Good morning, and welcome to the Crocs Fourth Quarter 2024 Earnings Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Erinn Murphy, Senior Vice President of Investor Relations and Corporate Strategy. Please go ahead.

Good morning, and thank you for joining us to discuss Crocs, Inc. fourth quarter and full year results. With me today are Andrew Rees, Chief Executive Officer; and Susan Healy, 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 annual report on Form 10-K 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.'s Chief Executive Officer.

Thank you, Erinn, and good morning, everyone. Thank you for joining us today. 2024 was another record year for our company fueled by our employees, our brand strategies and our deepening connections with our consumers. For the full year of 2024, we delivered revenue growth of 4% to prior year, achieving $4.1 billion in total revenues. This performance was supported by adjusted gross margins of 58.8%, a 230 basis point gain over the prior year. With our adjusted operating margins of 25.6% and strong deployment of our free cash flow, we delivered adjusted diluted EPS of $13.17, 9% above the prior year. By brand, Crocs Brand revenues of $3.3 billion grew 10%, with international up 19% and North America up 3%. 2024 marked the seventh consecutive year of Crocs Brand revenue growth in North America. HEYDUDE revenues of $824 million, with the direct-to-consumer channel inflecting back to growth for the fourth quarter. Our strong cash flow generation of $923 million allowed us to pay down $323 million in debt and buy back approximately 4.3 million shares for $551 million. Susan will provide more detail on our fourth quarter, full year results and guidance for 2025, but first, I would like to walk through our individual brand strategies and notable highlights for 2024. Our Crocs Brand is governed by four strategic pillars: one, drive brand relevance through icon iterations; two, gain market share outside of clogs through new wearing occasions; three, fuel disruptive and authentic social and digital marketing; and four, gain share in markets around the world. First, we are driving relevance globally as the clog authority. In 2024, our Classic Clog was named one of the Greatest Shoes of All Time by Footwear News, a testament to the iconic nature of our hero style. In January, our original Classic Clog went on display at the Museum of Modern Arts in New York City. This is part of a broader exhibit showcasing iconic products that have made an impact on consumer and culture. Overall, for the year, clogs grew 10%, led by the Classic Clog with outsized growth internationally. We continue to deliver icon iterations and introduce new clog franchises. Today, we have six major franchises within clogs. Overall, clogs made up 75% of our sales mix during the year. Our Echo Clog is now a top three franchise and continues to usher in a younger male consumer. During the holiday season, our Classic Clog was a standout with strength in both adults and kids. The Classic Platform clog and other height iterations drove robust results in several of our markets across Asia. We have a strong pipeline planned for 2025. Our InMotion Clog combines two of our most innovative technologies, LiteRide and our Free Feel technology, delivering incredible value and lightweight comfort for just $60. Based on the success of our DTC test last fall, we're scaling the InMotion Clog globally and in select wholesale distribution in North America. Importantly, we partnered with NFL player George Kittle and his wife Claire as spokespersons for this launch as we lean into the pre- and post-sport comfort. In addition, we are further scaling the Echo franchise through a new-to-market mule, the Echo Wave. This is currently selling in our own channels and planned for select athletic specialty retailers this spring. Second, we're continuing to fortify our product pillars outside of the clog through new wearing occasions. During the holiday quarter, the Cozzzy Slipper was a standout performer and we could not keep the product in stock as demand surpassed supply. Sandals remain an important focus for our brand to drive strategic diversification and new wearing occasions. During 2024, our sellouts were up mid-teens to prior year in the North America market. This was particularly impressive against the domestic sandal market that we estimate was down. We introduced the Getaway, a brand new multi-silhouette franchise, which exceeded expectations. Our new style sandal franchise, Miami, also performed well. We brought new materialization to our beloved Brooklyn franchise, including the Brooklyn Woven, the Brooklyn Heel, and of course, our personalizable Brooklyn 4U. Overall, sandals grew 3% to prior year and growth was strong in most of our international Tier 1 markets with the exception of India, which continued to face supply challenges. On balance, sandals represent 13% of our sales mix. In 2025, we are leaning into Getaway, Brooklyn, and Miami franchises with fresh new colors and styles. The retailers' response has been exceptionally strong, particularly here in North America. Our personalization engine Jibbitz grew 6%, led by our international markets with strong product wins in elevated and licensed product. Our Jibbitz consumer remains one of our most valuable, as we see them continuing to purchase with higher frequency. Our strategic priorities within Jibbitz are centered around driving higher penetration in digital and wholesale channels, enhancing speed to market, and continually introducing fresh new product. In 2025, we're bringing newness across colors and textures to market and innovating within back straps. We recently shipped approximately 600 new Jibbitz fixtures into North American wholesale to bring our personalization value proposition to a broader consumer base. We're committed to remaining a leader in this space. Third, we remain laser-focused on our digitally-led social-first marketing playbook. 