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How Crocs, On, Wolverine and Genesco Will Evolve in 2023

For today’s top footwear brands, whether they sell athletic, dress or comfort shoes—product is the name of the game. In an era when consumers have seemingly endless options, big brands have more incentive to dip into new verticals, or pivot when a trend catches fire.

At day two of the 2023 ICR Conference, brands including Crocs, Wolverine Worldwide, Genesco and On shared not just how they have maneuvered through the holiday season, but how they are evolving their assortments to fit to today’s consumer.

Additionally, Neiman Marcus is still winning over the high-end consumer amid the current economic uncertainty, and Urban Outfitters revealed its lead times are returning to pre-pandemic levels.

Crocs CEO sings praises for Hey Dude, teases more innovation

Crocs continues to outperform its own expectations, revealing that it projects 2022 revenues will surge approximately 53 percent on an annual basis to $3.55 billion, just ahead of its prior range of 49 percent to 52 percent. Full-year 2022 adjusted operating margin is estimated at approximately 27 percent of sales.

Individually, the Crocs brand grew 15 percent in 2022 to $2.65 billion, or 19 percent, on a constant-currency basis.

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The clogs seller, known for its popular collaborations with celebrities like Justin Bieber and Post Malone, guided its fourth-quarter growth projections at an approximately 60 percent increase in sales since 2021.

Crocs expects revenue growth of 10 percent to 13 percent for the new fiscal year compared to 2022, which would amount to approximately $3.9 billion to $4 billion.

The $2.5 billion acquisition of comfort footwear brand Hey Dude has been a recurring theme in recent presentations from Crocs CEO Andrew Rees. The label already accounts for $890 million in revenue for Crocs and 27 percent of total sales. Crocs expects Hey Dude to generate $1 billion in sales in 2023—one year earlier than expected.

Hey Dude “continues to outperform in terms of its growth, in terms of its consumer resonance, and in terms of our perspectives on where we think you can go in the future,” Rees said, noting that the brand’s revenue outperformed initial estimates ranging between $700 million and $750 million.

With Hey Dude in the fold, Rees said Crocs is expanding the company’s total addressable market to $160 billion.

Rees already hinted last month that Hey Dude is expanding its offering of boots in fall 2023, and that more sandals are likely to come down the pike. He said new product innovations across both Crocs and Hey Dude will accelerate this year.

“I think one of the headwinds of the pandemic that we’ve all sort of been going through for the last several years is it’s been really hard and difficult to drive very strong product innovation and new product introductions,” said Rees. “You’re always kind of making some trade-offs between the ‘Do I do the tried and tested?’ or ‘Do I try something new?’ And in an uncertain environment, you’re kind of biased towards the tried and tested. So we’ve really put the foot on the gas relative to new product introductions, new innovations that we’re bringing to the marketplace and to marketing innovation.”

Wolverine Worldwide was ‘trying to be too many things to many people’

While Crocs is looking to broaden its innovation horizons, Wolverine Worldwide is seeking to pare down product down as part of the wider push to simplify.

“We’re so broad in our SKUs and assortment, that we’re trying to be too many things to many people,” said Wolverine CEO Brendan Hoffman. “This breadth of SKUs is not providing any payback. Look for simplicity in everything we do. It’s one of our guiding principles.”

Year-end inventory across the Wolverine, Saucony and Merrell owner is approximately $805 million, down 8.6 percent from the $880.9 million peak at the end of the third quarter. On an annual basis, inventory would still be more than double (120 percent) the total at the end of the 2021 fourth quarter.

Wolverine Worldwide plans to cut inventory down to $600 million by the end of 2023.

Actively looking for a buyer for Keds and its leather business, the company is also in the middle of laying off 3,700 employees.

Citing a renewed focus on agility, Hoffman shared how Wolverine is thinking about the Keds and leather businesses.

