Crocs, Inc. (CROX) Earnings Call Transcript & Summary

Good day, and welcome to the Crocs, Inc. First Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Erinn Murphy, Senior Vice President, Investor Relations and Strategy for Crocs. Please go ahead.

Good morning and thank you for joining us to discuss Crocs, Inc. first quarter results. With me today are Andrew Rees, Chief Executive Officer; and Susan Healy, Chief Financial Officer. Following their prepared remarks, we will open the call for your questions, which we ask you to 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 will turn the call over to Andrew Rees, Crocs, Inc. Executive Officer.

Thank you, Erinn, and good morning, everyone. Thank you for joining us today. We're incredibly pleased with the performance we delivered during the first quarter, despite what has been an increasingly volatile macroeconomic backdrop, since the start of the year. At the enterprise level, revenues of $937 million grew 1% to prior year and came in ahead of our guidance, which called for a revenue decline of approximately 1.5% on a constant currency basis. Importantly, both of our brands contributed to this outperformance. Crocs brand revenues of $762 million grew 4% to prior year, led by double-digit growth in international and the North American business performed ahead of plan. HEYDUDE revenues of $176 million, down 10% to prior year, including direct-to-consumer growth of 8%, an acceleration from the fourth quarter. Enterprise adjusted gross margins of 57.8% gained 180 basis points to prior year. Adjusted operating margins of 23.8% came in more than 200 basis points above our guidance, while we continue to make strategic investments to extend our competitive advantages in the future. All in, we delivered $3 in adjusted diluted earnings per share, nearly 20% above the high end of our guidance range. During the quarter, we repurchased 607,000 shares while at the same time, we remain well within our net leverage range of between 1 and 1.5x at quarter end. Before I share more insights from the quarter, I want to take a moment to discuss the dynamic landscape we're operating in, the actions we have taken to best position ourselves to win despite evolving global trade policies and our resulting decisions to withdraw guidance. Since joining Crocs over 10 years ago, I have witnessed some extraordinary times from charting our turnaround to the emergence of the Crocs brand as an icon of popular culture to the global COVID-19 pandemic, where retailers shut their doors for months to the acquisition of HEYDUDE and to today, where many companies are grappling with and trying to understand our new global trade environment. Business and consumer uncertainty is extremely high. However, we're being prudent in the face of this uncertainty and are focused on what we can control, leaning into our clear competitive advantages and applying agile mindset to how we adapt. Since we last reported mid-February, the U.S. has implemented a series of incremental tariffs on countries where we source our product. In addition, the daily uncertainty as to the level of these tariffs makes it incredibly hard to plan and predict both short- and long-term impacts to our business. As we sit here today, we have a well-diversified sourcing mix. To provide some context our anticipated sourcing mix into the U.S. in 2025 stands at approximately 47% from Vietnam, 17% from Indonesia, 13% each for China and India and 5% each for Mexico and Cambodia. We are mindful that we're in the midst of a 90-day pause from certain reciprocal tariffs, which could further escalate and the impact on our sourcing in the countries previously mentioned. One of the primary reasons we've suspended guidance for 2025 is our ability to predict the financial impact of future tariffs. To provide you with a framework, if we assume 10% incremental tariff on all sourcing destinations into the U.S. This would translate to a cost of approximately $45 million on an annualized cash basis. If the incremental 145% tariff on China remains in place, along with the 10% on all other sourcing destinations, this would imply a cost of approximately $130 million on an annualized cash basis based on our current sourcing mix. Given the broad range of outcomes that we're facing as a company and as an industry, we're focused on what we can control and on driving long-term value for our brands. In light of the current macroeconomic environment, we have taken swift action to proactively reduce our cost base. Since we last reported, we have identified approximately $50 million of additional savings to be realized in 2025. And we are continuing to evaluate potential actions for future savings as well as closely managing our inventory levels. While we are encouraged by the performance of our overall business in April, it is challenging to predict how consumers may respond to prolonged uncertainty. It is possible that in the future, we could see softer demand for footwear and other consumer goods, particularly given the potential for increased costs and higher prices across the industry that could further burden an already choiceful consumer. Despite withdrawing our guidance, one thing is certain, we believe our industry-leading gross margins, low unit cost, well-diversified, supply chain, global business model and strong free cash flow position us well to take market share. We are and expect to continue to be very profitable while generating significant free cash flow. We're committed to being transparent with all of our stakeholders as we navigate this current environment. Now turning to the performance by brand, starting with Crocs. First, we're continuing to drive global brand relevance through our icon and icon iterations in addition to introducing new Clog franchises. During the quarter, Clog growth was led by our classic clog in addition to growth within established franchises such as Echo as well as new franchises such as InMotion. [ Hype ] resonated well with notable success in Asia, led by the classic platform, Bae and Crush. In