Thank you. Good afternoon, everybody. Welcome to UBS's Global Consumer and Retail Conference. I'm Jay Sole, UBS's retailing department stores and specialty soft lines analyst. Welcome to our fireside chat with Crocs. We are super excited that Andrew Rees, Chief Executive Officer, and Anne Mehlman, CFO, are here with us today to talk about the company. Now, before we go any further, I just wanna read the legal disclaimer briefly. As a research analyst, I'm required to provide certain disclosures related to the nature of my own relationship and that of UBS with any company on which I express a view at this event today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me, and I can provide them to you after the call. Okay, so I just wanna get that out of the way. All right, I wanna start off talking about some of the hot topics that are out there. Obviously, a lot going on in the world. Yeah. Really dig into, you know, the acquisition of HEYDUDE, which you made a couple months ago, and then just really talk about the Crocs business. Obviously, a ton of interest out there about the stock and your business right now. Just to start off, I wanna ask about Russia and Ukraine. What percentage of the company's sales are happening in Russia, Ukraine, and Eastern Europe? Yeah. I mean, first before I kinda dive into that, obviously it's tragic what's happening in Ukraine and Russia. We all feel terrible about that. As we look at our business, we have a distributor, or we had a distributor in Ukraine, very small, obviously that no longer exists. From a Russia perspective, it's about 2% of our business. We issued a press release today. It's about 2% of our business, and what we've decided to do is essentially pause our business at this stage. We're not gonna be importing any more goods. We're gonna pause our DTC business, which is both our stores. We have 26 stores that we own and operate in Russia and then an e-com site. We're putting all that on pause. There is some inventory in Russia which will get sold to local distributors if they wish it. We're gonna take a pause here and see what happens. Okay. Now one sort of, you know, corollary to what's going on in Ukraine is inflation. I wanna first ask about inflation from a consumer perspective. The question is, you know, do you feel like consumers will trade down to Crocs in an inflationary environment? Or do you feel like that, you know, Crocs is an item consumers will buy less of as maybe they try to prioritize other spending? In other words, is it a beneficiary of trade down or sort of not a beneficiary of trade down? I think inflation impact is an interesting one. I'll get to the trade down question, but we're definitely seeing inflation. As a company and as a brand, we anticipated this inflation coming. That wasn't out of the normal, but we actually raised prices, you know, quite significantly last year, which helped drive our margin performance last year. I think it's put us in a great position to absorb a lot of the inflationary costs that we're seeing. From a trade down perspective, we have a hypothesis that we will see trade down in a recession, right, or in a consumer compression. We have not been able to test that hypothesis adequately, right? If we look at the Crocs brand is 25 years old. It's been through essentially two recessions, one significant recession in 2008. I would say I wasn't there at that time, but the company was not in good shape. The brand was not in good shape. The company was not operating effectively, so it wasn't really tested. As we entered the pandemic, we anticipated that maybe that would result in a recession, and we would see some. Obviously, that didn't happen with all the stimulus. Our thesis is that in a recessionary environment, we will see trade down 'cause we give the consumers tremendous value. We give them a shoe which is incredibly versatile, it's incredibly comfortable at $50. There's almost nobody else who does that. Mm-hmm. Frankly, we do that with HEYDUDE too. Mm-hmm. We think we benefit in that environment, but it is untested. Okay. All right, the other side of inflation is just cost. You mentioned took some price increases to offset the cost, but you know, the price of oil is going up. How should we think about the price of oil impacting cost of goods sold for the company? Yeah. Let me let Anne talk about that. Yeah. I think the bigger impact from an oil perspective and the most immediate impact is really on shipping costs. Fuel surcharges, both on your inbound freight, which obviously we've seen elevated levels along with the industry over the past year, as well as your outbound freight. I would expect that, you know, if oil prices continue at those levels, that we will see those impacts. Obviously, as Andrew mentioned, we took pricing very early last year, and some of that is still rolling through this year. We have some wholesale price increases in the U.S. that are still rolling through Q1 and Q2 of this year, as well as some international price increases we took in EMEA and Asia that are going into effect this year. Kind of both the inflationary side and then, you know, from a revenue standpoint. I think from the cost of the shoe or the resin, it's difficult because petrochemical industry is very complex and there are several markets, so it's not a perfect correlation Mm-hmm. between the inputs of our shoes and oil. It's kind of difficult to delineate, and it's also a further along impact because we buy inventory in advance and we negotiate. I think at this point it's kind of hard to understand what that impact looks like, and we'll need a little bit more time to understand how that would roll through. I think overall, just thinking about the guidance that we laid out, we did anticipate that we would be in an inflationary environment this year. While we didn't anticipate a war or quite the pressure on oil, we did leave room within our guidance to you know, to accommodate some inflation. Depending on what happens, we should be able to accommodate some of that. Okay. I wanna ask about the supply chain. Yeah. Obviously, supply chain's been a huge issue. How does the current flow of product into the United States compare to a month ago and three months ago? What are you seeing? Yeah. I would say it's essentially the same, right? I know there is some sort of press commentary that the number of boats stacked up outside Long Beach are less than it was, right? That is true. We also see more congestion other places, right? People