Crocs (CROX) Q3 2023 Earnings Call Transcript

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Crocs (CROX 1.53%)
Q3 2023 Earnings Call
Nov 02, 2023, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Crocs, Incorporated third quarter 2023 earnings call. All participants will be in listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note this event is being recorded.

I would now like to turn the conference over to Erinn Murphy, senior vice president of investor relations and corporate strategy. Please go ahead.

Erinn Murphy -- Senior Vice President, Investor Relations and Corporate Strategy

Good morning, everyone, and thank you for joining us today for the Crocs, Inc. third quarter 2023 earnings call. Earlier this morning, we announced our latest quarterly results, and a copy of the press release and our slide presentation may be found on our website at crocs.com. We would like to remind you that some of the information provided on this call is forward-looking and accordingly is subject to the Safe Harbor provisions of the Federal Securities Laws.

These statements include, but are not limited to, statements regarding our supply chain challenges, cost inflation, the acquisition of HEYDUDE and the benefits thereof, Crocs' strategy, plans, objectives, expectations, financial or otherwise, and intentions, future financial results and growth potential, anticipated product portfolio, and our ability to create and deliver shareholder value. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events, except as required by applicable law. We caution you that all forward-looking statements are subject to risks and uncertainties described in the Risk Factors section of our annual report on Form 10-K and our subsequent filings with the SEC.

Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs' Annual Report on Form 10-K, as well as other documents filed with the SEC for more information regarding these risk factors. Certain financial metrics that we refer to as adjusted or non-GAAP are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning.

Joining us on the call today are Andrew Rees, chief executive officer; and Anne Mehlman, executive vice president and chief financial officer. Following their prepared remarks, we will open the call for your questions. At this time, I will turn the call over to Andrew.

Anne Mehlman -- Executive Vice President, Chief Financial Officer

Thank you, Andrew, and good morning, everyone. I will begin with a short recap of our third quarter results. All revenue growth rates will be sighted on cons and currency basis and less otherwise stated. For reconciliation of the Non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to this morning's press release.

We had a strong third quarter with over a billion dollars in consolidated revenue representing approximately 6% growth year over year. We delivered another quarter of industry leading margins with adjusted gross margin a 57.4%, adjusted operating margin 28.3%, an adjusted diluted EPS growth of 9%. Our portfolio is diversified from a brand channel and geography perspective. On a trailing 12 months basis and in Q3 Crocs brand revenues were 75% of total revenues and HEYDUDE brand revenues were 25%.

Channel mix was well-balanced with wholesale revenues representing 53% of TTM revenue and DTC at 40%. Finally, approximately 33% of total TTM revenues and 40% of Crocs brand TTM revenues were from international market. During the third quarter, Crocs brand revenues were $799 million growing 11% relative to prior year and driven by strong DTC growth with 18.4%. The brand sold 29 million pairs of shoes, a decrease of 4% from last year.

The unit declined came almost entirely from our EMEALA region tied to the corrective actions we took last quarter to curtail a significant African distributor that we believe was diverting goods to the US Gray market. The Crocs brand average selling price during Q3 was $27.25 which was up 15% on a constant currency basis driven by product mix, fewer DTC promotion, international price increases, and channel mix. Within the Crocs brands, Crocs grew double digits and continued to generate demand with newer products such as Echo, Mega Crush and Height in Asia. Kids is also developing into a solid category for the brand and took significant share during the back-to-school season, representing approximately 20% of footwear revenues.

Sandals increased 6% in Q3. As Andrew mentioned, sandal growth was lighter in Q3 as we destocked the classic franchise ahead of relaunching an updated line in 2024. Finally, Jibbitz continues to create excitement and engagement with consumers around the world, growing 15 percent from last year, with growth across all three regions, but particularly strong in Asia. Now, let's discuss a few Crocs brand highlights by region.

In North America, third quarter revenues increased 8% to $481 million. We gained significant market share in a declining U.S. footwear market. North America DTC comparable sales were up 10.2%.

Wholesale revenues decreased 1% as double-digit brick-and-mortar wholesale growth was offset by declines to Amazon as we evolve our distribution model on Amazon. This shift negatively impacted unit growth and positively impacted ASP growth in our North America region. As we look into 2024, we are pleased with the strength of our spring order book for North America wholesale. Crocs brand Q3 revenues in Asia grew 29% to $175 million, and growth was broad-based across countries and channels.