China, the Bae, a height variation of our clog was relaunched in partnership with global brand ambassador and Chinese celebrity TJC. This campaign delivered very strong engagement across our key social and digital channels and an influx of traffic to our stores. Second, we are making clear progress towards introducing product for new wearing occasions outside of clogs. Sandals gained notable share of our business in the quarter led by style sandals and outperformed the overall Crocs brand. The strength was broad-based across our style sandal franchises, including Getaway our #1 franchise, Brooklyn and Miami. Year-to-date, we are seeing very strong sell-throughs across these core style franchises and our strategic accounts are chasing receipts. Into 2025, we tightened our sandal assortment, which has resulted in higher productivity per franchise. As a reminder, we see sandals as an avenue for attracting new consumers to our brand. Over the last 12 months, 54% of consumers who purchased sandals and our own dot-com channels were new to brand. This performance has translated into incremental shelf space with our retail customers. We're building on these franchises into the summer and through fresh new colors and styles. Third, we remain laser-focused on our digitally led social-first marketing playbook as this is a key ingredient to sustaining brand heat. During the quarter, we announced some exciting influences, including our spring break activation with Alex Cooper, top-tier podcast host and Style Maven. This campaign featured our key influencers supporting Neon Classics all over Miami, driving more than 2.5 million social impressions over the weekend. While we introduced a number of partnerships during the quarter, perhaps the most anticipated drop was our limited release collaboration with Tokyo-based streetwear brand, Bape. This release amassed a substantial wait list ahead of the launch. This release drove an exceptional level of traffic to our website and app while garnering nearly 70% new customer acquisition. Turning to social commerce. We are continuing to lead into this phenomenon, as consumers are more frequently starting and completing their shopping journeys on social platforms. TikTok Shop scaled nicely in the quarter, and we see it as a halo to our other channels. During the quarter, Crocs brand remained the #1 footwear brand on TikTok Shop. And finally, our fourth strategic pillar is to gain market share around the world. In Q1, we achieved 12% revenue growth in international with balanced growth across wholesale and direct-to-consumer channels. China accelerated in the quarter, growing more than 30% as compared to the prior year. The growth in China was well balanced across channels, including the addition of 40 new partner [ doors ]. In April, we secured our second ever Super Brand Day on Tmall. During the multi-day event, 9 of the top 10 footwear styles on the platform were Crocs band. Our successful activation was complemented by a celebrity and influencer lead live stream. In the quarter, we also saw robust growth in Western Europe, led by France and Germany. Our North America business came in ahead of expectations and was down 3% to prior year. Turning to the HEYDUDE brand. We continue to make progress on stabilizing the brand in North America and I'm very pleased with how the team has executed to deliver better-than-expected first quarter. First, starting with the HEYDUDE community, we're building a passionate fan base. In February, HEYDUDE had its first ever TikTok shop Super Brand Day, during which HEYDUDE ranked as the #1 footwear brand across the platform with particular success in our Austin Lift and HEY-2-0 styles. With an emphasis on her, in March, we activated our Sydney Sweeny Times Austin Lift fashion crisis hotline campaign, under the Beauty is Comfort tagline. The campaign content reached a staggering 8 million consumers, surpassing all internal benchmarks. We also are front and center at the Houston Rodeo talking to the core HEYDUDE consumer and were recognized as the #1 brand, dubbed the grand champion of the rodeo for best brand experience. Second, we are building the core and adding more. We iterate on our icons, the Wendy and the Wally through color, materialization and partnerships. The 3 major platforms include stretch Sox, Stretch Canvas and Funk mono. During the quarter, we successfully transitioned out of our legacy Wally Sox program and the retail reception of our updated Wally Stretch Sox has been strong. In addition, we released 2 iterations of our Jelly Roll times HEYDUDE Wally. The second Jelly Roll launch started as an early access exclusive release on TikTok Shop, where it sold out completely within the day. When we launched the call-out on our own DTC, the next day, we saw very high levels of traffic well above expectations. We also leveraged Travis Hunter, Heisman Trophy winner and #2 2025 NFL Draft pick to launch an improved A2O to update an already successful franchise. And finally, against our third strategic pillar, we continue to prioritize brand health as we stabilize the North America market while laying the groundwork for future international growth. We're pleased by the acceleration of our direct-to-consumer channel, up 8% in the quarter. This was supported by a significant improvement versus prior year in our own dot-com growing traction of the TikTok Shop and new retail expansion. During the quarter, we opened 2 premium outlet stores and converted 2 temporary stores, helping to drive brand awareness and connect consumers with the full expression of our brand. We plan to open approximately 10 stores during the year. ASP for the HEYDUDE brand were up low single digits to last year, our seventh consecutive quarter of positive ASP growth. We also saw full price sales in our own dot-com improved nicely in the quarter, fueled by product newness, including the Austin Lift and the Paul. I will now turn the call over to Susan to provide more detail around our financial performance and how we are approaching the remainder of the year.

