategic diversification and new wearing occasions. During 2024, our sellouts were up mid-teens to prior year in North America market. This was particularly impressive against the domestic sandal market that we estimate was down. We introduced the Getaway, a brand new multi-silhouette franchise, which exceeded expectations. Our new style sandal franchise, Miami, also performed well. We brought new materialization to our beloved Brooklyn franchise, including the Brooklyn Woven, the Brooklyn Heel, and of course, our personalizable Brooklyn 4U. Overall, sandals grew 3% to prior year and growth was strong in most of our international Tier 1 markets with the exception of India, which continue to face supply challenges. On balance, sandals represents 13% of our sales mix. In 2025, we are leaning into Getaway, Brooklyn and Miami franchises with fresh new colors and styles. The retailers' response has been exceptionally strong, particularly here in North America. Our personalization engine Jibbitz grew 6%, led by our international markets with strong product wins in elevated and licensed product. Our Jibbitz consumer remains one of our most valuable, as we see them continuing to purchase with higher frequency. Our strategic priorities within Jibbitz are centered around driving higher penetration in digital and wholesale channels, enhancing speed to market, and continually introducing fresh new product. In 2025, we're bringing newness across colors and textures to market and innovating within back straps. We recently shipped approximately 600 new Jibbitz fixtures into North American wholesale to bring our personalization value proposition to a broader consumer base. We're committed to remaining a leader in this space. Third, we remain laser-focused on our digitally-led social-first marketing playbook. 2024 included some of our biggest consumer moments on record. We launched the Tmall Global Brand Day, established ourselves as a leading footwear brand on TikTok Shop, along with HEYDUDE, executed the best-ever Croctober and created unique consumer moments during the year through our partnerships. In the fourth quarter, [Louie] (ph) and Mickey & Friends drove particular excitement amongst our youngest fan base. And finally, against our fourth pillar, we're focused on gaining market share around the world. In North America, we grew 3% to prior year, our seventh consecutive year of growth. International grew 19% on top of 23% last year. In China, we grew 64% to prior year with the fourth quarter accelerating from the third quarter. This included the Double 11 Shopping Festival, which bested our expectations. China now represents our second largest market after the US, making up 6% of revenues. Our 2024 growth in China was balanced, reflecting positive comp store sales, digital growth and new store growth. We saw robust growth in Western Europe, led by strong double-digit growth in France and Germany, while solidifying market share gains in South Korea despite a challenging backdrop. We ended the year with approximately 2,200 Crocs mono-brand doors, including approximately 1,800 partner doors and 390 owned and operated stores. In 2025, we plan to continue expanding our footprint internationally and see the greatest new door opportunities across growth markets, including China, India, Southeast Asia and the Middle East. In addition, owned and operated store growth will be focused on premium outlet doors in China, Western Europe, North America and Japan. As we think about our growth opportunities beyond 2025, we believe we can continue to fuel growth in North America through iterating on our icon and expanding wearing occasions. With that said, we see the majority of our dollar growth coming from international, where we're in the earlier phase of establishing clog relevance and see ample opportunity for market share gains. Our average market share in major countries, including China, India, Japan, Germany and France, represents approximately one-quarter of the market share we've achieved in our more established markets, the US, UK, and South Korea. All-in, we have confidence in low double-digit growth of our international business on a constant currency basis over the medium-term. Turning now to the HEYDUDE Brand. We are pleased with the progress we've made in 2024 as we prioritize brand health, elevated pricing as a result of pulling back on discounting and drove better segmentation with our wholesale partners. We ended the year on a high note with the fourth quarter revenue accelerating sequentially from the third quarter and flat to prior year. This was led by strong improvements in our digital trends as new products were supported by fresh and compelling marketing content. Overall, our direct-to-consumer channel was up 7% to prior year, marking the first positive inflection in five quarters. Zooming out, our three strategic pillars for HEYDUDE are focused on: one, creating the HEYDUDE Brand community through connecting with youth female culture, while maintaining a strong connection with the male fan base; two, build the core, our Wendy and Wally, and add more; three, stabilize and accelerate North America while laying the groundwork for future international growth. Starting with building a HEYDUDE community, we are assembling a strong roster of high-profile influencers, including style icon and actress Sydney Sweeney, award-winning music artist Jelly Roll, and our recently announced partnership with Heisman Trophy winner Travis Hunter. In looking at our social channels, we expanded our community, bringing our total following to 2.4 million consumers across leading platforms. During the holiday season, we saw exceptional HEYDUDE Brand engagement on TikTok. In December, the HEYDUDE Brand was ranked the #3 footwear brand across all brands on the TikTok Shop. While it's still early days, our strategy to capitalize on the younger female consumer to unlock broader brand awareness and relevance is starting to build. During the fourth quarter, we saw 160% growth in new customers in the female 18 to 24 year old demographic, fueled in part by the product successes in the Wendy Slipper and the Austin Lift. Turning to our second pillar, build the core and add more, we focus on our core Wendy and Wally assortment on three major platforms: Stretch Sox, Stretch Canvas and Funk Mono. We iterate on these icons through color and materialization and partnerships. One example was the launch of our Wendy and Wally Slipper during the holiday season. We introduced it as a DTC exclusive, bolstered by a strong social and digital marketing campaign featuring Sydney Sweeney. Within two days, we sold out completely. The slipper outperformance was noticed by our wholesale partners and we launched in select accounts. As we mentioned on our Q3 call, we're investing behind the Austin Lift and the Paul franchises based on the success we saw in 2024. In the fourth quarter, Austin Lift and Paul emerged as top franchises online. In the next few weeks, you will see exciting new marketing around the Austin Lift as we build upon of our early success on this franchise. Finally, we're continuing to prioritize brand health as we stabilize the North American market, while laying the groundwork for future international growth. In the fourth quarter, we saw improved full price selling with ASP growth of 7%, marking the sixth consecutive quarter of ASP growth. During 2024, we opened 38 premium outlet stores, which is helping to drive brand awareness and connect consumers with the full expression of our brand. Based on the performance of these stores, we're planning to open an additional 10 stores in 2025. We have confidence in the long-term potential of HEYDUDE. The continued green shoots we're seeing give us positive reinforcement of the opportunities for durable future growth. I will now turn the call over to Susan to provide more details around our financial performance and our outlook.

