Hey Dude moccasin brand is causing problems for parent company Crocs Inc.
Crocs Inc. shares fell 20% on Wall Street on Tuesday as sales of its Hey Dude brand continued to decline, Footwearnews.com reports.
Over the past two years, since the purchase of the Italian moccasin brand Hey Dude by American Crocs in 2022, we have seen how the new owner has been trying, not very successfully, to integrate his new acquisition into his own business.
The company decided to reposition the Hey Dude brand from mid-market to premium, changing its marketing strategy and focusing on strengthening the brand. When Crocs Inc. acquired Hey Dude, the brand was sold in about 1300 stores, many of which were regional and small mom-and-pop shops. Since then, Crocs Inc. CEO Andrew Rees says, the company has removed about 50 percent of those accounts from Hey Dude’s list of partners. “We’ve expanded the brand into major national chains. We see the Hey Dude brand being sold almost everywhere the Crocs brand is sold…,” he says.
The change in positioning strategy in the short term affected the economic performance of the brand, whose sales dropped. Thus, sales of the Hey Dude brand in the third quarter of 2024 decreased by 17,4% to $204 million, which reflects a decrease of 9,3% to $91 million in the direct-to-consumer (D2C) channel, i.e. in its own retail and its own online store)) and by 22,9% to $113 million in the wholesale channel.
Despite the strong performance of the Crocs footwear brand, which in the reporting period, on the contrary, increased sales by 7,4% to $858 million (with growth in the D2C channel by 7,7%, to $463 million, and in wholesale – by 7,1% to $396 million), the decline in Hey Dude’s performance affected the business valuation and the company’s stock price.
Overall, Crocs Inc. reported consolidated revenue of $2024 billion in the third quarter of fiscal 1,062, up 1,6% from $1,046 billion in the same period last year. That beat the company’s guidance last quarter, which called for revenue to decline 1,5% and grow 0,5% from the same period a year earlier. Net income for the quarter was $199,8 million, up from $177,0 million in the prior-year period, and diluted earnings per share was $3,36, up 17,1% from $2,87 last year. D2C sales grew 4,4% in the third quarter, while wholesale sales declined 1,4%.
On the company's earnings conference call Tuesday, Crocs Inc. CEO Andrew Rees told analysts that while the company is encouraged by Hey Dude's previous strong turnaround, recent results and the current operating environment signal that it may take longer than the company originally planned for the brand to emerge from the crisis.
Rees noted that since September 2023, the company has focused on prioritizing the health of the Hey Dude brand by optimizing its customer base and building a fleet of premium outlet stores to showcase the best of the brand. The company has increased the average selling price of Hey Dude shoes, increased inventory turnover to four times a year, and opened 4 premium stores.
Williams Trading analyst Sam Poser believes Hey Dude's shift in marketing strategy and new focus on building a strong brand is the right move for its long-term success, but it comes with short-term challenges, as we are seeing now.
Poser added that while the marketing shift is “the right decision,” it’s unlikely Hey Dude will grow revenue until the second half of 2025. “Due to the poor performance at retail, wholesalers are taking a much more cautious approach to Spring 25 orders than we previously expected,” Poser said. “The current poor performance and cautious approach has led management to call fiscal 2025 a stabilization year.”
Looking ahead, Crocs Inc. expects fourth-quarter revenue to be flat or up slightly compared to the fourth quarter of 2023, with the Crocs brand expected to grow approximately 2% and the Hey Dude brand expected to decline 6% to 4% in the fourth quarter.
In light of this year's results, the company is lowering its forecast for fiscal 2024. It now expects total revenue in 2024 to grow about 3% compared to 2023, which is at the low end of its previous sales growth forecast of 3% to 5%.
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