Crocs, Inc. (CROX) Q4 2022 Earnings Call Transcript

Crocs, Inc. (NASDAQ:CROX) Q4 2022 Earnings Conference Call February 16, 2023 8:30 AM ET

Company Participants

Cori Lin - Vice President, Corporate Finance

Andrew Rees - Chief Executive Officer

Anne Mehlman - Executive Vice President & Chief Financial Officer

Conference Call Participants

Jonathan Komp - Baird

Tom Nikic - Wedbush Securities

Abbie Zvejnieks - Piper Sandler

Laura Champine - Loop

Sam Poser - Williams Trading

Jim Duffy - Stifel

Mitch Kummetz - Seaport Research

Mauricio Serna - UBS

Aubrey Tianello - BNP Paribas

Operator

Good day, and invited to nan Crocs, Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will beryllium successful listen-only mode. [Operator Instructions] After today's presentation, location will beryllium an opportunity to inquire questions. [Operator Instructions] Please note, this arena is being recorded.

I would now for illustration to move nan convention complete to Cori Lin, Vice President, Corporate Finance. Please spell ahead.

Cori Lin

Good morning, everyone, and convey you for joining america coming for nan Crocs Fourth Quarter and Full Year 2022 Earnings Call. Earlier this morning, we announced our latest quarterly and yearly results and a transcript of nan property merchandise whitethorn beryllium recovered connected our website astatine crocs.com.

We would for illustration to punctual you that immoderate of nan accusation provided connected this telephone is forward-looking and accordingly is taxable to nan Safe Harbor provisions of nan Federal Securities Laws. These statements include, but are not constricted to, statements regarding nan acquisition of HEYDUDE and nan benefits thereof, Crocs' strategy, plans, objectives, expectations, financial aliases different and intentions, early financial results and maturation potential, anticipated merchandise portfolio, our expertise to create and present shareholder worth and statements regarding imaginable impacts to our business related to nan COVID-19 pandemic.

These statements impact known and chartless risks, uncertainties and different factors, which whitethorn origin our existent results, capacity aliases achievements to beryllium materially different from immoderate early results, performances aliases achievements expressed aliases implied by nan forward-looking statements. Crocs' is not obligated to update these forward-looking statements to bespeak nan effect of early events, isolated from arsenic required by applicable law.

We be aware you that each forward-looking statements are taxable to risks and uncertainties described successful nan Risk Factors conception of our yearly study connected Form 10-K and our consequent filings pinch nan SEC. Accordingly, existent results could disagree materially from those described connected this call.

Please mention to nan Crocs Annual Report connected Form 10-K arsenic good arsenic different documents revenge pinch nan SEC for much accusation relating to these consequence factors. Adjusted gross profit, adjusted gross margin, adjusted selling, wide and administrative expenses, adjusted income from operations and operating margin, adjusted income taxation use and effective taxation rate, adjusted basal and diluted net per communal stock are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained successful nan property merchandise we issued earlier this morning.

Joining america connected nan telephone coming are Andrew Rees, Chief Executive Officer; and Anne Mehlman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will unfastened nan telephone for your questions.

At this time, I'll move nan telephone complete to Andrew.

Andrew Rees

Thank you, Cori, and bully morning, everyone. As you saw successful our property merchandise issued this morning, we delivered bonzer 2022 results, including grounds $3.5 cardinal successful income and industry-leading adjusted operating margins of 27.7%.

These results underscore nan precocious user request globally for nan Crocs brand, nan increasing momentum of nan HEYDUDE marque and our expertise to consistently present beardown profitability while investing for nan future. Looking guardant to 2023, we expect different twelvemonth of robust gross growth, top-tier margins and important rate travel generation.

Now fto maine stock a fewer highlights from nan afloat twelvemonth of 2022. Total revenues grew 54% arsenic we added a 2nd fast-growing brand, HEYDUDE. Crocs marque revenues were $2.7 billion, expanding 19% connected a changeless rate basis. Crocs marque International maturation was exceptional astatine 47% changeless rate for 2022 and accelerating to 75% changeless rate maturation for Q4 successful some Asia and EMEALA.

HEYDUDE marque revenues exceeded first expectations and reached astir $1 cardinal connected a pro forma ground and delivered complete $275 cardinal successful adjusted operating income. Consolidated integer revenues grew 58% to correspond 37.8% of 2022 revenues. Exceptional adjusted gross margins of 54% moreover pinch important freight and inflationary pressures.

Adjusted income from operations accrued 42% to astir $1 cardinal and adjusted operating margins of astir 28%. Adjusted diluted net per stock accrued 31% to $10.92 and beardown rate travel allowed america to trim gross leverage from 3.1 times upon nan acquisition of HEYDUDE to 2.25 times astatine twelvemonth end.

As we modulation to 2023, I want to springiness you further insights into 3 of our semipermanent maturation drivers for nan Crocs brand, sandals, world and invention successful some merchandise and trading arsenic good arsenic supply an update connected HEYDUDE.

Sandals, an important maturation inaugural for Crocs, allowing america to widen into nan adjacent $30 cardinal world sandal category, wherever we judge our molded technologies, accessible value points, beardown go-to-market will let america to compete efficaciously successful a comparatively fragmented market.

The class besides provides an further introduction constituent to nan Crocs marque for consumers who whitethorn not take to prosecute pinch nan clog. We cognize our sandals resonate pinch consumers since sandal information is now connected par pinch that of clogs. And we already person a sizable $310 cardinal sandal business.

Within sandals, we refined our attraction connected 4 subcategories; Everyday, Style, Street/Sport and Adventure. The Everyday class offers broad-reaching classics for everyone and includes our personalizable slides, 2 straps and flips.

Our Style class is female-centric, trend-driven and includes styles specified arsenic nan Brooklyn, Crush and Mega Crush. Our Street/Sport class is rooted successful thoroughfare style pinch a attraction connected him, but inclusive of her and includes our caller Echo and Mellow franchises.

Finally, our Adventure class has functional creation for nan full family and includes our All Terrain and Swiftwater franchises.

2022 for nan Crocs marque sandals was a twelvemonth of 2 halves. In nan first half, sandal revenues declined owed to nan deficiency of newness pursuing nan Vietnam mill shutdowns successful 2021. In nan 2nd half of 2022, Sandals grew by 31% and arsenic we introduced a beardown cadence of newness specified arsenic nan Crush, Mellow and Echo supported by effective sandal-specific marketing.

We're incredibly assured successful sandal maturation successful 2023, fixed planned newness and a important summation successful trading allocated to sandals and nan beardown Crocs marque trajectory successful important sandal markets specified arsenic India and Southeast Asia.

With respect to newness successful our Style category, we're readying further tallness and caller uppers successful our celebrated Brooklyn franchise. In our Street/Sport category, we proceed to usage innovative exertion successful our Mellow franchise, and we'll motorboat a caller flip during nan year.