Australia led the growth with revenues increasing triple digits, and China grew over 90% versus last year. South Korea and Southeast Asia each saw strong double-digit growth rates in the quarter. Crocs brand revenues for Amelia were $143 million, up 3% from the third quarter of 2022. This quarter, we saw robust double-digit growth in the U.K.

and France. This strength was somewhat offset by Germany, which weakened during the quarter against a tough economic backdrop. As previously mentioned, we terminated a relationship with a significant distributor servicing Africa in Q2. In Q3, we saw an $8 million revenue headwind from this corrective action, and we expect to see a $13 million headwind in Q4, bringing the year to a cumulative $29 million revenue headwind.

Turning to HEYDUDE, Q3 revenues were $247 million, a decrease of 9% from last year. During Q3, the brand sold 8.3 million pairs of shoes, a decrease of 11% over last year. HEYDUDE average selling price during Q3 was $29.68, a 3% higher than prior year. Its channel mix into DTC and product mix in wholesale was partially offset by double-digit pricing declines on e-commerce.

As a reminder, our average selling price is a basic average and not adjusted for channel dynamics. Wholesale revenues were down 20% from Q3 last year, as we continue to let pipeline fill, and as lower consumer footfall led to retailers seeking a more conservative approach to at-once orders. The DTC channel, which is predominantly e-commerce, led the growth with revenues increasing 15% from last year. Consolidated adjusted growth margins for the third quarter were 57.4%, increasing 230 basis points from last year, driven by favorability in ocean freight rates and the absence of air freight, as well as lower promotional activity in the Crocs Brand.

These were both partially offset by higher overhead and fulfillment costs associated with our HEYDUDE distribution network inefficiency. Turning to the brands, adjusted gross margin for the Crocs Brand was 62.1%, or 460 basis points higher than prior year. Key drivers of this improvement include 340 basis points from lower freight, fewer year over year promotions, partially offset by product mix. HEYDUDE adjusted gross margins were 42.8%, down 600 basis points from prior year.

Approximately 500 basis points of margin headwind came from higher levels of discounting in our digital channels. Distribution and logistics inefficiencies also remain headwinds. Offsetting these headwinds, we saw lower inbound freight in the quarter. During the third quarter, consolidated adjusted SG&A represented 29.1% of revenues, which is 190 basis points higher than last year, as we invested more in talent and marketing for both brands to support our growth trajectory, and we annualized additional investment for HEYDUDE.

Our third quarter consolidated adjusted operating income was $296 million, an increase to prior year by 8%, and consolidated adjusted operating margins increased 40 basis points, remaining best in class at 28.3%. Our third quarter non-GAAP diluted earnings per share increased 9% to $3.25. Our continued strong free cash flow generation enabled us to repay approximately $90 million of debt in Q3, reducing borrowings to approximately $2 billion. At the end of Q3, our gross leverage was approximately 1.7 times, as we ended the third quarter with $127 million of cash and cash equivalents.

During Q3, we resumed our share purchase activity and completed $150 million of share buybacks, repurchasing 1.4 million shares at an average price of $107.85. We currently have $900 million remaining on our share repurchase authorization. We will continue to balance debt repayment and share repurchases and remains committed to our long-term net leverage target of one to one and a half times. Our inventory balance at September 30, 2023, was $390 million, a decline of 24% to last year.

Crocs Brand inventory was $279 million, down 14% to prior year, and HEYDUDE inventory was $111 million, a decrease of 41% to prior year. Inventory turns continue to improve, and we are very pleased with the health of our inventory. As we look forward, I would like to share our current outlook for the fourth quarter and full fiscal 2023. All numbers will be on a reported basis, unless otherwise stated.

