Earnings Call Transcript - CROX Q1 2026

Operator, Operator

Good day, and welcome to the Crocs, Inc. First Quarter 2026 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Abigail Ritter, Investor Relations and Strategic Finance for Crocs, Inc. Please go ahead.

Abigail Ritter, Investor Relations and Strategic Finance

Good morning, and thank you for joining us to discuss Crocs Inc. First Quarter 2026 results. With me today are Andrew Rees, Chief Executive Officer; and Patraic Reagan, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask 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 most recent annual report on Form 10-K, quarterly report on Form 10-Q 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. Chief Executive Officer.

Andrew Rees, Chief Executive Officer

Thank you, Abby, and good morning, everyone. Thank you for joining us today. We delivered a better-than-expected first quarter, fueled by broad consumer relevance for both of our brands. Patraic will discuss our quarterly performance in more detail. But first, I will share a few financial highlights and a review of our brand strategies. For the first quarter of 2026, we delivered better-than-expected enterprise revenue of $921 million, with the Crocs brand down 2% and HEYDUDE brand down 13% as we work to return both of our brands to growth. Healthy direct-to-consumer growth, including Crocs brand up 11% despite pulling back on promotional activity and HEYDUDE up 8% despite lower performance marketing spend. International revenue for the Crocs brand was up 7% on a reported basis, consistent with our expectations despite an unanticipated impact of the war in the Middle East. Best-in-class inventory management with total footwear units down high single digits and overall inventory turning up more than 4x. Our powerful value creation model continues to support meaningful return of cash to shareholders in the form of repurchases. With second quarter repurchases now underway, quarter-to-date, we have bought back 800,000 shares. Now turning to a discussion by brand and starting with Crocs. We had a strong start to the year as consumers responded positively to product newness across all categories. We continue to make excellent progress against our 5 strategic pillars. First, we are driving brand relevance globally as the clog market share leader. During the quarter, our focused clog franchises, Crocband, Crafted and Echo performed well, enabling diversification of our overall clog portfolio. The reintroduction of Crocband has been well received with strength seen across channels, colors and iterations. The Crafted franchise is building globally and consumer response has been strong with canvas and floral embroidery uppers. We continue to scale our existing Echo franchise with new Echo RO colorways and expanded distribution. Within our Classics franchise, we are prioritizing maintaining tight inventory control and driving further segmentation across our key partners in North America. Second, we are scaling our product pillars outside of clogs through new category expansion. Our sandal business started the year off strong, and we expect this pillar to approach $0.5 billion in revenue this year, up double digits from 2025. Our 3 core style franchises, Getaway, Brooklyn and Miami are capturing incremental shelf space and winning with consumers. Earlier this spring, we introduced our personalizable 2-strap Saturday Sandal across channel and saw exceptional response from both consumers and retailers. Moving beyond sandals, we launched the Classic Ballet flat, which saw a notable sellout globally. In response, we're chasing supply, and we further strengthened our assortment within this trending style. Momentum was further amplified by our first quarter LoveShackFancy collaboration, which sold out completely. Our broader personalization pillar saw standout performance within bags and accessories during the quarter, led by the Disney collaboration featuring Mickey Mouse on a number of products. We also saw continued strength in elevated Jibbitz during the quarter. Third, we are fueling consumer engagement through disruptive social and digital marketing. In February, we kicked off a multiyear global partnership with the LEGO brand by launching the highly disruptive LEGO Brick clog, which quickly became one of our best-performing partnerships on social media and drove significant consumer engagement and digital traffic. Also in February, we released Charmed To Meet You, our first micro drama mini-series on RealShorts, a platform where Gen Z consumers are increasingly spending time consuming bite-sized content. The launch drove over 10 million views, reinforcing our ability to engage with consumers through bold, innovative and disruptive channels. Fourth, we continue to create compelling consumer experiences across all channels. Beginning with social commerce, we continue to scale and deepen our consumer touch points across both digital and social. In fact, Crocs was recently awarded Top Seller of the Year on TikTok Shop for 2025, underscoring our ability to continue to reach consumers on their preferred social channels. In March, we activated at the NBA All-Star week and introduced our updated Echo Clog, the Echo 2.0, a key second half product launch this year. We also released the Ripple, a bold silhouette designed to engage the sneaker community through a number of events from ComplexCon in Hong Kong to our SoHo store in New York City. Globally, we continue to expand our presence on TikTok Shop as this is a critical social