Strategic Execution and Brand Performance

• Performance was driven by strong consumer response to product newness across clogs, sandals, and new silhouettes like ballet flats, which helped mitigate planned wholesale declines.

• The Crocs brand is successfully diversifying its portfolio, with the sandal category expected to approach $0.5 billion in revenue this year, growing at a double-digit rate.

• International markets, particularly China, India, and Japan, are seeing outsized growth led by direct-to-consumer (DTC) channels and localized marketing activations.

• HEYDUDE outperformance in DTC was achieved despite a significant reduction in performance marketing spend, signaling improved brand health and higher profitability per transaction.

• Management attributed the enterprise revenue beat to broad brand relevance and effective inventory management, with turns exceeding 4x and units down high single digits.

• The company is aggressively scaling social commerce, specifically TikTok Shop, where both brands received 'Top Seller' awards, viewing it as a critical medium-term growth engine.

Outlook and Strategic Assumptions

• Full-year guidance assumes a return to growth for both brands in the second half of 2026 as the company anniversaries prior-year pullbacks in promotions and marketing.

• The revenue outlook incorporates a prudent estimate of the Middle East conflict's impact, including reduced distributor revenue and elevated logistics costs.

• Management expects DTC to continue outperforming wholesale globally, supported by investments in digital selling capabilities and physical store expansions.

• Guidance assumes adjusted operating margins will expand modestly from 2025 levels, supported by cost-saving initiatives that offset incremental tariff pressures.

• The company remains committed to returning significant free cash flow to shareholders, with 800,000 shares already repurchased in the second quarter to date.

Risk Factors and Structural Changes

• Elevated oil prices present a dual threat: increased raw material (resin) costs and higher fuel surcharges for inbound and outbound transportation.

• The company converted its Malaysia distributor business to a directly owned model on April 1, absorbing 21 retail stores to capture more margin in that market.

• Tariff impacts are expected to create a 150 basis point headwind to adjusted gross margins in Q2, though management views these costs as becoming part of the 'base' by the second half.

• Potential upside from Supreme Court rulings on tariff refunds is currently excluded from guidance until there is more clarity on the collection timeline.