While we are very pleased by our consolidated results in the first nine months of the year and the standout performance of our Crocs Brand, we recognize our HEYDUDE performance has fallen short of expectations. As Andrew mentioned, we took actions during Q3 to prioritize longer-term marketplace health. As such, we are reducing our expectations for Q4 in the full-year. For fiscal 2023, we now expect consolidated Crocs Inc.

revenue growth to be 10% to 11% compared to 2022, down from the prior range of 12.5% to 14.5% growth and resulting in full-year revenues of approximately $3.905 to $3.940 billion. From a brand perspective, our expectations for the Crocs Brand remain unchanged at 12% to 13% revenue growth, despite a tougher FX headwind than we previously projected. For HEYDUDE, we are lowering our full-year revenue outlook to up approximately 4% to 6% on a reported basis, down from our prior range of 14% to 18% growth. This translates to a contraction of 4% to 6% on the 2022 pro forma revenues of $986 million.

As always, we are focused on best-in-class profitability. We continue to expect our consolidated growth margins to be greater than 55.5% led by the Crocs brand. Given the confidence we have in our brand's long term, we are making a conscious effort to continue to invest across the enterprise, and we now expect full-year adjusted operating margins of approximately 27%. Our adjusted diluted earnings per share outlook moves to $11.55 to $11.85, down from our prior guidance range of $11.83 to $12.22.

For Q4, we expect consolidated revenues to be between $903 million and $938 million, implying a contraction of 1% to 4% from last year. Within the brands, we expect Crocs to grow 4% to 7%, and HEYDUDE to be down 20% to 25%. We expect Q4 adjusted operating margin to be approximately 21% and adjusted diluted earnings per share of $2.05 to $2.35. At this time, I'll turn the call back over to Andrew for his final thoughts.

Andrew Rees -- Director and Chief Executive Officer

Thank you, Anne. As we look forward, our focus remains squarely on sustaining brand health, investing behind market share gains, and supporting durable revenue and profit growth. I remain confident in our brands, our leadership, and a significant opportunity ahead of us to take share in the casual footwear market. At this time, we'll open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Jonathan Komp from Baird. Please go ahead.

Jonathan Komp -- Robert W. Baird and Company -- Analyst

Hi. Thank you. Good morning. I want to ask first on HEYDUDE.

Maybe, Anne, if you could clarify the fourth quarter outlook, just broad expectations for the two channels. And for your strategic accounts and wholesale, are you losing shelf space or what should we make of the reported revenue trend there? And then, maybe, Andrew, more broadly for 2024, I want to get your thoughts, I know when you bought the brand you talked about revenue north of $1 billion for 2024. Is that still a realistic possibility or has been pushed out a while? And when you think about the factors to drive sell-throughs, how do you rank orders or the biggest opportunities in the next year?

Andrew Rees -- Director and Chief Executive Officer

Yes, OK. Let me talk about Q4 shelf space. Anne will then give you some updates on the channel expectations for HEYDUDE, and then I'll come back and talk about '24. So, from a Q4 perspective, we don't believe we're losing shelf space.

In fact, we're not losing shelf space in our strategic accounts. We have ample evidence for that. We're taking down our sell-in expectations to allow us to lower in-channel inventories. We're doing that in a number of ways; one, proactive cancellation of prior orders so that there's less inventory flowing into the channel.

We're also supporting our wholesale partners with some inventory cleanup that includes, so both returns and also some markdown funding so they can clean their inventories in the fourth quarter of this year. The strategic accounts in the Q3 were up 28% in terms of their sellout. And we think they will continue to grow in terms of sellout and the brand will gain share in the fourth quarter.

Anne Mehlman -- Executive Vice President, Chief Financial Officer

And then, Jon, for your question on clarifying HEYDUDE growth, so our full-year HEYDUDE guidance on a reported basis is 4% to 6%, on a pro forma basis it's to shrink 4% to 6%. So, that implies that our Q4 growth for HEYDUDE, our Q4 would be negative 20 to negative 25. It's the revenue guide. And then, when you think about channels, that's, as we talked about, it's still -- that implies negative wholesale.

And then, we expect DTC to be slightly better than that.

Andrew Rees -- Director and Chief Executive Officer

And then, from a '24 perspective, last part of your question, Jon, yes, I think we're very confident the brand will be north of $1 billion in 2024. We do anticipate that wholesale sales, which is obviously predominantly North America, will be down in the first part of the year. But we're confident that DTC will be up and, overall, would drive growth for the full-year.