like us have diverted product to different ports, and some of those ports are now getting congested. I think the core issue is that there's two things going on. The transportation timeframe that it takes you to get from Asia to the U.S. and Asia to Europe is dramatically longer than it used to be. You know, we think of it averaging around 100 to 110 days right now. That's kinda what we're seeing. You know, if you think about in normal times two years ago, it was 40 to 45 days. That's a dramatic difference, and a similar kinda lag in Europe. I would say it's getting more repeatable a little bit, right? It's not extending or contracting, so you can plan around it easier. There's still a lot of volatility. It's difficult, but it's been difficult for 18 to 24 months now. I think companies like ours have found ways to accommodate that and deal with it. Okay. If you know, the sort of flow of inventory is kind of the same, at least it's relatively Yep. stable, I mean, how is that impacting supply chain costs? Yes. Supply chain costs are elevated. I'll let Anne talk about that. Yeah. I think what we've seen in the last couple years, as you know, is really elevated inbound freight rates. That's been the biggest pressure. Now obviously from a cost standpoint, we've been able to offset that through price increases and other work we've done in our margin, and we expanded gross margin last year, quite significantly. I will say, you know, this year, one of the biggest supply chain impacts that we had that was outside of freight was the Vietnam closures in manufacturing last year. So that impacted us right and it's impacting us now because we would've been receiving those goods mostly in Q1 of the closures for Vietnam. We've made the decision to air freight about $75 million worth of product in so that we can kind of fill that product hole, which is we don't normally use air freight because it's expensive. I would say that's an elevated product cost as a result you know, from the supply chain disruption that we don't expect to repeat because of the shutdowns. But that is something that, you know, we've incorporated into our guidance for this year. Okay. Another hot topic is obviously the consumer. You know, first I wanna ask you about Europe. You know, are you seeing a sort of a CNN effect, so to speak, where maybe people are distracted and not buying footwear because of what's going on in Ukraine? What have you observed? We're not seeing that today, right? It may be early, maybe that hasn't sort of transpired, but we're certainly not seeing that today in terms of. You know, we can observe directly our own digital business, our own e-commerce business. We can observe our Amazon sell-through. We can observe our limited number of stores we have in mainland Europe, and reports we get from our wholesale customers. We're certainly not seeing that today. Okay. You know, the other point, you know, we talked about inflation, the impact on trade now, which is sort of a bigger picture theoretical question. I mean, in terms of the U.S. consumer, the Europe consumer, even like the Chinese consumer, are you seeing any type of change in behavior? Are people starting to react to prices at the pump or anything out there that sort of maybe the market at large is worried about? We are not seeing it, right? It doesn't mean it's not there, right? It doesn't mean it won't transpire at some point in time, but we're certainly not seeing that, no. Okay. All right, now one more hot topic question before I get to, you know, HEYDUDE. You know, it's a strange question to ask sort of, but I think everybody wants to know. You know, stock's had a unique, surprising kind of move. Yes. You know, trading a single digit multiple, despite tremendous growth over the last three years. Obviously, you know, not everybody understands maybe it's a beneficiary of stay at home, and some people worry maybe that reverses. You know, when you see the stock price, you know, what does it tell you? Obviously from a capital allocation standpoint, does it change your thinking about, you know, what you wanna do? Yeah. I think the biggest thing it tells me is that clearly there's a disconnect, right? You know, we've clearly communicated in 2022 that we think the Crocs brand will grow at 20%+, right? We'll add in HEYDUDE, which will be an additional on a pro forma basis, $700 million to $750 million in revenue. We've communicated clearly that we'll make about 26% EBIT, which is a staggering amount for our industry. There's nobody that's even close, right? We'll generate around $10 per share in earnings per share, right? I would say, you know, that's what we've communicated, right? I would say in addition, you take into consideration that this management team has not missed a single number in five or six years, right? Mm-hmm. You know, the one exception would be the first year of 2020 in COVID, where nobody knew what the world was gonna get locked down. Even then, we missed our revenue, but we actually made more money. So like, you know, there's a lot of credibility in this team, and there's a very clear guidance. Mm-hmm. That kind of multiple relative to that guidance makes absolutely no sense. You know, why that is, I think, you know, we hear a few things. We hear that people are expecting the Crocs business to decline, right? They're expecting the clog trend or the clog fad to evaporate. That is absolutely not. We have no evidence for that, right? We don't believe that. We have no evidence for that. But I do understand why people might believe that, right? Or might think that. And then I think people are a little nervous about HEYDUDE. They don't know what it is, right? This is a brand that scales, and we're gonna go on and talk about that. They don't know what that is. I think that, to me, represents a significant opportunity. Mm-hmm. I think, yeah, from a capital allocation standpoint, just to kind of finish up your question, you know, we have suspended buybacks until we're below, you know, 2 times leverage or below, which is consistent with the covenants on our debt. Mm-hmm. You know, took on debt in order to finance the HEYDUDE transaction at a very compelling rate. Happy to do that. It makes a lot of sense. You know, we will focus on debt paydown to get to that 2x or under so that we can resume our very successful share buyback program. We think that matters, and we spin off a lot of cash, and the combined entity even spins off more cash. It's very compelling from a free