Crocs, Inc. (NYSE:CROX) reported fourth-quarter financial results Thursday. The transcript from the earnings call has been provided below.
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Operator
Welcome to The Crocs Inc. Fourth quarter and full year 2025 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Aaron Murphy, Senior Vice President, Investor Relations and Strategic Finance for Crocs Inc. Please go ahead.
Erinn Murphy (Senior Vice President, Investor Relations and Strategic Finance)
Good morning and thank you for joining us to discuss Crocs Inc. Fourth quarter and full year 2025 results. With me today are Andrew Reese, Chief Executive Officer and Patrick Reagan, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions which we ask that you limit yourself 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 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 Reese, Crocs Inc. Chief Executive Officer.
Andrew Rees (Chief Executive Officer)
Thank you Aaron, and good morning everyone. Thank you for joining us today. 2025 ended on a strong note as we reported a better than expected holiday season fueled by new products and authentic consumer connections. Our powerful value creation model drove strong free cash flow which we return to shareholders in the form of repurchases and debt paydown. We continue to invest thoughtfully and strategically behind our brands in support of building an even stronger foundation to fuel long term profitable growth. For the full year of 2025 we delivered revenue of over $4 billion with approximately $3.3 billion from the Crocs brand and 715 million from. Hey Dude. Crocs brand grew for the 8th consecutive year International revenues which comprise almost half of our Crocs brand sales grew double digits. Direct to consumer was over half of our enterprise revenue and grew faster than our wholesale business. Strong free cash flow generation of $659 million enabled us to pay down $128 million in debt and buy back approximately 6.5 million shares for $577 million, representing approximately 10% of our shares outstanding. Before going further into 2025’s highlights, I would like to start by taking a moment to reflect on a milestone we recently achieved. Earlier this week, on February 8th, we surpassed the 20 year mark as a public company. Since our IPO, we’ve established ourselves as a world leader in innovative casual footwear for all. In addition to creating one of the greatest and most recognizable icons of our time, the Classic Clog, we have built a powerful and defensible business model that is increasingly diversified across brands, products, channels and geographies. With distribution in over 85 countries, we have emerged as a disruptor in social and digital marketing and commerce while building strong communities of loyal brand fans. In the last 20 years, we have relentlessly served our consumers selling approximately 1.5 billion pairs of shoes while delivering 14% sales growth on a compound annual growth basis. Our high margins and cash flow generation give us great flexibility to continue to invest in and grow our business while returning a considerable amount of cash to shareholders. Since our ipo, CROC shares have generated a total shareholder return in excess of 700%, almost two times that of the S&P 500 over the same period. While I’m exceptionally proud of these accomplishments and the way we consistently show up for our consumers, I’m even more energized for what I believe lies ahead for our company. We will continue to build on our promise of creating a more comfortable world for all through driving innovative casual footwear and personalization at scale across our two uniquely positioned consumer beloved brands. Our diversified revenue streams today are powerful and we have already built multibillion dollar plus revenue pillars. In fact, our digital, international and non clogged product categories each represent a revenue stream in excess of 1.5 billion which we see as compelling drivers for future growth. We will attack the next 20 years with ambition, decisiveness and agility and stay on the offense by leveraging our product innovation engine, our social, disruptive marketing and multi channel distribution. Now turning to the Crocs brand, we had a strong holiday season with positive consumer response to our new product. Introductions International grew double digits and sales in North America outperformed our expectations. While improving the trajectory of North America remains our top priority in 2026, we’re making good progress against our five strategic pillars for the Crocs brand. First, we’re driving brand relevance globally as the clog market share leader during the year, clogs represented 74% of our mix with sales up slightly to last year. Led by strong consumer response to our diversified Clog franchises, we scaled existing franchises like our sports inspired Echo by introducing newness such as the Echo ro. We also introduced the bae a platform height style for her to great success. Internationally, we have seen strong early reads in our DTC channels for our crafted club which will add a wide variety of upper materializations that we plan to scale in 2026. We’re excited about the short and long term prospects for this new franchise. During the fourth quarter our line business was particularly robust in both North America and international fueled by strong consumer response to newness including the unforgettable Clog In North America, we’re carefully managing our Classic franchise, focusing on maintaining tight inventory control and driving further segmentation across our key partners. Internationally, the Classic Krog grew nicely in 2025. Second, we’re making strong inroads in scaling our product pillars outside of Clogs through new category expansion. Sandals had a very good year and represented 13% of our mix, closing in on the $450 million mark. Sales growth was robust in North America where we not only took market share but also took advantage of an extended selling season beyond the traditional spring summer period. In 