Crocs, Inc. Reports Fourth Quarter and Full Year 2017 Results

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Exceeded Revenue and Gross Margin Guidance; Increased Share Repurchase Authorization to $500 Million
______________________________________________________________________________

Crocs, Inc. CROX a world leader in innovative casual footwear for men, women, and children, today announced its fourth quarter and full year 2017 financial results.

Andrew Rees, President and Chief Executive Officer, said, "We had a strong final quarter of the year, which enabled us to meet or exceed our revenue and gross margin guidance for the fourth consecutive quarter. Throughout 2017, we focused on our strategic objectives: simplifying our business to reduce costs, improving the quality of our revenues, and positioning ourselves to drive sustainable, profitable growth. Looking at 2018, our Spring/Summer collection is being well received. We expect moderate wholesale and double-digit e-commerce growth to be offset by the loss of retail revenues associated with store reductions. We also anticipate delivering continued gross margin gains and completing our SG&A reduction plan. This lays the groundwork for generating top line growth in 2019 and, ultimately, delivering double-digit EBIT margins."

Fourth Quarter 2017 Operating Results:

  • Revenues were $199.1 million, growing 6.2% over the fourth quarter of 2016, or 3.8% on a constant currency basis. Top line growth was achieved despite the loss of approximately $14 million due to operating fewer stores and absorbing the impact of the sales of the Taiwan and Middle East businesses. The wholesale and e-commerce businesses grew at double-digit rates and the retail business delivered positive comparable store sales.
  • Gross margin was 45.4%, an increase of 340 basis points over last year's fourth quarter. This improvement was driven by continuing to prioritize high margin molded product, improving go-to-market capabilities, and better managing promotions. Favorable currency rates drove approximately 100 basis points of the improvement.
  • Selling, general and administrative expenses ("SG&A") were $120.7 million compared to $118.5 million in the fourth quarter of 2016. As a percent of revenues, SG&A improved 260 basis points. Fourth quarter 2017 results included $9.4 million of non-recurring charges. The non-recurring charges associated with our SG&A reduction plan came in at $3.1 million. In addition, $6.3 million of non-recurring charges were incurred in connection with a non-cash impairment charge and a contract termination. Fourth quarter 2016 results included $1.4 million of non-recurring charges.
  • The loss from operations of $30.4 million improved by 23.7% compared to last year's fourth quarter loss from operations of $39.8 million.
  • Net loss attributable to common stockholders was $28.3 million, or $0.41 per diluted share, compared to a net loss attributable to common stockholders of $44.5 million, or $0.60 per diluted share, in last year's fourth quarter. We had 69.5 and 73.5 million weighted average diluted common shares outstanding on December 31, 2017 and 2016, respectively.

2017 Operating Results:

  • Revenues were $1,023.5 million. On a constant currency basis, revenues decreased 1.7% compared to the prior year.
  • Gross margin was 50.5%, an increase of 220 basis points over the prior year.
  • SG&A was $499.9 million compared to $506.3 million in the prior year. Results for 2017 included $17.0 million of non-recurring charges compared to $2.2 million in 2016.
  • Income from operations was $17.3 million compared to a loss from operations of $6.2 million in 2016.
  • Net loss attributable to common stockholders was $5.3 million, or $0.07 per diluted share, compared to a net loss attributable to common stockholders of $31.7 million, or $0.43 per share, in 2016. We had 72.3 and 73.4 million weighted average diluted common shares outstanding on December 31, 2017 and 2016, respectively.

Balance Sheet and Cash Flow Highlights:

  • Cash provided by operating activities increased 147.2% to $98.3 million during 2017 compared to $39.8 million during 2016.
  • Cash and cash equivalents as of December 31, 2017 increased 16.6% to $172.1 million compared to $147.6 million as of December 31, 2016, despite having repurchased $50.0 million of common stock during the year. This growth reflects the successful execution of the Company's strategic objectives along with improved working capital management.
  • Inventory declined 11.3% to $130.3 million as of December 31, 2017 compared to $147.0 million as of December 31, 2016, reflecting the continued focus on inventory management.
  • Capital expenditures for 2017 were $13.1 million compared to $22.2 million in 2016, as the Company opened fewer stores, completed fewer store remodels, and had lower technology-related expenditures.
  • At December 31, 2017, there were no borrowings outstanding on the $100 million credit facility.