cash flow standpoint. We're still committed to that. If you know, we could be in the market right now, obviously we would be. We've had a bunch of insider buying in the last couple weeks showing you know, really the the belief that we have as a management team and, you know, how the stock is performing compared to the company. Overall, you know, we're doing what you guys want us to do, which is focusing on execution. Absolutely. All right, let's talk about HEYDUDE. Yes. Because you know, you talk about building HEYDUDE into a billion-dollar brand by fiscal 2024. Yeah. which is obviously not that many brands in the world of footwear get to $1 billion ever or even to $570 million, which is the number from last year. You know, where will the growth come from? Yeah. The growth is actually the easy part of the story, right? This is a company and a brand that has achieved, as you said, $570 million, $580 million, I think it was last year, and we're pro forma at $700 million to $750 million this year. With really distribution in just a very narrow portion of this country, let alone other countries, right? As we look at kind of the brand awareness, average brand awareness is about in the early 20%, so very, very low. It's much, much higher in the sort of Midwest, Texas, and the South, Mm-hmm which is where the brand is predominantly distributed. It's extraordinarily low here in the Northeast and on the West Coast. It's today a brand that's only sold in a certain portion of the country. That's really just a function of the entrepreneurs who started the company where they had sales distribution, right? They had sales distribution in those areas. They managed to land accounts in those areas. They sold product in those areas, and that basically fulfilled all the supply they had. There wasn't a need to go any further. Mm. The first thing is we're gonna extend distribution across the United States. As we look at the overlap between HEYDUDE and the core customer base that we have for Crocs, which is Family Channel, Sporting Goods, you know, very selected, you know, premium department stores. That distribution is exactly the right distribution for HEYDUDE, and so we will put HEYDUDE in that distribution. I would say as we talk to those retailers, that's well advanced. They're clamoring for it. They can see the sell-through rates that maybe one or two of their competitors are experiencing 'cause they already have the brand. They can see the profitability. They absolutely want it. That's actually pretty easy. What we have to do to sustain that over a longer period is bolster their supply chain so that we can actually make more product and feed that demand. We also have to add to marketing, right? They've done very little marketing. They've also achieved that revenue growth that you just talked about with almost no marketing. They'll do digital marketing to drive to the website, so you know, search and customer acquisition, but no brand marketing. We've got to layer that on. Mm. Beyond that, we have the opportunity for international. We've prioritized international markets as to where we'd wanna take it. There has been some experimentation in some of those international markets. It's very clear that it resonates in those markets, so we're enthusiastic about that too. Okay. You know, what have you learned about this brand since you bought it and the deal closed? We've learned a lot, right? This all happened relatively quickly. We were able to do pretty effective due diligence, but that was over a compressed timeframe. I think the things that we're learning are actually very encouraging. We're learning about the consumer, the customer, and the fan love, right? The consumers absolutely love this brand. They love the product. They love the way it fits on their feet. They love the value that they can get, and they love the versatility and flexibility of the product. That's a core that allows you to build out from that. The second thing is, the operations of the company, they need a lot of support, right? We're gonna be hiring a lot of people. We're gonna be building out almost all aspects of the organizational structure, whether it be product design and development, whether it be direct wholesale sales, whether it be running the warehouse. We'll leverage a lot of our core back office capabilities around finance and legal and HR, et cetera, to really support the company. We need to support the company to be able to realize that growth. I think the last thing I'd probably kinda call out is we've got great engagement from the founder. He remains very well engaged, and he's really the kind of blue touch paper in terms of carrying the torch for the brand. While their organization is much lighter than it needs to be for the size of business, they've got a few core actors and employees who are really passionate and very strong in the business. I wanna ask you know, you mentioned, you know, raising awareness of the brand in the East Coast and the West Coast is, you know, part of the job of growing the brand. Yes. You know, part of that, I think the idea was that, you know, you have this great playbook for Crocs that you've used. Yes To increase brand relevance, take it global. You know, have you been able to start to, you know, run that playbook with HEYDUDE, and have you had any insights from that? Yeah, we will be able to, right? That is the plan, right? We'll think about our social digital marketing. We'll think about our collaborations. We think about all of the great marketing work we do and combine that with product innovation. We will absolutely bring all that to bear at HEYDUDE. It is early days right now, so we've got to really. We're doing the research, because a lot of that work is based on, you know, a strong foundation of consumer understanding. It's a strong foundation of kind of product direction. We're doing consumer research. We're doing ethnographic work. We're doing creative work with a couple of key agencies to really understand where we think the brand should be pointed and articulated. Because I'd say today, you know, one of our biggest concerns or criticisms is it isn't really a brand, right? It's a great product. Mm. We need to make it a great brand as well. Mm-hmm. Obviously, that's what we're really good at. We're super confident about that. We're gonna do the research, develop the point of view, and then we'll roll that out. Interesting. Okay. I wanna ask you about, you know, $1 billion is a very nice round number