Inside a New Securities Fraud Class Action Suit Against Crocs Allegedly Involving ‘Misleading’ Hey Dude Data
Stephen Garner
Senior Editor
The Kessler Topaz Meltzer & Check, LLP law firm is wrapping up the preliminary stages of its class action case against Crocs Inc.
In the lawsuit, the firm is alleging that Crocs misled investors following its 2022 acquisition of Hey Dude by concealing information that negatively impacted the company’s financial results, allegedly leading to an inflated price.
“[Crocs] misled investors by concealing the fact that the strong revenue growth exhibited by the company’s Hey Dude brand following its acquisition in Feb. 2022, was largely driven by a conscious decision on the part of Crocs management to aggressively stock its third-party wholesaler pipeline with Hey Dude products, regardless of the level of retail demand being experienced by those wholesalers,” the complaint stated. “[Crocs] pursued this overstocking strategy despite assurances to investors by Andrew Rees, the company’s chief executive officer, that Crocs would not play the game of forcing inventory into [wholesalers] and getting them overstocked.”
As a result, the complaint alleges that the company reported Hey Dude revenue numbers in 2022 that were not indicative of actual retail demand for Hey Dude shoes and, over the longer term, were entirely unsustainable.
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“After the company’s retail partners began to destock this excess inventory, defendants further misled investors by concealing that waning product demand for Hey Dude shoes would further impact the company’s financial results,” the complaint said.
The lawsuit further said that investors began to learn the truth about the nature and unsustainability of Hey Dude’s revenue growth on April 27, 2023, when Rees revealed during the company’s first quarter 2023 earnings call that much of Hey Dude’s revenue growth in 2022 was attributable to efforts to stock the company’s wholesale partners with Hey Dude products and was not necessarily indicative of actual downstream retail sales.
On this news, the complaint said that the price of Crocs common stock declined $23.46 per share, or nearly 16 percent, from a close of $147.78 per share on April 26, 2023, to close at $124.32 per share on April 27, 2023.
The lawsuit then outlines several other alleged actions by Crocs that led to further losses by shareholders. Ultimately, the complaint stated that as a result of Crocs’ alleged wrongful acts and omissions, and the significant decline in the market value of the company’s common stock pursuant to the revelation of the alleged fraud, the plaintiffs have suffered “significant damages.”
FN has reached out to Crocs for comment.
In February, Crocs, Inc. reported consolidated revenues in the fourth quarter of fiscal 2024 were $990 million, an increase of 3.1 percent from $960.1 million the same time last year. Net income in the quarter was $368.9 million, up from $253.6 million the prior year period, and diluted earnings per share were $6.36, a 52.9 percent increase from $4.16 last year.
By brand, the Crocs label’s revenues once again drove Q4’s strong results, with sales up 4.0 percent to $762 million. These results reflected a 5.0 percent increase in direct-to-consumer to $447 million and a 2.7 increase in wholesale to $315 million in the period.
Revenues for the Hey Dude brand in Q4 were flat against the same time last year at $228 million, which reflected a 7.2 percent increase to $133 million in DTC and a 8.6 percent decrease to $95 million in wholesale.
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