Crocs, Inc. Q2 2026 Earnings Call

Good day and welcome to the Crocs Second quarter 2026 Earnings Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Abby Ritter, Investor Relations. Please go ahead.

Good morning, and thank you for joining us to discuss Crocs, Inc. Second Quarter 2026 results. With me today are Andrew Reese, Chief Executive Officer, and Patrick Regan, executive Vice President and Chief Financial officer. Following their prepared remarks, we will open the call for your questions, which we ask that you limit to one per caller. Before we begin, I would like to remind you that some of the information provided on this call is forward looking, and accordingly is subject to the safe harbor provisions of the federal securities laws. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results. Performance or achievements to differ materially. Please. Refer to our most recent annual Report on Form 10-K, Quarterly Report on Form 10-q and other reports filed with the SEC. For more information on these risks and uncertainties. Certain. Financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. All revenue growth rates will be cited on a constant currency basis, unless otherwise stated. At this time, I'll turn the call over to Andrew Rees, Crocs, Inc.

Chief Executive Officer.

Thank you, Abby, and good morning, everyone. Thank you for joining us today. We delivered a stronger than expected second quarter driven by broad consumer demand for both brands and consistent execution of our brand strategies. This. Our powerful value creation engine generating strong free cash flow, which returned to shareholders in the form of debt paydown and meaningful share repurchases. While Patrick will discuss our quarterly performance in more detail later, I would like to start by sharing several financial highlights and reviewing our performance by brand. For the second quarter of 2026, we delivered Record enterprise revenues of 1.2 billion, up 2% to prior year, including Crocs brand, up 4%, and Hajdu down 6%. This quarter marked an important inflection for both brands, including a major milestone as a Crocs brand exceeded $1 billion in quarterly revenue for the first time ever. Another quarter of strong direct to consumer growth for both brands Crocs brand DTC up 12%, including reduced promotional activity, and Hajdu DTC, up 7%. Despite lower performance marketing spend. Crocs. And international revenue growth of 7% and North America returning to slight growth. A key milestone for the Crocs brand. Meaningful return of cash to shareholders with approximately 2.3 million shares repurchased for 251 million and debt paydown of 31 million.

Furthermore, earlier this week, we received board approval for an additional 1.5 billion share repurchase authorization, which Patrick will speak about later today. Now. To performance by brand. Starting with Crocs. The second quarter continued to build on our strong start to the year as consumers responded positively to product newness and marketing activations across channels and geographies This is evidenced through the progress we have made against our five strategic pillars. First, we are driving brand relevance globally as the market share leader. During the quarter, we saw strength within our sport and fashion club franchises. Crocs band, Echo and crafted these franchises enable diversification of our overall portfolio, allow better segmentation and drive. Category relevance outside of our classic franchise. Starting with Cross-brand, demand has been broad based across colors and iterations, including our latest introduction. The Cross-brand runner. This focused introduction, which features our take on a retro sneaker trend, has been a strong performer, amidst an exciting time for sports globally. Our. Franchise continues to outperform globally, led by the Echo and Mary Jane silhouettes, and we are building on this momentum with the recent launch of echo 2.0 earlier this month, the. Crafted franchise continues to be led by our canvas and embroidery uppers and.

As we head into fall, we're further differentiating our assortment with a more distinct cold weather offering. As for our classic franchise with the North American wholesale, we are on plan with our strategy to tighten inventory and channel and further segment our business across key partners. These actions, along with the green shoots we're seeing in our domestic DTC business, give us confidence in the stabilization and future growth of our icon. Second, we're scaling our product pillars outside of clogs through new category expansion, starting with sandals. This category represents our largest near-term diversification opportunity, and we continue to take material market share within our three. Core style franchises, the Miami Getaway and Brooklyn. We're building on the success of prior seasons through new introductions and innovation. One stand. Out example of this success is within the Miami. New introductions, such as the platform and Round Toe, as well as new materializations like the Miami Jelly, are driving heightened demand from consumers. Digital search trends further validate that this franchise is becoming increasingly well known to new consumers. As we spoke about on our first quarter call earlier this year, we launched a Saturday sandal, a Personalisable two strap silhouette.