selling platform over the medium to long term. During the quarter, we scaled meaningfully in the U.K. and Malaysia. And looking forward, we'll be launching in Japan, landing Crocs as the first major footwear brand on the platform in the country. Fifth and finally, we're continuing to gain market share across the world in our international markets. In the first quarter, we saw broad-based strength across our Tier 1 markets, led by direct-to-consumer channels. We saw outsized growth in our high-priority markets, China, India, Japan and Western Europe. In China, we hosted our first ever Super Brand Day on Douyin, which not only outperformed our expectations, but also drove strong consumer touch points through celebrity live streaming. In India, performance was led by growth in our digital traffic stimulated by Let Them Talk campaign, which introduced the Echo RO for a local cricketer and celebrity KL Rahul. In Japan, performance was driven by strengthening brand presence in Tokyo Retail with high consumer affinity for personalization in our DTC channels. Lastly, Western Europe saw notable growth across the U.K., France and Germany, led by digital marketplace performance. Sandal started the year strong in the region, and we see meaningful opportunity to scale this category going forward. During the quarter, we opened approximately 40 mono-brand stores and kiosks, including 6 owned and operated stores internationally. To strengthen our international opportunity further, on April 1, we converted our Malaysia distributor business to directly owned and operated, which resulted in the absorption of 21 highly productive retail stores. We see this as an opportunity to take further share in this vibrant market in 2026 and beyond. Now turning to HEYDUDE. The first quarter came in ahead of expectations tied largely to outperformance in DTC despite significant reduction in performance marketing spend as we continue to deliver against our 3-pillar strategic plan. First, we are building a community laser-focused on our core consumer. During the quarter, we launched several relevant collaborations, including our partnership with the Houston Rodeo. This was supported by retail presence at the rodeo for the third consecutive year as we continue to drive authentic connections with our core HEYDUDE consumer. In addition, we released collaborations with Chevy, Jelly Roll and Naruto, while accelerating the growth of our HEYDUDE community through scaling social commerce. In fact, during the quarter, HEYDUDE received the Top Growth Seller of the Year award on TikTok Shop, a nod to the progress and commitment we've made to scale this strategic channel. Second, we are building the core and thoughtfully adding more. We're building our leadership within the slip-on category, led by our icons, the Wally & Wendy. Stretch Sox continues to drive our core business, and we are seeing momentum building in our newest Stretch Jersey franchise. This style, which we fondly refer to as a T-shirt for your feet, launched in all channels during the quarter and outperformed expectations. As we look into spring, we're seeing our sandal business start to gain material traction with key highlights, including the Maui Breeze franchise and sandal extensions of some of our already successful lines, the Austin Slide and the HEY2O Flip. Beyond sandals, we continue to see strong response to our work offering led by the Wally Comp Toe, and we are excited to expand further into this category as we move throughout the year. Third, we are focused on stabilizing the North America marketplace. Our first quarter outperformance signals a meaningful step in our journey to return the brand to growth in the back half of this year. During the quarter, direct-to-consumer revenues increased 8%, led by strength in digital marketplaces. Wholesale declined as anticipated, while we remain laser-focused on managing our in-channel inventory levels. Wholesale sellouts, while still below our aspirations, improved sequentially versus the fourth quarter. Importantly, we're receiving positive feedback from our key partners around new products like our HEY2O work and sandals offering as well as our core products like Stretch Jersey franchise and new introductions of our Stretch Sox platform. Turning back to the enterprise. I wanted to address the conflict in the Middle East as it relates to our business. As of today, it's too early to fully quantify the impact. However, we see this affecting Crocs in 3 ways: One, reduction of revenues from our Middle East distributor business, which has been contemplated within our annual guidance; two, increased raw material and transportation costs associated with elevated oil prices; and three, a broader impact to the global macro economy, which is uncertain at this time. Patraic will speak to our guidance later in the call, which we feel prudently captures the current environment to the best of our ability. Before concluding, I wanted to highlight the publication of our 2025 Crocs Inc. Comfort Report being released today. This annual report highlights our commitment to and progress against our purpose to create a more comfortable world for all. To conclude, we are focused on executing our near-term initiatives to drive diversified growth across both brands, DTC and wholesale as well as domestic and international markets. We believe we have compelling strategies to grow both brands enabled by a clear consumer focus, innovative product and marketing and our global go-to-market capabilities. I will now turn the call over to Patraic.

