Good morning and welcome to the Crocs, Inc. First Quarter 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Corinne Lin, Vice President of Corporate Finance. Please go ahead.

Good morning, everyone, and thank you for joining us today for the Crocs first quarter 2022 earnings call. Earlier this morning, we announced our latest quarterly results, and a copy of the press release may be found on our Web site at crocs.com. We 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 include, but are not limited to, statements regarding the acquisition of HEYDUDE and the benefits thereof, Crocs' strategy, plans, objectives, expectations, financials or otherwise and intentions; future financial results and growth potential; anticipated product portfolio, our ability to create and deliver shareholder value and statements regarding potential impacts to our business related to the COVID-19 pandemic. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events, except as required by applicable law. We caution you that all forward-looking statements are subject to risks and uncertainties described in the Risk Factors section of our annual report on Form 10-K and our subsequent filings with the SEC. Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs annual report on Form 10-K as well as other documents filed with the SEC for more information relating to these risk factors. 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. Joining us on the call today are Andrew Rees, Chief Executive Officer; and Anne Mehlman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. At this time, I'll turn the call over to Andrew.

Thank you, Corinne, and good morning, everyone. We're very pleased today to announce that we had an exceptional first quarter, despite the number of headwinds. Revenues grew by 47% on a constant currency basis, adjusted operating margins were extremely strong at 27% of sales and we generated $2.05 of adjusted diluted EPS. Within our overall company results, the Crocs brand performed very strongly across all regions and channels. While we've only owned HEYDUDE for six weeks during the quarter, we are rapidly assimilating it into the company and it's very clear that demand for the brand is exceptional and we're confident in a robust growth runway. Anne will review our financial results in more detail shortly, but here are a few highlights from the first quarter of 2022. Overall, consolidated revenue growth, including both Crocs and HEYDUDE, was 47% on a constant currency basis. On a constant currency basis, Crocs brand grew 22% including strong DTC growth of 20% and digital growth of 23%. HEYDUDE revenue exceeded our expectations at $150 million since February 17. On a pro forma basis, Q1 revenues were $205 million, up 81%. The HEYDUDE integration is proceeding while and is on track. Adjusted operating margins on a consolidated basis, including Crocs and HEYDUDE, was best-in-class at 27%. Adjusted diluted EPS was an exceptional $2.05 per share. Both brands ranked in the top 10 of Piper Sandler's Spring Taking Stock with Teens survey with Crocs at number 6 preferred footwear brand, up from number 8 last spring; and HEYDUDE as the number 9 preferred footwear brand. Finally, we released our 2021 ESG report, reiterating our bold commitment to become a net zero company by 2030. Moving to our brand highlights for the quarter, let's begin with the Crocs brand. We experienced a strong Q1 with constant…

Thank you, Andrew, and good morning, everyone. I'll begin with a short recap of our first quarter results. For a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release. As you've already seen from our press release, we had an excellent first quarter. We delivered strong and consistent revenue growth within the Crocs brand across all regions and channels. And HEYDUDE revenues exceeded expectations. Gross margins remained very strong despite freight headwinds, and leverage and adjusted SG&A led to another quarter of best-in-class adjusted operating margins and adjusted earnings per share. With the HEYDUDE acquisition now closed, our reportable operating segments for the Crocs brand are North America, Asia Pacific, Europe, Middle East, Africa and Latin America. Latin America has moved from the previous America segment to the newly formed EMEALA segment, and we've added a segment that is now the HEYDUDE brand. First quarter consolidated revenues were $660 million, a growth rate of 43.5% over last year, comprised of $545 million from the Crocs brand or 18.5% growth and $115 million from the HEYDUDE brand following the acquisition close on February 17. Crocs achieved 18.5% growth despite losing revenues from Russia in the latter half of the quarter and unfavorable currency movements inter-quarter. During the first quarter for the Crocs brand, we sold 25.6 million pairs of shoes, which slightly declined by 1.1% over last year. The Crocs brand average selling price during Q1 was $21.10, a year-over-year increase of 19.6% driven by price increases, reduced promotions and discounting and incremental Jibbitz penetration. Let's review a few Crocs brand highlights by region, beginning with North America where Q1 revenues increased 19.5% to $319 million to prior year, driven by higher prices and strong sell-throughs. DTC revenues increased 18.5% on top of…

Thank you, Anne. As our Q1 performance indicated, we have great momentum in both of our brands. Our Crocs brand continues to grow in all regions and channels. The HEYDUDE brand has already exceeded expectations, and we're excited to unlock the full potential of this exciting young brand. We remain focused on achieving the long range targets we've laid out for both brands and the significant shareholder value this will create. Operator, please open the call for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Jonathan Komp from Baird. Please go ahead.