The initial launch drove exceptional response from our consumers and retailers globally. LED by the metallic buckle iteration. As we look forward, we expect this franchise to continue to build meaningfully. More broadly, the momentum we have seen in our sandal category has strengthened the trajectory of a North America business, contributing to the return to growth. We reported today. We. This category to become an even more meaningful growth driver of our global business in 2027 and beyond. Outside of sandals, we're driving strong consumer engagement within our lifestyle category, led by the classic ballet flat, which continues to see notable sell outs globally, particularly in Asia. Within. Recovery, we leveraged New York Giants players. Jaxson Dart and Cam Scarbough to launch. Two new silhouettes within our mellow franchise a clog and a closed heel offering which features an updated look and comfort proposition. The early demand we are seeing has been encouraging and reinforces the confidence we have in our overall diversification strategy. Turning to personalization as a category leader in this space, we aim to push the definition of what personalization can be beyond traditional jibbitz charms. We have begun testing several innovations in the category, including sandal charms, which allow consumers to personalize franchises that don't support traditional jibbitz charms.

We launched a program on a limited basis through our own.com and select stores, where we saw encouraging consumer response. The ability to personalize a growing portion of our product offering remains a powerful driver of consumer engagement and a key competitive advantage for our brand. In addition, we're intentionally expanding into categories like bags and accessories, both of which saw meaningful growth during the quarter. Third, we're fueling consumer engagement through disruptive social and digital marketing. During April, we launched the Glad You Notice campaign, leveraging creative partnerships and a fully integrated media strategy to spotlight our sandal business. The. Campaign was a key driver of the strong momentum we saw in the category during the quarter and reinforces the power of our socially led storytelling to drive growth. As we continue to integrate our brand into entertainment and media, we leverage the success of our first micro drama on real shorts. Charmed to meet you, to launch charm, to meet you too. During this quarter. Together. These micro dramas have garnered nearly 20 million views, reaching both new and existing consumers. Looking ahead, we will continue to leverage one of Crocs core strengths our ability to identify and capitalize on emerging platforms early to connect with consumers in new and disruptive ways.

We also launched several iconic collaborations during the quarter, including our partnerships with two globally recognized brands, bait and F1. Red Bull Racing, starting with BAPE. This collaboration leverages the Icaro and sold out within minutes globally, underscoring Crocs versatility and ability to appeal to streetwear culture to. Amplify the launch, we took over Shibuya Crossing in Tokyo. Bringing our brand to one of the world's most visible consumer stages. Turning to F1, Red Bull Racing, this collaboration was supported by Global strategic Partnerships, which fueled meaningful social media engagement and in turn drove strong new customer acquisition to the brand. To round out the quarter, we were front and center at Paris Fashion Week, showcasing new innovation with our ESP line and building momentum ahead of our echo 2.0 launch. Through a partnership with Brain, an influential brand within fashion and culture. Fourth, we are creating compelling consumer experiences across channels. Starting with social commerce. We continue to build our leadership position in this channel, including a successful execution of TikTok shop's first ever global Superbrand Day in July. The event exceeded our expectations and demonstrated the strength and scalability of Crocs social commerce model. As we continue to push the boundaries of digital commerce.

We've also become the first brand to launch a shoppable series within TikTok shop. The series, titled Desert Shoe, brought content and commerce together in a seamless, digital first experience. This coincided with the replenishment of our ballet flat and Saturday sandal on the platform, amplifying demand for both franchises and creating a meaningful halo to our own.com. In addition, we began testing AI enabled shopping experiences across platforms such as ChatGPT and copilot during the quarter. While still early, we're seeing encouraging results with consumers responding well to more personalized product discovery and converting at higher rates through these channels. We're excited about the opportunity to further expand our presence across these emerging platforms. As we look ahead, these channels are becoming increasingly important to how consumers discover and shop brands. We have developed a diverse network of partners which allow us to pivot our focus to platforms where we can further our leadership position at the intersection of commerce, content and technology. First and. Finally, we'll continue to gain market share internationally. In the second quarter, we saw broad based strength across our tier one markets, led by DTC. We saw double. Digit growth in a high priority markets.