2024 included some of our biggest consumer moments on record. We launched the Tmall Global Brand Day, established ourselves as a leading footwear brand on TikTok Shop, along with HEYDUDE, executed the best-ever Croctober and created unique consumer moments during the year through our partnerships. In the fourth quarter, Louie and Mickey & Friends drove particular excitement amongst our youngest fan base. And finally, against our fourth pillar, we're focused on gaining market share around the world. In North America, we grew 3% to prior year, our seventh consecutive year of growth. International grew 19% on top of 23% last year. In China, we grew 64% to prior year with the fourth quarter accelerating from the third quarter. This included the Double 11 Shopping Festival, which bested our expectations. China now represents our second largest market after the US, making up 6% of revenues. Our 2024 growth in China was balanced, reflecting positive comp store sales, digital growth, and new store growth. We saw robust growth in Western Europe, led by strong double-digit growth in France and Germany, while solidifying market share gains in South Korea despite a challenging backdrop. We ended the year with approximately 2,200 Crocs mono-brand doors, including approximately 1,800 partner doors and 390 owned and operated stores. In 2025, we plan to continue expanding our footprint internationally and see the greatest new door opportunities across growth markets, including China, India, Southeast Asia, and the Middle East. In addition, owned and operated store growth will be focused on premium outlet doors in China, Western Europe, North America, and Japan. As we think about our growth opportunities beyond 2025, we believe we can continue to fuel growth in North America through iterating on our icon and expanding wearing occasions. With that said, we see the majority of our dollar growth coming from international, where we're in the earlier phase of establishing clog relevance and see ample opportunity for market share gains. Our average market share in major countries, including China, India, Japan, Germany, and France, represents approximately one-quarter of the market share we've achieved in our more established markets, the US, UK, and South Korea. All-in, we have confidence in low double-digit growth of our international business on a constant currency basis over the medium term. Turning now to the HEYDUDE Brand. We are pleased with the progress we've made in 2024 as we prioritize brand health, elevated pricing as a result of pulling back on discounting and drove better segmentation with our wholesale partners. We ended the year on a high note with the fourth-quarter revenue accelerating sequentially from the third quarter and flat to prior year. This was led by strong improvements in our digital trends as new products were supported by fresh and compelling marketing content. Overall, our direct-to-consumer channel was up 7% to prior year, marking the first positive inflection in five quarters. Zooming out, our three strategic pillars for HEYDUDE are focused on: one, creating the HEYDUDE Brand community through connecting with youth female culture while maintaining a strong connection with the male fan base; two, building the core, our Wendy and Wally, and adding more; three, stabilizing and accelerating North America while laying the groundwork for future international growth. Starting with building a HEYDUDE community, we are assembling a strong roster of high-profile influencers, including style icon and actress Sydney Sweeney, award-winning music artist Jelly Roll, and our recently announced partnership with Heisman Trophy winner Travis Hunter. In looking at our social channels, we expanded our community, bringing our total following to 2.4 million consumers across leading platforms. During the holiday season, we saw exceptional HEYDUDE Brand engagement on TikTok. In December, the HEYDUDE Brand was ranked the #3 footwear brand across all brands on the TikTok Shop. While it's still early days, our strategy to capitalize on the younger female consumer to unlock broader brand awareness and relevance is starting to build. During the fourth quarter, we saw 160% growth in new customers in the female 18 to 24-year-old demographic, fueled in part by the product successes in the Wendy Slipper and the Austin Lift. Turning to our second pillar, build the core and add more, we focus on our core Wendy and Wally assortment on three major platforms: Stretch Sox, Stretch Canvas, and Funk Mono. We iterate on these icons through color and materialization and partnerships. One example was the launch of our Wendy and Wally Slipper during the holiday season. We introduced it as a DTC exclusive, bolstered by a strong social and digital marketing campaign featuring Sydney Sweeney. Within two days, we sold out completely. The slipper outperformance was noticed by our wholesale partners and we launched in select accounts. As we mentioned on our Q3 call, we're investing behind the Austin Lift and the Paul franchises based on the success we saw in 2024. In the fourth quarter, Austin Lift and Paul emerged as top franchises online. In the next few weeks, you will see exciting new marketing around the Austin Lift as we build upon our early success on this franchise. Finally, we're continuing to prioritize brand health as we stabilize the North American market, while laying the groundwork for future international growth. In the fourth quarter, we saw improved full-price selling with ASP growth of 7%, marking the sixth consecutive quarter of ASP growth. During 2024, we opened 38 premium outlet stores, which is helping to drive brand awareness and connect consumers with the full expression of our brand. Based on the performance of these stores, we're planning to open an additional 10 stores in 2025. We have confidence in the long-term potential of HEYDUDE. The continued green shoots we're seeing give us positive reinforcement of the opportunities for durable future growth. I will now turn the call over to Susan to provide more details around our financial performance and our outlook.