With nan caller merchandise introductions, trading investments and location marque momentum, we expect sandals to beryllium our fastest-growing merchandise class successful 2023, reaching astir $400 cardinal successful sales.

Moving to different important maturation driver for nan Crocs brand, our world markets, we person now seen 8 consecutive quarters of beardown double-digit maturation extracurricular of North America. We expect moreover greater maturation arsenic a Crocs marque has astir one-third of penetration internationally than it has present successful nan US. The drivers of this maturation are successful essence, nan aforesaid drivers of maturation that we saw successful nan US.

First, focusing connected our iconic clog and driving relevance pinch invention and collaborations; second, leveraging Jibbitz for personalization and user engagement; third, expanding our addressable marketplace pinch sandals; and finally, ever connected societal and integer trading to continuously prosecute our existing and caller consumers.

Our unsocial playbook for Crocs has been successful successful nan US and crossed each of our cardinal attraction markets. In EMEALA, Western Europe grew revenues by 38% changeless rate pinch nan United Kingdom up 105% changeless currency.

In Asia, South Korea grew complete 30% changeless rate contempt having an already precocious level of penetration. India grew 91% changeless currency. Additionally, we spot our world marque building activities having a halo successful galore of our supplier markets, resulting successful triple-digit gross maturation successful Latin America, nan Middle East and Southeast Asia.

China has been a unsocial case. As you know, we completed nan repositioning of our China business successful 2021. Since then, China has been constrained by COVID lockdowns, yet we still invested successful our squad and successful trading to build marque relevance. We person seen greenish shoots successful nan 2nd half of 2022. Revenues grew 35% changeless currency.

As China reopens and nan user returns to much normalized shopping, we're excited astir nan imaginable of building important Crocs marque beingness successful 2023 and beyond. While still a smaller guidelines than we would like, we expect China to turn astir 30% successful 2023.

Products and trading innovations is different important driver of nan Crocs brand. Our trading almanac is highly robust. As we look to put much Crocs and much consumers. In 2023, we expect to person grounds caller merchandise introductions, immoderate of which I mentioned erstwhile discussing sandals. Product newness will beryllium captious to our always-on marque drumbeat arsenic good arsenic a beardown pipeline of much than 60 world marque partnerships crossed a patient operation of celebrities, mega brands and licenses of which 25% will beryllium regionally led.

We will put successful a grounds magnitude of trading dollars complete $200 cardinal to thrust nan Crocs marque relevance amplifying our products and engaging caller and existing consumers. This will beryllium achieved by maintaining our digitally led and societal first attack to prosecute consumers done integer first drops, societal invention and marque ambassadors.

Turning now to HEYDUDE. Today represents our first afloat twelvemonth of ownership, and we've accomplished a lot. The integration is connected track, though location is still overmuch activity to beryllium done. We've developed a clear scheme for nan marque and nan early is bright. With respect to caller accomplishments, location are many. We person updated nan marque personality and clarified its intent and meaning.

We've expanded nan statement pinch respective caller icons to beryllium trialed successful 2023, unit nan full activity squad and hired complete 150 roles, stabilize and expanded nan manufacturing footprint, developed a business systems roadworthy map, expanded distribution capabilities to grip nan contiguous throughput needs, turned complete galore world distributors and spent astir $60 cardinal of trading successful nan 2nd half alone, which connected an annualized ground was almost 4x nan magnitude spent successful 2021.

We've besides seen awesome first results exceeding our expectations. Brand revenues successful 2022 grew 70% connected a pro forma basis, driven by wholesale partner description successful nan United States. DTC revenues were astir 36% of sales.

Gross margins person been little than anticipated owed to transmission mix, unfavorable pre-acquisition freight contracts and higher inventory handling costs arsenic we activity to grow nan HEYDUDE distribution halfway to support nan $1 cardinal and increasing brand.

Even pinch this, HEYDUDE generated complete $275 cardinal successful adjusted operating income, a $0.31 adjusted operating margin. While we person much to do, we are incredibly excited astir our results frankincense acold nan imaginable for nan HEYDUDE marque and nan worth this acquisition will make for shareholders.

The summation of HEYDUDE has brought different benefits arsenic well. It enables america to entree a larger addressable market, which is now astir $160 cardinal connected a world ground versus $40 cardinal anterior to nan acquisition.

We are now acold much diversified from a merchandise position pinch casual HEYDUDE silhouettes representing 27% of 2022 revenues connected a pro forma basis, COGS representing 57% of consolidated revenues. Finally, we substantially leveraged our shared services crossed nan 2 brands, further supporting our industry-leading operating margins.

Before I move nan telephone complete to Anne, I'm incredibly proud that our five-year annualized TSR of 54% would person placed Crocs, Inc. arsenic nan number 2 best-performing institution successful nan S&P 500. This exceptional capacity is simply a testament to our strategy, our execution and our talented team. I want to definitive my gratitude to nan full Crocs, Inc. statement for their difficult activity and committedness to delivering best-in-class maturation and profitability.

2022 was a transformational twelvemonth arsenic we integrated HEYDUDE, but nan Crocs and HEYDUDE brands participate 2023 pinch unthinkable spot and momentum. I'm assured successful our brands, our squad and our demonstrated expertise to present sustainable growth, profitability and shareholder value.

With that, Anne will now reappraisal our financial results successful much detail.

Anne Mehlman

Thank you, Andrew, and bully morning, everyone. I'll statesman pinch nan recap of our 4th fourth results. All gross maturation rates will beryllium cited connected a changeless rate basis, unless different stated. For a reconciliation of nan non-GAAP amounts mentioned to their balanced GAAP amounts, please mention to our property release.

Our 4th fourth results were outstanding pinch $945 cardinal successful consolidated revenues, a 64.8% summation to anterior year, aided by nan summation of HEYDUDE. We proceed to present top-tier profitability pinch adjusted gross separator of 53.3%, adjusted operating separator of 26% and adjusted net per stock of $2.65, up 23% to 4th fourth of past year. Strong profitability and tight moving superior guidance enabled america to repay $300 cardinal connected our word indebtedness B installation successful nan quarter.

I will now item our gross highlights by brand, opening pinch nan Crocs brand. During nan quarter, we sold 27 cardinal pairs of shoes, an summation of 20.8% complete past year. Our mean trading value successful Q4 was $23.95, a 6.8% diminution connected a reported ground and a 3.6% diminution connected a changeless rate basis.

As a flimsy diminution successful North America associated pinch higher DTC promotions, offset changeless rate ASP increases internationally. Importantly, while nan North American markets became much promotional successful nan 2nd half of nan twelvemonth and helped right-size transmission inventories to a patient level, nan Crocs marque was still little promotional successful nan 4th fourth and for nan afloat twelvemonth than pre-pandemic.

From a merchandise perspective, for nan 4th quarter, results proceed to beryllium driven by our cardinal merchandise pillars: Clogs, Sandals and Jibbitz. Sales of clogs accrued 9% to go 79% of Crocs marque revenues pinch maturation of our profitable classical clog franchise outpacing that of different clogs.

