Market Overview

Crocs, Inc. Reports Record Third Quarter Revenues; Raises Full Year 2019 Outlook

Share:

Expects 2019 Revenues to Grow 11% to 12% and Reach Record Levels; Expects 2020 Revenues to Grow 12% to 14%

Crocs, Inc. (NASDAQ:CROX), a world leader in innovative casual footwear for men, women, and children, today announced its third quarter 2019 financial results.

Andrew Rees, President and Chief Executive Officer, said, "We delivered an excellent quarter highlighted by 20% top-line growth and record third quarter revenues of $313 million. Our Americas business delivered exceptional growth, driven in part by another highly successful back to school season. Based on the strength of our recent performance and start to the fourth quarter, we are raising our full year guidance to 11% to 12% revenue growth over 2018, which would result in record annual sales for our Company. The Crocs brand momentum continues to gain pace, and for 2020, we anticipate revenue growth over 2019 of 12% to 14%."

Third Quarter 2019 Operating Results:

  • Revenues were $312.8 million, growing 19.8% over the third quarter of 2018, or 21.0% on a constant currency basis. Currencies negatively impacted our revenues by approximately $3.0 million, while store closures reduced our revenues by approximately $4.0 million. Wholesale revenues grew 25.4%, e-commerce revenues grew 28.2%, and retail comparable store sales grew 12.5%.
  • Gross margin was 52.4%, compared to 53.3% in last year's third quarter. Adjusted gross margin, which excludes 120 basis points of non-recurring expenditures related to the relocation of our U.S. distribution center, was 53.6%. Adjusted gross margin rose 30 basis points compared to last year's third quarter. Lower promotions and higher clog sales in the Americas and savings from exiting our company-operated manufacturing facilities last year more than offset various headwinds, including channel mix, higher distribution costs, and 130 basis points of reduced purchasing power associated with currency. For a reconciliation of gross margin to adjusted gross margin, see the ‘Non-GAAP cost of sales and gross margin reconciliation' schedule below.
  • Selling, general and administrative expenses ("SG&A") were $123.9 million, down from $125.2 million in the third quarter of 2018. Non-recurring charges were $0.8 million compared to $5.7 million in last year's third quarter. SG&A improved 830 basis points and represented 39.6% of revenues compared to 47.9% in the third quarter of 2018, as we continued to drive leverage across the business. Our adjusted SG&A improved 640 basis points to 39.4% of revenues versus 45.8% in last year's third quarter. For a reconciliation of SG&A to adjusted SG&A, see the ‘Non-GAAP selling, general and administrative expenses reconciliation' schedule below.
  • Income from operations rose 187.0% to $39.9 million from $13.9 million in the third quarter of 2018, and operating margin rose 750 basis points to 12.8%. Excluding non-recurring gross margin and SG&A charges, adjusted income from operations rose 126.9% to $44.4 million and adjusted operating margin was 14.2% compared to 7.5% in the third quarter of 2018, as detailed on the 'Non-GAAP income from operations and operating margin reconciliation' schedule below.
  • Net income attributable to common stockholders was $35.7 million, up from $6.5 million in the third quarter of 2018. Excluding non-recurring gross margin and SG&A charges and pro forma adjustments related to the Company's previously outstanding Series A Preferred Stock, adjusted net income attributable to common stockholders was $40.2 million and $14.8 million in the third quarters of 2019 and 2018, respectively, as detailed on the 'Non-GAAP earnings per share reconciliation' schedule below.
  • Diluted earnings per share rose to $0.51, up from $0.07 in the third quarter of 2018. Excluding non-recurring gross margin and SG&A charges and pro forma adjustments related to the Series A Preferred Stock, adjusted diluted earnings per share was $0.57 compared to $0.19 in the third quarter of 2018, as detailed on the 'Non-GAAP earnings per share reconciliation' schedule below.

Balance Sheet and Cash Flow Highlights:

  • Cash and cash equivalents were $87.9 million as of September 30, 2019, compared to $203.0 million as of September 30, 2018. During the third quarter of 2019, the Company repurchased approximately 1.0 million shares of its common stock for $25.0 million, as detailed below.
  • Inventory increased 18.8% to $139.8 million as of September 30, 2019 compared to $117.7 million as of September 30, 2018, while our inventory turnover ratio increased to 4.5 turns per year.
  • Capital expenditures during the nine months ended September 30, 2019 were $32.9 million compared to $5.2 million during the same period in 2018. The increase primarily reflects expenditures on the relocation of the Company's U.S. distribution center from California to Ohio.
  • At September 30, 2019, there were $185.0 million of borrowings outstanding on the Company's credit facility.