Patraic Reagan, Executive Vice President and Chief Financial Officer

Thank you, Andrew, and good morning, everyone. During the quarter, we made continued progress against both brands' strategic initiatives, which I'm confident will continue to lay the groundwork for sustainable long-term growth. We're off to a good start in 2026, finishing Q1 slightly ahead of our expectations on both the top and bottom line. And while we're encouraged by the positive start to the year, we recognize work remains to return the business to growth. Now let's move to our results. For the first quarter, we delivered enterprise revenue of $921 million, down 2% to prior year on a reported basis or down 4% on a constant currency basis. Our results were led by the direct-to-consumer channel for both brands as consumers responded favorably to new product offerings across categories. This was offset by planned wholesale declines as we continue to optimize and manage this channel for long-term profitable growth. For the quarter, Crocs brand revenue of $767 million was down 2%. Results were led by our International segment, up 7% on a reported basis, including strength in China, India, Japan and Western Europe. North America was down 6%, including DTC up 5% despite a meaningful reduction in promotional activity, offset in part by wholesale declines. The HEYDUDE brand delivered revenue of $154 million, down 13% to prior year. D2C was up 8%, driven by outsized digital marketplace performance and new store opening contributions. Notably, this growth was delivered against a continued lower level of performance marketing spend, thus driving higher profitability. The wholesale channel was down 26% as we continue to carefully manage our inventory to sell-through levels, consistent with our return to growth plan. I'll now move to adjusted gross margin. Enterprise adjusted gross margin of 56.9% was down 90 basis points to prior year, driven by 100 basis points of incremental tariff impact as well as product mix, offset in part by brand mix. As Andrew mentioned, we saw accelerated success in our new product offerings in both brands. This success is an important driver of top line performance and is key to our diversification strategy. As a reminder, select new products come with slightly lower product margins. Crocs brand adjusted gross margin was 59.5%, down 120 basis points, and HEYDUDE brand adjusted gross margin was 44.5%, down 210 basis points. Moving to expenses. Adjusted SG&A dollars were flat to prior year as we recognized the partial benefit from our 2025 and 2026 cost savings initiatives, offset in part by choiceful direct-to-consumer channel investments aimed at driving revenue. Adjusted operating margin of 22.3% was down 150 basis points to prior year. This excludes $5 million of specific costs related to the implementation of our cost savings initiatives. Adjusted diluted earnings per share of $2.99 was ahead of our expectations and flat to prior year, and our non-GAAP effective tax rate was 18%. Now turning to a discussion of our strong balance sheet and exceptional cash flow. We ended the quarter with $131 million of cash and cash equivalents and over $800 million of borrowing capacity on our revolver. Our inventory balance as of March 31 was $398 million, up 2% to prior year, including the impact of higher tariffs. Inventory footwear units were down high single digits to prior year, reflecting our actions to manage inventory flow into the marketplace. Enterprise inventory turns were above our goal of 4x on an annualized basis. While we ended the quarter with $747 million remaining on our existing share repurchase authorization, our powerful value creation engine has enabled our second quarter repurchases to be underway. Quarter-to-date, we have repurchased 800,000 shares for $74 million, and we continue to deliver against our commitment to return meaningful cash to shareholders. Net leverage ended the quarter at the low end of our target range of 1 to 1.5x. Now moving on to our full year 2026 outlook. Based on our better-than-expected first quarter results, we now expect enterprise revenue growth for the full year to be up 1% to down 1% on a reported basis, assuming currency rates as of April 27. Our updated guidance also reflects the country-specific impact from the war in the Middle East as well as related pressure from elevated distribution and logistics costs. Moving on to revenue guidance by brand. For the Crocs brand, we continue to expect revenue to be flat to up 2%, led by international growth and offset in part by declines in North America. Our guidance continues to anticipate direct-to-consumer outperforming wholesale globally as evidenced by our first quarter results. For HEYDUDE, we now expect revenue to be down approximately 5% to 7%, an improvement from our previous guidance of down 7% to 9%. This revenue range embeds our increasing confidence in both direct-to-consumer and wholesale channels returning to growth in the second half of the year. We continue to expect adjusted gross margin for the year to be slightly up versus last year despite the impact of tariffs, which are partially offset as a result of cost-saving initiatives, primarily in our supply chain. Adjusted SG&A dollars are implied roughly flat to prior year, in line with our prior guidance as we recognize the benefits of our previously announced cost savings programs while also investing in growth drivers for the business. Taken together, we continue to expect adjusted operating margin to expand modestly from the 22.3% level we reported in fiscal year 2025. This excludes approximately $25 million of nonrecurring costs. Moving to tax. We expect the underlying non-GAAP effective tax rate, which approximates cash taxes paid to be 18% and the GAAP effective tax rate to be 23%. We are raising our expectations for adjusted diluted earnings per share to be in the range of $13.20 to $13.75. Consistent with our previous guidance policy, this range does not assume any impact from future share repurchases. For the year, we continue to expect capital expenditures to be in the range of $70 million to $80 million. Regarding capital allocation, as I highlighted earlier, we are committed to, first, investing behind both of our brands to fuel long-term growth; and second, returning our significant free cash flow to shareholders through share repurchases. Now turning to our second quarter outlook. For the second quarter, we expect revenues to be down slightly at currency rates as of April 27. Within this, Crocs brand revenues are expected to be up 1% to 3% and HEYDUDE revenues are expected to be down 12% to 14%. Adjusted operating margin is expected to be approximately 24.7%, which embeds adjusted gross margin down approximately 150 basis points to prior year, driven by the impact of tariffs, consistent with the commentary on our last call. Adjusted diluted earnings per share is planned to be in the range of $4.15 to $4.35. Finally, before closing, I want to provide an update on the February Supreme Court rulings on tariff refunds. While we believe we are well positioned to collect refunds on the incremental tariffs we paid in 2025 and into this year, we have not currently embedded any upside from this within our guidance. To close, while we are pleased that our first quarter results exceeded our expectations, we continue to remain focused on managing the business for long-term profitable growth while generating and deploying our exceptional free cash flow enabled by our best-in-class value creation model. At this time, Andrew and I are happy to take your questions. Operator?