Thank you, Andrew, and good morning, everyone. We delivered strong first quarter results that bested our guidance expectations across all core metrics. First quarter enterprise revenues of $937 million were up 1% to prior year and ahead of our guidance of down 1.5%. Overall, first quarter trends were more volatile than we have seen in recent quarters. Trends were strongest in March, and our business continued to perform well in April. Crocs brand revenue of $762 million was up 4% to prior year. Growth was led by wholesale up 5%, while DTC was up 3%. North America was down 3% to last year, ahead of expectations with DTC and wholesale declines of 2% and 5%, respectively. International revenue was up 12%. China led the growth with revenue up more than 30% in the quarter, along with Western Europe with notable outperformance in France and Germany. HEYDUDE brand revenue of $176 million was down 10% to prior year and ahead of our guidance, which called for a revenue decline of 14% to 16%. DTC was up 8%, accelerating from the fourth quarter. Upside to our guidance was driven by better-than-anticipated digital trends. Wholesale was down 17% in the quarter, including the impact of resetting our Wally Stretch Sox program, which is performing well. Enterprise adjusted gross margin of 57.8% was up 180 basis points to prior year. Crocs brand adjusted gross margin of 60.7% was up 260 basis points to prior year, tied to lower product costs and favorable customer mix. HEYDUDE brand adjusted gross margin of 46.6% was down 120 basis points to prior year, driven by deleverage against our supply chain costs. Adjusted SG&A dollars for the quarter increased 18% versus prior year. Adjusted SG&A rate was 34%, up 520 basis points compared to prior year, driven by incremental investment in talent, marketing and DTC to support long-term market share gains. Adjusted operating margin of 23.8% was 230 basis points ahead of our guidance of 21.5% and down 330 basis points compared to prior year. Adjusted diluted earnings per share was roughly flat to last year at $3, significantly above our expectations. Our non-GAAP effective tax rate was 17.2%, which reflects the tax impact of intra-entity transactions. Our inventory balance is healthy and current at $391 million as of March 31 and flat versus prior year. Enterprise inventory turns remained above our goal of 4x on an annualized basis. Our liquidity position is strong, comprised of $166 million of cash and cash equivalents and $679 million of borrowing capacity on our revolver. During the quarter, we repurchased approximately 607,000 shares of our common stock for a total of $61 million at an average cost of $100 per share. At the end of Q1, we had just under $1.3 billion remaining on our buyback authorization. We ended the quarter with total borrowings of $1.5 billion and remained within our net leverage target range of 1 to 1.5x. As Andrew mentioned, we are withdrawing our full year outlook. The primary reason for withdrawing guidance is that at this point, it is extremely difficult to quantify and project the financial outcome of tariffs and the related potential for softer consumer demand across the industry. To illustrate the potential tariff impact, if a 10% incremental tariff on all sourcing destinations into the U.S. were in place, this would cost us approximately $45 million on an annualized cash basis. If the incremental 145% tariff on China to remain in place, along with the 10% on all other sourcing destinations, this would imply a cost of approximately $130 million on an annualized cash basis based on our current sourcing mix. As you would expect, we are pursuing 3 primary levers to mitigate any potential impact of tariffs in the short and longer term. One, adjusting our sourcing mix into the U.S. ; two, further reducing costs; and three, evaluating potential price increases. While we have withdrawn our guidance, we do want to share some context for the near term. First, while much of the second quarter is ahead of us, we are pleased with how both of our brands performed in April; second, we would expect tariffs to have a more adverse impact on HEYDUDE's gross margin rate as compared to the Crocs brand, given relatively higher China sourcing exposure for HEYDUDE. We expect gross margin pressure from tariffs to start in Q2 and expect the largest impact to begin in the second half; third, since we last reported, we have identified an incremental $50 million of cost savings in 2025, and we are continuing to evaluate potential actions for further savings; fourth, we are carefully managing our forward unit inventory levels, but are mindful that incremental tariffs will add higher average unit costs. Finally, our capital allocation plans remain unchanged. We plan to pay down debt and opportunistically buyback stock while remaining within our 1 to 1.5x net leverage target. I will now turn the call back over to Andrew for his final thoughts.