Thank you, Andrew, and good morning, everyone. We delivered strong 2024 results, capped off by a better-than-expected fourth quarter, which saw an acceleration in revenue growth from the third quarter despite an incremental $11 million currency headwind versus our plan. Starting with the fourth quarter, enterprise revenues of $990 million were up 4% to prior year. Crocs Brand revenues of $762 million were up 5% to prior year. Growth was led by DTC, which was up 6%, while wholesale was up 4%. North America was flat to last year, slightly ahead of our expectations, supported by 2% growth in our direct-to-consumer channel, offset by wholesale declines. During the holiday season, we saw strength during Black Friday, particularly on digital, as well as in the week leading up to Christmas as the consumer reverted to more normal holiday shopping patterns. International revenue was up 14%. China led the growth with revenue up 25% in the quarter, accelerating from the prior quarter. HEYDUDE Brand revenues of $228 million were flat to prior year, led by DTC, up 7%. Upside to our guidance was driven by improved digital trends. Wholesale was down 8% in the quarter and also better than our plan. Enterprise adjusted gross margins of 57.9% were up 220 basis points to prior year. Crocs Brand adjusted gross margin of 60.9% was up 140 basis points to prior year, tied to product mix and lower fulfillment costs. HEYDUDE Brand adjusted gross margin of 47.7% was up 220 basis points to prior year, driven by fulfillment efficiencies and higher ASPs, partially offset by product costs. This performance was significantly better than our expectations. Adjusted SG&A dollars for the quarter increased 23% versus prior year. Adjusted SG&A rate was 37.7%, up 610 basis points compared to prior year, driven by continued investment in DTC, talent, and marketing to support long-term market share gains. Adjusted operating margin of 20.2% was down 390 basis points compared to prior year and above our expectations. Adjusted diluted earnings per share decreased 2% to $2.52 and our non-GAAP effective tax rate was 16.1%, which excludes the current period tax impact of intra-entity transactions. During the quarter, we repurchased approximately 2 million shares for a total of $225 million and also repaid $75 million of debt. Now, turning to the full year. We delivered enterprise revenue growth of 4% to prior year, achieving $4.1 billion in total revenues. Crocs Brand revenues were $3.3 billion, growing 10% to prior year, with DTC growing 11% and wholesale growing 9%. The growth was volume-driven, with units increasing 6% versus last year to a total of 127 million pairs of shoes sold, while brand ASPs increased 2% to $25.52. ASPs were driven by favorable pricing, channel mix, and product mix. North America revenues grew 3% versus the prior year to $1.8 billion. Growth was led by DTC, up 6%, while wholesale was down 1%. Underlying North American brick-and-mortar growth was up high-single-digits. International revenues grew 19% versus prior year to $1.4 billion, led by 25% DTC growth and 17% wholesale growth. China grew 64% on top of last year's triple-digit growth rate, while Western Europe grew 18%, led by France and Germany. In aggregate, our international Tier 1 markets grew 20% during 2024. Turning to HEYDUDE, revenues were $824 million, down 13% from prior year. Wholesale revenues were down 20% and DTC revenues were down 4%. For the year, ASPs were up 6% to $30.54, while unit volume was 27 million or down 18% to prior year. Enterprise adjusted gross margin for the year was 58.8%, up 230 basis points from last year. Crocs Brand adjusted gross margin was 61.6% or 140 basis points higher than prior year. The primary drivers of margin expansion were lower freight and fulfillment costs and favorable product mix. HEYDUDE Brand adjusted gross margin was 48.1% or 190 basis points higher than prior year. The primary drivers of margin expansion were higher ASP, favorable channel mix, and lower freight costs. Adjusted SG&A dollars for the year increased 20% versus prior year. Adjusted SG&A rate was 33.2%, up 450 basis points compared to prior year. Adjusted operating margin of 25.6% was down 210 basis points from 27.7% in the prior year, driven by planned investments in SG&A. Adjusted diluted earnings per share increased 9% to $13.17. Our non-GAAP effective tax rate was 16%. Our inventory balance as of December 31 was $356 million, a decline of 7% versus prior year. Enterprise inventory turns were above our goal of 4 times on an annualized basis. Our liquidity position remains strong, comprised of $180 million of cash and cash equivalents and $809 million of borrowing capacity on our recently upsized $1 billion revolver. We generated $923 million of free cash flow in 2024, enabling us to repurchase stock and pay down debt. During the year, we repurchased approximately 4.3 million