Operator, Operator

On the incremental tariffs we paid in 2025 and into this year, we have not currently embedded any upside from this within our guidance. To close, while we are pleased that our first quarter results exceeded our expectations, we continue to remain focused on managing the business for long-term profitable growth while generating and deploying our exceptional free cash flow enabled by our best-in-class value creation model. At this time, Andrew and I are happy to take your questions. Operator?

Jonathan, Analyst

Can you hear me? Okay. Great. Andrew, could you talk more about the recent trends you're seeing in sell-through for the Crocs brand in North America in both channels? And how are you thinking about DTC particularly looking forward here? Do you see any risk that momentum slows as you get past the core sandal season? And then, Patraic, more broadly on the financial outlook as you get closer to the embedded second half ramp in revenue and profitability, could you highlight the factors that are giving you confidence in the second half projections?

Andrew Rees, Chief Executive Officer

Thank you, Jonathan. The biggest and most important thing, I'll address for Crocs but it is also true for HEYDUDE, is newness — the consumer is responding to newness. As we've introduced newness in sandals, in clogs, and also in our Ballet flat and other styles, we definitely see the consumer responding. We see accelerated demand and strong sell-through in North America. We're also seeing response for the Crocs brand and those same new products in many of our international markets. That gives us strong underlying confidence. Some of that newness is in sandals, but some is outside of sandals: clogs and other silhouettes. From a DTC perspective, we continue to improve execution in digital, stores and selling on TikTok and other social platforms. That's been a nice driver of consumer engagement. There is evidence our marketing activations and storytelling, especially toward Gen Z and younger consumers, are working. Overall, we have a lot of confidence around our newness and the trajectory of our business despite some headwinds in the global marketplace. I'll let Patraic cover the specific elements of the guidance.