2025, our style sandals led the way fueled by strong full price selling of our Brooklyn Getaway and Miami franchises. While Sandal awareness is roughly half that of Clogs, we saw an encouraging mid single digit increase in sandal awareness during 2025 versus 2024. Looking forward into 2026, we believe continued newness in our existing franchises along with the introduction of our new Saturday franchise, an updated personalizable two strap sandal underscores an opportunity to gain further market share in this category. Jibits, our unique vehicle for self expression represented 8% of sales within Gibbets. We have seen continued growth of our elevated charms beyond Jibbitz. We have expanded what personalization looks like and introduced a collection of bags, bag charms and accessories. Third, we are fueling consumer engagement through disruptive social and Digital Marketing. In 2025 we launched many high impact partnerships. Examples included our multi year NFL partnership which continues to scale successfully, the launch of Stranger Things which promptly sold out and the cult classic Twilight Collab that is currently selling for three times the MSRP across the resale marketplaces. At the end of January we announced an extremely exciting multi year global partnership with lego, bringing together two icons of self expression and originality. Last month we teased our disruptive Lego Brick Club at Paris Fashion Week and next week this club will be available to consumers. We have a robust pipeline of new product launches together with Lego that will be centered around footwear and of course Jibbitz. Rounding out January, we debuted our new Omnichannel Global brand campaign wonderfully unordinary. Fourth, we’ll continue to create compelling consumer experiences in all our channels. In 2025 we leaned into our first mover advantage in social commerce which is a powerful channel to reach consumers and also increasingly a commerce engine. We remain the number one footwear brand on TikTok shop in the US and we anticipate significant future growth in social selling including on this platform. In 2025 we launched seven new markets globally with TikTok Shop and have more on our roadmap for 2026. Finally, we’re continuing to gain market share across the world in our international markets. During 2025 international grew 11% on top of 19% the prior year. Broad based strength was led by our direct to consumer channel which grew 23%. In China, our second largest market, we grew 30% on top of 64% last year and the country now represents approximately 8% of sales. During the fourth quarter we had a successful Double 11 shopping festival fueled by strong acceleration of our line clog offerings. We believe we have significant future growth opportunity. Internationally, our average market share in China, India, Japan, Germany and France represented approximately one third of the market share we have in our established markets. We ended the year with approximately 2,600 Crocs mono branded stores and kiosks. In 2026 we plan to continue expanding our footprint internationally and and see an opportunity to open between 200 and 250 doors both in our tier one markets and within distributor markets around the world. Now turning to Heydu, we prioritized our efforts in 2025 around stabilizing the brand in North America with a renewed focus on our core consumer. While we’re doing the work to return the brand to growth, we’re encouraged by the progress we have made in 2025. Let me share more about what gives me conviction in our strategic plan. First, we’re building a community laser focused on our core consumer. Our hey dude country campaign plays into our brands affinities including music, travel and pre and post sports. While appealing to our laid back, no fuss consumer, we’re also building our community through social platforms. In 2025, Etude was the number two footwear brand on TikTok shop. We’re encouraged that our brand awareness ended the year at 39%, a healthy 9 percentage point gain from one year ago. We have also seen an uptick in brand purchase intent amongst our core male consumer. Second, our product direction is clear. We are building the core and thoughtfully adding more. We are strengthening our leadership within the slip on category led by our icons Diwali and Wendy. In January, we launched our stretch jersey across all channels following a successful test during the holiday quarter. This product that we fondly refer to as a T shirt for your feet is already appealing to both him and her. Stretch Sucks is continuing to perform well in its second year with favorable consumer and retailer response. As we look into the spring, we will scale our sandals across various price points and expand our successful H2O program that caters to a broad range of outdoor activities important to our target consumer. We also see an opportunity to significantly grow our already successful work program as we bring comfort and safety to hardworking Americans. Third, we’re focused on stabilizing the North American marketplace. In the back half of 2025, we took two decisive actions. One accelerated returns and markdown allowances to our retailers to improve inventory health while elevating our brand presentation at wholesale and 2 we pulled back on unproductive performance marketing. While these 2 actions constrained our revenue growth by approximately $45 million in the second half of 2025, they have been effective in cleaning up the channel and establish a more profitable foundation for future growth. The fourth quarter was the tenth consecutive quarter of positive ASP growth year on year supported by channel and product mix. In conclusion, we’re focused on driving the next chapter of our growth story. We believe we have compelling strategies to grow both of our brands driven by a clear consumer focus, innovative product and marketing and our multichannel global go to market capabilities. I’m incredibly confident in our talented team’s abilities to continue to execute against these strategies. I will now turn the call over to Patrick.