shares for a total of $551 million. Earlier this month, the Board of Directors approved an upsized share repurchase authorization of an additional $1 billion, bringing our current authorization to approximately $1.3 billion. We also repaid $323 million of debt during the year, reducing borrowings to approximately $1.3 billion. We ended the year at the low end of our net leverage target range of 1 time to 1.5 times. Before turning to guidance, I would like to address the topic of tariffs. Our guidance embeds an additional 10% tariff on goods imported from China into the US beginning February 4, as well as the anticipated additional 25% tariff on goods importing from Mexico beginning in March, and assumes these will stay in place for the remainder of the year. We do not have any production in Canada. In 2025, we expect the share of enterprise imports into the US from China to be approximately 15%, with Crocs at 10% and HEYDUDE at 27%. Our exposure to Mexico is expected to be under 4% and for the Crocs Brand only. For the enterprise, we estimate an approximate $11 million headwind to gross profit from these additional tariffs or roughly 25 basis points to our margin rate. For the full year 2025, we expect enterprise revenue growth to be up approximately 2% to 2.5% on a reported basis, assuming currency rates as of February 10. This includes an anticipated $60 million currency headwind to the prior year. On a constant currency basis, we expect enterprise revenue growth to be up approximately 3.5% to 4%. For the Crocs Brand, we expect revenue growth of approximately 4.5%, led by international growth. In North America, we expect growth for the full year to be slightly up, and for International, we expect growth to be up approximately 10%. For HEYDUDE, we expect revenue to be down approximately 7% to 9% for the year. We expect direct-to-consumer growth in 2025 to come from improving digital trends and our new retail store contribution. Our outlook does not contemplate wholesale growth, as we expect the wholesale channel to take longer to turn than our direct-to-consumer channel. We expect enterprise adjusted gross margin for the year to be down slightly, impacted in part by foreign currency and tariffs. We expect mid-teens adjusted SG&A growth in the first half of the year versus prior year and low-single-digit adjusted SG&A growth in the back half. Included in this is an uptick in our enterprise marketing spend from 9% to 10% as a percent of revenue. Taken together, we expect our adjusted operating margin to be approximately 24% for the full year. This includes an anticipated negative impact from both foreign currency and tariffs of approximately 60 basis points. Beyond 2025, we are committed to maintaining an adjusted operating margin at or above 24%, assuming a normalized currency and tariff environment. We expect adjusted diluted earnings per share in the range of $12.70 to $13.15. Consistent with our previous guidance policy, this range reflects future debt repayment, but does not assume any impact from future share repurchases. We are committed to our 1 time to 1.5 times net leverage range while redeploying excess cash flow towards share buybacks opportunistically. We expect our underlying non-GAAP effective tax rate, which approximates cash taxes paid, to be 18%, and the GAAP effective tax rate to be approximately 21.5%. Our 2025 anticipated tax rate is lower than our previously communicated 20% long-term tax rate due to forecasted business mix for the year. We expect 2025 capital expenditures to be in the range of $80 million to $100 million. Turning to guidance for the first quarter. We expect enterprise revenues to be down approximately 3.5% at currency rates as of February 10. This includes an anticipated $19 million currency headwind. On a constant currency basis, we expect enterprise revenue growth to be down approximately 1.5%. We expect the Crocs Brand to be flat to down approximately 1%, led by mid-single-digit international growth. We expect North America to be down mid-single-digits, including the negative impact of the Easter shift. We expect HEYDUDE revenue to be down approximately 14% to 16%, tied to wholesale declines, offset in part by growth in DTC. Adjusted gross margins are expected to be up slightly for the enterprise. Adjusted operating margin is expected to be approximately 21.5%. This includes an anticipated negative impact from foreign currency and tariffs of 80 basis points. Adjusted diluted earnings per share is expected to be in the range of $2.38 to $2.52. In closing, we are making near-term decisions that we believe are in the best long-term interest of the company and our shareholders, and we will continue to focus on what the company does best: delivering growth with industry-leading margins that generate significant cash flow. I will now turn the call back over to Andrew for his final thoughts.