Jonathan Komp -- Robert W. Baird and Company -- Analyst

OK. And is it possible, Andrew, just your thinking today, I know it's early, but in terms of the biggest contributors to the sell-through, whether it's some of the distribution capacity, new products, new geographies, how are you thinking about the biggest drivers as they line up sitting here today?

Andrew Rees -- Director and Chief Executive Officer

Yes, so I think there's a few things going on. One is, I think, account rationalization. So, as we think off sellout, sellout at our strategic accounts has been strong, as we highlighted the 28% growth in Q3, and I think we published the growth rates that we've seen in prior quarters. So, the strategic accounts, HEYDUDE is performing well with those accounts.

We have rationalized a significant number of non-strategic accounts or legacy accounts about 50%, we closed over 600 doors by the time we get to the end of the year. We've also rationalized the digital selling for the non-strategic accounts. There was a very long list of accounts that historically had the rights to sell digitally. They have all been revoked apart from our core strategic accounts.

So, we're doing the hard work to get a significant reset for the brand in the North America marketplace with our wholesale partners. We do anticipate our wholesale partners to plan their overall business pretty conservatively in this consumer environment, both through the fourth quarter of this year and in the first part of next year. And I think we also are very focused on driving improved product differentiation and segmentation across our wholesale partners, with both new product introductions. I think we feel very confident about the pipeline of new products that we have.

And you've seen us start to ramp up the licensing and collaboration engine that we use on Crocs in HEYDUDE, you've seen a couple of those, we talked about it in our prepared remarks, and that will accelerate through the back-half of this year into next year.

Jonathan Komp -- Robert W. Baird and Company -- Analyst

OK. That's very helpful. And then, just one, and if I could on the fourth quarter operating margin target, could you just tell me there, are you embedding any change in promotional activity for the Crocs brand in the gross margin there? And G&A, are you changing the expectations at all for the slightly more challenging top line environment here? Thanks again.

Anne Mehlman -- Executive Vice President, Chief Financial Officer

Yes, so a couple of things. I would say we're really pleased, overall, with our Crocs gross margins. And we reaffirmed our gross margin guidance for the year. So, we actually think, from a promotional standpoint, year over year promotions, we're planning flat to last year.

We'll participate in normal promotional periods, but we don't see or anticipate any big change. And then, from an SG&A standpoint, we do think it's really important to invest for the future and not try to manage one quarter from a profitability standpoint. So, we do expect to continue invest SG&A, and that's how you get to the overall profitability guidance.

Operator

Our next question comes from Jim Duffy from Stifel. Please go ahead.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Well, thank you. Good morning. Wanted to ask a few questions on HEYDUDE, I guess, Andrew, I'll ask you the Monday morning quarterback, the HEYDUDE business, some, you've built a lot of awareness to the brand, generated a lot of cash, successfully paid down a lot of debt from the HEYDUDE deal. If you had to do it over again, what would you have done differently, and maybe would that give us some context for the extent of the marketplace challenge and maybe size to the spring order declines to give us context for that impact? Thanks.

Andrew Rees -- Director and Chief Executive Officer

Yes, I think that's a question, it's well-framed, Jim. As we look at the brand, we've grown it over 60% from a top line perspective since we've owned it. We've generated over, approximately, $472 million of EBIT since we've owned, it's had strong cash flow, and it's been accretive from day one. So, I think while there are some short-term challenges, it's been a great addition to our portfolio.

In terms of the challenges, I think we've really focused on three key areas. One is getting stronger control of in-market inventory. And I think the rationale here, so the Monday morning quarterback perspective, we sold in a lot of inventory in 2022 into the market. We wanted to penetrate the broad-based national accounts very quickly.

And so, we wanted to penetrate the broad-based national accounts for two reasons. We wanted to capture the shelf space. We also wanted to leverage the presence of the product on the shelf in the regions where the brand had not historically been distributed to raise brand awareness. I think that's worked extremely well.

We've definitely captured shelf space, and we've raised brand awareness. We talked in our prepared remarks as how we believe the awareness of the brand is now 32% on a national basis, up from 18% earlier in the year. But I think the level of inventory was too high. So, really what we're doing is proactively lowering in-channel inventories and working with our strategic accounts to clean up that inventory and putting them in a strong sell-through and in a more profitable position.