Thank you, Andrew, and good morning, everyone. We delivered strong 2024 results, capped off by a better-than-expected fourth quarter, which saw an acceleration in revenue growth from the third quarter despite an incremental $11 million currency headwind versus our plan. Starting with the fourth quarter, enterprise revenues of $990 million were up 4% to prior year. Crocs Brand revenues of $762 million were up 5% to prior year. Growth was led by DTC, which was up 6%, while wholesale was up 4%. North America was flat to last year, slightly ahead of our expectations, supported by 2% growth in our direct-to-consumer channel, offset by wholesale declines. During the holiday season, we saw strength during Black Friday, particularly on digital, as well as in the week leading up to Christmas as the consumer reverted to more normal holiday shopping patterns. International revenue was up 14%. China led the growth with revenue up 25% in the quarter, accelerating from the prior quarter. HEYDUDE Brand revenues of $228 million were flat to prior year, led by DTC, up 7%. Upside to our guidance was driven by improved digital trends. Wholesale was down 8% in the quarter and also better than our plan. Enterprise adjusted gross margins of 57.9% were up 220 basis points to prior year. Crocs Brand adjusted gross margin of 60.9% was up 140 basis points to prior year, tied to product mix and lower fulfillment costs. HEYDUDE Brand adjusted gross margin of 47.7% was up 220 basis points to prior year, driven by fulfillment efficiencies and higher ASPs, partially offset by product costs. This performance was significantly better than our expectations. Adjusted SG&A dollars for the quarter increased 23% versus prior year. Adjusted SG&A rate was 37.7%, up 610 basis points compared to prior year, driven by continued investment in DTC, talent and marketing to support long-term market share gains. Adjusted operating margin of 20.2% was down 390 basis points compared to prior year and above our expectations. Adjusted diluted earnings per share decreased 2% to $2.52 and our non-GAAP effective tax rate was 16.1%, which excludes the current period tax impact of intra-entity transactions. During the quarter, we repurchased approximately 2 million shares for a total of $225 million and also repaid $75 million of debt. Now, turning to the full year. We delivered enterprise revenue growth of 4% to prior year, achieving $4.1 billion in total revenues. Crocs Brand revenues were $3.3 billion, growing 10% to prior year, with DTC growing 11% and wholesale growing 9%. The growth was volume-driven, with units increasing 6% versus last year to a total of 127 million pairs of shoes sold, while brand ASPs increased 2% to $25.52. ASPs were driven by favorable pricing, channel mix and product mix. North America revenues grew 3% versus the prior year to $1.8 billion. Growth was led by DTC, up 6%, while wholesale was down 1%. Underlying North American brick-and-mortar growth was up high-single-digits. International revenues grew 19% versus prior year to $1.4 billion, led by 25% DTC growth and 17% wholesale growth. China grew 64% on top of last year's triple-digit growth rate, while Western Europe grew 18%, led by France and Germany. In aggregate, our international Tier 1 markets grew 20% during 2024. Turning to HEYDUDE, revenues were $824 million, down 13% from prior year. Wholesale revenues were down 20% and DTC revenues were down 4%. For the year, ASPs were up 6% to $30.54, while unit volume was 27 million or down 18% to prior year. Enterprise adjusted gross margin for the year was 58.8%, up 230 basis points from last year. Crocs Brand adjusted gross margin was 61.6% or 140 basis points higher than prior year. The primary drivers of margin expansion were lower freight and fulfillment costs and favorable product mix. HEYDUDE Brand adjusted gross margin was 48.1% or 190 basis points higher than prior year. The primary drivers of margin expansion were higher ASP, favorable channel mix and lower freight costs. Adjusted SG&A dollars for the year increased 20% versus prior year. Adjusted SG&A rate was 33.2%, up 450 basis points compared to prior year. Adjusted operating margin of 25.6% was down 210 basis points from 27.7% in the prior year, driven by planned investments in SG&A. Adjusted diluted earnings per share increased 9% to $13.17. Our non-GAAP effective tax rate was 16%. Our inventory balance as of December 31st was $356 million, a decline of 7% versus prior year. Enterprise inventory turns were above our goal of 4 times on an annualized basis. Our liquidity position remains strong, comprised of $180 million of cash and cash equivalents and $809 million of borrowing capacity on our recently upsized $1 billion revolver. We generated $923 million of free cash flow in 2024, enabling us to repurchase stock and pay down debt. During the year, we repurchased approximately 4.3 million