Thank you, Susan. Our company initiatives remain consistent, and we're focused on three primary levers to fuel durable long-term growth: ignite our icons across both brands to drive awareness and global relevance for new and existing consumers; two, drive market share gains across our Tier 1 markets through strategic investment behind DTC, talent, and marketing; and three, attract new consumers to our brand through methodically diversifying our product range and usage occasions. While the geopolitical climate has become more volatile since the onset of the year, we continue to execute our brand strategies, invest in our people, and maintain a nimble mindset. At this time, we'll open the call for questions.

We will now begin the question-and-answer session. And our first question comes from Jonathan Komp from Baird. Please go ahead.

Hi, good morning. If I could ask about the Crocs Brand in North America, I know you mentioned down mid-single-digits in the first quarter and up slightly for the year. Could you just talk a little bit more about what you're seeing, maybe the health of the brand and the drivers of that inflection after the first quarter? And then, just one follow-up, Susan, on the SG&A outlook. I know you mentioned second half growth, I think you said low-single-digits. Could you just talk about the step-down in the growth rate of the G&A spend and how we should think about that going forward? Thank you.

Thank you, Jon. Regarding the Crocs Brand, Susan can provide additional insights into the SG&A growth. If we look at Crocs in North America, it’s worth noting that the brand has experienced growth for seven straight years, and the business is now three times larger than it was before this period. We are very confident about the products we plan to launch in North America, particularly with our clog innovations and sandals. Last year, our sandals performed well in North America with strong sellouts, and based on retailer feedback, we remain optimistic about our product portfolio for 2025. It’s essential to consider the consumer environment, which does have a fair amount of uncertainty. Therefore, we are adopting a careful approach to evaluating the brand's growth. Overall, we are very confident in our product pipeline and marketing strategies to continue fostering growth in North America.

And regarding your second question on SG&A, I want to remind you that our SG&A dollars are being directed towards key areas that we believe will drive future growth, such as DTC investments, including marketplaces and new retail stores, as well as talent and marketing. In response to your question about the first and second half of the year, 2024 was an investment year for us, and those investments were more heavily weighted towards the second half. Therefore, as we begin to experience the effects of those second-half investments in 2024, that's why we expect a low to mid-single-digit increase in SG&A for the second half of 2025 as we complete our two-year investment cycle.

I would like to take this opportunity to discuss the overall trend of SG&A, as I anticipate several questions about it during this call. Over the past five years, Crocs, Inc. has expanded from one brand to two and increased its revenue from $1 billion to over $4 billion. This rapid growth, especially in the early part of that five-year span, led to significant SG&A leverage and very high profitability levels. In the last two years, we have focused on key investments in critical capabilities, infrastructure, talent, and enhancing our marketing efforts to support sustainable growth. Consequently, we have seen SG&A deleverage in 2024 and expect further deleverage in 2025. However, we remain committed to maintaining a 24% operating margin level going forward. When comparing ourselves to our peers in the industry, a 24% operating margin represents an exceptional profitability level. Additionally, we have been proactive in leveraging our high profitability and cash flow to return value to our shareholders. I hope this provides useful context and perspective on our business and our commitment to rewarding shareholders over the long term.

That's really helpful. Thank you.

Thanks, Jon.

The next question comes from Chris Nardone from Bank of America. Please go ahead.

Great. Thanks, guys. Good morning. Just a follow-up on Crocs North America. Can you maybe discuss how wholesale sell-through is trending relative to your expectations, and just the confidence you have in your order books for the year, and if there's an improvement in wholesale embedded in your guidance? Thank you.

From a wholesale perspective in North America, I would go back to what I mentioned to Jon. First, we have a very strong pipeline of products across three main categories: clogs, sandals, and Jibbitz. We concluded the 2024 year with a successful wholesale season and have clean inventories in the market. We are optimistic about our marketing strategy driving continued consumer demand from wholesale. We believe we are strategically well-positioned with our wholesale customers. While we do not typically discuss sell-through rates on a quarterly basis, we are pleased with the positive reaction from our wholesale customers regarding the products we are launching for 2025. Our order books look promising at this stage, extending into the third quarter.

And when you think about the first quarter, it's helpful to be mindful of a couple of factors. So, Q1 is our toughest comparison in North America tied to the timing of wholesale as Easter shifts into the second quarter of this year. This is going to drive Crocs Brand North America sales growth down in Q1 and up in Q2. And then, we also see about a 100-basis-point headwind to DTC growth in Q1 from lapping the leap year.