Sandals grew 53% successful nan 4th to correspond 10% of marque revenues. Jibbitz continued to thrust user engagement and grew 13% to go 8% of marque revenues. For nan afloat year, clogs were 77% of marque revenues, sandals were 12% and Jibbitz grew 27% to go 8% of marque revenues.

Now let's reappraisal Crocs marque highlights by region for nan quarter. North America revenues of $457 cardinal were comparatively level from 2021 arsenic beardown DTC maturation of 18%, an parameter of underlying user request was mostly offset by a 25% diminution successful wholesale.

DTC comparable income for North America accrued 13%, connected apical of 53% DTC comparable income maturation successful nan 4th fourth of 2021. Digital led nan maturation driven by marque spot and newness.

Wholesale declined arsenic we proceed to proactively negociate marketplace wellness pinch our partners successful nan 4th quarter. Brick-and-mortar transmission inventory successful North America is very patient pinch on-hand inventory levels down double-digits versus anterior year.

Similar to nan 3rd quarter, Crocs marque maturation was led by world pinch some Asia and EMEALA revenues up 75% successful nan quarter. Asia Q4 revenues were $91 million, up 74.8% from past year. As Andrew mentioned, we saw broad-based maturation crossed each channels successful each of our cardinal attraction markets.

South Korea and India continued to outperform and grew beardown double-digits during nan 4th and nan year. China faced periodic COVID lockdowns however, grew 38% for nan quarter, pursuing 34% maturation successful Q3.

EMEALA revenues accrued an exceptional 75.6% complete Q4 2021 contempt our exit of nonstop Russia operations. Momentum has been building complete nan past 2 years and resulted successful broad-based maturation successful our nonstop and supplier markets. Overall, we are highly pleased pinch nan underlying spot of nan Crocs marque internationally.

Turning to HEYDUDE. Revenues were $279 million, increasing 36.6% from Q4 of 2021. Digital income were peculiarly beardown during vacation and constituted 51.6% of marque income successful nan quarter. We stay assured successful nan imaginable of nan marque and look guardant to sharing our maturation strategies and plans successful nan future.

From a transmission perspective, integer remains our apical privilege for some brands arsenic it enables america to meet our consumers successful their preferred channel. During Q4 2022, our consolidated integer business, which combines e-commerce and e-tail, grew 80% connected apical of 41% maturation successful Q4 of 2021.

Digital penetration for nan 4th was 45.1%, up from 40.3% past twelvemonth and 34.2% successful 2019. Our integer maturation benefited from merchandise newness, refined personification acquisition and further trading activities that drove beardown traffic.

Consolidated adjusted gross separator for nan 4th was 53.3%, down astir 1,000 ground points from past year. About half of nan compression to consolidated adjusted gross separator is related to nan summation of nan HEYDUDE brand. Crocs marque adjusted gross separator was 56.1% aliases 760 ground points little than anterior year, which was successful a emblematic twelvemonth arsenic we took value up of ostentation and had an wide deficiency of promotions successful nan industry. The diminution successful adjusted gross separator is attributable to astir 340 ground points of promotions, 180 ground points of inflationary costs and 180 ground points of higher freight and inventory handling costs.

Currency negatively impacted gross margins by 70 ground points. HEYDUDE marque gross separator for nan 4th was 46.4%, arsenic affirmative transmission operation was offset by nan continued effect of bequest freight statement costs. Higher inventory retention costs arsenic we activity to grow distribution halfway capabilities to support nan larger business and vacation promotional activity.

Our Q4 adjusted SG&A astatine 27.3% of revenues improved by 780 ground points compared to anterior year. This excludes $18 cardinal of costs successful Q4, chiefly related to nan shutdown of our Russia nonstop operations and nan HEYDUDE acquisition and integration. For afloat twelvemonth 2022, adjusted SG&A leveraged 490 ground points to 26.7%.

The important alteration successful adjusted SG&A complaint for nan 4th and nan afloat twelvemonth is owed to leverage of shared services crossed some brands fixed arsenic we invested complete $215 cardinal this twelvemonth successful further marketing, talent and infrastructure to support early growth.

Our 4th fourth adjusted operating separator declined 260 ground points to 26% compared to 28.6% for nan aforesaid play past twelvemonth arsenic gross separator pressures offset SG&A leverage. Fourth 4th adjusted diluted net per stock accrued 23.3% to $2.65.

For nan afloat twelvemonth 2022, fto maine recap a fewer highlights. Total revenues grew 54% to $3.55 cardinal pinch Crocs marque revenues expanding 19% connected a changeless rate ground connected apical of 65% maturation successful 2021 and HEYDUDE marque revenues reaching astir $1 cardinal connected a pro forma basis. Crocs Brand International maturation was exceptional astatine 47% changeless currency.

Adjusted income from operations accrued 42% to $986 cardinal and adjusted operating separator of 27.7% remains industry-leading. Full twelvemonth adjusted diluted net per stock accrued 31% to $10.92. We concluded 2022 pinch a beardown liquidity position comprised of $192 cardinal of rate and rate equivalents and $749 cardinal of borrowing capacity connected our revolver.

Through beardown rate travel procreation and tight moving superior management, we pre-paid $300 cardinal connected nan Term Loan B during Q4, reducing full borrowings to $2.3 cardinal and gross leverage of 2.25x and nett leverage to astir 2.1x. We stay focused connected deleveraging to nether 2x gross leverage by nan mediate of 2023.

Our inventory equilibrium astatine December 31, 2022, was $472 cardinal inclusive of $169 cardinal of HEYDUDE inventory. The Crocs marque inventory equilibrium was $303 million, a 42% summation complete anterior twelvemonth and continues to diminution sequentially, down 7% versus nan 3rd quarter. Our higher inventory reflects gross growth, higher costs and inventory and a very debased level of inventory past twelvemonth owed to constricted readiness pinch nan mill closures.

While HEYDUDE inventory is somewhat elevated from pre-acquisition purchases, Crocs marque inventory is very healthy. Our full squad is highly focused connected inventory health, particularly arsenic we grow.

In 2022, superior expenditures were $104 million. A small complete half of this finance was successful our distribution centers arsenic we grow and automate our facilities. The equilibrium of nan finance was successful our accusation technology, unit fleet and firm offices, each of these investments support early growth. And arsenic I mentioned, we will proceed to put successful nan business to substance and prolong growth.

Now turning to nan future. I would for illustration to stock our existent outlook for Q1 and past afloat twelvemonth 2023. For Q1, we expect consolidated revenues to turn astir 27% to 30% astatine existent rate rates, pinch nan Crocs marque increasing double-digits. We expect adjusted operating separator to beryllium betwixt 24% and 25% and adjusted diluted net per stock of $2.06 to $2.19.