shares for a total of $551 million. Earlier this month, the Board of Directors approved an upsized share repurchase authorization of an additional $1 billion, bringing our current authorization to approximately $1.3 billion. We also repaid $323 million of debt during the year, reducing borrowings to approximately $1.3 billion. We ended the year at the low end of our net leverage target range of 1 time to 1.5 times. Before turning to guidance, I would like to address the topic of tariffs. Our guidance embeds an additional 10% tariff on goods imported from China into the US beginning February 4, as well as the anticipated additional 25% tariff on goods importing from Mexico beginning in March, and assumes these will stay in place for the remainder of the year. We do not have any production in Canada. In 2025, we expect the share of enterprise imports into the US from China to be approximately 15%, with Crocs at 10% and HEYDUDE at 27%. Our exposure to Mexico is expected to be under 4% and for the Crocs Brand only. For the enterprise, we estimate an approximate $11 million headwind to gross profit from these additional tariffs or roughly 25 basis points to our margin rate. For the full year 2025, we expect enterprise revenue growth to be up approximately 2% to 2.5% on a reported basis, assuming currency rates as of February 10. This includes an anticipated $60 million currency headwind to the prior year. On a constant currency basis, we expect enterprise revenue growth to be up approximately 3.5% to 4%. For the Crocs Brand, we expect revenue growth of approximately 4.5%, led by international growth. In North America, we expect growth for the full year to be slightly up, and for International, we expect growth to be up approximately 10%. For HEYDUDE, we expect revenue to be down approximately 7% to 9% for the year. We expect direct-to-consumer growth in 2025 to come from improving digital trends and our new retail store contribution. Our outlook does not contemplate wholesale growth, as we expect the wholesale channel to take longer to turn than our direct-to-consumer channel. We expect enterprise adjusted gross margin for the year to be down slightly, impacted in part by foreign currency and tariffs. We expect mid-teens adjusted SG&A growth in the first half of the year versus prior year and low-single-digit adjusted SG&A growth in the back half. Included in this is an uptick in our enterprise marketing spend from 9% to 10% as a percent of revenue. Taken together, we expect our adjusted operating margin to be approximately 24% for the full year. This includes an anticipated negative impact from both foreign currency and tariffs of approximately 60 basis points. Beyond 2025, we are committed to maintaining an adjusted operating margin at or above 24%, assuming a normalized currency and tariff environment. We expect adjusted diluted earnings per share in the range of $12.70 to $13.15. Consistent with our previous guidance policy, this range reflects future debt repayment, but does not assume any impact from future share repurchases. We are committed to our 1 time to 1.5 times net leverage range while redeploying excess cash flow towards share buybacks opportunistically. We expect our underlying non-GAAP effective tax rate, which approximates cash taxes paid, to be 18%, and the GAAP effective tax rate to be approximately 21.5%. Our 2025 anticipated tax rate is lower than our previously communicated 20% long-term tax rate due to forecasted business mix for the year. We expect 2025 capital expenditures to be in the range of $80 million to $100 million. Turning to guidance for the first quarter. We expect enterprise revenues to be down approximately 3.5% at currency rates as of February 10. This includes an anticipated $19 million currency headwind. On a constant currency basis, we expect enterprise revenue growth to be down approximately 1.5%. We expect the Crocs Brand to be flat to down approximately 1%, led by mid-single-digit international growth. We expect North America to be down mid-single-digits, including the negative impact of the Easter shift. We expect HEYDUDE revenue to be down approximately 14% to 16%, tied to wholesale declines, offset in part by growth in DTC. Adjusted gross margins are expected to be up slightly for the enterprise. Adjusted operating margin is expected to be approximately 21.5%. This includes an anticipated negative impact from foreign currency and tariffs of 80 basis points. Adjusted diluted earnings per share is expected to be in the range of $2.38 to $2.52. In closing, we are making near-term decisions that we believe are in the best long-term interest of the company and our shareholders, and we will continue to focus on what the company does best: delivering growth with industry-leading margins that generate significant cash flow. I will now turn the call back over to Andrew for his final thoughts.

