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Crocs, Inc. Reports Second Quarter 2017 Results

NIWOT, Colo., Aug. 09, 2017 (GLOBE NEWSWIRE) -- Crocs, Inc. (NASDAQ:CROX) a world leader in innovative casual footwear for men, women and children, today announced its financial results for the second quarter of 2017. These results cover the three months ended June 30, 2017, and are compared to the three months ended June 30, 2016.

Andrew Rees, President and Chief Executive Officer, said, “During the second quarter, we continued to revitalize the Crocs brand and drive improvement in the quality of our revenues. A favorable response to our Spring/Summer 2017 collection, particularly as it relates to clogs and sandals, drove solid growth in these silhouettes. A focus on our core molded products and effective inventory management enabled us to deliver gross margins which exceeded guidance, while our intense focus on expense management kept SG&A below projected levels. We are optimistic about the early response to our Fall/Holiday 2017 collection, and anticipate that the positive sentiment seen to date will continue throughout the second half of the year, despite the challenging retail environment."

Second Quarter 2017 Operating Results:

  • Revenues, at the high end of our guidance, came in at $313.2 million. On a constant currency basis, revenues decreased 2.7%, compared to the second quarter of 2016. We continued to execute against plans to improve the quality of our revenues and strengthen our brand.

  • Second quarter gross margin rose 180 basis points to 54.2% compared to last year’s second quarter. Improved product and better management of inventory enabled us to generate higher quality revenues. We also benefited from the continued shift toward more molded product.

  • Selling, general and administrative expenses ("SG&A") were $140.4 million compared to $149.0 million in the second quarter of 2016, a decrease of 5.8%. As a percent of revenues, SG&A improved 120 basis points. Our second quarter 2017 SG&A results include $1.8 million of costs relating to our SG&A reduction initiative. The right sizing of our store fleet, operational efficiencies, and a disciplined approach to expense management, coupled with some timing and approximately $1.0 million in recovery of bad debt previously reserved for in China, contributed to this improvement.

  • Net income attributable to common stockholders was $18.1 million, or $0.20 per diluted share. Excluding $1.8 million related to our SG&A reduction initiatives, the Company reported non-GAAP net income attributable to common stockholders(1) of $19.9 million. In the second quarter of 2016, our net income attributable to common stockholders was $11.7 million, or $0.13 per diluted share, and our non-GAAP adjusted net income attributable to common stockholders was $12.0 million.

  • For the quarter ended June 30, 2017, we had 74.6 million weighted average diluted common shares outstanding.

Balance Sheet and Cash Flow Highlights:

  • Cash and cash equivalents as of June 30, 2017 were $157.0 million, compared to $146.7 million as of June 30, 2016.
  • Inventory was $155.7 million as of June 30, 2017, compared to $169.9 million as of June 30, 2016. This reflects our ongoing efforts to carefully manage inventory and improve the quality of goods on hand.
  • Cash provided by operating activities was $39.4 million during the first six months of 2017, compared to $19.8 million during the first six months of 2016.
  • Capital expenditures totaled $6.8 million during the second quarter of 2017, compared to $6.9 million during the second quarter of 2016.
  • Cash used by financing activities includes $10.0 million used to repurchase 1.4 million shares of our common stock.

Financial Outlook

Third Quarter 2017:

  • The Company expects third quarter 2017 revenues to be between $230 and $240 million.

  • The Company expects gross margin for the third quarter to be essentially flat to the third quarter of 2016. Our gross margin in the third quarter of 2016 included a benefit of more than 200 basis points due to a favorable inventory adjustment.

  • The Company expects SG&A to be down approximately $3 million to last year, including approximately $2 million of charges associated with our SG&A reduction initiative.

Full Year 2017:

  • The Company continues to expect 2017 revenues to be down low single digits compared to 2016. This is reflective of the various business model changes taking place throughout the year, and an accelerated pace of store closings.

  • The Company continues to expect gross margin for 2017 to be approximately 50%.

  • The Company now expects SG&A for 2017 to be between $490 and $495 million. This is down from our previous guidance, and $10 to $15 million below the 2016 SG&A of $506.3 million. This lower range reflects the improvement realized in the second quarter, as well as the accelerated pace at which we are reducing company-operated stores. Included in the range is $7 to $10 million of charges associated with our SG&A reduction plan.

