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In typical Crocs (CROX) fashion, the company easily surpassed muted EPS and revenue estimates in 1Q25. Heading into the earnings report, expectations were tempered due to CROX's soft Q1 guidance, which called for a 3.5% revenue decline, consistent with the company's pattern of conservative forecasts followed by outperformance. The sandal maker also withdrew its FY25 guidance -- previously set at EPS of $12.70-$13.15 and 2.0-2.5% revenue growth -- due to trade policy and tariff uncertainties, but this action has not pressured the stock. Investors appear to view the withdrawal as a prudent move and are instead focusing on a better-than-expected showing for the struggling HEYDUDE brand.

• Crocs brand revenue grew 4.2% in constant currency (cc) to $762 mln, fueled by double-digit international growth and solid North American demand for core products like clogs and sandals. The HEYDUDE brand, which has been bogged down by oversupply of inventory at major wholesale accounts, experienced a 9.8% drop in revenue to $176 mln, but that was better than the 14-16% decline that was anticipated. In the DTC channel, HEYDUDE revenue was up 7.2%, bolstered by CROX's e-Commerce efforts to leverage digital marketing and improve e-Commerce conversion rates.
• Both brands gained market share, with Crocs' internation markets (particularly China), and HEYDUDE's DTC inflection signaling stabilization. After CROX acquired HEYDUDE in 2022 for $2.5 bln, it launched a marketing campaign that was misaligned, failing to resonate with the right consumer segments. More recently, though, CROX has shifted to brand-building marketing investments, such as collaborations with Sydney Sweeney and Jelly Roll, which is showing signs of promise.
• Adjusted gross margin was a standout metric once again, expanding by 220 bps to 57.8%, despite challenging conditions marked by high inflation. Primary drivers include favorable product mix, with higher-margin Crocs clogs and Jibbitz charms outperforming, and reduced promotional activity due to leaner inventories. Furthermore, supply chain efficiencies, including through the new HEYDUDE distribution center in Las Vegas, have lowered freight costs.
• Crocs did not issue formal guidance for Q2, and it withdrew its FY25 outlook. However, the company has stated that tariffs are expected to reduce operating margins by 60-80 bps, while FX fluctuations could add further pressure to earnings. On the positive side, the Crocs brand has some momentum behind it, especially within international markets, and HEYDUDE's DTC recovery should also provide a tailwind in Q2 and 2H25.

CROX's upside Q1 results, driven by Crocs brand strength, HEYDUDE's stabilization, and gross margin expansion, highlights the company's resilience in a tough consumer environment. While tariff and currency headwinds cloud the 2025 outlook, the company's operational efficiency and investments support cautious optimism for additional market share gains and sustained profitability.