Thank you, Susan. Our company initiatives remain consistent, and we're focused on three primary levers to fuel durable long-term growth: ignite our icons across both brands to drive awareness and global relevance for new and existing consumers; two, drive market share gains across our Tier 1 markets through strategic investment behind DTC, talent and marketing; and three, attract new consumers to our brand through methodically diversifying our product range and usage occasions. While the geopolitical climate has become more volatile since the onset of the year, we continue to execute our brand strategies, invest in our people, and maintain a nimble mindset. At this time, we'll open the call for questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Jonathan Komp from Baird. Please go ahead.

Hi, good morning. If I could ask about the Crocs Brand in North America, I know you mentioned down mid-single-digits in the first quarter and up slightly for the year. Could you just talk a little bit more about what you're seeing, maybe the health of the brand and the drivers of that inflection after the first quarter? And then, just one follow-up, Susan, on the SG&A outlook. I know you mentioned second half growth, I think you said low-single-digits. Could you just talk about the step-down in the growth rate of the G&A spend and how we should think about that going forward? Thank you.

Great. Thanks, Jon. So, let me take the Crocs Brand. Susan can give you some incremental insight into the SG&A growth. So, as we think about the Crocs Brand in North America, I think it's also important to kind of step back. Crocs Brand has grown for seven consecutive years in North America and the business is triple what it used to be prior to that timeframe. I would say we're pretty -- we're very confident in the products that we have coming to market in North America, as we look at both our clog innovation, as we look both at our sandals. We had a nice sandal year last year in North America with strong sellouts, and we're optimistic based on the feedback that we've gotten from retailers with our product portfolio for 2025. I think it's important also to think about the consumer environment. And when we think about the consumer environment, there's a healthy dose of uncertainty. So, we are taking a prudent approach in terms of how we think about the growth of the brand. And I would say, as we think about the sort of multiyear trajectory, we're very confident in our product pipeline, our marketing engine to continue to drive growth in North America.

And Jonathan, regarding your second question on SG&A, so just as a reminder, our SG&A dollars are going into the key areas that we think will fuel future growth, which are DTC investments, including marketplaces and new retail stores, along with talent and marketing. To your question about the first and second half, as you know, 2024 was an investment year for us and the cadence of those investments more back-half weighted. So, as we begin to lap those second half investments in 2024, that's why we say mid-single -- low-single-digits increase in SG&A for the second half of 2025, as we complete our two-year investment cycle.

Yeah. Maybe I'll just take this opportunity to sort of talk about kind of the overall arc of SG&A, because I expect there will be a series of questions coming up on this call. I think -- and if you think about the growth in our SG&A and the sort of multi-year trajectory of our business, over the past five years, the Crocs, Inc. company has gone from one brand to two brands, it's gone from $1 billion in revenue to in excess of $4 billion of revenue. And that very rapid growth, particularly in the early part of that five-year period resulted in extraordinary SG&A leverage and very, very high levels of profitability. In the last two years, we've been focused on making key investments in what we believe are critical capabilities, infrastructure talent, and also elevating our marketing investment to drive kind of future sustainable growth. So, this has resulted in SG&A deleverage in '24, further deleverage that we're telling you about in '25, but we're committed to maintaining that 24% operating margin level for the future. And I think if you kind of step back and look at our peers and look at the industry which we compete, 24% operating margin is an extraordinary level of profitability. And I would also say we've been extremely proactive in taking that high level of profitability, resulting in high levels of cash flow and returning that proactively to shareholders. So, hopefully, that kind of gives everybody the context and the perspective that we have on the business and how we think that reward shareholders in the long run.