That's painful in terms of sell-in, which is what you see showing up in our Q4 guidance and what you see in our anticipated Spring '24 order book. The second thing is improving segmentation and differentiation such that all of our key customers that may trade, in some cases, in the same mall or in the same center, can continue to grow their businesses collectively. So, as we get a stronger innovation and stronger product pipeline, we believe we can effectively do that. And the third thing is taking control of pricing, particularly in the digital realm.

We've talked about when we closed a lot of our international distributors, some of that excess inventory, and I think we didn't have full visibility to the amount of inventory that those distributors were holding. That has started to show up on Amazon, in the grey market. We've seen a lot of price pressure from that. Historically, we had a strategy where we thought we could compete from a price perspective and make sure we captured our fair share that was dragging down overall pricing in the market.

So we've pivoted from that perspective, that's given up quite a bit of revenue expectation in the short term, but it's raised our ASPs, raised our profitability. It's obviously much more supportive of our wholesale customers. And we're hoping that Gray market inventory sells out quickly, and we can reset the digital market. So those are probably the three big buckets from a Monday morning quarterback perspective, and we're very confident that those will put us in a great position to continue to accelerate this brand in the long term.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Thank you for that. And question just on the HEYDUDE profits pool outlook into fiscal '24, do you still see HEYDUDE gross margin of 50% is achievable in fiscal '24? It looks like the inventories are tight and perhaps maybe even there's less clearance than this year, do you think that the HEYDUDE profit pool be in decline in fiscal '24?

Anne Mehlman -- Executive Vice President, Chief Financial Officer

Yes, so first, I want to comment that, I think, inventories for both brands are in really good shape. So I would say that we're very pleased there. And as you mentioned, HEYDUDE inventory was down about 40% of the quarter. We're not ready to guide for next year at this point, but we do expect that HEYDUDE growth margins will improve next year as we have what's ASP pressure from the Gray market, as well as we've talked about will have better distribution of logistics as we open up our distribution center in Q1 of next year.

Operator

Our next question comes from Abbie Zvejnieks from Piper Sandler. Please go ahead.

Abbie Zvejnieks -- Piper Sandler -- Analyst

Great. Thanks so much for taking my question. Just on the gross margin, I know you maintain the 55.5% or greater than 55.5% that could still imply some like year over year pressure on the gross margin line item. And since you're not planning for a different promotional strategy at Crocs, can you just help us unpack what would lead the pressure on gross margin on the year over year business?

Anne Mehlman -- Executive Vice President, Chief Financial Officer

Yes, so from a pressure on gross margin, I'm not completely sure that I understand the question, Abbie. I think for the overall 55.5 guide that would imply that gross margin for the fourth quarter will be up versus last year for overall consolidated by, I think, a couple 100 basis points. So maybe you can give me what you're thinking through.

Abbie Zvejnieks -- Piper Sandler -- Analyst

Yes, I guess just like what's driving that pressure year over year?

Anne Mehlman -- Executive Vice President, Chief Financial Officer

Yes, so we expect gross margins to increase for the year and we expect gross margin to be up for the fourth quarter specifically focused on the Crocs side. Again, that would be helps overall, we've had freight tailwinds all year and more full price selling on the Crocs side, which will be slightly offset year over year from the HEYDUDE side as those gross margins will decline in Q4 as we've seen all year, as we have a subpar distribution and logistics strategy, given where we are and so we can get into next year. But overall we do expect gross margins to be up year over year in Q4.

Abbie Zvejnieks -- Piper Sandler -- Analyst

OK. Got it, that's helpful. And then, just on the HEYDUDE DTC expectations for... And they said it's better than wholesale, but can you just give any color on what you're seeing? I know maybe the pricing controls are impacting that, which is any color like order to date would be helpful.

Andrew Rees -- Director and Chief Executive Officer

Yes, I mean, I can give a little color. I don't think we're going to give any more specific metrics. From a DTC perspective, we have raised prices, particularly on the Amazon components, which shows up in DTC because it's a 3P model if you remember correct. So we no longer competing with the Gray market, so APS are up.

Even in these last few weeks, we can see ASPs up on average $10 a pair, which is obviously very significant. That is given up some market share, the Gray market is taking a little bit greater share in the market. But we think Net-Net with some newness and excitement that will eject into the market that we overall can grow at DTC business. We also highlighted in our prepared remarks, we will have opened by the end of the quarter five outlet stores, those are proper outlet stores.