Patraic Reagan (Chief Financial Officer)
Thank you Andrew and good morning everyone. During 2025 we made significant progress against several strategic initiatives that I am confident will lay the groundwork for sustainable long term growth. Looking back, we took several decisive actions to build upon our already strong foundation. These actions included 1 recalibrating our promotional activity in Crocs brand D2C channels 2 managing sell in across wholesale for the Crocs brand 3 reducing unproductive performance marketing spend within hey dude and 4 accelerating wholesale cleanup actions for hey Dude. In addition, we effectively executed our $50 million cost savings program and actioned $100 million of additional cost savings for 2026 as we previously communicated. Now let’s dig into our results for the full year, enterprise revenue of just over 4 billion was down approximately 2% to prior year. Croc’s brand revenue of $3.3 billion was up 1% the prior year, driven by DTC up 3%, partially offset by wholesale which was down 1%. Growth was driven by units up 2% the prior year to a total of 129 million pairs sold, while brand ASPs were roughly flat to prior year. North America was down 7% the prior year at 1.7 billion. This was tied to both the decision to pull back on promotional activity in our D2C channels earlier in the year as well as carefully managing our sell in to the North American market. For North America, DTC and wholesale revenues were down 5% and 9% respectively as we worked to better manage channel sell in. To reiterate Andrew’s comments, expansion in international markets one of our key strategic pillars and we are pleased to report another year of double digit growth. Revenue was up 11% versus prior year to 1.6 billion, led by D2C of 23% and wholesale up 5%. We gained market share in China which grew revenues by 30% to last year with balanced growth across partner, comparable store sales, digital and new store openings. Importantly, we also saw another year of double digit growth in Western Europe while Japan returned to growth. Turning to hey dude. During the year we took aggressive actions to stabilize the brand in North America. As such, revenue was 715 million, down 14% from prior year. D2C revenues were up 3% supported by strength in digital marketplaces and the addition of 23 new retail stores, offset in part by the impact of lower performance marketing spend. Wholesale revenues were down 27% as we accelerated our cleanup actions and more aggressively managed sell in. For the year, ASPs were up 4% to just under $32 while unit volume was 22 million pairs, down 17% the prior year. Now switching to the fourth quarter, we delivered enterprise revenue of approximately $958 million, down 4% to prior year and a 3 percentage point improvement from the third quarter. This performance was fueled by both brands, particularly during the holiday season. In North America, Crocs brand revenue of $768 million was up slightly on a reported basis, led by 11% international revenue growth supported by strength in China, Japan, Western Europe and India. The Heydude brand delivered revenue of 189 million which was down 18% to prior year. For Heydude, D2C was roughly flat to prior year and wholesale was down 42% in part driven by the planned cleanup actions we took in the quarter. I’ll now move to adjusted gross margin for the year. Enterprise adjusted Gross margin was 58.3% down 50 basis points from last year. This was primarily driven by 130 basis point tariff headwind. The overall decrease in gross margin was offset in part by lower negotiated sourcing costs. Kroc’s brand adjusted gross margin was 61.3% down 30 basis points from prior year, while Hey Dude brand adjusted gross margin was was 44.8% down 290 basis points. Moving to fourth quarter, enterprise adjusted gross margin of 54.7 was down 320 basis points to prior year driven by a 300 basis point tariff headwind. PROCS brand adjusted gross margin was 57.8% and Heydu brand adjusted gross margin was 39.7%. For the year, adjusted SG&A dollars increased 7% the prior year, largely tied to 2024 investments in talent marketing and D2C which anniversaried into the first half of 2025. In the fourth quarter, SG&A dollars were down the prior year reflecting the benefits of our $50 million cost savings program. Full year adjusted operating margin of 22.3% was down 330 basis in the fourth quarter, adjusted operating margin of 16.8% was down 340 basis points from prior year, excluding approximately 14 million of specific discrete costs primarily associated with a recent reduction in force. Full year adjusted diluted earnings per share of $12.51 decreased 5% to prior year and our non GAAP effective tax rate was 17%. Now turning to a discussion of the balance sheet and cash flow, we ended the year in a strong liquidity position with 130 million of cash and cash equivalents and over 900 million of borrowing capacity on our revolver. Our inventory balance as of December 31st was 369 million, an increase of 4% versus prior year on a dollar basis, including the impact of higher tariffs and product mix. It is important to note that inventory 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 four times on an annualized basis. Continued competitive strength of our business model. In 2025 we generated free cash flow of 659 million, which enabled us to repurchase 6.5 million shares for a total of 577 million, ending the year with 747 million remaining on our existing share repurchase authorization. We also repaid 128 million of debt, which puts us at the low end of our net leverage target range of 1 to 1.5 times. Specifically, in the fourth quarter, we repurchased 2.2 million shares of our common stock for a total of 180 million at an average cost of approximately $84 per share. Before turning to guidance, I wanted to provide an update on our cost savings initiatives for 2026. As we previously communicated, we have identified $100 million of cost savings which include organizational simplification, deliberately reducing spend in non critical areas and further optimizing and modernizing our supply chain. We expect these savings to be relatively balanced between our cost of goods sold and SGA. Now moving on to our full year 2026 outlook for the full year we expect enterprise revenue growth to be in the range of up slightly to down 1% on a reported basis assuming currency rates as of February 9th. As you think about the shape of the year, I want to remind you all that the accelerated strategic actions we took in 2025 were largely second half weighted and as such will continue to have an outsized impact on the first half of the year. Said another way, we expect our year over year enterprise revenue growth on a reported basis in the second half to outpace the first half. For the CROCS brand, we expect revenue on a reported basis to be flat to up 2%, led by approximately 10% international growth offset by declines in North America. As we anniversary the strategic actions we took in the second half of 2025, we anticipate the year over year revenue rate in North America to improve slightly from 2025’s run rate as our guidance anticipates that the DTC channel outperforms the wholesale channel for hey dude. We expect revenue on a reported basis to be down approximately 7 to 9%. We expect the Heydude brand to return to growth in the second half of 2026. As we anniversary the impact from the strategic actions we took that started in 2025 primarily in the second half, D2C is expected to outperform the wholesale channel and improve throughout the year. We expect adjusted gross margin for the year to be up slightly to prior year. Despite an anticipated approximate 80 basis points of incremental tariff pressure for the full year which we expect to materialize in the first half. Based on current tariff rates and sourcing mix, we now see an unmitigated tariff headwind of approximately 80 million on an annualized basis which is down from our previously provided figure of 90 million, we believe our diversified sourcing mix and nimble supply chain position us well as we enter 2026. Adjusted SGA dollars are anticipated to be roughly flat to prior year as we recognize the benefits of our previously announced cost savings programs offset by investment in the direct to consumer channel. Taken together, we expect adjusted operating margin to expand modestly from the 22.3% level in 2025. This excludes approximately $25 million of specific discrete costs related to the implementation of our cost savings initiatives. 