For nan afloat twelvemonth 2023, our guidance contemplates immoderate conservatism arsenic we are cautious astir nan effect of macroeconomic events, peculiarly connected nan US and European user arsenic nan twelvemonth progresses. Even pinch this, we proceed to expect gross maturation of 10% to 13%, assuming existent rate rates.

For Crocs marque revenues, we expect to turn 6% to 8% and 9% to 11% successful changeless rate pinch maturation successful each regions and each channels. For HEYDUDE marque revenues, we expect maturation to beryllium successful nan mid-20s connected a reported basis.

We expect consolidated adjusted operating profit margins of astir 26%. This includes an anticipated use to Crocs marque gross separator associated pinch little inbound freight rates and nan clawback of aerial freight, somewhat offset by transmission operation and nan maturation successful sandals.

For nan afloat twelvemonth 2023, we expect our underlying non-GAAP taxation rate, which approximates rate taxation paid to beryllium astir 20%. Our GAAP taxation complaint will beryllium astir 24%.

We expect non-GAAP net per stock to beryllium astir $11 to $11.31 successful 2023, which does not presume immoderate effect from imaginable early stock repurchases. It besides incorporates accrued liking disbursal connected our floating complaint indebtedness associated pinch nan existent complaint environment.

To support maturation for some brands, we expect to put astir $165 cardinal to $180 cardinal successful superior expenditures. Investments see description of our distribution capabilities, including our caller HEYDUDE DC successful Las Vegas, implementation of caller exertion systems for HEYDUDE and description of our firm accommodation to support our growth.

In 2023, we estimate astir $30 cardinal of one-time charges chiefly related to nan aforementioned superior investments and are reasonably balanced crossed COGS and SG&A. We expect nan mixed brands to make important rate flow, allowing america to execute 2 times aliases little gross leverage by nan mediate of this year.

Our superior allocation priorities are first to put successful nan business and second, to equilibrium deleveraging pinch nan eventual extremity of reaching 1 to 1.5 times nett leverage and resuming our historically successful stock repurchase program.

In summary, passim 2022, we delivered beardown gross growth, profitability and rate flow. With nan underlying spot of nan halfway Crocs business and nan summation of HEYDUDE, we are assured we person positioned ourselves for sustained profitable growth, beardown rate travel procreation and important worth creation for our shareholders.

At this time, I'll move nan telephone backmost complete to Andrew for his last thoughts.

Andrew Rees

Thank you, Anne. Crocs, Inc. had an exceptional twelvemonth successful 2022. The Crocs marque is resonating powerfully pinch consumers passim nan world, and we're assured successful continued maturation led by sandals and International.

The HEYDUDE acquisition is exceeding expectations. Integration is going well, and we person a clear scheme for growth. I could not beryllium much excited for nan early and nan tremendous worth creation opportunity for shareholders.

Operator, please unfastened nan telephone for questions.

Question-and-Answer Session

Operator

Thank you. And we will now statesman nan question-and-answer session. [Operator Instructions] And our first mobility coming will travel from Jonathan Komp of Baird. Please spell ahead.

Jonathan Komp

Yeah. Hi. Thank you. Good morning. Anne, tin I inquire a follow-up connected nan first 4th guidance? I judge you said, nan Crocs marque should turn double-digits. Could you springiness a small much colour connected really that mightiness look geographically? And past a bigger image mobility for 2023 for nan Crocs brand, are you expecting North America to turn for nan afloat year? And could you remark connected immoderate of nan drivers crossed immoderate of nan merchandise initiatives and nan transmission capacity you're expecting?

Anne Mehlman

Sure. Jonathan, bully morning. So fto maine commencement pinch afloat twelvemonth and past I'll talk astir Q1. So for afloat year, arsenic shared, we expect nan Crocs marque to spell 6% to 8%, which is astir 9% to 11% fixed changeless rate and maturation is really going to beryllium powered by international, but nan US will grow.

I deliberation we're presently cautious astir nan user successful nan US, particularly successful nan backmost half, but we're still anticipating maturation complete past twelvemonth driven and that maturation is really going to beryllium driven by sandals and newness. And we do expect North America to person bully maturation successful Q1 arsenic well.

And past from conscionable an wide transmission perspective, we still expect DTC to lead nan maturation successful our North America region for this twelvemonth is that we proceed to focus, particularly connected our e-comm side.

Andrew Rees

Yes. And conscionable astir possibly a tad aliases colour to that, John. I deliberation 1 of nan reasons that DTC is starring nan growth. That's wherever we person nan newness, nan fastest, right? We were capable to bring a batch of caller sandals and caller styles to our DTC environments successful Q4, and they are showing up faster arsenic you'd expect successful our DTC environments, some e-comm and successful shop successful Q1, we're highly pleased astatine this constituent pinch nan capacity we're seeing, and we're excited arsenic those caller products supported by successful our societal integer trading flows to wholesale.

Jonathan Komp

That's great. And past 1 follow-up conscionable connected nan outlook for nan Crocs marque gross margin. It looks for illustration you quantified a small complete 400 ground points from airfreight finance and past higher freight and inventory handling successful 2022. So arsenic we deliberation astir immoderate of those costs coming backmost into nan business arsenic a benefit, would you expect Crocs marque gross separator to beryllium backmost to nan 58% level, aliases could you possibly conscionable springiness immoderate colour connected nan puts and takes you spot there? Thank you.

Anne Mehlman

Yes. Let maine -- yes, that's a awesome question. So fto maine conscionable return a infinitesimal to recap. So 2022, obviously, we're anniversarying a precocious constituent from 2021. So our Crocs marque adjusted gross separator vanished astatine 56.7%, which is astir a 500 ground constituent diminution to 2021.

And arsenic you mentioned, we had astir 220 ground points of aerial freight that will travel backmost and past astir 190 ground points of higher freight inventory handling costs that we talked astir coming backmost complete nan year. And past nan remainder was really related to inflationary costs. We had promotions were astir 90 ground points and past currency.

For 2023, we do judge that Crocs marque will beryllium mostly successful statement pinch our semipermanent expectations of astir 58% gross margin. And past HEYDUDE is expected to summation year-over-year, but will ramp slower passim nan twelvemonth because we request to proceed to activity done nan subscale D&L network. So our wide consolidated adjusted gross margins for this year, we're projecting to beryllium astir 55% to 55.5% including evidently nan effect of HEYDUDE. And we will proceed conscionable 1 broadside note, we will proceed to supply gross separator colour by marque for nan remainder of nan year.

Jonathan Komp

That’s each really helpful. Thank you.

Anne Mehlman

Thank you.

Andrew Rees

Thank you.

Operator

Our adjacent mobility coming will travel from Tom Nikic of Wedbush Securities. Please spell ahead.