Okay. And then just a quick follow-up. You bought back a lot of stock last quarter. Just want to gauge your appetite to continue leaning into share repurchases given where the stock is trading. Are there still more opportunities to pay down debt and potentially move below your current leverage target?

Sure. We remain committed to our long-term leverage target of 1 to 1.5 times, which has not changed. In Q4, we plan to continue a balanced approach, with approximately 75% allocated to share repurchases and 25% to debt repayment. This allocation is influenced by the opportunities we see in our stock. We have a $1.3 billion repurchase authorization, which our Board increased by $1 billion earlier this month. We are dedicated to achieving both our leverage target and seizing opportunities in our stock as a valuable investment.

Thank you.

The next question comes from Adrienne Yih from Barclays. Please go ahead. Hi, Adrienne, is your line on mute?

Yes, it is. I apologize for that. It's nice to see the progress at the end of the year. Andrew, my question for you is about the opportunities for Crocs in North America in the next two to three years. What factors will drive further growth there? In past discussions, we've mentioned that international growth will help boost the Crocs brand. Additionally, for HEYDUDE, considering the success in direct-to-consumer sales in the fourth quarter, but the negative sales growth for the fiscal year, how confident are you in the turnaround and the investments being made to support that brand's growth? Thank you.

Thank you, Adrienne. There's a lot to unpack here. Let's start with the comparison between international and North American growth for the Crocs Brand. It's clear that we see the most potential for growth internationally. This is primarily due to our market penetration and share in key markets. Our recent investor presentation illustrates this well, showing that in more developed markets like the UK and South Korea, our market share is significantly higher than in less developed areas. In countries like China, France, Japan, and Germany, we have about a quarter of the market share compared to the developed markets, influenced by our marketing efforts over time. We believe there's a straightforward path for substantial growth in these regions in the short term. In North America, we have already established a strong presence with clogs and are growing our sandal business. Over time, we believe we can innovate within additional product categories to foster growth in North America. However, significant growth will depend on entering new wearing occasions, and while we have a solid pipeline of innovations, we still need to validate their potential. Therefore, any discussion about accelerating growth in North America hinges on proving these innovations first. We are actively working on that, and we hope to present positive results in the near future. Overall, Crocs continues to be a strong brand that demonstrates consistent growth and profitability. Now, turning to HEYDUDE, you may be interested in our future guidance and performance in Q4 compared to our Q1 outlook.

Yes.

So, the piece that I think it would be helpful to, look, we're really pleased with the performance of the brand in Q4. It was led by product, it was led by marketing, and particularly DTC, and our ability to drive consumer takeaway in our DTC channel. That being said, we know we want to provide, I think, really very prudent guidance for this year so that we can perform well against it. So, I think, hopefully, we're doing that. I would say, as we kind of look at the trajectory of the brand, we've done this before at Crocs. We've really turned around that brand, and from a brand that was going nowhere years ago to a brand that's incredibly successful today. We know the playbook. We're seeing a lot of the green shoots, so we're very confident with what we're seeing and where we're going. And I would say, lastly, from a HEYDUDE perspective, look, we think this is a great brand. We think it's well positioned against the consumer. It hasn't met our short-term expectations, but we remain extremely confident in its long-term potential, its ability to further penetrate the US market and leverage internationally.

Fantastic color. Thank you very much, and best of luck.

Thank you.

The next question comes from Jim Duffy from Stifel. Please go ahead.

Thanks. Good morning. A quick mention of appreciation for the very clear disclosures on tariff assumptions. Thanks for that. Andrew, starting on the HEYDUDE Brand, can you speak to the state of engagement with wholesale partners? Is the distribution footprint now stable? How do you see changes to shelf space? What's the willingness of wholesale partners to engage with new product offerings where you're seeing success in DTC? Thanks.

We do not expect major changes in our distribution strategy going forward. We aim to attract more customers and increase shelf space, but we believe we are currently working with the right partners and plan to expand that network in the future. Our key partners are highly engaged with HEYDUDE, and for some, it ranks among their top five brands, which indicates strong support for our success. They recognize the positive impact of our product and marketing efforts, especially with the involvement of ambassadors and celebrities attracting consumer interest. They observe the brand's connection with consumers on platforms like TikTok and other social media. However, we still have work ahead of us, as indicated in our guidance. We do not foresee wholesale growth in North America at this time due to remaining challenges with channel inventory. We plan to take back some older inventory in the first quarter and replace it with new items, which is a proactive step included in our guidance. Our partners are actively working alongside us through this process.

Great. Thanks for that. And, Susan, just a quick one on the outlook. Can you comment on working capital considerations in '25? We're very focused on free cash flow. Any reason to think free cash flow couldn't again exceed $800 million?