“The thought of divesting a brand was kind of off limits, but now we can’t have any sacred cows,” Hoffman said during the conference. I”t’s pretty obvious that Keds is a great legacy business, but it’s under $100 million in revenue, with low profit margins.” He noted that driving growth across other Wolverine brands requires far less of a margin hit, and said he “didn’t sign up to run a tannery business.”

Wolverine expects full-year revenue of $2.685 billion, for approximately 11 percent growth and 14 percent on a constant-currency basis. This is on the higher end of the previously issued guidance of $2.67 billion to $2.695 billion.

Merrell is expected to be the best performer, with revenue growth in the mid-teens. Saucony and Wolverine are both forecast to generate high-single digit-growth, while Sperry is projected to see revenue dip in the low teens.

Fourth-quarter revenue is anticipated to be approximately $665 million, marking approximately 5 percent revenue growth and up 8 percent on a constant-currency basis.

Adjusted diluted earnings are expected to come in at the low end of Wolverine’s previous guidance of a 5 cent to 15 cent loss in fiscal 2022, and between $1.41 to $1.51 for the full year.

Wolverine’s CEO explained why the company is ditching Keds.

So far the reorganization has pruned Wolverine’s total debt. Year-end net debt will be $1 billion, down from $1.3 billion at the end of third quarter, thanks also in part to fourth-quarter operating free cash flow in the range of $280 million to $300 million.

From dress to comfort: Genesco revamps Johnston & Murphy

Genesco engineered a “dramatic” turnaround for its Johnston & Murphy business, which was hit hard by the Covid-19 pandemic since customers weren’t going out to shop for its then-signature product: dress shoes.

But like Crocs, Johnston & Murphy reinvented its product mix, moving away from the dress component and focusing more on comfortable lifestyle shoes. While sales declined 2 percent across the Genesco business in the quarter-to-date period ended Dec. 24, Johnston & Murphy was the top performer with 11 percent sales growth.

Illustrating how radical the pivot was, Genesco CEO Mimi Vaughn noted that dress shoes now comprise less than 10 percent of the Johnston & Murphy assortment.

“The real secret is in the technology and in thinking about hybrid products,” Vaughn said. “So what you’re wearing, for example, is a pretty dressy upper, but it’s a really comfortable bottom and that’s where the consumer is gravitating. We are having a lot of success in apparel. We’ve worked in a lot of proprietary technology features into the apparel as well, and we had a chance to re-wardrobe that man who isn’t necessarily wearing his wingtips and his cap toes anymore.”

As for the rest of the company, Schuh saw growth of 6 percent. Journeys Group saw sales decline 3 percent, while the company’s licensed brands division—which includes sales of Levi’s, Dockers and Bass branded products—tanked 39 percent.

Including all Genesco banners, store sales dipped 4 percent, while the direct e-commerce business improved 16 percent.

Comparable sales across brands increased by 3 percent, while same-store sales dipped 2 percent and e-commerce sales improved 22 percent.

Tom George, senior vice president and chief financial officer of Genesco, said that fourth-quarter sales are trending towards the higher-end of the company’s projections, but that higher-than-expected shipping and warehouse expenses mainly associated with the U.K.-based Schuh business are pressuring gross margins. The business now expects total year adjusted earnings per share to be at the low end of its most recent range of $5.50 to $5.90, compared with a prior view that Genesco would be near the midpoint.

When discussing potential capital allocation for 2023, George said Genesco is considering “value-creating acquisitions and being real cautious with how much capital we allocate to that.”

On Running evades holiday markdowns, preps apparel expansion

While excessive promotions have run rampant in apparel and footwear in the wake of the industrywide inventory glut of 2022, On Running is bucking the trend in a big way.

For starters, 94 percent of On’s digital holiday sales came in at full-price, said Martin Hoffmann, chief financial officer and co-CEO of On, during the ICR conference.

The Roger Federer-backed company, which expects to generate more than $1 billion in sales by the end of the year, sees a major opportunity to scale even further by growing its apparel assortment.