Share Repurchase Activity and Increased Share Repurchase Authorization:

During the fourth quarter of 2017, the Company repurchased 2.2 million shares of its common stock for $22.9 million, at an average price of $10.22 per share. For the full year, the Company repurchased 5.7 million shares of its common stock for $50.0 million, at an average price of $8.82 per share. At year end, $69 million of the Company's $350 million share repurchase authorization remained unexercised.

The Board of Directors recently increased the share repurchase authorization to $500 million. With this increase, $219 million remains available for future share repurchases.

Financial Outlook:

First Quarter 2018:

With respect to the first quarter of 2018, the Company expects:

  • Revenues to be between $265 and $275 million compared to $267.9 million in the first quarter of 2017.
  • Gross margin to be approximately 49% compared to 49.9% in the first quarter of 2017. At the beginning of the first quarter of 2018, the Company changed its inventory costing methodology from average cost to first-in-first-out, or FIFO. This change will result in timing-related charges to cost of sales in the first quarter, but has no impact on the full year. Absent these charges, the Company would expect first quarter gross margin to be up modestly to prior year.
  • SG&A of approximately $115 million compared to $118.0 million last year. Both years include approximately $2 million of non-recurring charges incurred in connection with our SG&A reduction plan.

Full Year 2018:

With respect to 2018, the Company expects:

  • Revenues to be relatively flat to the prior year. Revenues in 2018 will be negatively impacted by approximately $60 million compared to 2017 due to the impact of business model changes and store closures.
  • Gross margin to be up approximately 70 to 100 basis points over our 2017 gross margin of 50.5%.
  • SG&A is expected to be approximately $475 million. This includes approximately $5 million of non-recurring charges associated with the SG&A reduction plan and approximately $5 million of additional expense associated with changes in foreign exchange rates. This compares to $499.9 million in 2017, which included $17.0 million of non-recurring charges.
  • Income from operations to be approximately $50 million, compared to $17.3 million in 2017.
  • Depreciation and amortization to be approximately $30 million compared to $33.1 million in 2017.
  • Income tax expense of approximately $13 million compared to $7.9 million in 2017.

Conference Call Information:

A conference call to discuss fourth quarter 2017 results is scheduled for today, Wednesday, February 28, 2018, at 8:30 a.m. EST. The call participation number is (888) 771-4371. A replay of the conference call will be available two hours after the completion of the call at (888) 843-7419. International participants can dial (847) 585-4405 to take part in the conference call, and can access a replay of the call at (630) 652-3042. All of the above calls will require the input of the conference identification number 46395592. The call will also be streamed live on the Crocs website, www.crocs.com, and that audio recording will be available at www.crocs.com through February 28, 2019.

About Crocs, Inc.:

Crocs, Inc. CROX is a world leader in innovative casual footwear for women, men and children, combining comfort and style with a value that consumers know and love. Every pair of shoes within Crocs' collection contains Croslite™ material, a proprietary, molded footwear technology, delivering extraordinary comfort with each step.

In 2018, Crocs reinforces its mission of "everyone comfortable in their own shoes" with the second year of its global Come As You Are™ campaign. To learn more about Crocs or Come As You Are, please visit www.crocs.com or follow @Crocs on Facebook, Instagram and Twitter.

Forward Looking Statements:

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This news release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding prospects, expectations and our revenue, gross margin, SG&A and EBIT margin outlook. 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. These risks and uncertainties include, but are not limited to, the following: current global financial conditions; the effect of competition in our industry; our ability to effectively manage our future growth or declines in revenues; changing consumer preferences; our ability to maintain and expand revenues and gross margin; our ability to accurately forecast consumer demand for our products; our ability to successfully implement our strategic plans; our ability to develop and sell new products; our ability to obtain and protect intellectual property rights; the effect of potential adverse currency exchange rate fluctuations and other international operating risks; and other factors described in our most recent Annual Report on Form 10-K under the heading "Risk Factors" and our subsequent filings with the Securities and Exchange Commission. Readers are encouraged to review that section and all other disclosures appearing in our filings with the Securities and Exchange Commission.