Yes, hi. Good morning. Thank you. First question I want to ask, when you look at the performance of the business along with the Q2 guidance, and then it really looks like an embedded second half acceleration. Can you maybe just comment a little bit more of what's supporting your outlook, especially in the second half and for the Crocs brand, and in the factors that you think will contribute to the acceleration in top line growth?

Yes. Hi, Jon. Thank you for the question. So just to reiterate our guidance, we're very confident in our full year guidance, which is both the 20% plus in Crocs brand and the upward revision of the HEYDUDE brand, which carries best-in-class operating margins for the combination. Our full year 20% guide for the Crocs brand and 840 to 890 for the HEYDUDE brand is based on really the continued strong pre-books that we see for both brands, innovation pipeline, brand resonance and just performance we're seeing overall globally. Then turning to Q2 specifically, our Crocs brand revenue guide of 17% to 20% constant currency translates to 12% to 15% on a reported basis. And then if you add back the pause in Russia, it would be at 20% to 23% growth, which is obviously above the 20% plus. So that sort of gives you the color on Q2. And we look forward to continuing to execute, obviously, on our long term, which is the Crocs brand of 5 billion and the HEYDUDE brand to 1 billion. And then I'll let Andrew add a little extra color.

Yes. Look, I think you can come at it at a couple of different ways, Jonathan. So we can look at our pre-books, we can look at the trajectory in our DTC businesses, and I think Anne reference that. I think the other thing is we just look at the underlying strength of the brand. As we look at our brand metrics, if we look at some of the external brand metrics, the Crocs brand continues to perform very well. There's clearly resonance for the brand, both here in the United States and in our key international markets. And we really see a strong trajectory. And I would say that is, despite what we would kind of consider less than ideal NPI introductions in the first quarter. As we look at quarter two and quarter three, we'll have a much stronger flow of NPI. That's certainly -- the factory closures late last year certainly impacted that. So we're pretty optimistic about the rest of the year. And then from a HEYDUDE perspective, we're truly impressed by the consumer advocacy, the consumer takeaway, and the enthusiasm which our wholesale accounts have for the brand, and the kind of results they're seeing on it in the current quarter. And obviously, that's translating in how they're buying into the brand for the back half of the year, and the conversations we're having with them about next year. So I think we see -- we're very fortunate. We see great underlying strength in both brands.

That's great. And if I can follow up on the HEYDUDE business, you've had it as part of the company for less than 90 days. You've raised the outlook pretty significantly for this year. So can you maybe just elaborate more, what surprised you so far? How much visibility you have on supply for the upside to the guidance? And then maybe the broader picture, I know you've highlighted at least $1 billion by 2024. Are there scenarios where you could achieve that level much sooner? Thank you.

Yes. I think we talked a little bit about that on the last call, Jonathan. As we do diligence to the company and we brought it on, we knew they had a very strong revenue book, right. We could see the trajectory in DTC, which the HEYDUDE is principally digital both dot-com and Amazon, which is 3P. We had a great order book from our wholesale customers. We had strong visibility into supply, but we had some questions. So I think that's probably the biggest thing that's changed. As we look at the last several weeks, obviously the six weeks we reported in the first quarter and the period since then working very well with the HEYDUDE team. And I think we have much more confidence in both inbound supply and logistics of getting that to our customers. So not ideal, I wouldn't say things are arriving on time. But we've got a lot more confidence around supply, which is really the principal reason for raising the '22 guidance for HEYDUDE. And we're very -- I don't really want to say any more at this stage about the ultimate potential for this brand. I think we have clear line of sight to the $1 billion that we talked about originally. We've got a lot of work to do around integrating the brand into the company, building out the brand platform. We're doing a lot of really great work around that today. But we're very optimistic. We think this is a young brand with enormous potential.

That's really helpful. Thank you.

The next question comes from Susan Anderson from B. Riley. Please go ahead.