Thank you, Susan. While the geopolitical climate has become more volatile since the start of the year, I'm confident that we will chart a winning course led by our talented team, the democratic appeal of our brands and the value and comfort proposition to consumers clearly value. As we have demonstrated in the past, we have a proven track record of coming out of periods of uncertainty, stronger than we entered them. And I'm confident that the current reality presents a very strong opportunity to further our competitive advantages and gain market share. At this time, we'll open the call for questions.

[Operator Instructions] And the first question comes from Anna Andreeva with Piper Sandler.

Congrats. Nice results. We had a two-part question. First, on gross margins, really strong at the Crocs brand. And I think you mentioned product costs and favorable customer mix. Can you comment on sustainability of those. It sounds like the costing benefit gain maybe accelerated sequentially. So that's the first one. And secondly, you mentioned pricing as a potential lever. Can you just provide more color on that. Do you see that opportunity more at Crocs versus HEYDUDE? And would this be a global versus a U.S. increase?

Great. Thanks, Anna. So on gross margin, yes, I think we are really pleased with the results in Q1. And look, one of the strengths of this company is our incredible gross margins, which allows us to be very strategic in where we invest. In terms of sustainability, we do believe they're sustainable. The gross margin uplift or the strength of the gross margins really came from, I think, 3 things. One was good negotiating with our vendors. So we were able to continue to get some efficiencies in terms of sourcing. Over the last several years, we've made very substantial investments in our distribution and logistics infrastructure here in the U.S., in the Netherlands and in other parts of the world. And I think that's really paying off with efficiencies. And then we also had really good customer mix and channel mix. So I think we're pretty confident in the sustainability of that. Ex tariffs, obviously, I'm sure we're going to talk plenty about that on this call and I appreciate you not leading with that. So second part of your question around pricing. Yes, absolutely. That's a lever to mitigate sort of incremental costs. And we expect, depending on the level of incremental costs that may come from tariffs and other factors, we do expect the industry to go up in terms of price. I would say at this point, we're being super strategic around that. We have probably initiated a very small number of very targeted price increases to really kind of mitigate some selective issues. And we're really in a little bit of a wait-and-see mode, but doing a substantial amount of preparatory work to understand where and how we should manage price in the future, but I think it's a level that we expect the industry to use and we will use as well.

And your next question comes from Jonathan Komp with Baird.