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 expect our adjusted diluted earnings per share to be in the range of $12.88 to $13.35. Consistent with our previous guidance philosophy, this range reflects future debt repayment but does not assume the impact from potential future share repurchases. We are committed to maintaining net leverage in the range of 1 to 1.5 times while deploying excess cash flow towards opportunistically buying back shares. For the year, we are planning capital expenditures to be in the range of $70 million to $80 million. Now moving on to Q1 for the first quarter we expect revenues to be down 3.5 to 5.5% at currency rates as of February 9th, Prox brand revenues are expected to be down low single digits. We expect growth to be led by International with the quarterly growth rate modestly below our full year run rate. For heydude, we expect revenue to be in the range of down 15% to 18%. Given the dynamics I spoke to earlier, the Percentage decline for Heydude’s first half revenue is anticipated to be similar for the first quarter. Adjusted operating margin is expected to be approximately 21.5%. In the first quarter, we anticipate adjusted gross margin to be flat despite the continued impact of incremental tariffs. Given the visibility we have today, our Q1 incremental tariff headwind is estimated to be approximately 100 basis points, while the Q2 headwind is expected to be closer to 200 basis points. Adjusted diluted earnings per share is planned in the range of $2.67 to $2.77. Before we move to the question and answer portion of our call, I wanted to close by reiterating our confidence. Heading into 2026, we are already seeing positive signs as we continue to execute on the fundamental strategic pillars for both crocs and hey dude. In summary, we are doing what we have said we will do. And we are managing our brands for the long term. As Andrew mentioned, while we have accomplished much in the first 20 years as a public company, we are even more excited about what the future holds at this time. Andrew and I are happy to take your questions. Operator.
Operator
We will now begin the question and answer session. To ask a question, you may press Star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then two, we ask that you limit yourself to one question. Our first question comes from Jonathan Komp with Baird. Please go ahead.
Equity Analyst (Baird)
Hi, good morning. Thank you. I’m hoping you might unpack the North America Crocs outlook a bit here. Could you share a little bit more drivers for the first quarter? And as you think about the shape of the year, is there potential to get to back towards growth later in the year? And any visibility you have there would be great. Thank you.
Patraic Reagan (Chief Financial Officer)
Thanks, Jonathan. I’ll let Patrick give you some shaping for the year and then I’ll give You kind of strategic rationale. Yeah. So John, as you heard in prepared remarks, we feel that for North America, we’ll see run rate improvement as we move forward throughout the year. But for the full year, what we’re. Really thinking is, you know, slight improvement from what we saw in 2025. You know, just as a reminder, you know, what we did in the second half of last year was really beginning to take some strategic action so that we would improve our outlook as we got into 2026. And with that, you know, what you’ll see in first half is kind of continuing to lap those unanniversaried actions. And then as we get into the back half of 2026, you know, we’ll start to see some slight improvement as.
Andrew Rees (Chief Executive Officer)
We go through the year. And I think what I’d add to that, John, is look, it’s a it’s a very clear priority for us to return the Crocs brand to growth in, in North America. It as an element of context, I would also remind everybody that the Crocs brand in 2026 will actually be bigger internationally than it is in the US and we’re very confident in, in about a 10% growth rate for our international business. What we think is going to return Crocs North America to growth is, is really kind of three strategic pillars. Number one is clog iterations and Innovation. Right. So we are managing the inventory, the classic clog, carefully in the marketplace. We pull back on discounting, particularly on the classic clog on our digital channels, which is creating some of the headwind. But we are introducing a significant number of new innovative products into the marketplace that are clog based. Right. So our crafted clog, we’re introducing the Croc band and we’re also introducing a 2.0 version of our very successful Ecco franchise later in the year. In addition, diversification. So growth of sandals and growth outside of clogs, including slippers and personalization. We took market share in slippers last year. Very confident we’ll continue to take Sorry. Took market share in sandals last year. Very confident we’re going to continue to take market share in 2026 in sandals. And then the last thing is really disruptive, I would say social and digital selling. We continue to outperform and be the number one and two brand footwear brand on TikTok Shop. And we’re very confident that our digital prowess and our ability to ignite these, I would say, innovative channels and reach your consumers extremely effectively will allow us to continue to lead. So that’s what we’re doing to address it. And I think we’ve given you what I describe as a very prudent guidance for this year.
Equity Analyst (Baird)
That’s great, very helpful. Thank you. Thanks, Josh.
Operator
And the next question comes from Adrian Yee with Barclays.
Equity Analyst (Barclays)
Please go ahead. Great, thank you very much. It really is nice to see the improvement in holiday and then the expansion for this year. Andrew, I was wondering if you can help, just to follow on your comments from the last question, can you help contextualize the amount of newness that you’re bringing to market this year, both Crocs and at Heydude? We saw a lot of it at Fannie, so that was very promising. But just kind of contextualizing that with regard to how much newness you’ve brought to the market in the past couple of years and how this year is quite differentiated and then kind of just following on that. I mean, I have to ask about AI specific investment. How much of your capex are you allocating to tech investments to support AI and do you have any benefit of that kind of playing into the guidance this year? Thank you very much.