That's really helpful. Thank you.

Thanks, Jon.

The next question comes from Chris Nardone from Bank of America. Please go ahead.

Great. Thanks, guys. Good morning. Just a follow-up on Crocs North America. Can you maybe discuss how wholesale sell-through is trending relative to your expectations, and just the confidence you have in your order books for the year, and if there's an improvement in wholesale embedded in your guidance? Thank you.

Yeah. I mean, I think we -- from a wholesale perspective and North America perspective, I would kind of go back to some of the things that I said to Jon, which was, number one, look, we have, I think, a very strong pipeline of products across three major product categories, both clogs, sandals and Jibbitz. We ended the 2024 year, I think, with a very successful wholesale season. We have clean inventories in the market. We're confident in our marketing engine that will drive continued consumer takeaway from wholesale. I think we're strategically well-positioned with our wholesale customers. We don't really talk about sell-throughs on an in-quarter basis. We never have. As we think about our order books and so our wholesale customers' reaction to the product we're bringing to market into '25, we're very happy with the order books that we see at this stage, which run essentially all the way through to -- into third quarter.

And when you think about the first quarter, it's helpful to be mindful of a couple of factors. So, Q1 is our toughest comparison in North America tied to the timing of wholesale as Easter shifts into the second quarter of this year. This is going to drive Crocs Brand North America sales growth down in Q1 and up in Q2. And then, we also see about a 100-basis-point headwind to DTC growth in Q1 from lapping the leap year.

Okay. And then just a quick follow-up. You bought back a lot of stock last quarter. Just want to gauge your appetite to continue leaning into share repurchases given where the stock is trading. Are there still more opportunities to pay down debt and potentially move below your current leverage target?

Yeah. So, let me address that then, Chris, is, we plan -- we're committed to our long-term leverage target of 1 time to 1.5 times; that's unchanged. But as you can see in Q4, we plan to do both. We did about 75% share repurchase and 25% debt repay down. And that mix is obviously influenced by the opportunity we see in our stock. And we do have a $1.3 billion repurchase authorization. You can see our Board upsized that by $1 billion earlier this month. So, we are committed to do both. We are committed to that leverage target, but you can look at our Q4 balance and take confidence in how we see great opportunities in our stock as an investment.

Thank you.

The next question comes from Adrienne Yih from Barclays. Please go ahead. Hi, Adrienne, is your line on mute?

Yes, it is. Sorry about that. Gosh, you would think after all these years. I apologize. I was saying, nice to see the progress at the end of the year. Andrew, my question for you on kind of if we look out two to three years, how should we be thinking about the opportunities for Crocs in North America? What drives further growth there? And I know in past calls, we've talked about sort of more of that international growth is going to spur the Crocs Brand. And then, for HEYDUDE, where -- kind of given the success on the DTC in the fourth quarter, but then going back to negative sales growth in the fiscal year, how comfortable are you with the turn and the investments that you are making into that to support the brand growth? Thank you.

Great. Thank you, Adrienne. So, a lot there. So, let me start with international versus North American growth for the Crocs Brand. So, I think super clear, and it's embedded in your question, that we think the easiest growth for the Crocs Brand is internationally, right? And that is really based on our degree of penetration and market share in some of these major markets. As we look at our international markets, and I think we put a nice page in our latest investor deck, we can see more developed international markets like the UK or South Korea, and also if you compare it to the US compared to less developed international markets, and in the less developed markets like China, France, Japan, even Germany, we have about a-quarter of the market share that we have in the developed markets. That is based on the degree of marketing effort, et cetera, that we put in those markets over time. We've got to make choices over time. And we think that there is a long and relatively straightforward runway in those markets. So, that's where the majority of growth will come in the short-term and the easiest growth, we believe. In North America, we're well-penetrated from a clog perspective. We do have a growing and emerging sandal business, and over time, we do believe we can drive innovation into incremental product categories that will yield growth in North America. But to yield substantive growth in North America, we really have to do penetrate new wearing occasions. And we've got a nice pipeline of innovation there. But as yet, I would say it's not fully proven. So, I think for us to talk about acceleration in North America, we have to prove that first. And I can assure you, we're doing that work, and hopefully, we'll have some great results to showcase in that arena in the coming future. So, hopefully, that kind of gives you the balance of Crocs. But -- and having said that, that's still a very healthy brand that yields a coherent growth and high levels of profitability go forward. From a HEYDUDE perspective, I think you're curious about the future guide and our performance in Q4 relative to Q1 guide, right?