China, India and Japan, followed by key markets in Western Europe. Beginning. With China, the second quarter was a record revenue quarter, including another successful mid-season festival Importantly, we leveraged our read and react abilities to quickly bring China for China product to market, including unique iterations of our ballet flat. Turning to India, we leveraged celebrity and brand ambassador Rashmika Mandanna to celebrate the monsoon season featuring our new classic buckle and ballet flat franchises. In Japan. Performance continues to be broad based across channels supported by strong consumer affinity for personalization and successful launches of both new and licensed product. Western Europe, which includes the U.K., France and Germany, continues to be led by direct to consumer channels where newness within our Echo and Croc brand franchises have driven outsized response from consumers. Lastly, during the quarter, we opened approximately 160 Monobrand stores and kiosks, including 34 owned and operated stores internationally. Now, turning to hey dude. The second quarter marked another significant milestone in our progress, returning the brand to growth, anchored in a focus on our core consumer and building up momentum. We saw entering the year. Both our DTC and wholesale channels contributed to the brand's improving performance.

Despite ongoing pullback in performance marketing spend and the thoughtful management of internal inventory. This progress is evidenced that our three pillar strategic plan is working. First, we are laser focused on our core consumer. During the quarter, we launched our first ever global summer campaign, Takeaction. The campaign was grounded in the key attributes of our core consumer comfort and relaxation, our H2O stretch socks and sandal products anchored the messaging and helped drive upside to our top line expectations. In the quarter. Building on this, we arrived at Stagecoach for the fourth year in a row. This time with partner TikTok, which drove higher conversion to our own.com versus prior years. We then celebrated Father's Day to round out the quarter in our most disruptive way yet. We leveraged Home Depot to launch the ultimate dad shoe, the stride S, designed by Steven Smith. Looking forward, we plan to build on this launch to introduce a broader range of sneakers and casual footwear. Turning to collaborations. During the quarter, we launched several relevant partnerships, beginning with Boulevard, an outdoor lifestyle brand. During the initial launch in April, this collab sold out in less than 24 hours, and our owned.com and were chased in demand for a second release in May.

In addition, we released collaborations with Sims Fishing, Minecraft, and Toy Story. All of which exceeded expectations. Before turning to product highlights, I would be remiss not to mention our newest partnership with the National Hacky Sack League. Amidst a national resurgence. Hey dude icons the Wally and Wendy were banned from tournaments due to the design of the shoe, which was deemed to provide players with an unfair advantage. Core to Crocs, Inc. DNA. We work swiftly to capitalize on the virality of the moment and have now entered into a partnership as the official shoe of hacky sack for 2026. Second. We're building the core and thoughtfully adding more. We're. Amplifying our leadership within the slip on category, led by our icons, the Wally and Wendy stretch socks remains a driver of our core business. Along with the increasing momentum in our stretch jersey franchise patent. Iteration of these core silhouettes, such as those included in Americana launch, were consumer favorites ahead of America's 250th anniversary and demand outpaced inventory during the quarter. As we grow our business outside of our icons, we continue to see strength in sandals, particularly for her. LED by the Maui Breeze and the Austin Slay.

Also with. In sandals, we're testing H2O flip, which appeals to him and has been on a positive trajectory beyond. Sandals, we're seeing notable consumer response to our work offering. Importantly, this consumer is new to the brand and purchases at a higher frequency. We've begun to. Take meaningful shelf space at key retailers in this category and look forward to scaling further as we move into the fall and winter seasons. Third, we're focused on stabilizing the North American marketplace. As I shared earlier, a second quarter results were ahead of expectations, and we're confident in our strategy to return to growth in the back half of this year during the. Quarter, direct to consumer revenues increased 7%, led by strength in digital marketplaces. Within this, we saw outperformance from TikTok shop in part driven by our super Brand day as well as the benefit from a record Amazon Prime Day led by products including the Carina. Wholesale was better than anticipated, down 17%, supported by higher at once demand and thoughtful management of in channel inventory against this. Progress. We are receiving positive feedback from our key partners in both new as well as core products. As we head into the back half of the year and beyond.