Andrew Rees (Chief Executive Officer)
Yeah, so yeah, let me try and add some detail to the newness point and then I’ll hit on AI. So from a newness perspective, I did add in my response to John a fair amount of context there, but I. Think there’s probably two critical pillars for. Crocs in terms of newness. They are the diversification of our clog franchise. So adding those other clog pillars, we’re particularly excited about the crafted because it adds a materialized upper to our clog which we think broadens the wearing occasion. I would add the clog category continues to grow around the world. We can see it being a very on trend silhouette and a strong growth category and we are by far the market share leader in that category. So we can exploit that growth on a global basis. And then from a saddle perspective, I. Think there’s two aspects there. One is core style franchises. So Getaway Miami and Brooklyn will continue to grow in scale and we’ve added patterns within those franchises, we’ve added colors and we broaden those franchises and we think they have global growth trajectory. But we’re also introducing, and we’re quite excited about some of the early reads, a very compelling two strap. And we look at, we’ve got early reads on that in Asia and here in North America and we’re quite excited about that. Obviously, two strap is a very popular sandal silhouette and we think that’s a nice growth opportunity which we add into our sandal mix. From a HEYDU perspective, again, a lot of newness there. We introduced already this year stretch jersey, which is, we kind of talk about it as a T shirt sweatshirt for your feet. T shirt for your feet. Very soft, very flexible, very lightweight and super comfortable. It’s a bit of a lower price point than our stretch socks as well. So it’s an entry level option for consumers. We’re excited about that. The Runway of that product or that franchise within hey dude. And then we’re also building on sandals for hey dude. Our work program’s working really well for hey dude. So there’s a lot of newness and I think we’re trying to get at is it more than last year? I think yes, it’s definitely more than last year. And we’re very confident from an AI. Perspective, it’s not really capex as much. Right. So we are experimenting with a whole host of AI applications, whether they be on the front end in terms of marketing, in terms of product development, in terms of product creation. We’re also looking at efficiency opportunities more in the supply chain and the back end of the business. A lot of it, frankly is SG&A investment. It’s investment in people, it’s investment in talent, it’s investment in key capabilities and leveraging, frankly, other people’s capex investments. I don’t think we’re ready to declare, you know, breakthroughs based on AI yet. But I think we are leaning in and experimenting to a high degree of when we see breakthroughs, we’ll be happy to.
Patraic Reagan (Chief Financial Officer)
To let you know about them. Yeah. And Adrian, just to wrap up. Just to put a bow on this one. Sorry. So, you know, one of the reasons. That we’re, you know, going after the $100 million in terms of cost savings that we’ve been talking about now for a couple of quarters is to give us flexibility as we identify what Andrew mentioned earlier in terms of, you know, all the experimentation we’re doing in the space. So, you know, definitely, you know, we’re not embedding anything from an upside standpoint into the P and L for the year for, for AI initiatives, but we are actively in the space.
Equity Analyst (Barclays)
Fantastic. Well, we love to see the trends moving in your direction. Good luck.
Operator
And the next question comes from Rick Patel with Raymond James. Please go ahead.
Equity Analyst (Raymond James)
Thank you. Good morning, everyone. Question on CROCS guidance for North America in 2026. Can you talk about the assumptions underpinning. The new guide as we think about pricing versus unit? Just any color on pricing in particular and any changes that have been made and any on the horizon. And also if pulling back on promotions are a factor in continued ASP improvements and driving a slight improvement in margin for the year. Right. So, okay, I think Patrick gave you.
Andrew Rees (Chief Executive Officer)
Pretty clear. Color to the North American CROCS guidance. I think your specific question is really. About, you know, pricing. I would say note there are no significant price changes implied in the North American guidance. We have taken select price increases on select products, probably more internationally than North American. And we have taken some price increases on select products within. Hey, dude. But I would say price is not a material driver of our intended 2026 performance. In terms of promo pullback. The other piece that you highlighted, the key thing there is just the anniversarying of the strategic decisions that we made sort of mid last year. So those were anniversary through to the first half of 2026 and will represent some dragons to our sales trajectory during that period, which we have embedded in the guidance we provided.
Equity Analyst (Raymond James)
Thanks very much.
Operator
And the next question comes from Tom Nickic with Needham.
Equity Analyst (Needham)
Please go ahead. Hey, thanks very much for taking my question. So I just want to clarify something. On the gross margins. So I think you said flat in Q1 with a 100 basis point tariff headwind. Can you just kind of clarify what the offsets are in Q1? And I think you said a Bigger tariff headwind in Q2. So given that Q1’s flat, should we assume Q2 to be down and then improve in the back half? Thanks.
