Crocs’ Hey Dude Problem Persists in Q3 as Stock Takes Hit on Lower Guidance
Stephen Garner
Senior Editor
Shares for Crocs Inc. took a hit on Wall Street on Tuesday, dropping nearly 20 percent by the end of the trading day, following the continued sales decline at the company’s Hey Dude brand.
According to the Broomfield, Colo.-based footwear brand, consolidated revenues in the third quarter of fiscal 2024 were $1.062 billion, an increase of 1.6 percent from $1.046 billion over the same time last year. That’s better-than-expected from the company’s expectations laid out last quarter which projected revenues to be between down 1.5 percent and up 0.5 percent compared to the prior year.
Net income in the quarter was $199.8 million, up from $177.0 million the prior year period, and diluted earnings per share were $3.36, a 17.1 percent increase from $2.87 last year.
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By business segment, the company reported that direct-to-consumer revenues grew 4.4 percent in Q3, while wholesale revenues contracted 1.4 percent.
Crocs brand revenues once again drove the strong results, with sales up 7.4 percent to $858 million in the third quarter. These results reflected a 7.7 percent increase in direct-to-consumer to $463 million and a 7.1 increase in wholesale to $396 million in the period.
Revenues for the Hey Dude brand in Q3 decreased 17.4 percent to $204 million, which reflected a 9.3 percent decline to $91 million in DTC and a 22.9 percent drop to $113 million in wholesale.
On the company’s earnings call on Tuesday, Crocs Inc. chief executive officer Andrew Rees told analysts that while the company is encouraged by early positive indicators on Hey Dude’s turnaround, recent performance and the current operating environment are signaling it could take longer than the company initially planned for the business to turn the corner.
“We continue to have confidence about the long-term potential of the brand, and the green shoots we are seeing give us positive reinforcement around our opportunity,” Rees said. “I’m incredibly proud of the team and the urgency of which they’ve executed against our sharpened strategy.”
The CEO noted that since September 2023, the company “made a pivot” to prioritize Hey Dude’s brand health, clean up channel inventory, while rightsizing its account base and began building a fleet of premium outlet stores to showcase the best expression of the brand.
“Since then, we’ve elevated ASPs (average selling price), shuttered more than 50 percent of our accounts, improved inventory turns to 4-times a year and opened 29 premium outlet stores,” Rees said. “In addition, we invested in talent across the brand, while accelerating our market investment as we work towards driving higher rents and relevance to generate brand heat. We strongly believe this is the right decision to build a solid foundation for profitable growth at Hey Dude.”
Williams Trading analyst Sam Poser doubled down on the Hey Dude business in his note on Tuesday. “Today’s weakness is due to the reduction of fiscal year 2024 Hey Dude revenue guidance, and the knowledge that stabilizing the brand, and turning it around, North America is more involved than what was previously expected,” Poser wrote. “The shift from performance focused marketing to brand focused marketing, which we believe is the right thing to do for long term brand success, is causing near term pain.”
Poser added that while the shift of marketing is “the right thing to do,” it’s unlikely that Hey Dude will realize revenue growth until the second half of 2025. “Due to the poor performance at retail, wholesalers are taking a far more cautious approach to spring ’25 orders than we had previously expected,” Poser said. “The current poor performance and the cautious approach led management to call fiscal 2025 a stabilization year.”
Looking ahead, Crocs Inc. expects revenues in the fourth quarter to be flat to up slightly compared to Q4 2023, with the Crocs brand expected to grow approximately 2 percent and the Hey Dude brand predicted to be down 6 percent to 4 percent in Q4.
In light of this year’s performance so far, the company is lowering its fiscal 2024 guidance. The company now expects overall revenue for 2024 to grow approximately 3 percent compared to 2023, this is at the lower end of the prior guidance of sales growth between 3 percent to 5 percent.
Revenues for the Crocs brand are now to grow approximately 8 percent for the year, versus growth of 7 percent to 9 percent prior. Revenues for the Hey Dude brand are now expected to be down approximately 14.5 percent, versus down 10 percent to 8 percent prior.