All information in this document speaks as of February 28, 2018. We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimate regarding revenues, margins, or SG&A, whether as a result of the receipt of new information, future events, or otherwise.

               

CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

 

Three Months Ended
December 31,

Year Ended
December 31,

2017     2016 2017     2016
Revenues $ 199,112 $ 187,417 $ 1,023,513 $ 1,036,273
Cost of sales 108,745   108,693   506,292   536,109  
Gross profit 90,367 78,724 517,221 500,164
Selling, general and administrative expenses

120,744

 

118,511

 

499,885

 

506,318

 
Income (loss) from operations (30,377 ) (39,787 ) 17,336 (6,154 )
Foreign currency gain (loss), net 382 (886 ) 563 (2,454 )
Interest income 294

135

870 692
Interest expense (330 )

(174

) (869 ) (836 )

Other income, net

93  

1,645

  280   1,539  
Income (loss) before income taxes (29,938 ) (39,067 ) 18,180 (7,213 )
Income tax (benefit) expense (5,577 ) 1,577   7,942   9,281  
Net income (loss) (24,361 ) (40,644 ) 10,238 (16,494 )
Dividends on Series A convertible preferred stock (3,000 ) (3,000 ) (12,000 ) (12,000 )

Dividend equivalents on Series A convertible preferred
  shares related to redemption value accretion and
  beneficial conversion feature

(911 ) (838 ) (3,532 ) (3,244 )
Net loss attributable to common stockholders $ (28,272 ) $ (44,482 ) $ (5,294 ) $ (31,738 )
Net loss per common share:
Basic $ (0.41 ) $ (0.60 ) $ (0.07 ) $ (0.43 )
Diluted $ (0.41 ) $ (0.60 ) $ (0.07 ) $ (0.43 )
Weighted average common shares outstanding:
Basic 69,470   73,549  

72,255

 

73,371

 
Diluted 69,470   73,549  

72,255

 

73,371

 
 

CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)

 
December 31,
2017     2016
ASSETS
Current assets:
Cash and cash equivalents $ 172,128 $ 147,565
Accounts receivable, net of allowances of $31,389 and $48,138, respectively 83,518 78,297
Inventories 130,347 147,029
Income taxes receivable 3,652 2,995
Other receivables 10,664 14,642
Restricted cash - current 2,144 2,534
Prepaid expenses and other assets 22,596   32,413  
Total current assets 425,049 425,475

Property and equipment, net of accumulated depreciation and amortization of $91,806 and
  $88,603, respectively

35,032 44,090
Intangible assets, net 56,427 72,700
Goodwill 1,688 1,480
Deferred tax assets, net 10,174 6,825
Restricted cash 2,783 2,547
Other assets 12,542   13,273  
Total assets $ 543,695   $ 566,390  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 66,381 $ 61,927
Accrued expenses and other liabilities 84,446 78,282
Income taxes payable 5,515 6,593
Current portion of borrowings and capital lease obligations 676   2,338  
Total current liabilities 157,018 149,140
Long-term income taxes payable 6,081 4,464
Other liabilities 12,298   13,502  
Total liabilities 175,397   167,106  
Commitments and contingencies:

Series A convertible preferred stock, 0.2 million shares outstanding, liquidation preference
  $203 million

182,433 178,901
Stockholders' equity:
Preferred stock, par value $0.001 per share, none outstanding — —

Common stock, par value $0.001 per share, 94.8 million and 93.9 million issued, 68.8
  million and 73.6 million shares outstanding, respectively

95 94
Treasury stock, at cost, 26.0 million and 20.3 million shares, respectively (334,312 ) (284,237 )
Additional paid-in capital 373,045 364,397
Retained earnings 190,431 195,725
Accumulated other comprehensive loss (43,394 ) (55,596 )
Total stockholders' equity 185,865   220,383  
Total liabilities and stockholders' equity $ 543,695   $ 566,390  
 

CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
Year Ended December 31,
2017     2016
Cash flows from operating activities:
Net income (loss) $ 10,238 $ (16,494 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 33,130 34,043
Unrealized foreign currency (gain) loss, net 1,025 (9,027 )
Share-based compensation 9,773 10,736
Asset impairments 5,284 3,144
(Recovery) provision for doubtful accounts, net (589 ) 3,230
Deferred taxes (3,093 ) (388 )
Other non-cash items (2,406 ) 503
Changes in operating assets and liabilities:
Accounts receivable, net of allowances 620 2,408
Inventories 23,319 20,371
Prepaid expenses and other assets 18,907 (4,532 )
Accounts payable (2,714 ) (1,354 )
Accrued expenses and other liabilities 5,489 2,884
Income taxes (719 ) (5,770 )
Cash provided by operating activities 98,264 39,754
Cash flows from investing activities:
Purchases of property, equipment, and software (13,117 ) (22,194 )
Proceeds from disposal of property and equipment 1,579 2,438
Change in restricted cash 566 1,199
Other —   (100 )
Cash used in investing activities (10,972 ) (18,657 )
Cash flows from financing activities:
Proceeds from bank borrowings 5,500 31,582
Repayments of bank borrowings and capital lease obligations (8,611 ) (35,640 )
Dividends—Series A preferred stock (12,000 ) (12,000 )
Repurchases of common stock (50,000 ) —
Other (259 ) (385 )
Cash used in financing activities (65,370 ) (16,443 )
Effect of exchange rate changes on cash and cash equivalents 2,641   (430 )
Net change in cash and cash equivalents 24,563 4,224
Cash and cash equivalents—beginning of year 147,565   143,341  
Cash and cash equivalents—end of year $ 172,128   $ 147,565  
 
Cash paid for interest $ 434 $ 653
Cash paid for income taxes 13,208 12,344
 

CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)

In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America ("GAAP"), we present "Non-GAAP selling, general and administrative expenses," which is a non-GAAP financial measure. Non-GAAP results exclude the impact of items that management believes affect the comparability or underlying business trends in our condensed consolidated financial statements in the periods presented.

We also present certain information related to our current period results of operations through "constant currency," which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under GAAP. Constant currency represents current period results that have been retranslated using exchange rates used in the prior year comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.

Management uses non-GAAP results to assist in comparing business trends from period to period on a consistent basis in communications with the board of directors, stockholders, analysts, and investors concerning our financial performance. We believe that these non-GAAP measures are useful to investors and other users of our condensed consolidated financial statements as an additional tool for evaluating operating performance. We believe they also provide a useful baseline for analyzing trends in our operations. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

 
CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURE TO NON-GAAP MEASURE
(UNAUDITED)
                 

Three Months Ended
December 31,

Year Ended
December 31,

2017     2016 2017     2016
(in thousands)
SG&A expenses reconciliation:
U.S. GAAP SG&A expenses $

120,744

$

118,511

$

499,885

$

506,318

Discontinued project (1) (6,254 ) — (6,254 ) —
Reorganization charges (2) (1,862 ) — (5,511 ) (458 )
Strategic consulting services (3) (1,290 ) — (4,361 ) —
Other —   (1,361 ) (863 ) (1,715 )
Total adjustments (9,406 ) (1,361 ) (16,989 ) (2,173 )
Non-GAAP SG&A expenses $

111,338

  $

117,150

  $

482,896

  $

504,145

 
(1)  

Represents a write-off charge and contract termination fee related to a discontinued project.

(2)

Represents severance and other expenses related to reorganization activities.

(3)

Represents operating expenses related to strategic consulting.

 

CROCS, INC. AND SUBSIDIARIES
REVENUES BY CHANNEL
(UNAUDITED)

             

Three Months Ended
December 31,

Year Ended
December 31,

% Change

Constant Currency
% Change (1)

2017   2016 2017   2016 Q4 '17-'16   2017-2016 Q4 '17-'16   2017-2016
($ in thousands)
Wholesale:
Americas $ 41,367 $

32,046

$ 211,342 $ 202,211 29.1 % 4.5 %

29.2

%

3.8

%
Asia Pacific 38,676 35,182 215,762 232,541 9.9 %

(7.2)

%

5.7

%

(7.2)

%
Europe 12,755 13,348 108,142 110,511

(4.4)

%

(2.1)

%

(13.1)

%

(3.8)

%
Other businesses 325  

78

  870   745  

316.7

% 16.8 %

296.1

%

13.4

%
Total wholesale 93,123 80,654 536,116 546,008 15.5 %

(1.8)