You may remember we had a number of clearance stores in, I would say, lower quality centers around the country where we were looking to liquidate some of the aged inventory that we bought at the acquisition. We have opened five proper outlet stores that showcase full-price goods at the front of the store, do have some liquidation capability, and also I think, showcase the brand and all of the various components of the brand. So those will also be in the DTC number for the quarter, and that will be obviously, a non-comp component.

Operator

Our next question comes from Tom Nickik from Wedbush Securities. Please go ahead.

Tom Nickik -- Wedbush Securities -- Analyst

Hey. Thanks for taking my question. I know you've got a lot going on at HEYDUDE domestically, but in the past, you've kind of talked about expanding internationally, given how underpenetrated the brand is there. Do your plans to expand internationally get put on hold now, or do you kind of pump the brakes a little bit, given the challenges that you're seeing in the domestic market?

Andrew Rees -- Director and Chief Executive Officer

Yes, good question, Tom. In essence, no. We think the brand has significant global relevance. We've talked about in the past we've reshaped the international business.

When we bought the brand, their distribution strategy was distributor-orientated, so they had a portfolio of about 35 distributors across the world, most of which were doing a poor job. We've terminated most of those distributors. There are two that continue to do a good job. I think we've highlighted this in the past, the distributor in Italy and the distributor in Spain.

Those are both really nice businesses. They do well. They do a great job distributing the brand in the marketplace. And if I think about what is really a U.S.-centric brand, if they can succeed in those markets, those are some of the tougher markets in my view, for a U.S.-centric brand to perform.

I think it gives you evidence that the brand can perform well poorly -- sorry, perform well across a broad range of international markets. We are putting some time and effort into, I would say, experiments as we try and understand which are the right markets to penetrate internationally. We know brand awareness is very, very low, but we are putting time, effort, and some resources against that. It will take kind of two to three years, but it does start next year.

Tom Nickik -- Wedbush Securities -- Analyst

All right. Thanks, Andrew. Best of luck this holiday season.

Andrew Rees -- Director and Chief Executive Officer

Thank you.

Operator

The next question comes from Sam Poser from Williams Trading. Please go ahead.

Sam Poser -- Williams Trading -- Analyst

Thank you all for taking my questions. I want to follow up on Monday morning quarterbacking here a little bit, Andrew. Could you make the argument that you focus much more on supply than on demand as you are selling goods in, and you are shifting to more of a demand-based way you are looking at the HEYDUDE business now?

Andrew Rees -- Director and Chief Executive Officer

Yes. I would not say it quite like that, but I think, in essence, you end up in the same place, Sam. Yes, we are certainly cutting supply into the wholesale arena to ensure that supply is pegged at or below demand. That is a demand-based environment.

I think, as we sold in historically, we did not know where demand was going to be, but I do think we now have a lot more know where demand was going to be, but I do think we now have a much stronger lens on that. Yes, that is a reasonable way of saying it.

Sam Poser -- Williams Trading -- Analyst

If you had to do it all over again, would you have grown the business as quickly as you did last year?

Andrew Rees -- Director and Chief Executive Officer

I probably would have done, but probably would have hoped that we could have had, I would say, stronger segmentation between the accounts such that we could give everybody the opportunities to succeed, and they were not competing against each other. I do think it was important to grab shelf space, which we were able to do very effectively. Obviously, it is not great if you are a public company to have one year of great growth and the next year of flat to contracting growth, but net-net, I think we have put ourselves in a good position from a brand and consumer perspective. I probably would do it, but probably do it in a better way and maybe slightly moderated.

Sam Poser -- Williams Trading -- Analyst

Is the Las Vegas Distribution Center up and running now?

Anne Mehlman -- Executive Vice President, Chief Financial Officer

Yes, this is Anne. We are mostly through construction, and it will be up and running in Q1.

Sam Poser -- Williams Trading -- Analyst

Thanks. And then, you talked about the sell-through rates or the sell-through of 28% in your strategic wholesale accounts. But what were the -- how much of that was at the -- how much of that was on sale? I mean, did the ASPs go down to drive that given the gray market and the amount of inventory in the marketplace?

