Crocs has big plans for its recently acquired Hey Dude label after it raised the revenue guidance for the comfort footwear brand last month. The clog company is already seeing strong demand for Hey Dude products after it acquired the company for $2.5 billion last year, inching the new subsidiary toward its $1 billion annual revenue target by 2024, according to Crocs CEO Andrew Rees.
To an average consumer, Hey Dude still isn’t a household name. Hey Dude has roughly 20 percent consumer brand awareness in its main distribution areas in the Midwest, Texas and Florida, Rees said during Baird’s 2022 Global Consumer, Technology & Services Conference Wednesday. This plunges to to less than 5 percent on the U.S. coastal regions.
And Hey Dude’s array of slip-ons, boat shoes and sandals largely still aren’t carried by most broad-based wholesale retailers, with the current distribution largely spread across “mom-and-pop distribution with a couple select national players,” Rees said.
Yet despite Hey Dude’s low consumer awareness and more selective sales channels, Crocs is taking advantage of the significant growth runway ahead. Crocs’ wholesale partners are largely in tune with Hey Dude’s burgeoning popularity, even if they don’t currently carry the brand.
“They are very much aware of the success of the brand, the consumer engagement it drives and they are getting requests for it,” Rees said. “We have isolated some product to do some testing in some partners and it’s been extremely successful. So there is tremendous demand from our wholesale partners to carry the brand on a broad range.”
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In the short term, through early 2023, the brand endorsed by celebrities like Justin Bieber and Post Malone plans to broaden distribution of Hey Dude products within national retail chains, which Rees believes will be “a very achievable task.” Beyond that, Crocs will then look at international growth, with an initial focus on Europe followed by Asia.
For the second quarter, Crocs estimates that Hey Dude will record revenues between $200 million and $220 million. When expanding guidance for the full year, revenue for the brand is now forecast between $750 million and $800 million.
Even though it was a “slow sandal season,” Rees doesn’t think that factor presented any risk to the second half of the year.
Crocs chief financial officer Anne Mehlman reaffirmed Rees’ statement, saying that the company anticipated lower sandal sales, and cut sandal production to focus on its core offerings when Vietnam factories shut down.
Crocs CFO: ‘Elevated’ US inventories not a problem
Mehlman commented on the company’s “elevated inventories” in the U.S., which she expects to remain high all year due to lengthy transit times.
“We definitely saw a phenomenon as some of our wholesale partners were over-ordering because they weren’t sure what supply they were going to get,” Mehlman said. “We’re making sure that we manage what’s in-channel because that’s most important. We’re a little lucky because most of our inventory that came in in the first half was core, so it doesn’t have an expiration date. We can control how much of that is in the market.”
On the other hand, the EMEA region is still running lean since it was the most impacted by Vietnam factory shutdowns in 2021. Crocs is reallocating inventory from Russia, where it shuttered business in March after the nation’s invasion of Ukraine.
And in Asia, although Shanghai just came off a 68-day shutdown, Mehlman said the company has “the right amount of inventory and the right amount of chase.”
Promotions are not tied to inventory levels
With price hikes becoming more commonplace within retail and demand limiting the need for markdowns, Crocs is fortunate to have some pricing power.
“We kind of disconnect promotions from the management of inventory, because in footwear, we’re returning to a more normalized cadence of promotional activity to incent consumer takeaway,” Rees said.
The CEO indicated that Crocs plans to use promotions where they make sense. Key promotional events Rees highlighted include Memorial Day, July 4 and Cyber Monday, among others.
“That is not a reaction to inventory, that’s a reaction to what the consumer environment is going to be and how we’re going to participate in it,” he said.
Total gross margin at Crocs has increased 10 percentage points since 2018, with reduced promotions contributing 1 percentage point. But Rees expects Crocs to “give some of that back.”
On a year-over-year basis, the average selling price of a Crocs product grew 18.9 percent to $25.71 as the brand contends with rising freight and input costs, the latter of which Mehlman said are negotiated every six months.
“We’ve obviously absorbed those headwinds,” Mehlman said. “We did take some price [increases] in our European and Asian markets at the beginning of this year. We had already taken price [increases] in the U.S. last year, which will flow through the first half of this year and then we’ll start anniversarying it in the back half. I feel like we’ve done pretty much all we can to you offset those inflationary pressures at this point.”