I guess I'll combine 2 questions. First, just obviously, a difficult environment to decide what to communicate externally. But any thoughts on that guiding Q2 revenue or just any more specifics on a short-term basis or sort of commenting on comfort levels of the prior revenue outlook, assuming a stable environment? Just any more color there on the approach? And then secondly, just on the mitigation strategies. You mentioned hoping to maybe clarify, are you thinking of scenarios to offset that full $130 million you outlined, including the higher China rate? Or just how you're thinking about the different scenarios and how you're planning your business to offset different potential levels of exposure.

Yes. Okay. Thanks, John. So with regard to Q2, look, I think we said a couple of times in our prepared remarks, sort of April is behind us now. And like April was strong. We're very satisfied with April. I think the trajectory was consistent with March. And I would say the U.S. consumer, in particular, seems to be holding up well, and then we're seeing sort of continued trajectory in our international business. So the thing that I just think we're super wary and cautious of is we can't predict what's happening sort of day-to-day in the sort of global trade environment. And we're really sort of being prudent and protecting ourselves from an unexpected shock that we have no idea that's coming. So I think it's just being prudent and sensible. But I would reiterate, as we sit today, it's -- we feel good. From a mitigation perspective, so we try to give you some bookends in terms of what tariffs might mean to us, right? So that was really kind of the intent. So if you had the 10% across the globe with everything coming in, so just an elevated tariff level in general, that was a $45 million. The $130 million, I think, is a pretty extreme case that would assume that 2 things happened. One is that the 145% incremental tariffs on China stayed in place, and we continue to import goods from China at the rate which our current plan suggests, right? So I would say right now, with that 145% in place, we are bringing a minimal fractional portion of goods in from China. They're more very selective on the Crocs side and it's almost nonexistent on the HEYDUDE side. So if that remains in place, we were very unlikely to incur that $130 million because we just simply wouldn't bring the goods in. We'd cancel off some orders. And I would say we are rapidly shifting sourcing to other countries. I think we've got a very well diversified sourcing base, so it stands us in good stead. I think the thing that the whole industry is worried about if a reciprocal tariff remains in place relative to Vietnam. That's a huge amount of production for us and everybody else, that would be incredibly hard to mitigate.

And your next question is from Peter McGoldrick with Stifel.

I wanted to ask about your level of marketing spend. This is an area you've stepped up in previous years to drive significant gross profit growth. How should we think of your approach to spending in marketing in 2025 against the uncertain backdrop?

Yes. So I think when we finished Q4 in mid-February and announced that those results -- or we announced those results in mid-February, obviously finished Q4 in the end of December. We did talk about -- we were planning a slightly more elevated level of marketing in '25 to support both Crocs and HEYDUDE. And our intent at this point, net of the $50 million of SG&A reductions that we have already enacted and completed is to maintain that level of marketing. We think it's incredibly important in even in times that can be uncertain to continue to communicate very proactively engage and connect with our consumers and give them reasons to buy our brands. I -- as we think about our brands, they are both at approachable price points. And even in more uncertain times when the consumer is constrained, we're still -- we still have 2 brands that I think are very accessible to a very broad range of consumers. So we will maintain that level of investment and the profile of that investment is pretty consistent with what you've seen in the past using key celebrities, using ambassadors, creating engagement around events. We talked about some of the events that we ran in Q1 with HEYDUDE, and we've had a very successful Q1 in China, where we've used high-profile celebrities and invested heavily in marketing.

And then diving deeper on the HEYDUDE refresh positioning with expanded product assortment and new marketing initiatives. Could you just discuss the strategy to balance that new direction while maintaining the brand identity and appeal with the core customer group?