Patraic Reagan (Chief Financial Officer)
Yeah, yeah. So it’s a great question and obviously a lot going in the space. So first let me start off by saying obviously, you know, we’re guiding up slightly on the full year. And that’s as a result of all the hard work that we’re doing within supply chain to really kind of build out efficiencies as it relates to not just tariffs, but just continuing our focus on being as efficient as we can in the space. As you heard Andrew mentioned, price is not a big component within what we’re planning to do this year in terms of, you know, margin, margin expansion. So it’s all really kind of centered around the work that’s going on. So with that as a backdrop, you know, as it relates to, you know, the first half or the first quarter. In your question, really need to think. About it as, you know, a bit Q4 to Q1 to Q2, and you know, why I say that is, you know, you heard us talk about, you know, the slightly higher than expected tariffs in Q4. You know, the fact of the matter is, is, you know, this is, is obviously, you know, it’s a challenge to kind of predict from a flow standpoint. And so we saw a little bit higher than expected in Q4 as we flowed inventory through. We actually seen a little bit lower than we expected 90 days ago as it relates to Q1. And so we wanted to be transparent with you all in terms of, you know, the 100 basis points, point headwind that we’re seeing. That’s actually below what we were thinking just 90 days ago. And then Q2 we think is closer to what a real run rate is as it relates to tariffs. And so that’s roughly up about 200 basis points of headwind. And then as we get through Q1, Q2 with that nuance, we start to get into the second half and then all of this is in the base. As long as there’s no changes from tariff policy standpoint, everything’s in the base and then we get to a much more normalized run rate. So hopefully that gives you a little bit more context around, you know, the Challenge that we’ve gotten in this space.
Equity Analyst (Needham)
Very helpful. Thanks very much and best of luck this year.
Operator
And the next question goes to Aubrey Tianello with BNP Paribas. Please go ahead.
Equity Analyst (BNP Paribas)
Hey, good morning. Thanks for taking the questions I wanted to ask on the cost savings program. Last quarter you mentioned it was too early to say how much of the 100 million will drop through the bottom line. Would love to know if there are any updates on how you’re thinking about flow through and what’s included in the guide.
Patraic Reagan (Chief Financial Officer)
Thanks. Yeah, so I think great question, you know, as you heard a little bit earlier, you know, one is, you know, we’re just continually focusing on being as efficient as we can. And so, you know, part of that is that, you know, we’re building these cost savings initiatives into our plan so that, you know, we’re able to fuel investment. We spoke a little bit earlier about, you know, what we’re doing with AI. You know, we’re doing these programs to both be able to capitalize on some of those opportunities and frankly things that we, you know, may catch an edge on that we, we don’t have visibility to just yet. So we’re reserving a little bit of. Flexibility into what we’re doing as well as, you know, flowing dollars to the bottom line. And so where we, you know, we’re planning SGA flattish to the year as you’ve seen. So certainly some of the, you know, some of the programs that we’ve put in place, you know, around org efficiency, around spend efficiency is cutting through from that standpoint. And as you see, you know, our gross margin guide, some of the cost efficiency work that we’re doing there is helping to offset some of the headwinds that we talked about from tariffs, et cetera and we’re flowing that into, you know, our gross margin outlook. So that being said, all of that is embedded into the guide for the year and we’ll continue to work through this as we make our way through 2026. But we feel great about where the work is to date.
Operator
The next question comes from Peter McGoldrick with Stifel.
Equity Analyst (Stifel)
Please go ahead. Yeah, thanks for taking my question. As we think about the double digit international CROCS brand outlook, can you help us think about the regional brand development? You shared some nice commentary. Growing from an 8% base. I’m curious to know about the other regions as well and countries as we think of the 2026 embedded outlook.
Andrew Rees (Chief Executive Officer)
Thank you. Great. Thank you, Peter. So yeah, let me just kind of give you some details but also put. It all in context. So during 2025 we grew international 11% top of 19% prior year. So it’s been a sustained double digit growth driver for us. From a China, you already highlighted that, you that you captured that. But we grew 30% in 25 and we continue to be confident that we can grow across all of our channels in China. It’s a tricky market in China right now, but clearly our brand is resonating and we have the ability to continue to grow. Other markets where we’ve seen strong growth and we expect to see strong growth in 26 are Japan, return to growth in 25. We’ve been putting considerable time and effort in Japan over the last couple of years. It’s a big footwear market, large population, highly affluent population. So we’re excited to see that return to growth and we think we’re on the right trajectory there. Western Europe is also performing well. Uk, France and Germany in particular. Again, double digit growth in 25. And we’re confident about continued performance there into 26. And look, India is also important to us. We’ve been focusing on and making some strategic investments in India in terms of setting us up for future sustained growth. And we’re excited about the prospects for India in 26, but also frankly for the medium to long term.
Equity Analyst (Stifel)
Very good. Thank you. Thank you.
Operator
And the next question comes from Brooke Roach with Goldman Sachs. Please go ahead.
Equity Analyst (Goldman Sachs)
Good morning and thank you for taking our question. Andrew, I wanted to dive a bit deeper on the North America wholesale channel. How are conversations trending regarding shelf space preservation and order books for the year? And how do you view the health. Of the consumer in that channel amidst a competitive environment? Thank you.
