Dive Brief:
- Crocs yanked its guidance for the year on Thursday, citing “the new global trade environment as well as business and consumer uncertainty,” according to a statement from CEO Andrew Rees.
- The company also reported Q1 revenues that were essentially flat to last year, with better-than-expected results at its namesake and Heydude brands. Crocs revenues rose 2.4% to $762 million, while Heydude fell nearly 10% to $176 million.
- Direct-to-consumer revenues grew 2.3%, as wholesale contracted 1.6%. Gross margin expanded to 57.8% from 55.6% last year, and net income rose 5% to $160.1 million.
Dive Insight:
The Trump administration’s trade policy appears to be frustrating Crocs’ momentum. The company was one of 76 in the footwear industry that recently fired off a letter to President Donald Trump urging an exemption for their category.
Based on its current sourcing mix, a 10% incremental tariff across all countries importing to the U.S. translates to about $45 million in costs on an annualized cash basis; adding the incremental 145% tariff on China implies a total cost of about $130 million, Rees told analysts Thursday.
Those numbers are better than what Needham analysts led by Tom Nikic had expected, according to a research note Thursday.
“We thought the impact would be at least twice as high, so this update was very encouraging,” Nikic said.
There are issues beyond the direct costs however, Rees warned.
“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,” he said, though he added that the company has “a well-diversified sourcing mix.”
This year, plans include about 47% of sourcing from Vietnam, 17% from Indonesia, 13% each from China and India, and 5% each from Mexico and Cambodia. But that is already changing.
“If that remains in place, we would very unlikely incur that $130 million because we just simply wouldn't bring the goods in,” Rees said. “We'd cancel off some orders, and I would say we are rapidly shifting sourcing to other countries.”
Still, the effect of the uncertainty also spills onto consumers, Rees also said. “It is possible that in the future we could see softer demand for footwear and other consumer goods,” he said. “Particularly given the potential for increased costs and higher prices across the industry, that could further burden an already choiceful consumer.”
Crocs just slashed some $50 million from this year’s expenses in order to better weather what he called “the current macroeconomic environment” and will continue to look for more.
The company will also raise prices to the extent that it can, and expects that to be true for the market more widely.