Absolutely. So look, I think overall, we're super happy with the last 2 quarters for HEYDUDE.The brand has performed ahead of expectations for both of those quarters. And so we're very happy with that. And really, that is as a result of exactly what you just said, right? So maintaining a strong commitment to our core consumer with the Wally and the Wendy and updating and introducing new styles for that core consumer. So we talked in prepared remarks around how we have repositioned the Wally particularly around a Stretch Sox platform. So it took a myriad of disparate styles with different style names and numbers and colors, et cetera, and household under a coherent program. So it makes it much easier for the consumer to shop. We've also updated the product with additional details and key features. And we also reset the marketplace, pulling back a lot of the old products, resetting our core wholesale partners. So that was a pretty big investment on our partners. I think we and they are really pleased with that so far. At the same time, as investing in communication with a younger female consumer using Sydney Sweeney as our key ambassador there, launching some new product, the Austin Lift, on TikTok Shop and both of those activities are performing very well. So I think that's really the core [ explanada ] for the really pleasing results in Q4 of last year and Q1 of this year, and we expect that to continue.

Next question comes from Laura Champine with Loop Capital.

This is a quarter where it's tough to know what's best to ask. But let's start with kind of the framework that you've given us for cost impact for tariffs. And I get it that the $130 million is not really reasonable or is not going to happen. But we also are hearing significant cost increases coming out of Southeast Asia as those factories get a lot busier, so what is a more reasonable expectation of a cost increase. I'm guessing it's somewhere between the $45 million and the $130 million. But is there anything you can do to help us kind of frame that in that ballpark it?

I would say, Laura, if we could, we would, right? We're not -- this is not an effort to be obtuse. It's just simply impossible. So what I would say is in terms of cost of goods increases without tariffs coming out of Southeast Asia, we're not seeing that at all. We have a base of 5 or 6 key manufacturing partners, each of which operate multiple large facilities for us in multiple countries and have done so for 20 years. So we are not seeing any cost increases coming out of those partners. In fact, I think in response to an earlier question, we saw some cost decreases from some of those partners going into Q1. So that's not a factor that we're seeing or concerned about. I could imagine the people who have been heavily in China and trying to transfer that volume to new manufacturing partners in Southeast Asia are seeing a pretty high price or pretty high cost, but that doesn't apply to us at this stage. In terms of being able to predict the cost of what you're really talking about is predict the tariff load that we're going to pay on the goods that we bring in from different areas. I have no way of providing you a number there. I would if I could.

Understood. Just as a follow-on, kind of what's your latest thinking about elasticity demand, you mentioned price increases. If you could help us ballpark that, it would be great. But what's your latest thinking strategically on elasticity and demand as sort of industry-wide price increases go through.

Yes. This category is not in elastic is a double negative, but so there is elasticity, right? So if prices go up, we would expect volumes to go down and would therefore plan accordingly. What I would say is I would rather increase prices, protect margin or -- and have adequate room in the P&L to invest in marketing and consumer communication to drive consumers to our brand, then take margin reductions and have no latitude to communicate effectively with consumers. So I think the -- and so a higher price, higher margin and maybe slightly lesser volume is a much stronger place to be.

Your next question comes from Aubrey Tianello with BNP Paribas.

And really appreciate the framework and all the help on tariffs. I wanted to go back to the comment on not bringing goods in if the 145% tariff remain in place that you look to shift production, what would be the time frame to relocate production out of China? And which parts of the business are still sourced from China? Is it kids, anything specific?

Yes. It's not anything specific. So I think we gave you these -- the percentage mix in China. That is more HEYDUDE than it is Crocs. So that's a lot more HEYDUDE than it is Crocs. And in terms of shifting the remaining piece of Crocs, I think that could happen quickly. That could happen. If we got an indication that the 145% is going to stay in place for a long time or a large elevated tariff on China is going to stay in place for a long time, we would shift that within 6 months. There are capabilities that we get in China that we don't get elsewhere, right? And those will take a little bit longer, because they've been manufacturing footwear for a lot longer than some of the places we're talking about. The HEYDUDE piece is also doable within a relatively short time frame. I would say within 12 months, we could shift all of that volume. We might be able to do a little bit quicker and be relatively cautious there. But I wouldn't say it's impacting any particular product. I'm aware that a couple of brands have called out that they're heavily in China for kids, which makes sense because it's lower cost environment. So your lowest margin product you put in the cheapest sourcing place. That is not the case for us. We're confident we will have ample kids supply for our consumers.

And your next question comes from Rick Patel with Raymond James.

