Crocs, Inc. (CROX) shares took a nosedive in pre-market trading on Tuesday after the company released its third-quarter financial report. While the report revealed a beat on adjusted earnings per share, investors were spooked by a lowered revenue guidance for the HEYDUDE brand, which has been struggling to gain traction.
The company reported adjusted earnings per share of $3.60, surpassing the analyst estimate of $3.10. Quarterly revenues reached $1.062 billion, slightly exceeding the expected $1.05 billion. However, the bright spot of Crocs brand revenue growth of 7.4% (7.9% on a constant currency basis) was overshadowed by the continued decline of the HEYDUDE brand, which saw revenues fall by 17.4%.
“We have sharpened our strategy around HEYDUDE as we work to create higher brand relevance through our product and marketing initiatives,” said Andrew Rees, Chief Executive Officer. “HEYDUDE’s recent performance and the current operating environment are signaling it will take longer than we had initially planned for the brand to turn a corner.”
While North America revenues edged up by 2.1% to $491 million, international revenues saw a robust increase of 15.5% to $367 million. Direct-to-consumer (DTC) revenues grew by 4.4% (4.6% when adjusting for currency), while wholesale revenues declined by 1.4% (0.9% when adjusting for currency). The gross margin rose to 59.6% from 55.6%, showcasing improved profitability.
Looking ahead, the company’s outlook for the fourth quarter is cautious. Crocs anticipates adjusted diluted earnings per share of $2.20 to $2.28, falling short of the estimated $2.72. Revenue growth is expected to be flat or slightly positive year-over-year. The Crocs brand is projected to grow by around 2%, but the HEYDUDE brand is expected to decline by 4% to 6%.
The company’s 2024 revenue growth forecast has been tempered to around 3% (down from the previous 3% to 5% guidance). The Crocs brand is projected to grow at approximately 8% (compared to the earlier 7% to 9% view), while the HEYDUDE brand is expected to see a decline of about 14.5% (worse than the previous expectation of a 10% – 8% decline).
Crocs has also narrowed its 2024 adjusted EPS forecast to between $12.82 and $12.90, compared to the previous range of $12.45 to $12.90. Capital expenditures have been reduced to between $90 million and $100 million, down from the previous guidance of $100 million to $110 million.
The market’s reaction was swift. CROX shares plummeted by 17.4% to $114.09 in pre-market trading, reflecting investor concern about the HEYDUDE brand’s struggles and the cautious outlook for the future. The company’s ability to turn around the HEYDUDE brand will be crucial in determining its future success and regaining investor confidence.