Andrew Rees -- Director and Chief Executive Officer

The ASPs in the strategic wholesale accounts were actually up over the prior year. They were strong. So that wasn't a sell. That wasn't a promotional.

Obviously, there are promotions during back-to-school, but that wasn't more promotional than the year before. The compression on ASPs was really on Digital, on Amazon, and on our own dot-com. So hopefully that answers your question.

Operator

The next question comes from Rick Patel from Raymond James. Please go ahead.

Rick Patel -- Raymond James -- Analyst

Thank you. Good morning. I'm looking for additional color on the distribution of HEYDUDE. So can you paint a picture for what HEYDUDE distribution looked like earlier this year, perhaps in terms of number of doors, and where you expect it to shrink to as the brand right sizing goes on? And then, as you think about 2024 and leaning into some of the growth areas and higher quality points of the business, where do you see this distribution evolving to?

Andrew Rees -- Director and Chief Executive Officer

Yes. I think I'd probably go back further than the beginning of this year. What I'd say is when we bought the brand, the brand had about 1,300 points of distribution that was regional and very much orientated toward small mom-and-pop accounts, right?. So of that 1,300 doors, we've closed over 600 accounts, so that's probably more doors than that.

But we've closed over 600 accounts, many of them with single doors, but some might have had one or two. And we've really extended the brand into large national chains. And as we kind of think about the HEYDUDE brand, we see the HEYDUDE brand essentially being sold almost everywhere that the Crocs Brand is sold. So I think about the primary chain, we're talking about family footwear, we're talking about sporting goods, we're talking about mall-based specialty, and then I want to say also some sort of super regional chains.

So I think we're mostly in the customers that we want to be in. In a lot of those customers, were all doors, and there are a few of those customers we are partial doors, so we've got expansion opportunity. So it's been a pretty dramatic reshaping above the overall customer portfolio, and I think the future growth comes from a number of things. What comes from some customers extending to a broader proportion of their doors, it comes from a greater share of shelves in some doors, it also comes from accelerating sell-through with that demand perspective that Sam highlighted.

So hopefully that answers your question, Rick.

Rick Patel -- Raymond James -- Analyst

That's very helpful. Thank you. Can you also talk about what your fourth quarter operating margin expectations are by brand? And then, what should we extrapolate from fourth quarter operating margins overall as we think about what the potential could be in 2024?

Anne Mehlman -- Executive Vice President, Chief Financial Officer

Yes, so we don't guide fourth quarter operating margins by brand. Obviously, I think it'll be -- we've had strong operating margins in both of our brands. Our overall operating margin guide of 27% remains in its best-in-class. I wouldn't extrapolate Q4 to other quarters.

As you said, we're going to invest in SG&A, so that we can continue to support from a marketing perspective and a consumer perspective the long-term growth potential of both of our brands and not manage for a quarter. But I think 27% operating margin overall, I feel really good about that overall.

Operator

Our next question comes from Laura Champine from Loop. Please go ahead.

Laura Champine -- Loop Capital Markets -- Analyst

Thanks for taking my question. I first wanted to ask more about this guide for Q4 for HEYDUDE, just because it's such a significant downgrade from what we previously expected. If you bucket the change, how much of it is due to decisions that Crocs made to control distribution, and how much of it is something that happened to you, meaning wholesale customers ordering less and this sort of glut of inventory in the resale channel?

Andrew Rees -- Director and Chief Executive Officer

It's a little bit of both, right? I think what I'd say, as we work with our wholesale customers, I think they're pretty cautious about the way the consumer is reacting right now, particularly post-back-to-school. We talked about that in preparatory marketing. I think that extends well into next year. So, I think they're being cautious.

They're looking to buy less inventory and put themselves in a stronger position. It is also proactive cancellations and returns that we're taking to, to clean up inventories for key customers to put them in a much stronger inventory position and a higher profit perspective. And it is also a lower digital selling expectation based on not competing with some of the competitive sources on a price perspective. So we're seeing higher margins, higher ASPs, but less revenues.

So it's really a combination of all those factors.

Laura Champine -- Loop Capital Markets -- Analyst

If retailers who are fairly new to the brand are cancelling orders and repositioning for lower inventories this Q4, what gives you the confidence that this brand can grow in 2024?