Yes.

So, the piece that I think it would be helpful to, look, we're really pleased with the performance of the brand in Q4. It was led by product, it was led by marketing, and particularly DTC, and our ability to drive consumer takeaway in our DTC channel. That being said, we know we want to provide, I think, really very prudent guidance for this year so that we can perform well against it. So, I think, hopefully, we're doing that. I would say, as we kind of look at the trajectory of the brand, we've done this before at Crocs. We've really turned around that brand, and from a brand that was going nowhere years ago to a brand that's incredibly successful today. We know the playbook. We're seeing a lot of the green shoots, so we're very confident with what we're seeing and where we're going. And I would say, lastly, from a HEYDUDE perspective, look, we think this is a great brand. We think it's well positioned against the consumer. It hasn't met our short-term expectations, but we remain extremely confident in its long-term potential, its ability to further penetrate the US market and leverage internationally.

Fantastic color. Thank you very much, and best of luck.

Thank you.

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

Thanks. Good morning. A quick mention of appreciation for the very clear disclosures on tariff assumptions. Thanks for that. Andrew, starting on the HEYDUDE Brand, can you speak to the state of engagement with wholesale partners? Is the distribution footprint now stable? How do you see changes to shelf space? What's the willingness of wholesale partners to engage with new product offerings where you're seeing success in DTC? Thanks.

Yeah. Great. So, yeah, I would say, we don't anticipate significant changes in our distribution strategy from this point forward. There are incremental customers we'd like to attract. There is shelf space we'd like to increase. But in terms of who we are engaged, I think we're engaged with a lot of the right people and [indiscernible] add to that in the future. In terms of the degree of enthusiasm and conversation and connectivity with some of those key partners, I would say they are very much engaged with HEYDUDE. For some of them, HEYDUDE a top five brand, right? So, it's a brand that they are supportive of, they wish to succeed. But I would also say -- and I would say they are seeing the benefits of the work that we've done associated with product and marketing, particularly some of the ambassadors and celebrities that we're using to draw interest to the brand. They can see the connectivity of the brand with the consumer on TikTok and some of the social sites. But I would also say there is work to be done, and that work is called out in our guidance. We do not see -- contemplated in our guidance today is not wholesale growth in North America. There is still work to be done relative to cleaning up inventories in the channel. In fact, we'll be taking some returns in the first quarter of aged inventory and replacing it with new and current inventory. So that's a proactive step that we're taking that is also embedded in our guidance. So, there's still work to be done. But I would say our partners are shoulder to shoulder doing that work with us.

Great. Thanks for that. And, Susan, just a quick one on the outlook. Can you comment on working capital considerations in '25? We're very focused on free cash flow. Any reason to think free cash flow couldn't again exceed $800 million?

Yeah. So Jim, we don't -- as you know, we don't specifically guide free cash flow. I mean, we're really pleased with the free cash flow generation ability of both our brands and our ability to convert that into share repurchases and debt paydown for our investors. When it comes to your models, I know -- I think we gave you all the components you need to derive that. So, we get happy to take any questions offline.

You mentioned the inventory turns kind of exceeded your goal of 4 times in 2025. Do you expect -- or excuse me, '24. Do you expect reinvestment in inventory in '25?

We're really pleased where we ended up on both brands and our strategies will be consistent with the growth we've planned for the brand. As Andrew said, we've got some strategies around HEYDUDE. But overall, we're very pleased with how clean we ended up the quarter in both brands.

Okay. Thanks.

The next question comes from Bob Drbul from Guggenheim. Please go ahead.

Hi, excuse me, good morning. Just two questions for me. The first one just on the commitment to 24% operating margins, when you think about sort of the increase in marketing spend and sort of flexibility around the SG&A line or marketing spend within that, can you just talk about how you're approaching it in that 24% commitment? And then, the second question I have is just on HEYDUDE. Will Travis Hunter be wearing those shoes at the draft? Is that part of the deal?