target, but it sounds like you feel there's a lot of opportunity out there. Perhaps beyond fiscal 2024 could be more opportunity. Is there another brand you compare HEYDUDE to when you think about, you know, like and like a goal, like a North Star, where you think, "Hey, you know, this could be, I mean, could be like another Crocs." You know, Crocs have, you know, talked about $5 billion in sales. I mean, can HEYDUDE be like that, or is it like a Vans or something like that, where you sort of say, you know, this brand, when I think about the total addressable market and what, how much this brand and the product resonates with consumers, it can be something, you know, bigger without having to put a date on it. Yeah. I think it's much more versatile and broader and bigger than Crocs. I think it will take some time to get there 'cause they and we are starting from a, you know, from a very nuanced place, from a very different, you know, narrow place. I think ultimately it can be bigger and broader because the wearing occasion is broader, right? It's more accessible. You know, as wonderful as we think Crocs are, not every consumer believes that they could wear them to every kind of occasion, right? There's very few occasions you can't wear HEYDUDE to, so it's much more versatile. I think the brand can also transcend footwear eventually. As we really build out the brand, I think there are the opportunities beyond footwear. I think it could be a bigger brand. You know, and maybe a good archetype will be something like a Vans, which I think has done a super job of extending their brand around the world, of leveraging their brand into adjacent product categories and really telling a cohesive brand story across, you know, multiple wearing occasions. I think they've done a very nice job. Mm-hmm. Yeah. Okay. When we talked about the TAM, we talked originally about, you know, the deal thesis was that we would expand our TAM, you know, to $125 million, you know, based on the compelling nature of Crocs. We said, you know, our TAM for Crocs was really focused on the clogs that we've talked about, the $8 billion and then the sandals for $30 billion. Mm-hmm. It obviously expands the TAM for HEYDUDE. We said it was $125 million, so it expands the TAM quite a bit. Got it. All right, maybe let's talk about Crocs because, you know, I know Andrew, you get this question probably three times a day, but I think it still needs to be asked given the stock price movement. Yeah. I think the perception of the market is, you know, Crocs is, you know, something that people wore when they were sitting at home. It was a comfortable shoe for being at home. But as people go back to work and life gets back to normal, hopefully, like maybe people are gonna have less of a need for it, and maybe that's why people are afraid to own the stock right now. I mean, what's your view on that? Yeah, I mean, I think obviously we hear that story, right? Mm. There's not a lot of evidence to support that story, right? I think what's coming into play there is people, especially those who've been involved with the stock over the years, have seen a couple of different cycles in Crocs, right? They've seen probably three significant cycles. They've just gone up, it's gone down, right? What I would say, I think what's different about today is I think we're a much more well-rounded company. We have very clear footwear expertise. We have very clear marketing expertise. We have very clear product development and go-to-market expertise. We're a much stronger company than we were historically. Part of the scaling of the company and the growth we've experienced since 2018 has allowed us to kind of build that out. I think we've got a much stronger foundation. In terms of the consumer perception, we have engaged a very broad consumer base, right? We sell men's, women's and kids'. We sell across a socio-demographic platform as well. We sell to highly affluent people and people for whom this is an aspirational purchase, right? That exists around the world. We have an incredibly broad customer base. The benefits of an incredibly broad customer base is a lot of people can buy the product. We focus on creating a want for the product versus a need for the product. That want comes from the marketing. It comes from product innovation. It comes from new colors and new graphics and giving them an opportunity to buy. The question we want our consumers to ask is not, "Should I buy a pair?" But, "How many colors would I buy?" I think we've been incredibly successful at that. I don't think that is all oriented around the pandemic. It's not because people have been sitting at home on Zoom that they decided to wear Crocs. They decided to wear Crocs because it's comfortable, it's incredible value, and they can express themselves, whether it's through color and graphics and/or Jibbitz and personalization. Those are megatrends. Those are trends that existed before the pandemic, I think will exist after the pandemic. I think this sort of post-pandemic sort of thesis is way overblown, and there's probably no really compelling way or to refute it at this point. Time will tell, right? You know, as we look at our you know order book for this year, it comfortably supports the guidance we've provided. Understand. All right, I guess I wanna ask the question another way. You mentioned, you know, at the top when you're talking about, you know, there's fashion risk associated with a product that, you know, obviously the clog makes up a high percentage of the company's total sales. Yes. There's always an element of people being uncomfortable with fashion risk. Yes. I think that, you know, people even done a remarkable job increasing brand relevance. Yes. You know, compared to where it was, you know, five years ago, seven years ago, 10 years ago. You know, what can you say to people who are worried about fashion risk and just, you know, concentration in one product? Like, how do you keep it relevant? How do you keep it, you know, new and evolving, even though it's kinda like the clog over and over again in some respects? Yeah. like, you know, to the untrained eye? Yeah. Look, I think, one of the biggest things that we see in the competitive marketplace today is a lot of our competitors making clogs. Mm. Right? The total addressable market, the TAM for clogs, has actually expanded dramatically because we've expanded it, but also others have expanded it, right? We see a lot of competitors making clogs. As I talk