Design simplicity and celebrity collaborations fuel Crocs Q3 sales growth: CEO

Andrew Rees, Crocs CEO, discusses the company's latest upbeat earnings report.

Video Transcript

- Let's take a look at Crocs because it's been a standout over the last couple of days, and certainly a standout since the start of the year. Shares are up about 10% over the past two days, after the company beat on earnings. They also raised their guidance for the year revenue, soaring 73% from a year ago. So for more on that, we want to bring in Andrew Rees. He's the CEO of Crocs.

And Andrew, it's good to see you. A very, very strong quarter from the company. Raising your outlook for the year at a time when so many retailers are starting to scale back in terms of what we could expect to see over the next couple of quarters. You're clearly navigating, or able to navigate, some of these supply chain issues. How are you doing it?

ANDREW REES: Yeah. I mean, look, I think these supply chain issues are pretty severe. They're affecting all companies. So there's really two things going on. There's those inbound delays that we see about in the news quite frequently, with the ship sitting outside Long Beach, et cetera.

So on average, it's taking over 100 days to get goods from China or Vietnam to the US. Typically that will be in the 30 to 40 day range. So that's a significant delay. And so that's one component. Now that component you can manage, right? You can anticipate those delays. You can put more goods in transit, and you can manage your overall pipeline. So I think we've been relatively effective at doing that.

The second component has been the closure of many factories in Southern Vietnam in the third quarter. I would say today most of those facilities are now open, or certainly the facilities that are relevant to us are now open, in various stages of reopening. So that causes a hole in our supply chain for the beginning of next quarter. But we've been able to shift production out of Vietnam, into China, into Indonesia, and other places.

We've been able to narrow our product line slightly so we can get more productivity through our factories. So we're doing everything we can to mitigate it. And we're also going to spend a significant amount of money next year in terms of flying product in. So avoid those ports and fly it right in, which is obviously a lot more expensive, but important to be able to meet the really strong demand that we see for our brand.

- Andrew, I was reading a story about this, and they were talking about the simplicity of the shoe. Lots of people who own the shoes love them because they are so comfortable. And then you've just had this really strong quarter. How do you sustain that? I mean, I'm remembering my brother-- when he was a teenager, my eldest brother and his buddies used to wear clogs, and these are a much better version of that. So how do you do it?

ANDREW REES: Yeah, so there's a couple of things, right? So I think the simplicity is what's helping us to restart our production really quickly. Because if you look at the typical classic clog, it literally has three components, and two of which are made on site. So the typical sneaker would have 60 components. And so you have to assemble all those components before you can make a single shoe, a little bit like making a car and some of the issues you have there. So that helps us restart production.

In terms of creating excitement and demand for the brand, that's been a few things. We've got the underlying, I would say, functional benefits of the product. The comfort, the easy on and off, that the color, and the optimistic nature of the brand. And we were able to bring a great deal of excitement to it through the collaborations that we do, connecting with celebrities, connecting with other brands. We just recently did a collaboration with Hidden Valley Ranch, and at the same time did a collaboration with Balenciaga. So tremendous versatility in terms of how we can excite consumers and get them interested in the brand.

So the real trick, the 73% growth, is based on creating that demand and creating that interest in the brand. We've done that for three years here-- three such, four years in a row. And I think we're going to be able do that into the future. We've got lots of ideas and lots of really exciting things coming up.

- Andrew, on one front that you're on succeeding here is digital sales. Taking a look at those numbers, up almost 70%. It accounts for about 36% of your total sales. As you look at about three to five years, do you see that becoming a bigger part of your total sales, and by how much?

ANDREW REES: Yeah. So we recently had an investor day a couple of weeks ago, and we really talked about a number of things in the future. Number one, we think the brand can be in excess of $5 billion in total revenues within five years, which is substantially bigger than where it is today. It'll be about $2.2, $2.3 billion this year, so a doubling in terms of the size of the company.

We also talked about the digital penetration, around 37% today. We think digital penetration will be in excess of 50% in the future. So absolutely, the consumer wants to shop digitally. We're enabling that through our investments in technology, investments in process, and really connecting with the consumer there.

And I should point out when we talk about digital, we do not only count our own e-commerce business, but we also account the business that we do through third-party marketplaces like on Amazon. Because in all of those instances, the consumer is shopping digitally.

- I'm sitting here dreading putting my size 13s into my old dress shoes when we go back to the office. Who is your-- and I'm thinking, I was joking with the team on Slack that I'm going to get a pair of these. I don't know if I can wear them to the office. But who is the majority of the consumer for these? Is it all age groups, or millennials, younger folk?

ANDREW REES: Yeah. Well, you should absolutely should wear them to the office. There's absolutely no reason not to. So in terms of the consumer base, it's extremely broad. That is one of the really powerful components of the business, and why we think we can grow it so rapidly and to such a significant extent. We serve a very broad range of consumers from an age perspective, from a demographic perspective, from a socioeconomic perspective. Men, women, and kids. It's really a very, very broad consumer base.

What I would say, more recently in the last three slash years, we've really connected with that teen consumer. And that teen consumer is obviously a big buyer of the things that they like, so in addition to buying the clogs or the Crocs, they're also buying the Jibbitz, the things that you put inside them to personalize them. And I think that component of personalization is really important to that consumer, and it allows them to create a very deep, emotional connection with our company.

- Andrew Rees, always great to see you. CEO of Crocs. Thanks so much for joining us.

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