Can you double-click on the drivers for -- I'm sorry, for Crocs international growth? Maybe update us on how big the largest regions are today and what you see as the most compelling growth drivers as we think about organic growth versus new distribution?

Right. Okay. So I think the macro comment or the macro driver is brand penetration. As we look at the Crocs market share in many of our international markets, it is 1/3 of the market share we would see in many of our stronger markets, U.S., U.K., for example, will be too, where we have high market share and Australia. So it's really -- it's penetrating the market to the degree which we have penetrated the market elsewhere. That's the macro driver. In terms of the -- how we're doing that, it's product, it's marketing, it's incremental distribution, it's heavily digitally led. It's leveraging social selling and social commerce. So the playbook that we've operated elsewhere applies most places. In terms of the larger focus areas, China is really important. We've been talking about that for some time and continue to see real success in China, clearly gaining market share in a market which is relatively difficult. And we ascribe that to approachable price point, very strong marketing and digital first activation. We are increasingly focused on India where you have a rapidly growing middle class and a very large population. We saw some constraints in India, which we've talked about historically around their import restrictions that they've applied. We have solved all of those. We now have adequate production for both Crocs and HEYDUDE in India to satisfy all of the demand we have in India, but plus export. It's become a more significant manufacturing hub and export market for us as well. And then we're really pleased with the traction that we're seeing in Western Europe. I think we've highlighted historically, the U.K. has performed very well, but we're seeing really nice traction in France and Germany. And that's again, really about penetrating the market. There's a little bit more wholesale markets, so that's about penetrating new customers. getting new presentation in front of the consumers supported by localized marketing. Hopefully that gives you a good -- yes, go ahead.

And just a follow-up on that. Like is as we think about the importance of marketing investment and the company's strategy to continue leaning in, like how much of that marketing investment is distorted towards white space opportunities for Crocs like in international markets as opposed to trying to turn around HEYDUDE?

It's both, I would say. So -- the overall HEYDUDE marketing budget is a little bit above that of Crocs, but not massively as a percentage of sales, I'm talking about. So obviously, dollars is a lot less, but in terms of percentage of sales. And then I would say for Crocs, we very strategically allocate it to the markets that -- where we see the greatest opportunity. So we've had a sustained level of spending in China, that's definitely paying off. We're ramping up our spending in India, and we have a strong level of activity in Western Europe.

Your next question comes from Adrienne Yih with Barclays.

This is Michael Wu on for Adrienne Yih. Related to the wholesale versus DTC channels. Can you share any details on the relationship or an embedded words, how it would work for distribution in the wholesale channel, if you increase prices in DTC, what happens for wholesalers for those who have already placed their orders? And is there any negotiating room with the wholesalers on increasing prices of orders on the ones that they've already placed.

Okay. That's a complicated question. So obviously, in DTC, we have latitude to change prices whenever we wish. I would say that's not likely unless we're kind of testing price elasticity. We probably want to keep pricing in the market or a given market, whether that be the U.S. or the U.K. or China pretty consistent across channels. In terms of changing the price of goods that have already been ordered from a wholesale partner. I think that's what you're really getting with your question. Look, we have done that in the past when it was an emergency situation or it's a situation we thought that was warranted. I don't think, in this case, we're likely to take that approach. I think we have a little time here to see how things settle out. So I think that's extremely like -- it's doable, but it's very unlikely we would do that. And so we will be looking for a more coordinated change in pricing across multiple channels at a designated point in time in the future.

And your next question comes from Ashley Owens with KeyBanc Capital Markets.

So maybe just a follow-up on the wholesale channel in general. We're hearing from others that some of the suppliers are planning the balance of the year more prudently than initial expectations has suggested -- is it something you're currently seeing with the order book? Or any color you could provide on how that's shaking out or shifting in real time would be helpful.