To conclude, we'll focus on executing our near-term initiatives to drive diversified growth across both brands. Direct to consumer and wholesale channels, as well as domestic and international markets. We have. Near and achievable strategies to grow our brands, enabled by consumer focus, innovative product and marketing, and our global go to market capabilities. I will now turn the call over to Patrick.

Thank you, Andrew, and good morning everyone. During the quarter, we again made meaningful progress against our strategic priorities for both brands. This reinforces the confidence we have in building sustainable long term growth. The second quarter. Built on our strong start to the year, delivering better than expected results driven by broad based consumer demand and disciplined execution at. Crocs Inc. Our teammates across the globe are playing to win every day with the mindset of ambition, decisiveness and agility. We are moving with purpose to aggressively action our strategic priorities and we are making progress. Now let's move to our results for. The second quarter we delivered record enterprise revenue of 1.2 billion, up 2% to prior year, and ahead of our expectations, our. Results were led by strong direct to consumer growth for both brands. As consumers continue to respond favorably to new product offerings. This was offset in part by anticipated wholesale declines. As we continue our managed approach to optimize the channel and support long term profitable growth. For the quarter. Crocs brand revenue of 1 billion was up 4%. The first time the brand has exceeded $1 billion in a quarter. This is not only an exciting milestone, but one that underscores our brand's continued resonance with consumers globally.

Results were. Were led by our international segment, up 7%, including double digit growth in China, India and Japan. North. America returned to growth up slightly to prior year with. In North America, the direct to consumer channel was up 5% to prior year, led by marketplace outperformance. And despite our continued year over year reduction in promotional activity, this growth. Was in part offset by the aforementioned wholesale decline. The brand delivered revenue of 179 million, down 6% to prior year, exceeding our expectations in marking another meaningful step in our return to growth journey. Direct to consumer sales were up 7% ahead of our plan, driven by robust digital marketplace performance and new store openings. Notably, this growth was achieved against a continued lower level of year over year performance marketing spend. The wholesale channel was down 17%. Also ahead of plan. As we continue to thoughtfully manage our in channel inventory levels, the. Team has been executing their strategy with speed and rigor, giving us continued confidence in returning to growth in the back half of this year. Now moving to adjusted gross margins. Enterprise adjusted gross margin of 60% was down 170 basis points to prior year, driven by 160 basis points of incremental tariff impact.

Crocs. And adjusted gross margin was 63.1%, down 100 basis points to prior year, driven by tariffs and product mix offset in part by the benefit of our cost savings initiatives and international price increases. Hardwood brand adjusted gross margin was 43.7%, down 650 basis points to prior year, driven by tariffs, channel and product mix offset in part by benefits of our cost savings initiatives. Moving to expenses adjusted sG&A dollars were 412 million, up 3% to prior year. As we recognized benefit from our cost savings initiatives. Offset by Choiceful direct to consumer channel investments aimed at connecting with our consumers and driving revenue. Adjusted operating margin of 25.1% was down 180 basis points to prior year. This excludes 10 million of specific costs related to the implementation of our cost saving initiatives, and a distributor take back during the first quarter. Adjusted diluted earnings per share of $4.55 was up 8% to prior year. And ahead of our guidance of $4.15 to $4.30 per share. And finally, our non-GAAP effective tax rate was 18%. Now, turning to a discussion of our strong balance sheet and cash flow, we ended the quarter with just over 170 million of cash and cash equivalents, and approximately 870 million of borrowing capacity on our revolver.

Our. Balance as of June 30th was 389 million, down 4% to prior year. Notably, this included the impact of higher tariffs, inventory. Footwear units were down high single digits to prior year, reflecting our decisive actions to manage inventory flow into the marketplace. Enterprise inventory turns were above our goal of four times on an annualized basis. The power of our business model drives exceptional free cash flow, which provides us with significant flexibility in how we allocate capital and generate shareholder value during the. Quarter, we repurchased approximately 2.3 million shares for $251 million. Another proof point of our commitment to returning capital to shareholders. Reflecting our confidence in the business and future cash flow generation Earlier this week, our board approved an additional 1.5 billion share repurchase authorization, bringing our total available authorization to approximately 2 billion. This. Increase underscores both our confidence in the business and our commitment to returning excess capital to shareholders. At the same time, we continue to strengthen our balance sheet. During the quarter, we paid down an additional $31 million of debt and ended the quarter with net leverage at the low end of our target range of 1 to 1.5 times. Now, moving to our full year 2026 outlook.