Sure, Jim. As you know, we don't provide specific guidance on free cash flow. However, we are very satisfied with the free cash flow generation of both our brands and how we are using it for share repurchases and debt repayment for our investors. Regarding your models, I believe we have given you all the necessary components to calculate that. I'm happy to take any questions offline.

You mentioned that the inventory turns exceeded your goal of 4 times in 2024. Do you expect to reinvest in inventory in 2025?

We're really pleased with where we ended up on both brands and our strategies will be consistent with the growth we've planned for the brand. As Andrew said, we've got some strategies around HEYDUDE. But overall, we're very pleased with how clean we ended up the quarter in both brands.

Okay. Thanks.

The next question comes from Bob Drbul from Guggenheim. Please go ahead.

Hi, excuse me, good morning. Just two questions for me. The first one just on the commitment to 24% operating margins, when you think about sort of the increase in marketing spend and sort of flexibility around the SG&A line or marketing spend within that, can you just talk about how you're approaching it in that 24% commitment? And then, the second question I have is just on HEYDUDE. Will Travis Hunter be wearing those shoes at the draft? Is that part of the deal?

So, let me do the second piece first. I'm not going to make any predictions about what he's going to be wearing at the draft. You may have noticed he was wearing HEYDUDE at his Heisman Trophy ceremony. And I would say, look, our engagement with Travis Hunter is like our engagement with the other music leaders and actors or actresses that we've engaged with. It's first based on a genuine connection with the brand. He was an individual that loved the brand, wore the brand, and obviously, he's been playing most recently here in Boulder, Colorado. So, we're very familiar with him. So, when we look for celebrities and ambassadors that we're going to engage with, that authenticity is super important, and he absolutely has that. We hope he goes very high in the draft and goes to a large media market because that would be helpful. So, regarding your other question about the 24% commitment, we have significant flexibility within our business. We have actively made investments, even when they were not always well-received. I want to emphasize where these investments have been directed and how they relate to our future. First, we have invested in direct-to-consumer initiatives. We have opened additional stores, which are highly profitable, and we plan to continue focusing on store openings. Most of the new stores are premium outlets, which are also very profitable. Additionally, we are transitioning our digital business to a marketplace model, even though some of these marketplaces incur higher SG&A costs. This shift aligns with consumer trends, particularly exemplified by our successful performance on TikTok Shop in the fourth quarter. We anticipate this channel will grow for us, similar to trends we are observing in Asia, especially China, where consumer spending is moving from digital marketplaces to social marketplaces, despite the increased SG&A. We have carefully considered these factors and projected them into the future. Over the past few years, we have increased our marketing spending, currently around 7% to 7.5% of sales, with plans to raise it to 10% by 2025. We have been proactive in investing more in HEYDUDE due to the brand's potential, as well as increasing investment in Crocs as we see more growth opportunities in larger Tier 1 markets that require more marketing support. We are also investing in talent and other capabilities. That said, some of these investments are flexible, allowing us to make decisions over time based on emerging opportunities. Therefore, we feel quite confident with the 24% floor at this stage and wanted to clarify that for everyone.

Thank you.

The next question comes from Anna Andreeva from Piper Sandler. Please go ahead.

Great. Thanks so much. Good morning, and congrats on a nice end to the year. We had a question on gross margins. You mentioned up slightly in the first quarter, then down slightly for the year, which makes sense just given the tariffs and the FX, but you saw some positives with product costing and also other efficiencies. So, can you talk about sustainability of those? And what did you see in terms of promotional activities at both brands during the fourth quarter? And what are you expecting with promo activities as the year unfolds? And then, we had a quick follow-up as well.

Right. So, when we talk about gross margin, in particular, and I think you asked about the shaping across the year, from an enterprise basis, just at a high level, we're expecting gross margins to be down slightly for the year, but that embeds a 60 basis points impact of foreign exchange and tariffs. So, therefore, gross margin would actually be up slightly without that impact. And as we're thinking about the full year, Q1 would be up, and we expect Q2 to be down the most on a year-on-year basis, in part based on the heavier impact of FX and tariffs.

Sure. You wanted to follow up on that, and then I will take care of the promotions for you.

No. Please go ahead. Thank you.

From a promotional perspective, there are a couple of significant factors to consider. Firstly, we believe consumers are returning to more normalized shopping patterns, similar to those seen before the pandemic. In terms of the promotional environment in the fourth quarter, we experienced strong gross margin and improvements, which is encouraging. The promotional landscape was quite dynamic globally, with variations in intensity across different regions. Overall, it aligned with our expectations. One notable trend is that consumers are increasingly shifting toward lower-priced and more promotional products, indicating some pressure on their spending. As we look ahead to 2025, we have planned conservatively considering what we expect regarding consumer behavior.