%

12.2

%

(2.4)

%
Retail:
Americas 42,558 41,713 188,367 191,855 2.0 %

(1.8)

%

1.9

%

(1.9)

%
Asia Pacific 18,410 23,940 108,868 125,037

(23.1)

%

(12.9)

%

(24.9)

%

(12.7)

%

Europe 8,074   8,013   40,998   42,712   0.8 %

(4.0)

%

(7.2)

%

(8.4)

%
Total retail 69,042 73,666 338,233 359,604

(6.3)

%

(5.9)

%

(7.8)

%

(6.4)

%
E-commerce:
Americas 21,885 19,361 80,437 72,940 13.0 % 10.3 %

12.6

%

10.1

%
Asia Pacific 9,553 9,688 45,036 37,500

(1.4)

%

20.1 %

(2.9)

%

22.8

%

Europe 5,509   4,048   23,691   20,221   36.1 % 17.2 %

24.5

%

14.0

%
Total e-commerce 36,947   33,097   149,164   130,661   11.6 % 14.2 %

9.5

%

14.4

%

Total revenues $ 199,112   $ 187,417   $ 1,023,513   $ 1,036,273   6.2 %

(1.2)

%

3.8

%

(1.7)

%
(1)  

Reflects year over year change as if the current period results were in constant currency, which is a non-GAAP financial measure. See "Reconciliation of GAAP Measures to Non-GAAP Measures" on page 7 for more information.

 

CROCS, INC. AND SUBSIDIARIES
RETAIL STORE COUNTS
(UNAUDITED)

                       

September 30,
2017

Opened

Closed/
Transferred

December 31,
2017

Type:
Kiosk/store-in-store 75 — 4 71
Retail stores 175 1 15 161
Outlet stores 224   —   9   215
Total 474   1   28   447
Operating segment:
Americas 179 — 4 175
Asia Pacific 206 — 20 186
Europe 89   1   4   86
Total 474   1   28   447
 
 

December 31,
2016

Opened

Closed/
Transferred

December 31,
2017

Type:
Kiosk/store-in-store 98 — 27 71
Retail stores 228 6 73 161
Outlet stores 232   13   30   215
Total 558   19   130   447
Operating segment:
Americas 190 2 17 175
Asia Pacific 270 15 99 186
Europe 98   2   14   86
Total 558   19   130   447
 
CROCS, INC. AND SUBSIDIARIES

COMPARABLE RETAIL STORE SALES AND DIRECT TO CONSUMER COMPARABLE STORE SALES

(UNAUDITED)
 
Constant Currency (1)

Three Months Ended
December 31,

   

Year Ended
       December 31,        

2017   2016 2017   2016

Comparable retail store sales: (2)

Americas 7.0 %

(5.6)

%

1.3 %

(2.3)

%

Asia Pacific

(2.9)

%

(12.1)

%

(1.9)

%

(5.9)

%

Europe 1.7 % 1.0 %

(1.6)

%

1.9 %
Global 3.7 %

(6.8)

%

— %

(3.0)

%

 
Constant Currency (1)

Three Months Ended
December 31,

Year Ended
       December 31,       

2017 2016 2017 2016
Direct to consumer comparable store sales (includes retail and e-commerce): (2)
Americas 8.9 %

(8.0)

%

3.9 % 0.3 %
Asia Pacific

(1.3)

%

(9.6)

%

6.4 %

(0.4)

%

Europe 10.5 %

(0.4)

%

4.1 % 0.2 %
Global 6.2 %

(7.7)

%

4.7 % 0.1 %
(1)  

Reflects period over period change as if the current period results were in constant currency, which is a non-GAAP financial measure. See "Reconciliation of GAAP to Non-GAAP Measures" on page 7 for more information.

(2)

Comparable store status is determined on a monthly basis. Comparable store sales include the revenues of stores that have been in operation for more than twelve months. Stores in which selling square footage has changed more than 15% as a result of a remodel, expansion, or reduction are excluded until the thirteenth month in which they have comparable prior year sales. Temporarily closed stores are excluded from the comparable store sales calculation during the month of closure. Location closures in excess of three months are excluded until the thirteenth month post re-opening. E-commerce revenues are based on same site sales period over period.

 

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