We expect. Enterprise revenue growth for the full year to be 1% to 2% versus prior year, up from our previous guidance. And assuming currency rates as of July 27th. Moving on. To revenue guidance by brand for the Crocs brand, we now expect revenue to be up 2% to 3% versus our previous guidance range of flat to up 2%, led by international growth. We continue to expect North America to be down for the year with declines led by the wholesale channel. Now. Before turning to guidance, I want to speak to a business model change that we will be implementing with one of our largest marketplace partners, beginning in Q3. This will affect how we recognize Crocs brand North America revenue between our DTC and wholesale channels, and will have the following impacts. One. We. Will recognize lower revenue in our DTC channel two. Two. Conversely, we'll recognize higher revenue in our wholesale channel three. The net of these revenue shifts will be lower overall revenue. Four this will be neutral from a units sold in market share perspective. And five we will see an improvement to operating profit. We have fully contemplated the impact this will have to revenue in our latest top line expectations for the Crocs brand.

Finally. And in line with our prior guidance, North America DTC is anticipated to be positive for the year. Excluding this change to revenue recognition. Turning to. Hey dude, we now expect revenue to be down approximately 2% to 4%. Another improvement from our previous guidance range of down 5% to 7%. This increase reflects our confidence in the brand returning to growth in the back half of the year. We are also raising our bottom line expectations for adjusted diluted earnings per share to now be in the range of $13.70 to $14, up from our previous guidance range of $13.20 to $13.75, consistent with. Our previous guidance policy. This range does not assume any impact from future share repurchases. Moving on to. The margin guidance, we continue to expect adjusted gross margin for the year to be slightly up versus last year, including the impact of tariffs offset in part by our cost saving efforts, primarily in our supply chain. Adjusted sG&A dollars are implied roughly flat to prior year. In line with our prior guidance, including benefits from our previously announced cost savings programs. Offset by investments into growth drivers for the enterprise. Taken together, we continue to expect adjusted operating margin to expand modestly from the 22.3% level we reported in fiscal year 25.

This excludes approximately $25 million of non-recurring costs. For tax, we continue to expect our underlying non-GAAP effective tax rate, which approximates cash taxes paid to be 18%, and the gap effective tax rate to be 23%. For the year, we continue to expect capital expenditures to be in the range of 70 million to $80 million. Regarding. Capital allocation, as I highlighted earlier, we are committed to first investing behind both of our brands to fuel long term growth and second, returning our significant free cash flow to shareholders through share repurchase. Now, turning to our third quarter outlook. For the third quarter, we expect revenues to be approximately flat at currency rates as of July 27th, within this Crocs brand, revenues are expected to be up approximately 1%. Hey dude, revenues are expected to be flat to down 3%. Adjusted operating margin is expected to be approximately 21.5%, which embeds adjusted gross margin, up approximately 170 basis points to prior year. Adjusted diluted earnings per share is planned to be in the range of $3.20 to $3.30. The closing I want to provide a few shaping considerations implied in our third versus fourth quarter guide for. Revenues. The strategic actions we made in the back half of last year for.

Both brands were more weighted towards Q4. And for margins. The fourth quarter of 2025 had a larger tariff headwind of 300 basis points versus Q3 at 230 basis points. To. Close. We are pleased with our strong first half performance and the momentum we continue to see across the business. The results we delivered reflect the strength of our brands. Broad based consumer demand and disciplined execution by our teams around the world as. Always, we remain focused on driving long term, profitable growth while generating and deploying our exceptional free cash flow through our best in class value creation engine. At this time, Andrew and I are happy to take your questions Operator.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up