Andrew Rees (Chief Executive Officer)
Yeah, let me take that in reverse order. So health of the consumer. I would. Say, I think, you know, our view on the consumer is they remain bifurcated. Right. So the higher end consumer, I think has plenty of disposable income and is shopping. The lower end consumer, I think, is still a bit tentative. So and we think that likely continues through 2026. There has been, you know, plenty of talk about tax rebates and things like that. That has not been a significant factor for us historically. And let’s see what happens. And you know, the market remains super competitive. So if I took both of our brands from a shelf space perspective, I would say, you know, we’ve been, I think, fairly clear about, we’re working hard to make sure that both of our brands have the right inventory in the right retailers and, and that we’re well positioned relative to our future consumer demand. We’re working hard from a Crocs perspective to make sure that our classic, our key core franchise is appropriately positioned but also getting new products into the marketplace as we talk about diversifying the club franchise. So we feel good about where we are from. A CROCS perspective. But that does represent a drag to sell in as we’ve articulated in our guidance. Hey dude. We worked really hard and spent quite a lot of money in the back half of last year to right size inventories. And we think with that right, we look at our sellout relative to our inventories on hand and they are at parity at this point. So we’re excited to be at that point and be able to strategically rebuild the business from a wholesale perspective for hey dude. So and I think the other thing I just say as an overlay, it’s all about newness. Right. So when we introduce new products that resonate with consumers, we can see really nice trajectory in terms of sell out and sell in. And the consumer is definitely receptive to newness. And so that’s the important driver of success in this business.
Equity Analyst (Goldman Sachs)
Great. Thanks so much.
Operator
Thank you. And the next question comes from Anna Andreeva with Piper Sandler. Please go ahead.
Equity Analyst (Piper Sandler)
Great. Thank you so much for taking our questions and congrats. Nice results. Just wanted to follow up on the action actions at hey dude. Between the wholesale cleanup and the performance marketing change. Andrew, I think you just said the cleanup actions are fully behind us. Can you talk about if you’re adding more partners in wholesale to the brand at this stage and just what are those conversations looking like? And just as a follow up on Crocs, if you guys think about the adjacent categories, I think you said with sandals penetration was similar at 13%, which I think implies mid single digit growth category. And you called out strength in the US can you talk about how international performed and how do you think about that penetration over time? Thank you.
Andrew Rees (Chief Executive Officer)
All right, so a lot of questions there, Anna. Let me try and hit some of them and kind of double click on the important ones. So I think we’ve talked about the HEYDU cleanup. So I think you’ve got that. I guess the derivative question there was are we adding more partners? I would say we’re not really adding significant more partners for hey dude. But we do think there is significant. Growth in key partners. So, you know, so I think that will come through more, you know, more shoes on shelf and more shoes in more stores. Right. But we’ve got to earn our way back to that growth pathway. But we’re very focused on that. So then I think your second piece was around sandals. So 13% overall share for sandals grew nicely in North America last year. We’re confident in growth next year. We took market share. Growth was significantly above the market for North America. And I would say growth in sandals internationally was slower than North America last year. But we have, I think, strong aspirations for SAML growth internationally in 2026. And part of that was by design. Right. So we were very much focused in some of our key developing markets on really penetrating the market with the classic clog and landing our icon. And so when you’ve got relatively small footprints in some of these key markets, you’ve got to be strategic about what you put on the shelf. But we do think there is nice sandal growth available to us in key markets like India, Southeast Asia, where we’re confident about future trajectory 2026 and beyond.
Patraic Reagan (Chief Financial Officer)
And then, Ann, I just want to jump back to Heydude for a moment. So, you know, number one is, as you saw in the prepared remarks, we. Are calling heydude return to growth in. The second half of this year. And so that goes back to all of the strategic actions that we took in the back of 2025 will then start to bear fruit in terms of where we’re going with the brand. And just want to reiterate, we feel very confident about the trajectory there. The other component is in terms of just cleanup. Cleanup is continuing to make progress. And everything that we’re looking at from a KPI standpoint related to inventory, inventory on hand, sell out, REIT versus sell in rate, is all moving in the right direction. And so, you know, we feel like, you know, a little bit more than six months into, into the efforts, what we’re seeing looks, looks very positive. And we’re, we’re bullish on where we’re going. But we also know that, you know, we’ve got to finish the play. Part of finishing that play is the. Work that remains to be done in the first half of the year.
Equity Analyst (Piper Sandler)
Great. Thank you so much. Terrific. Best of luck.
Operator
And the next question comes from Jim Chartier with Maness, Crespi and Hart.
Equity Analyst (Monness, Crespi, Hardt)
Please go ahead. Good morning. Thanks for the question. Can you talk about the performance of hey dude. Stores and what the store opening plan is for 2026?
Andrew Rees (Chief Executive Officer)
Yeah, I would say, look, we’re pleased with the performance of our Heydude stores. As you know, the majority of stores, in fact almost all the stores open, are really outlet stores. We think that’s a pretty unique opportunity to do multiple jobs for the brand, which is keep our inventories clean and fresh as well as benefit from strong traffic in the outlet malls to drive, you know, commercial success. So we’re pleased with the stores. We opened 23 stores last year, back to a total of 75 at year end. Our opening rate in 2026 would probably be a little bit less than that. But we think our stores do a really nice job in terms of generating strong commercial outcomes as well as broadening consumers perspective about the brand.
Equity Analyst (Monness, Crespi, Hardt)
Great. And then international wholesale looks like it was up about low single digits in constant currency over the last three quarters. Anything to highlight as to why that channel has slowed? And then what kind of opportunity do you see for international wholesale going forward?