Patraic Reagan, Executive Vice President and Chief Financial Officer

Jonathan, great question. To level set: we've communicated the 5 strategic pillars for Crocs and the 3 strategic pillars for HEYDUDE over the past several quarters. What that translates to is appealing to our consumers and driving product newness within those pillars. Diversification is key and that means new products across both brands. We're seeing green shoots within both businesses starting in Q4 last year and accelerating into Q1, which supports confidence for the second half. Second, last year the team made several strategic but painful actions: pulling back on promotions, paid search and inventory going into the marketplace for both Crocs (particularly in North America) and HEYDUDE. In the second half of this year, we start to anniversary those actions and that provides additional tailwind. So together, continued product newness and diversification plus the lapping of actions taken last year give us confidence in the second half.

Operator, Operator

And the next question comes from Rakesh Patel with Raymond James.

Rakesh Patel, Analyst

Can you unpack the impact of higher costs that you alluded to? First, how do we think about how much of a drag freight surcharges could be presenting on gross margins for the year? And second, does guidance contemplate an impact from higher resin costs given the increase in oil prices? Or do you see this as more of a 2027 event?

Andrew Rees, Chief Executive Officer

You're driving at the impact of high oil. There are three impacts of the Middle East conflict on our business. One, a drag in revenue associated with selling to our Middle East distributors because they cannot take further receipts; we have embedded that in our guidance. Two, increasing costs, and at this point the biggest impact is transportation — fuel surcharges on inbound and outbound freight in our key markets. That cost is embedded in our guidance. Three, if the situation drags on, a broader slowdown in global macro economies could occur; we don't see that impact today. Looking at consumer behavior in North America, Europe and Asia, we're not seeing a discernible negative trend, though the risk remains.

Patraic Reagan, Executive Vice President and Chief Financial Officer

Rakesh, to add context: any impact from the Middle East is fully contemplated in our guidance. We're leaning into our agility and resiliency as we read and react to what's happening. Within our supply chain, we're continuously pursuing efficiencies that we can either drop to the bottom line or reinvest. We have cost efficiencies in place across SG&A and COGS and we can make choices to accelerate the business or improve margins. Those actions enable us to raise guidance despite unanticipated conflicts like the Middle East, which is a testament to our agility and resilience.

Operator, Operator

And the next question comes from Adrienne Yih with Barclays.

Adrienne Yih-Tennant, Analyst

First, a quick clarifying question on the tariffs. What level of tariffs are you still embedding in the rest of your guidance? I know the statutory is collecting 10% right now. So what's the differential between collecting 10% on Section 132 and what's embedded in the overall guidance? And then in terms of inventory into the channel, are you seeing any changes in either conversations or willingness to buy on the forward order book?

Andrew Rees, Chief Executive Officer

Adrienne, I'll take the second piece first. Inventory into the channel is consistent with what we said previously. We've invested significant time, effort and money into cleaning up inventory in channel, primarily in North America for both brands. We feel good about where we are. Most of our major wholesale customers are being appropriately prudent; their biggest controllable is inventory and they're managing it closely. They're not being assertive with forward plans and they look to brands for at-once inventory. We feel good about our inventory levels and partners are responding to newness and reordering what sells well.

Patraic Reagan, Executive Vice President and Chief Financial Officer

Adrienne, on tariffs: it's evolved considerably and continues to evolve. For Q2 we're essentially managing through a blended rate because tariffs have been announced, evolved, there was a Supreme Court ruling and responses. We are agile in managing through that. As we get into the second half, tariffs become part of our base, which reduces variance. If we get favorable tariff news, it's a tailwind; if escalation occurs, it's a headwind. Everything we know today related to tariffs and included in our outlook is embedded in our guidance; as we get clearer direction we will update the investment community.

Operator, Operator

And the next question comes from Kendall Toscano with Bank of America.

Kendall Toscano, Analyst

The return to growth in North America DTC for the Crocs brand was a very positive surprise. It sounds like a lot was driven by strong response to new product offerings. How are you thinking about the balance of the year and whether that level of growth, 5% for North America DTC, could continue? Also, the first quarter gross margin came in down 90 basis points versus expectation for flat year-over-year. It sounded like the tariff headwind was in line with the 100 basis points expected. What drove the downside? Was it mostly new product offerings carrying a lower gross margin? How should we think about that impact for the remainder of the year?