to some of them and hear from retailers, they're actually having great success. Mm. I think what's happening is the consumer is beginning to understand that actually it's a great silhouette, right? It gives them a lot of consumer benefits. It can be colorful, it can be fashionable, but it also could be comfortable, and it could be easy on and off. Mm. There's a compelling consumer benefit there, which is consistent with kind of those global megatrends we just talked about. We see that increasing competition in the silhouette as really helpful, because it's growing the total addressable market for clogs. People can be concerned about it. Yes, they can be concerned it's a fashion risk. I would say the industry is leaning into it and having success with it. Andrew, I don't know, I mean, if I'm interpreting what you're saying properly, but I think it not that the category needs credibility, but when you see a lot of big brands come in and try to copy what you're doing. Yeah. I mean, it sort of, it elevates the category to some degree. Yes. It creates a sort of more like it's not just here today, gone tomorrow. It's everywhere now, and it's sort of. That's how things just become part of the Yeah everyday wardrobe that people have. Becomes less niche. Less niche. Yes. All right, I wanna ask about product innovation because, you know, you do talk about product innovation a lot. I think that first I want to just talk about product innovation with Crocs. You know, how do you define innovation, first of all? I mean, I guess the point is, like, keeping an iconic silhouette fresh. You know, UGG boots, for example, had a little problem with that if you go back years ago, where it was kinda like the same old thing every Christmas, and I think they needed to find a way to sort of tell a story. Yeah Keep moving the brand story forward. How do you do that? What's part of your secret sauce or playbook? Yeah. There's layers to that. You can see this in UGG and Vans and all these other things, right? The first layer of innovation is color and graphic, right? The clog obviously takes color and graphic extremely well. Mm. Having the right color and the right graphics in any given season gives the consumers frankly more reasons to buy because it goes with everything else. Mm-hmm. Right? That's important. We shouldn't rush past that because actually that's a huge driver. Right. I mean, there's a lot of Air Force 1s that Nike sells every year just based on color and graphic. I don't think that's going to be different, right? Exactly. Same shoe, tweak the color, right? Right. Second layer is collaborations, right? Collaborations, we can do lots of fun stuff, and you've seen us over the years. I'm sure everybody has their favorites. In terms of collaborations, limited supply, something creative, premium price, combined with a brand, combined with a celebrity, et cetera. That creates opportunity to, for the consumer to engage. They can buy them, but they can also become interested in the rest of the offering based upon that. Second layer is really innovating on the actual product. Height is an important innovation. Mm. You also see it in Air Force 1. You see the platform. We see Anne right here. We can add height, and we have multiple height versions of the clogs. Yeah. We have the platform, which is our mini height that we added last year and was very successful. Supply constrained all year long. The Bae, this was developed about three years ago off the Balenciaga collaboration that we did four years ago. That was a platform clog. That inspiration drove this. We have another platform or another elevated height version coming out next year called the Crush and a Crush sandal. Height is really helpful. Women love height, and especially in Asia, right? Height is an important innovation. The other is tweaking the clog for different usage occasions. One might be outdoor and adventure, so we have the All-Terrain, which has rubber pods on the outside. It has a slightly more aggressive appearance, and that has been supply-constrained for the last 18 months as well. Mm. We have work, right? Where you put a non-slip sole on the bottom and it's perfect for food service and healthcare applications. Mm-hmm. That's kind of the innovation roadmap within the clog. Obviously you've got innovation out of the clog, which is where we're focused on sandals. Right. Maybe let's talk about sandals if we can. I mean, what, you know, you're talking about quadrupling the sandals business. Yes I think, you know, over the next five years. Remind us maybe how big was the sandals business in 2021, and, you know, how big it will be this year and sort of where do you see the sandals growing? Maybe we'll start right there with the sandals. Yeah. We have almost a $300 million sandal business, right? It grew almost 20 or almost 30% in 2021, so in line with that long-term guidance. It was about a little over 14% of sales. Yeah. Andrew, if you wanna talk about that. Yeah. If you think about that relative to other sandal players, right? There are two big sandal players, Havaianas and Birkenstock, right? Both real scale companies. Mm. Most of the other sandal brands that you know of and you are aware of are half that. Mm. Right? We're already a big sandal player, right? Interesting. If you think about a Teva, you think about a Reef, they're half that, right? Those are brands that everybody's heard of in this room, I'm sure. Mm-hmm. How we're gonna grow it. Our intent is to quadruple that sandal business. We're looking at four different segments in the sandal business. We're looking at the Jibbitable sandals. We haven't talked about personalization yet, but that's incredibly powerful. Mm. When we brought out Jibbitable sandals last year, they were an instant hit. We have a slide and a two strap. They have the holes in them. The The consumer can put Jibbitz in them. That was really selling a sandal to our existing clog customer. Mm-hmm. That's a category that we think has a lot of legs. We have comfort casual sandals. Comfort's often for an older consumer. It's a generous last, et cetera. It's got comfort material properties. That's been historically a good business for Crocs, so we believe we can continue to build upon that. We've got style sandals, so something more like a Brooklyn or that we've done in the recent past, which is a little wedge sandal. I think there's a lot of innovation we can do in style sandals, and then we've got adventure sandals. We've kind of divided