Andrew Rees (Chief Executive Officer)
Thank you. Yeah, I think as we highlighted the growth in international driven by dtc and that is really two components. One is our digital prowess, which extends across the globe. And also store openings. The stores we have and store openings on an international basis, that’s where we’ve focused our store openings. As we look at a lot of international wholesale, the vast majority of those sales go into our distributors. So I don’t think there’s any real story about why it’s slow, but we’re confident in future international wholesale growth. Great, thanks. Best of luck.
Operator
And the next question comes from Mitch Kumitz with Seaport Research. Please go ahead.
Equity Analyst (Seaport Research)
Yes, thanks for taking my questions. I guess. First question, I just wanted to drill. Down a little bit more on the. Comment of hey dude. Returning to growth in the back half. I mean, how much of that is just lapping kind of the $45 million cleanup that took place in the back half of 25 versus other factors? I’m curious if you can speak to kind of what you’re seeing in terms of the fall order book from a wholesale perspective. Yeah, Mitch, great question. So, you know, as we mentioned earlier, it’s been some great progress that we’ve.
Patraic Reagan (Chief Financial Officer)
Made in terms of hey dude. And we continue to feel really bullish about where the brand is going as it relates to the 45 million in the second half of the 2025. You know, we felt it was important. To, to quantify, as best we could, you know, the actions that we took and you know, what resulted in coming out of coming out of the marketplace. And so, you know, as we think. About, you know, now is we’ve been doing the hard work at, you know, cleaning up inventory. We’ve been the hard work of, you know, kind of looking at our consumer base. And as a note, our awareness for brand has improved 9 percentage points from 30 to 39% just in the last six months or so. So we feel like we’re gaining a lot of traction as it relates to consumer, as it relates to product. Product newness. And so as you think about the. Second half you know, part of that. Obviously, will be lapping what we took out, but we’re also excited about what we see in terms of product newness coming and, you know, continuing to, you know, sell in from a greater breadth standpoint on, on the products that we introduced in the back half of last year and into the first, first half of this year. And can you say if you’ve got a positive fall order book? Yeah, we don’t. We don’t comment on our order book much. We haven’t done for many years now, so.
Equity Analyst (Seaport Research)
All right, that’s fair. And then a second question. Just on the sga, thinking about the shape of the year. I know that you said dollars flat year over year. Do you expect that to be kind of consistent across the quarters or would you expect kind of the dollar spending to kind of mirror the sales growth per quarter?
Patraic Reagan (Chief Financial Officer)
Yeah, I mean, you know, it’s the. As we think about the shape of SGA through the year, obviously we’ve got, you know, cyclicality in our business as it relates to quarters. And so as we go through, you know, from a SGA standpoint, you know, that kind of ebb and flow as a, as a percentage of sale, you know, from an SGA perspective, you know, Q1 will be up slightly is as we kick off the year and you know, as we work our way through, you know, we’ll start to start to see more traction from these programs that. We’Re putting in in addition to, you. Know, I just want to stress again, I know I said it earlier, but I just want to reiterate. It’s, you know, the $100 million that we’re targeting or we’ve targeted actually we’ve ident are in process of delivering, you know, it is one, yes, through the, you know, lens of dropping some to the bottom line. But it is really, you know, focused on giving ourselves investment flexibility as we make our way through the year. You know, when you think about the. Complexion of 25 to 26, you know, what we’re seeing is we’re re pivoting both brands and we are reserving, you. Know, the flexibility to deploy some of. Those savings, you know, back into P. And L to accelerate, you know, crux brand. Hey, dude. And some of the other areas that we’re experimenting from an investment standpoint. I mentioned AI earlier, but there’s a, you know, there’s a bunch of others. So that’s, that’s a little bit more color, you know, in terms of how we’re thinking about things. That’s helpful.
Equity Analyst
Thanks. And good luck.
Operator
We have time for one more question. And the final question goes to Jonathan Kampf with Baird. Please go ahead.
Equity Analyst (Baird)
Oh, hi. Thanks for sneaking me in one more. Just any more color. As we think about first half and back half progression from an operating profit standpoint, it looks like Q1 and implied for first half down year over year for operating profit. Second half looks like it could be implied up double digits. So any more color, just as we think about the shape and anything that would be helpful for modeling.
Patraic Reagan (Chief Financial Officer)
Thank you. Yeah, John, I think you’re hitting it is as you think about the complexion of the year, similar to 25, it’s. You know, there’s a big first half, second half story. You know, second half of last year. You know, we’ve, we’ve talked, you know, quite a bit about the actions that we took that impacted second half of last year. You know, that’s, we’re rounding that out in the first half of 2026. And so, you know, you’ll see some. Of the headwinds from a revenue standpoint. And so if you think about that, you know, trajectory of 25 into 26, you know, how you’re thinking about the year in terms of from an EBIT standpoint is, you know, how we’re thinking about it as well. So it’s really a bit of a first half, second half story.
Equity Analyst (Baird)
Okay, thanks again.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Andrew Reese for any closing remarks.
Andrew Rees (Chief Executive Officer)
Yeah, Just want to say thank you. Very much for joining us today. Appreciate everybody’s interest in our company and their thoughtful questions. So thank you very much and have a great day.
Operator
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect
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