Yes. I'm probably going to reiterate what you already have in that place, so what I would say is major retailers are wholesale partners, particularly here in the U.S., are planning their futures conservatively, right? And I think they probably say the same thing that we're saying is April looks pretty good, but I don't know what's going to happen in the future. And if you're a major retailer, the most important thing for you to manage and control is your inventory levels. So they are planning future inventory levels conservatively. So -- and we are seeing that, right? We expected to see that and are seeing that, and frankly, support that, right? Generally, the worst thing for a brand is to force a whole bunch of inventory into the channel that's not going to sell. And then as the consumer rebounds at some point in the future, the channel is less selling aged and out-of-date inventory. So we're totally in sync with that, and we'd rather have that dynamic than a different dynamic.

And your next question comes from Tom Nikic with Needham.

My question is about capital allocation. That's maybe a Susan question. But it sounds like the current environment wouldn't change your plans for investment in the business, but does it change the way you think about capital allocation? Would you stockpile more cash, would you prioritize debt paydown versus buyback or vice versa? Just curious if your thought process has changed all of there.

Yes. Great question, Tom. When we look at our cash flow for the year, first of all, we do model various different scenarios as we've evaluated a range of potential scenarios. One thing stands true. We would continue to generate a significant amount of free cash flow. And so given that, we're still committed to our 1 to 1.5x leverage range. But within that, we have the opportunity to do both. So both opportunistic share repurchases like we did in Q1 as well as paying down debt.

Next question comes from Sam Poser with Williams Trading.

I've got one that I'll break into 3 parts or 3. Could you break out with HEYDUDE in your direct business, like sort of the idea of how much comes from stores versus your own dot-com versus social. Could you give us some idea of that breakout?

Yes. Yes, we are not providing that breakout, Sam. So, but just to give you some qualitative comments, if that's helpful. And I'll start with the last piece, the social, right? So look, social selling is something which we have embraced, right? So we've been doing it for several years in China, and it's been incredibly successful. TikTok launched their -- well, TikTok launched their shop in the fall of last year. We put both of our brands on that shop relatively quickly, and we're seeing tremendous success. We're seeing success both in terms of the amount of selling that we do, but we're also seeing a very clear halo from that selling on those styles, both to our other digital channels and also into store. So we think it's a combination of selling and marketing, if you like, a sort of perfect storm. In terms of the other components for HEYDUDE, so that's our direct digital business. So that's HEYDUDE.com and also Amazon, where we are a 3P partner with Amazon for HEYDUDE. So we have complete control over both of those channels. We feel good about the performance of those channels. We feel good about our ability to showcase our brand and also introduce new products and storytell around that product well. And then the last piece is the retail business, which is our outlet stores that we opened last year. Those are performing well. It gives us multiple vehicles, as you well understand from an outlet business, we can showcase the breadth of our product. We can also have a vehicle to clean up excess inventory. And then importantly, in some of the markets where the brand is less well known, it's an introduction for the consumer to the brand. So all qualitative, but I hope that helps you understand how we think about those components of our DTC business.

Yes. Then secondly, you talked about April maintaining -- the momentum in April maintained. With -- as some retailers call it Mar-Pril, March and April together because of the shift of Easter, how -- can you give us a little more color on that trend line between March and April in the big picture, and then I'll just ask the other one now. It sounds to me like you're planning the payers like you're being more conservative with the payers you're going to put in the marketplace towards the back half of the year and willing still plan to gain share, but willing to give up some unit sales in place of brand. Is that given the uncertainty in the marketplace.

Yes, that's a fair question. It's a fair summary, Sam, right? Yes. We would prefer to -- so for example, right, if the 145 -- sorry, the 145% tariff remains in place in China, we will cancel lost goods that we were planning to bring in for China for HEYDUDE versus bring them in at essentially zero profit, which will take payers down in the marketplace. In addition, if a given retail partner wants to manage down their order book collectively or specifically, we are working with them to do that versus trying to force them to take orders, which they don't need. And sorry, what was the March and April piece?

Trend line.

Yes. Yes. I mean I think we said a few times that. the trend is good, right? We feel good about March and April. And -- but we, like anybody else don't really have a crystal ball as to how long that continues.

This concludes our question-and-answer session. I would like to turn the conference back over to Chief Executive Officer, Andrew Rees for any closing remarks.

So just to close out, I appreciate everybody's interest in our company, and we look forward to speaking to you again at the end of the next quarter. Thank you.

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