Tom Nikic

Hey, Andrew, hey, Anne. Thanks for taking my question. I want to inquire -- truthful I judge you said North America wholesale was down 25% successful Q4 and I deliberation connected nan Q3 call, you benignant of gave america for illustration nan wholesale sell-through. It's going to springiness america a amended denotation of nan request for nan marque successful nan wholesale channel. How did nan sell-throughs look successful North America wholesale for Q4?

Andrew Rees

Yeah. I would say, Tom, we were very happy pinch nan capacity of North American wholesale successful Q4. We ended nan twelvemonth pinch inventories successful transmission down double digits, and that was 1 of our benignant of superior goals was to make judge that we took -- it was evidently going to beryllium a promotional quarter. We anticipated that. And we took advantage of that promotional 4th to make judge we're clearing retired of end-of-season equipment and besides enabling our wholesale partners to efficaciously compete successful what would beryllium a promotional pump period. So we're very happy pinch nan capacity of nan wholesale business. It was important to support our inventories successful line. And arsenic we benignant of look astatine our in-channel inventories, we deliberation we're very good positioned for 2023.

Tom Nikic

Okay. I could besides inquire connected nan inventory maturation for nan halfway Crocs brand. I recognize it's benignant of coming down sequentially. But -- optically, it still is simply a beautiful large number, positive I judge it's low-40s. How should we benignant of deliberation astir that moving its measurement down complete nan people of 2023 and do you spot immoderate consequence that you're perchance over-inventoried pinch halfway Crocs brand?

Andrew Rees

Yeah. I would say, Tom, I deliberation there's a mates of ways -- a mates of things to deliberation about. One is, yes, it's a 40% maturation complete nan aforesaid play past year. But if you retrieve that aforesaid play past twelvemonth was an exceptional debased because it was instantly aft nan Vietnam mill closures, right? So connected a normalized basis, we really deliberation nan Crocs inventory is very good positioned comparative to our early maturation plans. So connected a normalized basis, it puts america astatine astir 4 turn, which is wherever we'd for illustration to beryllium from an inventory to income ratio. We deliberation that's benignant of 1 of nan champion successful nan industry, that's best-in-class successful position of moving superior guidance and it allows america to person patient halfway inventories and capable retired erstwhile demand, it allows america to bring successful caller products astatine nan complaint we want to but not person excess inventories connected that. So -- we deliberation it's astir wherever we want it to be, fixed what we expect for early growth.

Tom Nikic

Understood. Thanks, Andrew. And if I could conscionable sneak 1 much successful for you. The $30 cardinal of onetime charges that you're expecting for 2023. Can you springiness america a small spot much colour arsenic to what that comes from? I guess, nan explanation successful nan property merchandise was benignant of investments for maturation which usually are benignant of included successful nan adjusted numbers, but I'm conscionable benignant of funny for illustration what those one-time targets.

Anne Mehlman

Sure. There's benignant of 3 buckets. The mostly of those are things that were conscionable accordant successful really we talk astir it. So, it's distribution halfway overlap wherever we mightiness beryllium transitioning distribution center.

So it's benignant of overlap connected arsenic we're bringing up nan HEYDUDE distribution halfway costs wherever we're playing copy rent and things for illustration that. Also aforesaid pinch -- we're making immoderate changes arsenic we talked about, immoderate investments successful immoderate firm office to grow and truthful we're paying immoderate copy rent there.

So those are nan mostly of nan charges. And past nan different 1 is we're implementing a caller ERP strategy for HEYDUDE. And those costs, we typically telephone retired arsenic a one-time arsenic we don't typically instrumentality ERP systems.

Tom Nikic

That’s helpful. Thanks Andrew. Thanks Anne. And champion of luck successful 2023.

Andrew Rees

Thank you.

Anne Mehlman

Thank you very much.

Operator

Our adjacent mobility coming will travel from Abbie Zvejnieks from Piper Sandler. Please spell ahead.

Abbie Zvejnieks

Hi, guys and acknowledgment very overmuch for taking my question. So really should we deliberation astir nan cadence of gross separator successful position of tailwinds from lopping aerial freight versus nan promotions and nan greater operation of HEYDUDE revenue?

And past conscionable connected nan HEYDUDE inventory composition, I deliberation you said it's a spot elevated. Can you conscionable talk astir nan reasons for this? Is this owed to changes successful wholesale partner behaviour aliases much truthful connected logistics? Just immoderate colour location would beryllium helpful. Thanks.

Anne Mehlman

Yes. Thank you, Abbie. Let maine commencement pinch gross separator past I'll fto Andrew talk astir nan HEYDUDE inventory. So from a gross separator perspective, from a Crocs brand, I expect it to beryllium a beautiful normal cadence passim nan year, truthful a return to seasonal patterns. Q1 tends to beryllium debased conscionable fixed nan wholesale transmission operation successful nan quarter. So I would conscionable exemplary that retired arsenic benignant of normal benignant of seasonal patterns fixed nan guidance.

I deliberation from a HEYDUDE perspective, we do expect, arsenic I mentioned earlier, to beryllium little successful nan first half arsenic we're still rolling done immoderate of those higher freight and retention costs. And past arsenic we get into rolling disconnected those costs arsenic good arsenic into a amended sized distribution center, we expect that to summation into nan backmost half of nan year. And that plays into our wide gross separator that we talked astir from 55% to 55.5%.

Andrew Rees

Yes. And I deliberation connected nan 2nd portion of your question, Abbie, astir HEYDUDE inventories, yes, we consciousness that nan HEYDUDE inventories are heavier than we'd want to beryllium connected a go-forward basis. And I'd opportunity it was principally related to a number of factors.

One is inbound receipts that were ordered pre our acquisition that were astir apt not nan correct creation that we would person liked successful position of -- location was astir apt heavier connected things that haven't sold america quickly. So, we're going to person to activity our measurement done those.

There was besides conscionable nan process of getting nan full readying usability up and moving efficaciously truthful that we tin lucifer request pinch proviso effectively, and we've been beautiful bully astatine that historically.

On nan Crocs brand, we person not been arsenic bully astatine that connected HEYDUDE complete nan past year, but I deliberation we're assured we'll get there. I deliberation we person plentifulness of opportunities to waste this inventory complete nan coming year. We're not panicked astir it, but it's a small spot heavier than we'd for illustration astatine this point.

Abbie Zvejnieks

Perfect.

Anne Mehlman

I deliberation it's connected our owned inventory, conscionable if I tin sound over. One, conscionable a speedy statement is that arsenic our ain inventory, we're really very satisfied pinch inventory that we person successful transmission from nan HEYDUDE perspective.

Andrew Rees

Yes.

Abbie Zvejnieks

Got it. And past different connected promotions, should we deliberation astir this arsenic for illustration much of a normalized level, particularly arsenic you guys are bringing successful much newness and much for illustration manner risk, aliases really are you reasoning astir nan go-forward promotional environment?