“If you want to build a $5 billion plus brand, you need to be strong in apparel,” co-CEO Marc Maurer said. While the brand’s current apparel collections are typically rooted in running, On is looking at creating clothing people will wear “all day and every day.”

“I think what we learned is that if we can showcase apparel well, it works, so we’re investing with some of our key wholesale partners,” Maurer said. “We’re investing in our own stores where we can showcase apparel and relaunching our website—we already did that in the U.K, as the first pilot.”

Although many of the major athletic footwear brands like Nike and Adidas have made wider pivots to direct-to-consumer (DTC) sales, On is prioritizing both channels, anticipating store openings in London, Miami and Brooklyn by the end of the fourth quarter. Internationally, the running shoes brand aims to open 10 stores in China and three in other markets in 2023.

The wholesale partnerships are designed to reach new, relevant consumers, according to Hoffmann, who said the company’s partnership with Dick’s Sporting Goods has started “super successfully.”

“We basically opened up now 50 doors [in Dick’s] at the beginning of January, so it’s a very controlled rollout as it is with us and our wholesale partners as well,” Hoffmann said. “Dick’s is really to reach the runner. The partnerships with Foot Locker and JD are about reaching a younger customer—this is more of the Cloudnova and Roger customer.”

While the running footwear brand experienced some supply chain constraints in the third quarter related to one of its third-party logistics providers, Maurer said that those challenges have since been resolved, and that On had no operational constraints in the fourth quarter.

“I think what’s important to remember is that we’re operating in an environment with physical products and we’re growing at over 50 to 60 percent and in some markets at over 100 percent at quite a sizeable volume already, so this always poses challenges to the whole supply chain,” Maurer said.

To prepare for the future, On is investing heavily in warehouse capacity, having recently signed a deal with freight forwarder Kuehne+Nagel to help automate its Atlanta warehouse.

Neiman Marcus CEO: Luxury consumers show no signs of slowing down

Operating in today’s rough economic waters has been a major challenge for the retail industry at large, but the luxury industry is a “good place to be right now,” according to Neiman Marcus Group (NMG) CEO Geoffroy van Raemdonck.

The luxury retailer’s high-income consumers haven’t held back from spending, with the Dallas-based company able to sell 80 percent of goods at full-price.

According to a company statement, the top 2 percent of customers at Neiman Marcus drive approximately 40 percent of the brand’s sales. Eighty percent of these top customers have at least $1 million of net worth—with average spend exceeding $25,000 annually, buying with NMG 25 or more times a year.

In perhaps the biggest sign that a potential recession hasn’t slowed down high-worth consumers, Neiman Marcus saw 90 percent retention rates among the top customers during the 2022 fiscal year.

And even more fortuitous for the retailer, which endured a Chapter 11 bankruptcy to kick off the Covid-19 pandemic in 2020, the company is now profitable across all channels and has more than $1 billion in liquidity, executive vice president chief financial officer Katie Anderson told investors at the conference.

The company has massively widened its partner offering despite the closure of more than 20 stores since the bankruptcy, trimming its store base to 36 namesake stores, one Bergdorf Goodman location and five Last Call liquidation outlets.

Over the last 12 months, NMG has added 200 emerging brands to its total portfolio, “many exclusive to us,” according to van Raemdonck. “And about 60 percent of the top 20 brands have done exclusive activations with exclusive collections, just this fall alone.”

Van Raemdonck highlighted the company’s partnership with Farfetch, which not only brings Neiman Marcus and Bergdorf Goodman to the Farfetch marketplace, but also will allow the digital luxury platform to replatform the Bergdorf Goodman website and mobile application.

“Our partner brands are growing their distribution by themselves, but in parallel, they’re growing with us,” said van Raemdonck. “We have access to that unique luxury customer, who we can outfit across all categories, and most brands are strong in one category, not across all categories.”

