Crocs Inc. is starting off 2024 from a position of strength as the company continues to drive market share gains and sustainable growth as seen through its better-than-expected fourth quarter and record year end results.
On the company’s fourth quarter and full year fiscal 2023 conference call on Thursday, Crocs Inc. chief executive officer Andrew Rees told analysts that while there are question marks around the global macro backdrop and the broader consumer health, he is “confident in the company’s brands, its people and its purpose.”
“I’m looking forward to another year of outsized share gains, industry-leading profitability and top-tier cash flow generation,” Rees said.
Watch on FN
This sentiment comes as the Broomfield, Colo.-based footwear company reported that net revenues for the fiscal year 2023 increased 11.5 percent to $3.96 billion, up from $3.55 billion in 2022. Net income for the year was $792.6 million, up from $540.2 million in 2022.
As for the company’s fourth quarter performance, Crocs reported on Thursday that its net revenues in the period increased 1.6 percent to $$960 million, up from $945 million the same time last year. Net income in Q4 was $253.6 million, up from $137.7 million the same time last year.
And these record results were music to Wall Street’s ears on Thursday, with the company’s stock up 8 percent in mid-day trading. Here, FN drills down on three key takeaways that were discussed during the company’s quarterly call that may have led to Crocs’ stock market performance on Thursday.
International’s Potential
In 2023, Crocs saw revenues rise 13.3 percent to $3 billion in 2023, driven by the label’s international business, which saw revenues jump 21.7 percent to $1.2 billion for the year. In fact, the fourth quarter represented the company’s 12th consecutive quarter of strong double-digit growth outside of North America.
According to Rees, South Korea and the U.K. grew double digits on Australia and China each grew triple digits.
“While we reported a record revenue in China, it still only represents 4 percent of revenues, ending the year at $120 million, underscoring the untapped potential we have in the region. The Asian consumer is embracing personalization at a rate higher than other parts of the world,” he said. “Another anecdote that gives me confidence broadly in our international growth agenda is in South Korea, our most established market in the region, carries the highest market share of any market globally. It is one of the best representations of our core strategies across clogs, sandals and personalization.”
Pressed by analysts on which international markets he is most excited about, Rees noted that China is at the top of his list. “We have a multiyear investment effort and focus on China, and we’re really thrilled that this has started to pay off in 2023 with triple-digit growth, so essentially doubling the business during that year from a top line perspective. Obviously, it improved dramatically from a bottom-line perspective as well.”
More Hey Dude Outlets
While the company has made good progress in the fourth quarter towards returning its Hey Dude brand to a pull-market position, there’s still more to be done. Following a successful rollout of five Hey Dude outlet stores in the second half of 2023, the company plans to open 30 more outlet locations in 2024.
“As you go through the year, the cumulative revenues and profit that you get from those stores is substantial, and we’ll continue to build that business in the future,” Rees said. “A benchmark we can give you to kind of get your head around it was the retail business for Crocs North America is about one-third of the total business. So, it’s very substantial, and we think that exists for Hey Dude too.”
Aside from more outlet stores, the company plans to expand Hey Dude’s collaborations and partnerships, a strategy that has worked well for its Crocs brand. “We recently collaborated with actor Chase Stokes from the popular ‘Outer Banks’ show on Netflix to launch the Wally Mid shoe,” Rees noted. “Later in Q1, we’ll be expanding our collegiate program to more schools during March Madness to deepen consumer engagement.”
“As we move into 2024, we’re focused on continuing to invest in core and expect the Wally and Wendy franchises to remain the lion’s share of our offerings, driven by newness and color, graphic and heights,” Rees added. “We will capitalize on our successful sneaker franchises, including the Karina and Sirocco, and build on our fashion boot offering in the fall.”
Overall, the CEO maintained that the company is “taking a focused approach” to how it allocates inventory by account and expects to see more evidence of account and channel segmentation as the year progresses.
The Road to $5 Billion
In 2021, Crocs set a lofty new business goal. At the time, the clog maker said it planned to achieve $5 billion in sales by 2026, which would represent a compound annual growth rate above 17 percent with 2021 as a base year. On Thursday’s call, one analyst was seeking an update to this goal.
“I don’t think that it’s realistic to achieve the $5 billion by 2026,” Rees said. “But we’re really focused on driving continued growth in a profitable and sustainable way, and [this goal will] probably take a little bit longer.”
The CEO said the world is a different place than it was in 2021. “I think quite a few things have changed since we provided that guidance around global supply chain,” Rees said. “We had to pull back out of Russia because of all the issues that you’re well aware of. And frankly, currency cost us about $200 million in top line.”
“We absolutely still firmly believe the Crocs is a scale business and can easily be $5 billion,” Rees continued. “Looking at the pillars that we’re using to drive that growth, which are Asia, digital, clogs, sandals and personalization, we see solid progress against all of those pillars.”