Anne Mehlman

Yes. So from a promotional standpoint, I mean, I deliberation Q4 played retired precisely arsenic we anticipated from promotions connected nan Crocs side, especially. I deliberation for this year, we expect it to beryllium normalized promotion environment. Again, I don't deliberation it has to do pinch much of our merchandise mix. I deliberation it has much of a conscionable a return to nan norm of a promotional situation against a very debased promotional situation successful 2021. As we said successful our prepared remarks, we're still really little promotional than we were pre-pandemic. So I do expect promotions to support and beautiful overmuch beryllium successful statement from this constituent going forward.

Abbie Zvejnieks

Got it. Thank you truthful much.

Anne Mehlman

Thank you.

Andrew Rees

Thank you.

Operator

Our adjacent mobility coming will travel from Laura Champine of Loop. Please spell ahead.

Laura Champine

Thanks for taking my mobility and congratulations connected nan world maturation successful Q4. If maturation continues to be, benignant of, mixed towards international, really is that apt to effect gross margins if nan operation continues to displacement successful that guidance successful 2023?

Anne Mehlman

Yes, hello. It does dangle a small spot connected wherever that maturation occurs. So if it occurs successful our direct-to-consumer channels for illustration anyplace other successful nan world, past that's evidently adjuvant from a gross separator standpoint. Obviously, we've had really beardown supplier growth, which is simply a headwind to gross margin, but carries nary SG&A. So nan higher nan supplier maturation person outperformed, it will effect gross margins a small bit, but again, beryllium accretive wide because there's nary SG&A associated pinch it. And that would beryllium embedded, obviously, we've embedded bully world maturation into our guidance. So that would beryllium embedded successful our existent separator guidance from a Crocs perspective.

Laura Champine

And are you incorporating, benignant of, a unchangeable operation of supplier versus DTC, aliases do you deliberation nan outsized maturation successful distributors continues done this year?

Anne Mehlman

No, it's a beautiful unchangeable mix. Actually, I deliberation past year, we had really beardown supplier maturation arsenic we saw tourism return to a batch of markets, and we saw immoderate restock. I deliberation this twelvemonth it's really a overmuch much balanced operation betwixt DTC and distributor.

Laura Champine

Got it. Thank you.

Anne Mehlman

Yes.

Operator

Our adjacent mobility coming will travel from Sam Poser of Williams Trading. Please spell ahead.

Sam Poser

Thank you for taking my question. I person a mini handful. Number one, you mentioned that you're going to summation nan marketing, I would presume for some brands beautiful aggressively. What, benignant of, ROI are you assuming connected those accrued investments?

Andrew Rees

So yes, I deliberation I would opportunity we're going to summation our dollar spend, Sam, but we're investing astatine astir nan aforesaid complaint that we person invested historically. So if you remember, we've tally nan Crocs marque astatine betwixt benignant of 7% and 8% of income successful position of marketing. That includes some our marque trading and a batch of our integer trading and our societal trading and we're maintaining that rate.

But obviously, arsenic nan marque has grown complete nan past respective years, that dollar magnitude is simply a batch much significant. And that's 1 of nan important factors astir standard successful this business. If you person standard and you put arsenic a percent of sales, you tin scope a batch much consumers.

From a HEYDUDE perspective, it will beryllium an summation complete past twelvemonth because we underinvested successful nan first half of nan twelvemonth arsenic we were digesting nan brand. We did put astatine complaint -- astatine astir a akin complaint successful nan backmost half of nan twelvemonth for nan HEYDUDE brand. So it will beryllium an summation successful nan first half and past akin successful nan backmost half. But of course, we're besides getting maturation location arsenic well. So nan dollar magnitude will beryllium larger.

Sam Poser

Well, fto maine travel up connected that. The -- erstwhile you went into 2022 and you said we're going to put x, was nan return connected your finance higher than what you anticipated?

Andrew Rees

The return connected finance was accordant pinch our expectations.

Sam Poser

All right. Thank you. Then what -- and what is nan anticipation for 1Q North American wholesale? Is it going to look for illustration Q4 -- conscionable look to Q4 much akin and past DTC akin arsenic well? Is that benignant of really to deliberation astir it -- successful North America, fixed it appears retailers hesitancy to measurement up astatine nan moment?

Andrew Rees

Yeah. I mean, Sam, I'll return that. We don't guideline by channel, by region, we ne'er have. But what I would opportunity is I deliberation nan measurement to deliberation astir it, I deliberation what you're trying to get astatine is really patient is nan wholesale channel? And do we expect sell-in to benignant of normalize pinch sell-through, right? And arsenic we benignant of deliberation astir nan first half of 2023, we're beautiful assured that sell-in will normalize, we'll sell-through because we've sewage our benignant of in-channel inventories down double-digits astatine year-end. We're very assured that we're benignant of good positioned wrong transmission inventories.

The only challenges that we could expect are immoderate of our partners are still dense -- immoderate are not, but nan dense pinch different brands and trying to negociate constrained DCs and open-to-buy constraints, truthful we are focused -- we are dealing pinch that, and that's a small spot of an unknown. We are starting to present important newness to our North American wholesale. I deliberation we're assured successful that astatine this point, but immoderate of that is simply a spot unknown. So -- but I deliberation successful nan first half of 2023, we'll decidedly spot a normalization of North American wholesale, sell-in and sell-out.

Sam Poser

And past Anne, tin you show maine nan -- what is your assumed for illustration benignant of nett gross liking disbursal -- nan liking disbursal you're expecting for nan afloat year?

Anne Mehlman

Yeah. So from an liking complaint perspective, truthful our guidance evidently assumes higher liking complaint disbursal than past twelvemonth driven by nan afloat twelvemonth of indebtedness related to HEYDUDE successful nan complaint environment. So arsenic a reminder, we locked successful $700 cardinal of fixed complaint indebtedness astatine an mean complaint of 4.2%. And past nan equilibrium of our indebtedness is nan $1.7 cardinal Term Loan B that's floating rate, which is metallic positive 350. So connected average, it's for illustration 7.7%, if you want to exemplary nan liking rate. And past obviously, we paid down $550 cardinal of indebtedness successful 2022, and we expect really beardown rate travel this twelvemonth and important down against this year, which will offset some, but liking will beryllium higher this twelvemonth than it was past year.

Sam Poser

All right. Thanks very much. Continued success.

Andrew Rees

Thanks, Sam.

Operator

And our adjacent mobility is from Jim Duffy of Stifel. Please spell ahead. Jim, your statement is now live. You possibly muted.

Jim Duffy

Sorry astir that. Yeah. I was connected mute.

Anne Mehlman

Good morning, Jim.

Jim Duffy

Good morning, Anne, bully morning, Andrew. I person a mates of questions astir margins for nan brands and nan regions. First, connected HEYDUDE, you've had immoderate unforeseen challenges. The HEYDUDE margins, however, still moving astatine 31%, which is supra your original nonsubjective of 26%, 27%. I conjecture I'm curious, does that make you rethink nan separator opportunity for nan HEYDUDE brand?