Share Repurchase Activity:

During the third quarter of 2019, the Company repurchased approximately 1.0 million shares of its common stock for $25.0 million, at an average price of $23.99 per share. As of September 30, 2019, approximately $522 million remained of the Company's share repurchase authorization.

Financial Outlook:

Fourth Quarter 2019:

With respect to the fourth quarter of 2019, the Company expects:

  • Revenues to be between $245 and $255 million compared to $216.0 million in the fourth quarter of 2018. The Company expects fourth quarter 2019 revenues to be negatively impacted by approximately $2 million of currency changes and approximately $2 million resulting from store closures.
  • Adjusted gross margin to be approximately 50% compared to 46.2% in the fourth quarter of 2018. Gains from increased pricing and higher clog sales plus leveraging our fixed supply chain costs are expected to more than offset approximately 100 basis points of reduced purchasing power associated with currency, along with changes in channel mix. On a GAAP basis, gross margin is expected to be approximately 49%, which includes 100 basis points of non-recurring charges associated with the Company's new U.S. distribution center.
  • SG&A to be approximately 47% of revenues compared to 52.7% of revenues in 2018. Non-recurring charges during the quarter are expected to be immaterial compared to $4.6 million in the fourth quarter of 2018.

Full Year 2019:

With respect to 2019, the Company now expects:

  • Revenues to grow 11% to 12% over 2018 revenues of $1,088.2 million, compared to prior guidance of 9% to 11%. The Company expects 2019 revenues to be negatively impacted by approximately $28 million of currency changes and approximately $20 million resulting from store closures.
  • Adjusted gross margin to be approximately 51%, compared to prior guidance of 50.5%, reflecting the increased strength of the Americas business. The 50 basis point reduction from 51.5% in 2018 reflects an expectation of approximately 120 basis points of reduced purchasing power associated with currency, along with higher freight and distribution costs and channel mix, partially offset by higher clog sales, higher pricing, reduced promotions, and savings from exiting our company-operated manufacturing facilities last year. On a GAAP basis, gross margin is expected to be approximately 50%, reflecting non-recurring charges of approximately 100 basis points associated with the Company's new U.S. distribution center.
  • SG&A to be approximately 40% of revenues, unchanged from prior guidance. Non-recurring charges in 2019 are expected to be approximately $3 million. In 2018, SG&A was 45.7% of revenues and included $21.1 million of non-recurring charges.
  • Adjusted operating margin to be approximately 11%, which meets the Company's near-term target of returning to a low double-digit operating margin. Including the non-recurring charges associated with the new U.S. distribution center and certain SG&A costs, the Company now anticipates a GAAP operating margin of approximately 10%.
  • A 2019 tax rate of approximately 12%, down from our prior guidance of 15%.
  • Capital expenditures to be approximately $60 million, compared to prior guidance of approximately $65 million, reflecting the movement of certain expenditures into 2020, and up from $12 million in 2018.

2020 Preview:

With respect to 2020 revenues, the Company expects 12% to 14% growth over 2019 revenues. This estimate assumes that currency will negatively impact results by approximately $10 million.

Conference Call Information:

A conference call to discuss third quarter 2019 results is scheduled for today, Wednesday, October 30, 2019 at 8:30 a.m. ET. The call participation number is (877) 790-7808. A replay of the conference call will be available two hours after the completion of the call at (800) 585-8367. International participants can dial (647) 689-5638 to take part in the conference call, and can access a replay of the call at (416) 621-4642. All of these calls will require the use of the conference identification number 8095853. 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 October 30, 2020.

About Crocs, Inc.:

Crocs, Inc. (NASDAQ: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. The vast majority of shoes within Crocs' collection contains Croslite™ material, a proprietary, molded footwear technology, delivering extraordinary comfort with each step.

In 2019, Crocs declares that expressing yourself and being comfortable are not mutually exclusive. To learn more about Crocs or our global Come As You Are™ campaign, please visit www.crocs.com or follow @Crocs on Facebook, Instagram and Twitter.

Forward-Looking Statements:

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 revenues, gross margin, SG&A, operating margin, tax, and capital expenditure 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 October 30, 2019. We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimates provided in the "Financial Outlook" section above, whether as a result of the receipt of new information, future events, or otherwise.

Category:Investors

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Revenues

$

312,766

 

 

$

261,064

 

 

$

967,614

 

 

$

872,216

 

Cost of sales

148,942

 

 

122,005

 

 

476,796

 

 

411,884

 

Gross profit

163,824

 

 

139,059

 

 

490,818

 

 

460,332

 

Selling, general and administrative expenses

123,940

 

 

125,164

 

 

370,525

 

 

383,451

 

Income from operations

39,884

 

 

13,895

 

 

120,293

 

 

76,881

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