So, let me do the second piece first. I'm not going to make any predictions about what he's going to be wearing at the draft. You may have noticed he was wearing HEYDUDE at his Heisman Trophy ceremony. And I would say, look, our engagement with Travis Hunter is like our engagement with the other music leaders and actors or actresses that we've engaged with. It's first based on a genuine connection with the brand. He was an individual that loved the brand, wore the brand, and obviously, he's been playing most recently here in Boulder, Colorado. So, we're very familiar with him. So, when we look for celebrities and ambassadors that we're going to engage with, that authenticity is super important, and he absolutely has that. We hope he goes very high in the draft and goes to a large media market because that would be helpful. So, going back to your other question, so 24% commitment, we have lots of flexibility within this business. We have been very proactive in terms of making investments. I know that was not always popular. And just I want to highlight where those investments have gone and how that relates to the future. The first is into DTC, right? So, we've opened more stores. Those stores are extraordinarily profitable, and we will continue to kind of lean into some store openings. Most of the stores we open are premium outlets, which as everybody, I think, understands its extraordinary profitable. We're also shifting our digital business to be marketplace and some of those marketplaces have a higher run rate of SG&A associated with them, but that is where the consumer is going. I think a great example of that is TikTok Shop. We saw great results for both brands on TikTok Shop in the fourth quarter. We think that will be a growing channel for us as -- and it's sort of a parallel to what we see in Asia, and particularly China, where consumer spending is shifting from digital marketplaces to social marketplaces. And that does carry some higher SG&A. So, we've kind of thought that through and projected that forward. We have also increased our marketing spend from what was probably several years ago, you still run about 7%, 7.5% of sales. We're planning it, in 2025, at 10% of sales. So, we've been proactive in terms of both investing at a higher level in HEYDUDE given where the brand is and the future potential we see in that brand, but also investing at a higher level in Crocs because we have more scale Tier 1 markets around the world that require more marketing support, and we think have actually also more opportunities for growth. And then, other aspects of that investment is also talent capabilities, et cetera, and you can imagine what that is across. Now, having said that, some of that is also flexible, right, as we can make different decisions over time based on the opportunities that we see in front of us. So, I think we feel pretty comfortable with the 24% floor at this point. And we just wanted to provide that clarity for you all.

Thank you.

The next question comes from Anna Andreeva from Piper Sandler. Please go ahead.

Great. Thanks so much. Good morning, and congrats on a nice end to the year. We had a question on gross margins. You mentioned up slightly in the first quarter, then down slightly for the year, which makes sense just given the tariffs and the FX, but you saw some positives with product costing and also other efficiencies. So, can you talk about sustainability of those? And what did you see in terms of promotional [counter] (ph) at both brands during the fourth quarter? And what are you expecting with promo activities as the year unfolds? And then, we had a quick follow-up as well.

Right. So, when we talk about gross margin, in particular, and I think you asked about the shaping across the year, from an enterprise basis, just at a high level, we're expecting gross margins to be down slightly for the year, but that embeds 60 basis points impact of foreign exchange and tariffs. So, therefore, gross margin would actually be up slightly without that impact. And as we're thinking about the full year, Q1 would be up, and we expect Q2 to be down the most on a year-on-year basis, in part based on the heavier impact of FX and tariffs.

Yeah. From a promo perspective -- sorry, you want to follow-up on that, and then I'll pick up the promos for you.

No. Please go ahead. Thank you.

Okay. So, from a promo perspective, I think there's probably a couple of big things going on here. Number one is, we believe the consumers kind of, and as Susan referenced in her prepared remarks, returning to kind of more normalized shopping patterns. And by that, we mean shopping patterns relative to sort of pre-pandemic. And in terms of the promo environment in Q4, look, we had great gross margin and gross margin improvement in Q4. So that was very encouraging. I would say the promo environment was dynamic as we think about it around the world. It was a little bit greater in some places and a little bit less in other places. So, pretty dynamic. It generally came out where we expected. I think the one thing we did see is we did see the consumer migrating incrementally to lower price and more promo products. So, they definitely were feeling a little pressure. And as we kind of think about 2025, we think we're -- we planned it prudently relative to we think -- what we think the arc of the consumer is.

Okay. That's super helpful. I appreciate it. And just as a follow-up, can you guys provide a little bit more color on what's the expectation for the HEYDUDE recovery in the back half, just given the sharp decline expected for the first quarter? You mentioned the new stores are highly profitable, and you're getting a new consumer through that. But anything else you can share on the performance of the new stores? And are you planning to open any additional doors in '25? And thanks again.