Anne Mehlman

Yeah. Hey, Jim, convey you truthful much. I do judge that nan HEYDUDE margins we're very pleased with, overall, nan operating margins. One point erstwhile we primitively guided, HEYDUDE to operating margins, we hadn't pulled retired nan shared work costs from some brands. So now we've pulled that out. And truthful some brands are moving higher operating margins. And past we person evidently pulled retired nan shared work costs to get to our wide operating separator guideline of 26%. So obviously, past year, we ran higher. We delivered 27.7%, but our semipermanent guideline is astir 26% arsenic we proceed to put successful some brands to support nan growth.

Jim Duffy

Helpful. Thank you. Anne and I cognize you don't want to get into location separator guidance. But for nan Crocs brand, tin you speak to nan mixed guidance successful nan location profit pools? Will you spot a meaningful displacement towards international, aliases does planned investments and maturation for world -- you'll support nan separator operation of nan regions -- aliases excuse me, nan profit operation of nan region is comparatively consistent?

Anne Mehlman

Yes. So, a mates of things there. Obviously, from an operating separator perspective, each of our regions are very profitable. As we proceed to standard world markets, we will proceed to spot that profitability expand. In Asia, we've been investing importantly successful China to support that growth. And so, arsenic those Asian markets scale, past obviously, it drives leverage and continues to grow our profit margins. So, I don't expect a important operating separator alteration based connected our world mix.

Jim Duffy

Okay. Thank you very much.

Anne Mehlman

Thank you.

Operator

Our adjacent mobility is from Mitch Kummetz of Seaport Research. Please spell ahead.

Mitch Kummetz

Yes. Thanks for taking my questions. First mobility connected HEYDUDE. So you gave nan guideline successful reported. I deliberation by my math, nan pro forma useful retired to beryllium benignant of mid-teens maturation year-over-year. I'm funny to know, if you expect that to beryllium benignant of a consecutive statement cadence complete nan quarters? I cognize that nan maturation has been moderating a small bit, I think, arsenic you're lapping larger numbers. And I would deliberation that arsenic you spell done nan year, you proceed to benignant of thigh larger numbers. So I'm wondering if we should beryllium reasoning of that benignant of mid-teens connected a straight-line ground pro forma aliases do you expect that to benignant of mean arsenic nan twelvemonth goes by?

Anne Mehlman

Yes. Good morning, Mitch. I deliberation obviously, Q1 is highest maturation conscionable arsenic we didn't ain them for a afloat year. So arsenic you mentioned. On a reported basis, we haven't guided by quarter, I deliberation we spot bully maturation passim nan year. As Andrew besides mentioned, we're cautious successful nan backmost half of nan year, conscionable fixed cautious connected nan Crocs marque but besides conscionable cautious overall, connected nan consumer. So we've incorporated that into our guidance for nan backmost half of nan year.

Mitch Kummetz

Okay. And past connected nan Crocs business, possibly conscionable a mates of questions. You mentioned Clogs maturation successful nan quarter, and I deliberation it was said that nan classical benignant of outperformed nan clog class overall. I'm funny to cognize really lined clogs performed successful nan quarter. I judge that was a beautiful patient business for you guys past twelvemonth successful Q4. And I'm funny really that lapped this year?

And then, I guess, secondly, connected sandals, Andrew, you referenced benignant of 4 benignant of large sandal segments there. I'm benignant of funny if really that benignant of performed by conception successful nan backmost half and past benignant of nan outlook for 2023? I presume that nan benignant of nan mundane portion is nan biggest of those segments. And I'm wondering if you're seeing benignant of outsized maturation location versus nan others, and if that would beryllium expected to proceed successful 2023?

Andrew Rees

Okay. Good. Mitch, a batch of questions there. So, Classic has performed highly good successful Q4. It performed highly good each twelvemonth long, right? And arsenic benignant of we mentioned successful our prepared remarks, arsenic we look to summation stock successful a batch of world markets, it's important that we really cement and onshore nan classic, and we've been doing an exceptional occupation of that. So that's been driving beardown classical growth. Classic besides proceed to do -- online Classic continues to do highly good successful nan US.

From a Lined perspective, statement – I opportunity nan Lined business successful nan US peaked past year. So that was astir apt a precocious watermark of user takeaway of Lined that moderated a small spot this year. And we expect that to mean successful nan future, right? We deliberation we're going to reset nan Lined business astatine a small spot of a little level. It's a very important constituent for our 4th fourth business.

We deliberation we've sewage immoderate really beardown invention coming into that area. I would opportunity world for Lined is simply a wholly different story. So connected an world basis, Lined still has a batch of incremental penetration opportunities successful those markets that benignant of request a wintertime Lined products. So I deliberation Northern Europe deliberation bluish parts of Asia, right?

So a spot of a different communicative successful statement successful different parts of nan world. And from a sandals perspective, yes, we talked astir H2 for sandals, 30% positive maturation and you're correct that if you deliberation astir Q4 maturation successful sandals, it was 50-plus percent. So 50-plus percent maturation complaint for Q4 successful sandals, really driven by a batch of those caller styles that we've brought to market, arsenic good arsenic beardown sell-in of sandals to our supplier markets and immoderate of those supplier markets are sandal dense if you deliberation astir Southeast Asia.

Mitch Kummetz

Okay. That’s helpful. Thanks and bully luck.

Andrew Rees

Thank you.

Anne Mehlman

Yes.

Operator

Our adjacent mobility is from Jay Sole of UBS. Please spell ahead.

Mauricio Serna

Hi. Good morning. This is Mauricio Serna connected behalf of Jay Sole. Thanks for taking our questions. Congratulations connected nan results. Maybe I wanted to inquire a small spot much -- if you could supply much specifications connected nan European business, really is that performing and what are your expectations for this twelvemonth successful that peculiar business erstwhile we look astatine it from a wholesale and DTC perspective?

Also, arsenic we deliberation astir nan gross separator outlook for 2023, erstwhile do you deliberation we thigh a return to much normalized promotional levels? And lastly, connected nan -- nan wellness of nan equilibrium sheet, it seems that you're connected way to getting to your target leverage ratio. Should we expect nan institution to resume buyback activity arsenic soon arsenic 2nd half of 2023 and astatine a akin complaint arsenic what you were doing anterior to nan HEYDUDE acquisition? Thanks.

Andrew Rees

So Mauricio, I'll springiness you a small colour connected EU and past Anne will talk astir gross separator and equilibrium sheet. So look, nan EMEALA business - our EMEALA segments, which evidently Europe, Middle East, Africa and LatAm performed highly good successful nan 4th quarter. 75% maturation is evidently exceptional.