Hi. Good morning. Alec Legg on for Susan. Thanks for taking our questions. Just to go back on HEYDUDE and the supply chain, I believe the product you mentioned was primarily made in China. Have you seen any challenges with the shutdowns there, either the point of production or the shipping centers? Thanks.

Yes, you're right. HEYDUDE is predominantly made in China. We have seen some factory closures over the last couple of months within HEYDUDE. But in the grand scheme of things relative to our overall supply base and the production that we're expecting not material and that is incorporated in our revised guidance. I think you also referenced shipping and logistics within that question, and that's been one of the nice benefits of integrating HEYDUDE into Crocs. We obviously have a far more robust logistics operation, so we're able to step in and really help manage the logistics. So I'd say all of those factors to date are incorporated in our guidance.

Yes. I would just add that even though it's not an impact from a supply chain perspective, we do have an impact on the Crocs business based on the Shanghai shutdowns related to our e-commerce business that shipped out of Shanghai. And that's incorporated into our Q2 guidance as well, but that has impacted our China business for Crocs for Q2.

Okay, perfect. And then just to follow up on HEYDUDE. I believe last year, it was a record margin year, it was 40% plus. I guess what's the delta between that record year and that long-term expectation of 26% plus?

Yes. So I think HEYDUDE obviously was a young brand and underinvested from an SG&A infrastructure perspective. They did a wonderful job of growing very, very quickly, and they had scaled it back in infrastructure. So I believe last year, their EBITDA margins were approximately 38%. We filed performance a little bit later today. So you'll be able to see that laid out for the last 12 months. We talked about when we bought the brand that we really needed to invest in the infrastructure. And so the difference there is our investment in SG&A, in order, in marketing, because they haven't spent much in marketing at all. So we intend to invest in marketing, in people and the infrastructure to build a stable brand going forward.

Thank you. Nice job on the quarter. And best of luck for the rest of year.

Thanks, Alec.

[Operator Instructions]. Our next question comes from Laura Champine from Loop. Please go ahead.

Thanks for taking my question. Can you comment on how successful your efforts to drive pricing higher have been? And what your assessment is on the promotional environment year-on-year as we move through spring?

Thank you, Laura. I think you can see that very clearly in our Q1 results. So if you look at the Q1 results, the underlying gross margin increases in the first quarter from pricing, from reduced promotions, and also from enhanced Jibbitz sales was over 600 basis points. So I would say very significant underlying margin increases from those factors. If you remember, last year we took price increases in DTC in April. They flowed to our major wholesale customers later in the year. We took some additional pricing in some select international markets earlier this year. So I would say those price changes were in advance of what we anticipate to be inflationary cost increases, and they've positioned us extremely well. If we look at the promotional environment and we monitor closely, the promotions that we are doing relative to last year and relative to competition, our promotional cadence in aggregate was less than this time last year. And I think it's also generally competitive with competition. So I think we feel really good about the place that we are there. You can see an enhanced cadence of some promotional activity in the market. And we do feel like it's important to participate in key events around Easter or Memorial Day or 4th of July. But we feel really good about the way the brand is positioned and the rate of sale we're seeing at the current prices.

Yes. I would just add that our ASPs were up 20%. So as Andrew mentioned on the margins, but our ASPs were also up 20% in the quarter as well.

Got it. If I look at the Q2 guide for the Crocs brand, it seems like a top line deceleration from Q1. Is the way to think of that, that units are slowing because Q1 you saw improvements in supply chain to let you ship what you wanted to ship, or is it that promotions are increasing in Q2?

Yes. So the way that I would talk about Q2 is that we are -- actually last year in Q2, we grew 93% year-over-year. So it's actually an extremely -- it's the highest growth rate we had last year. So it is a high growth quarter. And then if you neutralize for currency and the Russia impact, I would say that growth is still above our full year guide and equivalent to Q1. So we felt really good about Q2. I don't think that we see -- it doesn't anticipate slowing.

Understood. Thank you.

Thank you.

Thank you.

[Operator Instructions]. There are no more questions in the queue. This concludes our question-and-answer session. I'd like to turn the conference back over to Andrew Rees for any closing remarks.

Look, I'd just like to say thank you very much for everybody who joined us today and their continued interest in the company, and thank you for joining. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.