Okay. That's super helpful. I appreciate it. And just as a follow-up, can you guys provide a little bit more color on what's the expectation for the HEYDUDE recovery in the back half, just given the sharp decline expected for the first quarter? You mentioned that the new stores are highly profitable, and you're getting a new consumer through that. But anything else you can share on the performance of the new stores? And are you planning to open any additional doors in '25? And thanks again.

Thank you, Anna. We don't have much more to add regarding the pace and timing of the recovery. We believe we are on track for where we expected to be at this point. We can see our progress through the growing HEYDUDE community, strong engagement with our core customers, and the gradual addition of new customers, particularly younger females. We're seeing good results from direct-to-consumer sales and expect positive growth in this area in 2025, driven by increased digital sales and the expansion of our stores. We plan to open approximately 10 more premium outlet stores in 2025, adding to the 38 we opened in 2024. However, we are not factoring in wholesale growth in our projections. We have set our guidance cautiously, as you would anticipate, and we are confident in our current trajectory as well as in our long-term outlook.

All right. That's super helpful. Thank you so much, guys.

Thank you.

The next question comes from Laura Champine from Loop Capital. Please go ahead.

Thanks for taking my question. When I think about the 24% long-term operating income guide, what's your pricing philosophy there? And how much would you use pricing to offset cost increases?

That's an excellent question, Laura. When we consider pricing for both of our brands, we aim to align it with the market, which varies by country. We take considerable time to evaluate how each item is priced within its category, influenced by competitor pricing and how they set their rates for similar products. Additionally, the strength and growth trajectory of our brand play a role in this. Over the past few years, our pricing strategy has led to notable, even impressive, improvements in gross margins for Crocs. Currently, we do not anticipate making significant price increases in the short term, but we remain uncertain about the longer-term outlook. We closely monitor pricing as it is a crucial lever for us, and we believe we are well-positioned today. While we don't expect substantial price growth in the near future, we are prepared to adjust as necessary.

Got it. And then, looking at HEYDUDE's ASP, up 7%, I think, in the quarter, what is that on top of year-on-year?

I don't have that number to hand. But what I can say is the drivers of the ASP increase have principally been reduction in discounting. So, as we look at, particularly our DTC channels, I think we've had six quarters now of sustained ASP increases. And the driver of that has principally been reducing discounting versus absolute price increases.

Got it. Thank you.

The next question comes from Tom Nikic from Needham. Please go ahead.

Hey, good morning, everyone. Thanks for taking my question. I wanted to follow up on HEYDUDE, specifically on the product development side...

Hey, Tom, we're having a real hard time hearing you. Can you get closer to the mic?

I want to follow up on HEYDUDE, particularly regarding product development. I see a significant opportunity to diversify the brand and expand beyond the core Wally and Wendy. How far along are you in that process? I would appreciate your thoughts on the product development and expansion journey you are undertaking. Thank you.

Yes. To start, I want to emphasize that the core of HEYDUDE's product strategy is crucial at this point. The Wally and the Wendy make up a significant portion of our business and we believe they are the key drivers for short-term growth. We are building growth around the Wally and Wendy by transitioning them onto three major platforms: Stretch Sox, Stretch Canvas, and Funk Mono. This provides consumers with a clearer understanding of the products they love and the available variants, making it easier to navigate our product offerings. This transition is currently in progress. We are also creating opportunities for consumers to engage with these platforms through new colors, materials, collaborations, and unique limited-edition products. As for our expansion beyond the core, we are still in the early stages. We do have some promising examples, such as the Austin Lift, which we'll focus on in the first quarter. It performed exceptionally well throughout the year, especially in the fourth quarter, and we have an exciting campaign launching featuring Sydney Sweeney. Additionally, our Bradley boot business also showed strong performance in the fourth quarter. The Paul, our men's dress shoe, is a variation of the Wally, offering different comfort features and elevated upper materials, and it is also doing well. These are all good examples of how we're extending beyond the Wally and Wendy. However, it's important to note that we are still in the early phases of this journey, with our success in extensions relying heavily on the strength of our core products. That is our primary focus for now.

Understood. Thanks very much, and best of luck this year.

This concludes our question...

Okay. I think we're out of time at this point. I apologize that we weren't able to address a few questions, but we'll follow up after the call. I want to thank everyone for their attention and support of our brands and our company. We appreciate it.

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