Andrew Rees, Chief Executive Officer

Kendall, we're not providing channel-by-country guidance. The underlying drivers of DTC performance were introduction of newness across clogs, sandals and other products, personalization and accessories. We believe DTC will continue to outperform wholesale and there's effective execution underlying the performance. We feel good about the fundamentals and hope it continues, but we won't provide specific channel guidance.

Kendall Toscano, Analyst

Got it. That's helpful.

Patraic Reagan, Executive Vice President and Chief Financial Officer

Kendall, on gross margin: first, we're happy with Q1 performance in both brands. Two components drove the margin outcome. One is new product mix — it's strategically important that new product is hitting and diversifying the business; some new products have slightly lower margins and that was a larger headwind than we thought when planning the quarter, but it's not necessarily a bad thing. Second is brand mix: HEYDUDE outperformed expectations in the quarter, which was a drag on overall gross margin rate but aligns with our return-to-growth strategy and gave us confidence to raise HEYDUDE revenue guidance. Those are the two key components driving the margin performance versus our last call.

Operator, Operator

The next question comes from Tom Nikic with Needham.

Tom Nikic, Analyst

Following up on North America wholesale. I recognize you aren't guiding by channel or geography, but it's been negative for many quarters. By the end of this year it could be roughly 30% below peak. Do you feel, given improvements in the DTC business, that you have line of sight into North America wholesale stabilizing in the near to medium term?

Andrew Rees, Chief Executive Officer

Short answer: yes. The North America wholesale business is exactly where we expected it to be. The work with our partners is playing out as planned: rightsizing inventory, ensuring appropriate inventory turns, introducing newness and working on prebook strategies so we have at-once inventory to capitalize. We see it stabilizing. As we build the brand, diversify product and provide more reasons for consumers to purchase, we're confident we can grow the business for Crocs in North America.

Operator, Operator

And the next question comes from Brooke Roach with Goldman Sachs.

Brooke Roach, Analyst

Following up on the impact of higher oil prices and the Middle East: can you unpack expectations for input costs if higher oil prices persist? If oil remains at this level, how long would it take to see higher product costs flow through the P&L? Can you frame the magnitude of the potential cost headwind and outline the key levers you're thinking of to protect profitability? How important would price be relative to other levers?

Andrew Rees, Chief Executive Officer

Brooke, I won't provide all detail but can offer qualitative input. Sustained high oil prices will put upward pressure on resin costs, but transportation is likely a bigger near-term cost pressure due to fuel surcharges. We have a well-diversified supply chain, transportation contracts and relationships and are equipped to manage this. We've been proactive for several years in pursuing cost savings and will continue to look for supply chain efficiencies, tariff optimization, and investments in automation and robotics in our DCs. We have many strategies to mitigate cost and have baked known impacts into our guidance.

Patraic Reagan, Executive Vice President and Chief Financial Officer

Brooke, to add: everything we know today is fully contemplated in our guidance. Over the last year we've demonstrated success squeezing efficiencies in supply chain and SG&A. While we prefer not to lean into those areas, we know we can and will adjust as the situation unfolds over the next 30 to 90 days. The key message is that known impacts are reflected in our 2026 guidance.

Operator, Operator

And the next question comes from Anna Andreeva with Piper Sandler.

Anna Andreeva, Analyst

Following up on Crocs international wholesale, it's come in softer the past few quarters and you've mentioned controlling sell-in. Can you elaborate? Is any door rationalization taking place internationally? How should we think about progression in this channel in 2026? And a follow-up on gross margin: should we expect the Crocs brand to continue to pull back on promotions in DTC? You lap the beginning of those actions next month. Given the newness that's resonating, any additional color?