Andrew Rees -- Director and Chief Executive Officer

The sellout that we're seeing, so the consumer takeaway, right, so as we look at our data from our major retail customers both in Q3, which you kind of can see 28% increase in sell-out, and we look at the week-to-week data that we get right now, we are selling more units to the consumer than we sold last year. So the consumer is taking away more goods. The sell-in, which is our revenue, we're right-sizing inventory, but the consumer takeaway continues to grow.

Laura Champine -- Loop Capital Markets -- Analyst

Got it. And then, as we try to shape the year, do you think that Q1 looks like Q4? Meaning, for HEYDUDE, do you think that there'll still be some trend off with revenues down in this 20% range? Or should we see sort of immediate improvement because this is a Q4 issue?

Anne Mehlman -- Executive Vice President, Chief Financial Officer

Laura, I don't think we're ready to guide specifically for next year yet. We'll guide during our normal time periods. But we did say that we believe wholesale will be negative in the first-half of next year. But we haven't kind of given shape to that as we work through kind of our spring order books and our expectations.

Operator

Our next question comes from Jeff Lick from B. Riley Financial. Please go ahead.

Jeff Lick -- B. Riley Financial -- Analyst

Good morning. Thanks for taking my question. Andrew, I was wondering if you could maybe just opine. It strikes me that HEYDUDE -- the similarities between HEYDUDE and Crocs, there's an awful lot of them.

And when you joined Crocs back in the early to mid-2000s, it just seems like there's quite a lot of parallels here to where HEYDUDE is now and where Crocs was then. And I was just wondering if you could kind of talk through your thought process and how you might use that as a blueprint. And then, lastly, has the thought that, "Hey, maybe we should just focus on maximizing profitability as opposed to revenue," has that kind of entered into the equation now?

Andrew Rees -- Director and Chief Executive Officer

So, I would agree and disagree, Jeff. I think that there is a very, very important parallel between the two brands and the work that we did to improve dramatically the performance of Crocs. There are a couple of parallels, right? One was managing the in-market inventories much more closely, which I think we've clearly articulated here that we're really trying to get on top of for HEYDUDE. I think the second is driving brand heat or demand, I think as Sam would say, for the brands through marketing, through limited supply, through licenses, collaborations, and really kind of, I would say, event-driven opportunities to drive the consumers to the brand.

And we can accelerate and do more of that for HEYDUDE, which is definitely a parallel to Crocs. I would say way back when in the consumer's mind, Crocs was incredibly cold, right? So I think we just kind of used the Piper Sandler in-survey as a proxy, right? I think back then Crocs was No. 38 on that list, right? So Crocs is now No. 6.

HEYDUDE's not No. 38. HEYDUDE's No. 7, right? So it is a brand that resonates very strongly with a broad base of consumers.

So I think that's a huge difference in terms of kind of what we're looking at here.

Anne Mehlman -- Executive Vice President, Chief Financial Officer

And then, in terms of maximizing for profitability, Jeff, we're maximizing for the long-term health of the brand, certainly prioritizing profitability from a gross margin standpoint, but not maximizing for profitability overall. We think it's really important for us to invest. We made a conscious decision to continue to invest in Q4. We certainly could maximize for short-term profitability, but we don't actually think that gets us the best long-term outcome.

Operator

Due to time constraints, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Andrew Rees -- Director and Chief Executive Officer

Yes. I just want to thank everybody for joining us this morning, and their continued interest in our company. And we wish everybody a happy holiday season when it comes around.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Erinn Murphy -- Senior Vice President, Investor Relations and Corporate Strategy

Anne Mehlman -- Executive Vice President, Chief Financial Officer

Andrew Rees -- Director and Chief Executive Officer

Jonathan Komp -- Robert W. Baird and Company -- Analyst

Jim Duffy -- Stifel Financial Corp. -- Analyst

Abbie Zvejnieks -- Piper Sandler -- Analyst

Tom Nickik -- Wedbush Securities -- Analyst

Sam Poser -- Williams Trading -- Analyst

Rick Patel -- Raymond James -- Analyst

Laura Champine -- Loop Capital Markets -- Analyst

Jeff Lick -- B. Riley Financial -- Analyst

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