He also touted Neiman’s services such as the remote selling tool Connect, which enables associates to interact with their clients anywhere via a mobile device to share styling advice and product recommendations. Collectively, sales associates send an average of 1.5 million texts and personalized emails to customers per month.

Privately owned Neiman Marcus doesn’t often break out financial numbers, but van Raemdonck gave a glimpse into the company’s full-year and quarterly performances.

For the year ended July 31, 2022, the luxury retailer generated $5 billion in gross merchandise value (GMV), an 11 percent EBITDA boost, and $495 million in adjusted EBITDA. And in the first quarter of the current fiscal year, Neiman Marcus experienced a 6 percent GMV gain, and a 33 percent increase in comparable sales.

‘Inventory is going to be more in line with sales’ at Urban Outfitters

Coming off a third quarter which saw inventory increase 18.6 percent to $743.6 million and wholesale inventory jump 39 percent, Urban Outfitters is hoping the markdowns of the holiday season can right the ship for 2023.

Thus far, the plan appears to be working, even though it will provide a short term margin hit of 50 basis points (0.5 percentage points) in the quarter. Frank Conforti, co-president and chief operating officer at Urban Outfitters, Inc., said the company would likely end up in the “mid-single-digit” growth range at the end of the fourth quarter.

“Inventory is going to be more in line with sales, which should reduce the burden of the markdown rate that they need to clear through product that’s not performing well, as well as the the depth of markdowns,” Conforti said.

Conforti noted that initial merchandise margins (IMU) would be more favorable going into 2023, particularly as shipping speed and reliability have recovered to pre-pandemic levels.

“That has now enabled us to fully institute our lead times back to where we were, so all brands and their design calendars, their buy calendars, their open-to-buy cadence is back to where it was,” Conforti said. “That really has a nice impact as far as us trying to be able to predict the fashion closer into where the consumer demand is.”

Conforti indicated that the improvement lead times are most important for the Urban Outfitters brand, which can’t leverage air freight into the U.S. as much as Free People and Anthropologie due to price points.

“[The Urban brand has] to make their call on fashion a little bit further out because they’re utilizing a heavier penetration of ocean freight,” Conforti said. “Now being able to get back to historical lead times gives them the ability to make a call closer into the consumer demand and gives that brand the opportunity to change their current performance.”

The lifestyle apparel retailer issued preliminary earnings, citing total retail segment net sales growth of 1 percent, with comparable retail segment net sales increasing 2 percent, partially offset by a 1 percent negative impact of foreign currency translation.

The retail segment comparable net sales growth was driven by low single-digit positive growth in digital channel sales and low single-digit positive growth in retail store sales.

While Urban Outfitters may be the company’s flagship brand, its performance is holding down the firm’s wider performance. Comparable retail net sales at the label annk 10 percent, while they increased 15 percent at the Free People Group and 7 percent at the Anthropologie Group.

Wholesale segment net sales plummeted 22 percent, driven by a decrease in Free People wholesale sales primarily due to declining sales in department stores.

“We do think that number will come in better once we get to quarter-end,” said Conforti. “We have an increase in deliveries in January so we’d probably cut that number about in half from down 22 [percent] to] probably about down 10 or so for the quarter.”

Sales at the Urban Outfitters subscription business, Nuuly, increased 150 percent from a 153 percent increase in subscribers during the two months ended Dec. 31, 2022, versus the prior year period.

The lifestyle apparel company continued to fortify its brick-and-mortar operation during 2022, opening a total of 33 new retail locations. The physical expansion includes 19 Free People Group stores (including seven FP Movement stores), seven Urban Outfitters stores, six Anthropologie Group stores and one Menus & Venues restaurant. On top of the 33 company-owned stores, four Urban Outfitters franchisee-owned stores and one Anthropologie Group franchisee-owned store were opened.

The expansion outpaced the company’s seven store closures, which occurred across three Urban Outfitters locations, three Anthropologie Group sites, and one Free People store.