the clog-and-sandal world up into four territories. Mm. This is a lot about product innovation, 'cause we're gonna bring new offerings to the table in each of those categories to grow our business. Mm. Yeah, we just actually launched a Cozzzy Sandal this week, and we launched it first on our app, which was really fun because we played with our digital innovation. We launched a digital app last year, and we actually saw, like, the most downloads related to this Cozzzy Sandal. Kind of the mixture of digital innovation plus product innovation together, really seeing the consumer respond to that. It's been great. No, I think it's fundamental brand management. When consumers love your brand and you've been giving them something great, you know, they want more from you, right? Yeah. That's why you add, give them other opportunities to participate in the brand and make it a bigger part of their life. I think what we've talked about over time with Crocs is it is polarizing, right? That's a great thing 'cause it can really create a lot of love for people who love it. Some people, it's not for them. Right. Is it part of your assumption that sandals are a great opportunity to get people who like Crocs, who like the collaborations, who think it's fun, but maybe they don't wanna wear what Anne's wearing today, but they wanna participate in the brand. Does that give you an entry point to other people? Is that part of the idea behind Yeah. Sandals? Yeah. It's less polarizing, for sure, right? Why we focus on sandals is a few things. One, it's a big category, right? We estimate, you know, $30+ billion on a global basis annually. It's more female-centric than male. It's a very much a replacement category. A lot of women will throw their sandals away from last year to buy new ones, so it's definitely a replacement category. It's a big category. I think it's a little less. Our products, our technologies, our materials, et cetera, a lot of the molded work that we do allows us to give the consumer incredible value. Gives them a comfort sandal in lots of different versions at a very approachable price point, and it kind of allows us to. We've seen historic success within that category. Mm. We also looked at the competitive landscape, and we decided the competitive landscape was pretty weak. Mm. There are a couple of big competitors I talked about, but as we look in more detail, it's often a secondary category for everybody else that competes. If it's a secondary category, it doesn't get the focus that it's required. Mm. We felt like it was very compelling. As we thought about our growth strategy, we knew we wanted to grow outside of Crocs. We try to learn from the history of Crocs, which is when they were trying to diversify away from the clog at some point in time earlier in the history of the company. Mm-hmm. They did a lot of things very quickly. Mm. None of which really got traction. We said, "Look, we wanna identify one big area where we can really put resources, time, energy, people and marketing and go after that." We've picked sandals. We've seen, you know, I think several years of really, you know, a great start, but we've got much greater ambitions. Mm-hmm. Okay, I wanna keep moving 'cause we've a lot to talk about. Tell us about the growth path in China. Andrew, I know you've been working on China for a while, and a lot of resetting the marketplace there. Where does it stand today? Obviously, China as a market from a macro standpoint has been kinda up and down through COVID. You know, how far along are you in the work that you've been doing in China? What do you see as the growth opportunity? I think we're in a really good place with the work that we've been doing in China. As you alluded to, we've been re-engineering the market for about two or three years now. It was a real mess in terms of how we've been constructed in the past. We've been refreshing our distributors, opening new stores, investing in celebrities and ambassadors to carry the brand, as well as investing in our digital footprint. We grew double digits last year. We'll grow strong double digits again this year. We're very confident in that. Somewhat impacted by COVID and the lockdowns that you see, but we still managed to grow through that. That's still a small business, right? You know, we've talked about it being less than 5% of our overall sales. It's still a small business. Our ambition is much greater. What we're looking for is that sustained level of focus and investment that gets you to that tipping point where your growth can accelerate. You've seen that from lots of other brands. I would say we're not at that tipping point yet. Mm-hmm. We feel like we're seeing, you know, very, positive and reinforcing signs that we're getting incremental traction with the Chinese consumer, and there's no reason we can't get that. Okay. I was gonna ask you about that tipping point or, you know, that's something where the brand really takes off and, you know, is it something you can engineer or is it something that, you know, the fashion gods are just gonna touch Crocs in China and all of a sudden every consumer's gonna want it, you're gonna see this huge double-digit growth? Or, I mean, is that? You know, I mean, it sounds kind of like a, you know. Yeah. Not often. I think you can get close to engineering it, right? There is always a bit of luck or a bit of good fortune in some of these things. We've essentially engineered it here in the U.S. Mm-hmm. We're seeing that trajectory in some key European markets like the U.K., Germany, et cetera, today. Mm-hmm. Where we're seeing really that, you know, tipping point and explosive growth. Mm. It's the same formula that we applied here in the U.S. We applied it in EMEA. We're applying it in China today. I think it's persistence. It's having the right strategy model and persistence and investment, and I think you can get to that. Is it possible to put a timeframe on it, or is it sort of like the persistence is? Well, I can say it's probably not this year. You know, we will get strong double-digit growth, but that's not that inflection I'm talking about, right? Mm. That inflection I'm talking about is when you get to, you know, hundreds of millions of dollars, maybe even $1 billion in China, right? That's in the future. Got it. Okay. You know, let's get to $5 billion sales for Crocs. I mean, people are wondering, you know, trying to figure out by geography. I wanna talk about North America for a second because sales went