Okay. Thank you, Anna. So, I don't think there's a lot more that we're going to say around the pace of recovery, the timing of recovery. I would think what we'd say is, we're on track with where we believe we would be at this time, right? And the ways we can monitor that and see that is growing HEYDUDE community, strong engagement with the core customer, incrementally attracting our, I would say, new customers, specifically in the sort of younger female arena from a demographic perspective. We see traction on DTC. We plan a positive -- we have embedded in our guidance is positive DTC growth in 2025 based on digital growth, but also based on those stores. We do plan on opening about 10 more new premium outlet stores in 2025 to add to the 38 that we opened in '24. We are not embedding wholesale growth, as we said, within that trajectory. And I think we've also -- I would highlight, I think we've guided really prudently, which I think you probably would expect us to do. And we're confident in our trajectory today, and we're super confident in the long-term trajectory.

All right. That's super helpful. Thank you so much, guys.

Thank you.

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

Thanks for taking my question. When I think about the 24% long-term operating income guide, what's your pricing philosophy there? And how much would you use pricing to offset cost increases?

Yeah. That's a really great question, actually, Laura. So, as we think about -- how we think about pricing for both of our brands from a philosophical perspective is we want to price to the market and a market is a country, right? So, we have to think very long and hard about how each individual item is priced in each bucket. And that is dictated by comparative prices, so competition, what other people will think it's -- charging for a product that would be competing for the wearing occasion we're competing for, but also the strength and the trajectory of our brand, right? So, pricing has driven some really nice -- I would say, actually incredible gross margin improvement on Crocs over the last several years. And -- but at this point, we don't -- we're not planning significant price increases in the short term, but we don't necessarily know what's going to happen in the longer term. So, we do look at pricing very closely. We think it's a very, very important lever, and we think we're well priced today. So, we're not planning a lot of price growth in the short-term, but we continue to remain, I would say, very nimble relative to what that might entail.

Got it. And then, looking at HEYDUDE's ASP, up 7%, I think, in the quarter, what is that on top of year-on-year?

I don't have that number to hand. But what I can say is the drivers of the ASP increase has principally been reduction in discounting. So, as we look at, particularly our DTC channels, I think we've had six quarters now of sustained ASP increases. And the driver of that has principally been reducing discounting versus absolute price increases.

Got it. Thank you.

The next question comes from Tom Nikic from Needham. Please go ahead.

Hey, good morning, everyone. Thanks for taking my question. I wanted to follow up on HEYDUDE, specifically on the product development side...

Hey, Tom, we're having a real hard time hearing you. Can you get closer to the mic?

Hey, sorry about that. I want to follow up on HEYDUDE and specifically on the product development side. I know that there's a big opportunity to sort of diversify the brand and extend beyond the core Wally and Wendy, like how far along do you feel like you are in that process? I don't know if you want to use the innings metaphor or whatever, but just -- if you give us thoughts on the product development and product expansion journey that you're on, that would be great. Thanks.

Yes. So, I think what I'd say to start with is, look, the most important element of the product strategy for HEYDUDE is the core at this point, right? The Wally and the Wendy is a very large part of the business. We also think it's the future -- the short-term future driver of growth. And we drive growth off the Wally and Wendy. We've re-platformed the Wally and the Wendy on to kind of three major platforms, Stretch Sox, Stretch Canvas and Funk Mono, which I think gives the consumer a lot more understanding of where the products that they love are and what other versions are available, so it's much easier to navigate the product architecture. That is kind of -- that transition is in place kind of as we speak. We add opportunities -- future opportunities for the consumer to engage in those platforms through color, through materialization and through collaborations, and also unique and limited supply product. In terms of extending beyond that, we are in the very early innings. We do have some great examples. If you look at the Austin Lift, which is a shoe that we will lean into here in the first quarter. It performed extremely well in the -- through '24 and particularly in the fourth quarter. We're leaning into it more in the first quarter with a really exciting program coming out featuring Sydney Sweeney. So, we're excited about that. So, that is a part of the more. We have a boot business on the Bradley, which actually performed extremely well in the fourth quarter, too. The Paul is a dress shoe for men. It's really a derivative of the Wally, but it has some slightly different comfort characteristics and some elevated materials in the upper, that's also performing well. So, I think those are all kind of good examples of extending the Wally and Wendy, but back to your kind of core question, we're in the very early innings, probably the first innings, but the strength of those extensions will be based on the strength of the core. So, that's where we're focused today.

Understood. Thanks very much, and best of luck this year.

This concludes our question...

Okay. I think we're out of time at this point. So, I just wanted to -- I know we didn't get to a few people that we haven't gotten to that question, we apologize for that, and we'll pick them up in after calls. But I did want to thank everybody for their attention and their support of our brands and our company. So, we appreciate it.

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