If we benignant of isolate down to Europe, we're seeing very beardown trajectory for nan Crocs marque successful nan European market. I deliberation successful our prepared remarks, we called retired arsenic an illustration of that, 105% maturation successful nan UK, which is evidently an important marketplace successful Europe. So we're seeing very beardown trajectory for nan marque that's showing up some successful our DTC business, which successful Europe is chiefly integer and it's besides showing up successful our wholesale business. As we look to 2023, I don't deliberation we're going to thigh 75% growth, but we still spot very beardown trends successful our European business. So we're very confident. And that's really astir nan marque trajectory. The marque is getting traction. And we are not seeing a important pullback from nan user for our brand. I'm not saying that's not existent crossed broader merchandise categories, but they still person -- they're still buying Crocs.

Anne Mehlman

Yeah. And past I deliberation your 2nd mobility relies connected gross separator outlook. And truthful arsenic I mentioned, I deliberation from a separator perspective, Q4 played retired precisely arsenic we anticipated pinch margins arsenic good arsenic nan promotional environment. I deliberation our seasonal promotions and liquidation of each inventory was very successful. And that continues. Q1, January tends to beryllium you're cycling done nan liquidation play and past you get to much normalized passim nan quarters. I deliberation from a return of nan promotional environment, we're still little promotional than we were pre-pandemic. And truthful we consciousness for illustration we're astatine a beautiful normalized level this year. I don't spot thing that's retired of nan ordinary.

And past your 2nd mobility connected superior allocation. We're -- we paid down $550 cardinal of indebtedness successful 2022, which we're really pleased with. And our privilege during 2023 is to proceed to salary down indebtedness to get to that 2x gross leverage and past proceed past that. Then we person immoderate options of really we want to allocate. So astatine existent liking rates, we would arsenic salary down debt, that will beryllium a privilege arsenic we target to get 1x to 1.5x nett leverage, and past we will besides look astatine resuming our stock repurchases astatine that point.

Mauricio Serna

Okay. Thank you truthful much.

Anne Mehlman

Thank you.

Operator

[Operator Instructions] Our adjacent mobility is from Aubrey Tianello pinch BNP Paribas. Please spell ahead.

Aubrey Tianello

Good morning. Thanks truthful overmuch for taking my question. I wanted to commencement retired pinch nan SG&A outlook for 2023. Just fixed you're being a small much cautious pinch your position connected nan gross guideline for this year, a small little than nan semipermanent algo. Can you conscionable -- immoderate much item connected wherever you're capable to propulsion backmost connected SG&A to sphere nan 26% EBIT margin?

Anne Mehlman

Yeah, sure. So successful 2023, we scheme to put principally successful trading and talent. And that -- arsenic Andrew mentioned earlier connected nan call, we -- for marketing, we put arsenic a percent of income of 7% to 8%. So obviously, if gross was to importantly diminution pinch america an area we look astatine pulling backmost on, though it's usually we effort not to because we want to really sphere nan brand. So I don't deliberation it's basal for america to propulsion backmost from an SG&A standpoint to deed nan 26%. Obviously, we're investing much year-over-year because this year, successful 2022, we were complete nan 26%. But if business doesn't move retired arsenic expected, we tin propulsion SG&A levers and beautiful quickly deleverage fixed nan elasticity of our costs structure.

Aubrey Tianello

Yeah.

Andrew Rees

Yeah. Yeah. I deliberation really, I emphasize, are our position is nan other of your question, which is pinch maturation successful nan business and description successful gross margins, we're really capable to proceed to put to thrust early maturation from an SG&A constituent of view.

Aubrey Tianello

Got it. Yeah. Got it. And past possibly conscionable 1 connected HEYDUDE. Just fixed nan magnitude of maturation successful nan past mates of years has been truthful impressive. Can you thief america understand really overmuch much room location is domestically for nan marque successful position of wholesale doorway penetration really acold on you are pinch that process and really overmuch opportunity is near successful nan US?

Andrew Rees

Yes. Great question. So, we've made really bully advancement successful our first twelvemonth of ownership successful benignant of wholesale doorway penetration successful nan US, right? So, we're really pleased pinch nan advancement we've made and arsenic you benignant of implied successful your mobility that has fueled our growth. As we look astatine 2023, we do consciousness for illustration location is incremental doorway penetration and there's still semipermanent doorway penetration disposable successful nan US.

There are still a number of cardinal and important customers that we person not yet penetrated that we're evidently moving on. And I deliberation successful summation to that, there's a batch of stock by doorway opportunity, right? So arsenic we proceed to bring caller styles to market, arsenic we proceed to thrust greater marque consciousness for nan HEYDUDE marque consistently crossed nan US.

If you retrieve erstwhile we purchased nan brand, it was -- its consciousness was regional, I would picture it as.

So, arsenic we put successful trading thrust awareness, we will spot some doorway penetration. We'll stock description of stock by door, and we will see, we believe, an summation successful rates of sell-through. So that will beryllium somewhat constrained successful 2023, because we're dealing pinch a constrained distribution web wherever our D&L capabilities are not accordant pinch our maturation potential. But complete nan agelong run, we spot tons of runway for North American maturation successful HEYDUDE.

Aubrey Tianello

Great. And past possibly if I could conscionable follow-up quickly connected that. Any update connected nan clip framework for expanding internationally pinch HEYDUDE? And is immoderate of that reflected successful nan guideline for nan year?

Andrew Rees

Yes. I deliberation actually, 1 constituent I conscionable want to spell backmost successful my past reply and adhd to it. I deliberation PD released immoderate accusation conscionable precocious and indicated that HEYDUDE was I think, 1 of, if not nan fastest-growing marque successful nan US successful Q4, truthful successful dollar terms. So, that's evidently exceptional.

From an world perspective, yes, we're ace clear, right? So, our crippled scheme for 2023 is to proceed to trial nan marque internationally. That will impact nonstop distribution pinch immoderate prime wholesale customers and a integer beingness successful nan UK and Germany that will travel up later benignant of successful nan 2nd to 3rd quarter.

It will besides impact distribution pinch immoderate cardinal wholesale partners successful nan benignant of Middle East -- sorry, successful nan Southern Europe and nan Middle East. So we've been -- that's our scheme for HEYDUDE International. We deliberation it's critically important that we get really beardown feedback from these important markets. We've done a batch of investigation associated pinch benignant of marque receptivity but that's our plan. It's comparatively humble successful position of dollars successful 2023. It's each astir testing and positioning for nan future.

Aubrey Tianello

Thank you truthful much.

Andrew Rees

Thank you.

Andrew Rees

Thank you.

Operator

At this time, we will reason our question-and-answer session. I'd for illustration to move nan convention backmost complete to Andrew Rees for immoderate closing remarks.

Andrew Rees

Thank you very much, everybody. Appreciate everybody's liking and awesome questions this morning. And arsenic you tin show from our prepared remarks and besides nan answers to our questions, we're incredibly assured successful position of really our marque is positioned aliases brands are positioned for different breathtaking twelvemonth successful 2023. Thank you.

Operator

The convention has now concluded. We convey you for attending today's presentation. You whitethorn now disconnect your lines.