Andrew Rees, Chief Executive Officer

Our Crocs International business remains very strong and we expect growth for the remainder of the year and beyond. We see a multiyear pathway for continued growth in major international markets. I was recently in Japan and China and was pleased with brand performance; we highlighted strong growth in those markets. DTC growth has been stronger than wholesale in many markets because some high-growth countries rely on a DTC-driven distribution model with high digital penetration. We manage DTC in many of those markets directly. The wholesale business has been on track with expectations, with the exception of the Middle East, where our distributor business was a wholesale sale and is a drag; that was a small drag in Q1 and will be a drag through the year and is built into guidance. Those are the key international points.

Patraic Reagan, Executive Vice President and Chief Financial Officer

On promotional cadence: retailers broadly remain inclined to promotions to drive traffic and sales given a stressed consumer. For us, we made a conscious decision in the second half of last year to pull back on discrete promotions in both brands. We're still on that multi-quarter journey through the first half of this year. We expect to function at a more normalized level of promotionality in the second half, which is the level we're executing today. Think of it as a normalization that will take place through the back half of the year.

Operator, Operator

And the next question comes from Peter McGoldrick with Stifel.

Peter McGoldrick, Analyst

Andrew, you discussed consumer resilience in Europe, Asia and North America despite Middle East disruption. Historically you've given helpful commentary on the consumer backdrop. This sounds like things are holding up better than anticipated. How has the consumer backdrop evolved to today and is anything embedded differently in the outlook?

Andrew Rees, Chief Executive Officer

Peter, I would rephrase: we don't see a discernible negative trend in consumer behavior. Given that, we believe we offer incredible value to consumers with compelling new products and personalization; we can drive transactions. Sustained $120 oil would put pressure on some markets — we watch Western Europe and parts of Southeast Asia closely where energy measures could be implemented. Overall, consumers in our key markets appear to be holding up and we're focused on doing what we need to do to succeed in this environment.

Operator, Operator

And the next question comes from Aubrey Tianello with BNP Paribas.

Aubrey Tianello, Analyst

Following up on Crocs International: is the roughly 10% revenue growth you guided to 90 days ago still the right way to think about it? And what does your guidance assume in terms of FX? I think FX was about a 100 to 120 basis point benefit at the enterprise level last time you guided.

Patraic Reagan, Executive Vice President and Chief Financial Officer

Aubrey, international is a key strategic pillar and will be the first year Crocs Inc. is predominantly international-driven, with revenues slightly more international than North America. We had a strong quarter internationally, with double-digit growth in key Tier 1 countries like China and Japan. About a quarter ago we guided to 10% international growth; we remain in the high single digits approaching 10% internationally. The main friction has been the Middle East impact. We're bullish on international and remain committed, evidenced by the Malaysia distributor conversion which added over 20 productive stores. Regarding FX, it's slightly worse versus 90 days ago but not meaningfully impacting our guidance and outlook for the year.

Operator, Operator

And the next question comes from Janine Stichter with BTIG.

Janine Stichter, Analyst

On the flat SG&A dollars guide that includes the cost savings program, could you speak to areas you're reinvesting in and benefits you're seeing? How should we think about willingness to reinvest more if you see a return? Or conversely, are there areas you could still pull back? And on wholesale, you talked about retail partners doing more at once — speak to your supply chain flexibility if there is more demand and your ability to meet that.

Andrew Rees, Chief Executive Officer

On SG&A: the cost-saving initiatives we've implemented are largely complete and have given us flexibility to invest in critical areas. Those areas include DTC capabilities, primarily digital selling, and targeted marketing to build demand for new products. DTC carries higher SG&A but stronger margins and operating profit. Regarding supply chain flexibility: we balance lean inventories to drive cash flow and returns to shareholders with having sufficient at-once inventory for newer products and best sellers. Those capabilities apply to both Crocs and HEYDUDE, and we can capture additional business based on at-once performance.

Patraic Reagan, Executive Vice President and Chief Financial Officer

To add: the cost efficiencies we drove in SG&A and COGS give us the ability to choose where to invest or where to drop dollars to the bottom line. We can reinvest behind growth where we see returns, but we also have levers we can pull to preserve profitability. On supply chain flexibility, we're skilled at managing inventory flow and have the ability to respond to demand, while keeping inventory turns high and cash conversion strong.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Andrew Rees, Chief Executive Officer

Thank you. I would just like to thank everybody for their great questions, their attention and their interest in our incredible company. So much appreciated.

Operator, Operator

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