from, you know, $640 million Mm-hmm. before the pandemic, I think that was in 2018, to $1.6 billion, right? That's a phenomenal amount of growth. You know, how do you think about the growth in the Americas over the next three to five years and kind of where some of the puts and takes? Sure. Yeah, sure. Just one thing to think about with the Americas too is that it didn't just happen overnight. We grew pre-pandemic too. 2019 was a big growth year. 2020 was actually a big growth year in the back half of the year. Not just pandemic growth. I'll also say a lot of our consumer in the Americas, just something back to the pandemic story, has not been at home during this time 'cause we service a broad base of consumers, lots of them in the South and the Midwest. I will say from an Americas overall standpoint, why we haven't said what it's gonna do, we said that it will grow like we have. We expect good growth out of our Americas business this year and we expect even growth. That means wholesale growth and DTC growth. If you think about Americas' growth last year, we had 86% wholesale growth. We also had 86% DTC growth. Consumer takeaway has obviously been very strong. The Americas has also been supply constrained in the last couple of years. As you know, we've gone through a pandemic, and we've had supply chain and been trying to grow the business so quickly. They definitely, last year was a function especially in the back half of getting them back in stock, and, you know, getting our wholesale consumers back in stock and getting our own channels back in stock. I think, you know, we feel pretty good about our inventory levels at this point, so we feel like that will drive good even growth this year. You know, from three to five years, we didn't give that out specifically. We just said that would be factored into our $5 billion. Obviously that factors in America's growth, EMEA growth, which we said would be the strongest in the shorter term. Asia is our longest growth term opportunity, led by China. We also have some other really important Asia markets that have been really good for us the last couple of years, including South Korea and India, which are both pretty big markets. I mean, is it fair to assume, obviously, Americas encompasses many countries, not just the United States, and also, you know, the sandals opportunity. If we were just to focus on clogs in the United States, like within that Americas, 'cause I think that's what people think about when they think of Americas. It's sort of not, you know, how big is South America, how big is Canada, whatever. You know, how do you think about the clogs piece within the, you know, United States? Or how do you think about maybe instead of that, how do you think about everything else as a contributor? Yeah. I think probably it's coming in from a product perspective, right? Clogs is not tapped out in the United States, right? We are planning and seeing continued growth in clogs. Number one. Number two is I think sandals is that key, right? Mm-hmm. That's the key to really sustaining a strong growth rate is really building out our sandal business. Mm-hmm. Personalization, Jibbitz, has been super important. We have the highest penetration of Jibbitz, you know, here in the United States, in our own stores, but also on our websites and in our wholesale partners. That's also been an important vehicle. You know, as you do the airport test, right? You know, everybody in footwear does the airport test. Mm-hmm. You're kind of walking through the airport, you're looking around, and you look at those feet and you see Crocs, but there's a lot of feet that don't have Crocs on them, right? Yeah. There's plenty of people and plenty of incremental penetration for clogs as well as our other growth platforms. Right. I do like the airport test. I've seen a lot of that in the airport recently, too. I was in Florida. Exactly. I saw a ton of that, which is neat. All right, so I would do one more top-line question about Jibbitz. Yes. I think people, you know, they wonder about Jibbitz because people are like, how many Jibbitz do people buy per their shoe? I have an 11-year-old daughter, she has three pair of Crocs, and she probably has, like, 50 Jibbitz. Mm-hmm. 'cause every hole on the Crocs has to have a Jibbitz. Mm-hmm. I think that, you know, if Jibbitz is like 7% of sales, then it implies that, you know, maybe the average Jibbit per shoe is like two. But I don't think that's right. But I mean, you know. How do we think about the contribution of Jibbitz? I mean, is it a trend that's getting bigger? Jibbitz been around since Crocs has been around. Yeah. You know, how do you see that contributing to growth over time? We think it's an important driver of growth on two dimensions, right? The first dimension is the consumer engagement, right? When that customer buys a pair of clogs without Jibbitz, they're buying something that everybody else has. Mm-hmm. White clogs, literally millions of other people have that, right? Same with a white AF1, right? When they buy with a curated set of Jibbitz that they spent time you know, picking out and thinking about the story they wanna tell to their, you know, friends and family and the whole world on their shoes, that's a very different level of emotional engagement from the consumer, right? The emotional engagement aspect is critically important, right? Second aspect is just the pure dollars and cents, right? You know, we are getting better and better around product innovation, limited releases, collaborations, social listening that drives the Jibbitz. As well as persuading and working with our partners, like our wholesale partners and our e-tail partners, to merchandise them better and to really buy into them. Mm-hmm. We think we got a good runway of incremental growth and incremental penetration from Jibbitz. Interesting. Also you add into that whole equation that they're very profitable, right? It's, you know, it's a very valuable piece of the business. Okay. All right. I wanna ask about gross margins because it's such a hot topic among investors. You know, the gross margin expanded last year to 61.6%. Mm-hmm. Yeah. You know, that was versus 51.1 in fiscal 2019. Right. Obviously tremendous growth. I guess people wonder about the durability of the price increases that you talked about, and sort of wondering how you might respond if the retail environment gets promotional. 'Cause presumably that would hurt the gross margin. I think that's why people wonder about that. What do you think? I mean, how? Why doesn't Anne talk about the kind of drivers of that expansion, and then I'll talk a little about durability. Okay. Yeah. I think from a pricing standpoint, as you know, we've taken price. We didn't just take price last year. We've been taking it pretty consistently since 2018. Like, the easiest way to think about that is our Classic Clog in the U.S. has moved from $35, I think, at the beginning of 2018 to $50 now. Right? We haven't seen any pushback, obviously, because we've had big unit growth since that time. It's not like we just took it overnight. There is big gains there. That's been a big driver of some of the gross margin gains. I would say that's a piece of it. Obviously, there has been pullback in promotions and discounts globally. Pricing, Promotions, and Discounts. Jibbitz are a big piece of that gross margin reconstruction because as Andrew just talked about, they're really profitable. Mm-hmm. At 7% of our sales, that drives profit. Mix is a big component of that because clogs have a really high profit margin. Over time, we have shrunk the other kind of, less, undifferentiated products that's like stitched and sewn with leather uppers. We're now 100% vegan, so molded is actually much more profitable than leather product for us. That rebuild of both our products and our product mix is sitting there, so that's helpful, and that obviously isn't gonna reverse. Then finally, just scale and the investments we've made into our distribution center. We've made a ton of progress and investment in things that we've worked on from a gross margin standpoint that have driven that, improvement from 18% to 19%. Yeah. I think sustainability. I think there's a couple of things. One is I think all of the price increases we've instituted so far have been, I think, you know, well accepted by consumers, but also wholesalers and partners that we operate with. Typically what we see from our wholesale partners, they may be nervous about it, but when they see the rate of sale that's sustained, they're actually making more money too, right? So they're making more dollar margin per sale, and so it's all the way through the chain, it's been well accepted. So we haven't really seen any pushback. You know, we do kind of test these prices and make sure that we think things are gonna work well. We've seen, you know, definitely acceptance and sustained benefit from all of our price increases. I think you kind of alluded to the potential for a more promotional environment in the future. Look, you know, I think we're at a low point in terms of promotion that we've seen, certainly in this industry and this country for many, many years, right? I think we're not deluded around that. The way that you protect yourself against increasing promotion is inventory control, right? As you kind of look at our inventories, we really keep our inventories lean. We keep our inventories at our customers lean. That presents challenges sometimes in chasing growth, but we'd rather leave a little on the table and be lean because that's your defense around eroding price. Yeah. I agree. I actually think it's not why our margins are 60%, it's why they were ever 52%, because we should have high gross margins because we make molded footwear, which are just by nature high gross margin. Right. All right. In the time, maybe one, maybe two SG&A questions, but I wanna ask you about SG&A dollars this year because I think the consensus forecast implies SG&A dollars will be about 53%. In terms of pure dollars, that's almost like $450 million. It's a lot, you know, versus I think you're 730 last year. You know, obviously there's an acquisition coming in. Let's talk about that. Right. Yeah, 'cause the acquisition's not pro forma. You don't have the acquisition in the base, so it's not a 53% increase. Right. Right? 'Cause you don't have any SG&A dollars. Yeah. In last year for HEYDUDE. The best way to think about it is, there's kind of two pieces, right? The biggest investment piece is, you know, continuing to invest in marketing and talent, both in Crocs and in HEYDUDE. Mm-hmm. From a HEYDUDE perspective, we're taking their operating margins from 40% to 26%, and that's all coming in the form of SG&A investment, right? That's all money that we need to invest in the brand to build a sustainable runway for that brand, to hire, you know, talent and invest in marketing and the things that Andrew was talking about in product innovation. Those are really important for that piece. Then also we're continuing to invest in Crocs. That looks like marketing, that looks like marketing in China, that looks like talent, and especially in our digital arena to continue to support that growth and product innovation. That's the SG&A increase. I don't, the 50% growth isn't a good compare because yeah. Right. Obviously adding a, you know. Yeah. Which soon to be a billion-dollar brand into the calculation. Yeah. Yeah. I guess maybe another way of asking it is that, you know, you mentioned, you know, the 26% margins that's unprecedented in the world of footwear. I mean, nobody's achieving that kind of margin. You know, if you do 20% growth organically with Crocs, I mean, it stands to reason there could be some leverage opportunities. You know, perhaps that's not the plan, but I mean, what within, you know, the buckets of SG&A, I mean, how do you think about- We've certainly been leveraging. I mean, as you know, we've been leveraging SG&A significantly from a scale perspective. Right. In Crocs, not only have we expanded gross margin by, right, whatever you said, from 62% to 60%, or 52% to 51%. 52, yeah. We've also declined, you know, SG&A I think was like at 40% and, you know, now we're in 30%. I think we've also been able to leverage SG&A, but we also wanna make sure that we're not just, you know, we wanna build the brand for the long term. We wanna make sure that it's sustainable growth. We will always focus on making good investments and making sure long term we have leverage with scale, but there may be periods of time where we continue to invest. We're not actually guiding deleverage for the Crocs brand. Got it. Okay. All right, we're out of time, so why don't we stop there. Andrew and Anne, thank you so much for doing this today. Really appreciate it. Jay, thank you very much. Appreciate you, orchestrating this, and thanks everybody for their interest. Great. Thanks, everyone. Thanks, everybody, for dialing on the webcast, at home. Thank you.