______________________________________________________________
(1) Refer to "Reconciliation of GAAP Measures to Non-GAAP Measures" below for a description of and reconciliation of GAAP to non-GAAP measures.

Conference Call Information:

A conference call to discuss second quarter 2017 results is scheduled for today, Wednesday, August 9, 2017, at 8:30 am EDT. The call participation number is (888) 771-4371. A recording 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 45276571. The call will also be streamed on the Crocs website, www.crocs.com. An audio recording of the conference call will be available at www.crocs.com through August 9, 2018.

About Crocs, Inc.:

Crocs, Inc. (NASDAQ:CROX) is a world leader in innovative casual footwear for men, women and children. Crocs offers a broad portfolio of all-season products, while remaining true to its core molded footwear heritage. All Crocs™ shoes feature Croslite™ material, a proprietary, revolutionary technology that gives each pair of shoes the soft, comfortable, lightweight and non-marking qualities that Crocs fans know and love.

Visit www.crocs.com for additional information.

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 and SG&A 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 August 9, 2017. We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimate regarding revenues, gross margin or SG&A, whether as a result of the receipt of new information, future events, or otherwise.


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Revenues$ 313,221 $ 323,828 $ 581,128 $ 602,968
Cost of sales143,414 154,188 277,737 303,962
Gross profit169,807 169,640 303,391 299,006
Selling, general and administrative expenses140,361 149,035 258,363 264,158
Income from operations29,446 20,605 45,028 34,848
Foreign currency gain (loss), net162 (1,700) 438 (2,947)
Interest income157 164 307 380
Interest expense(188) (234) (372) (477)
Other income (loss)9 (189) 133 (107)
Income before income taxes29,586 18,646 45,534 31,697
Income tax expense7,627 3,109 12,564 6,014
Net income21,959 15,537 32,970 25,683
Dividends on Series A convertible preferred stock(3,000) (3,000) (6,000) (6,000)
Dividend equivalents on Series A convertible preferred shares related to redemption value accretion and beneficial conversion feature(873) (802) (1,729) (1,587)
Net income attributable to common stockholders$18,086 $11,735 $25,241 $18,096
Net income per common share:
Basic$0.21 $0.13 $0.29 $0.21
Diluted$0.20 $0.13 $0.29 $0.20
Weighted average common shares outstanding - basic73,953 73,389 73,882 73,238
Weighted average common shares outstanding - diluted74,572 74,243 74,625 74,389


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except par value)
June 30,
2017
December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents$ 156,962 $ 147,565
Accounts receivable, net of allowances of $50,700 and $48,138, respectively135,893 78,297
Inventories155,749 147,029
Income tax receivable5,830 2,995
Other receivables14,219 14,642
Restricted cash - current2,461 2,534
Prepaid expenses and other assets25,052 32,413
Total current assets496,166 425,475
Property and equipment, net of accumulated depreciation and amortization of $93,929, and $88,603, respectively41,018 44,090
Intangible assets, net68,411 72,700
Goodwill1,615 1,480
Deferred tax assets, net7,079 6,825
Restricted cash2,856 2,547
Other assets13,449 13,273
Total assets$630,594 $566,390
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$82,980 $61,927
Accrued expenses and other liabilities84,900 78,282
Income taxes payable14,978 6,593
Current portion of borrowings and capital lease obligations1,722 2,338
Total current liabilities184,580 149,140
Long-term income tax payable4,865 4,464
Long-term capital lease obligations40 40
Other liabilities13,766 13,462
Total liabilities203,251 167,106
Commitments and contingencies
Series A convertible preferred stock, 1.0 million authorized, 0.2 million shares outstanding, liquidation preference $203 million180,629 178,901
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 4.0 million shares authorized, none outstanding
Common stock, par value $0.001 per share, 94.7 million and 93.9 million issued, 73.0 million and 73.6 million shares outstanding, respectively95 94
Treasury stock, at cost, 21.7 million and 20.3 million shares, respectively(294,252) (284,237)
Additional paid-in capital368,036 364,397
Retained earnings220,966 195,725
Accumulated other comprehensive loss(48,131) (55,596)
Total stockholders’ equity246,714 220,383
Total liabilities and stockholders’ equity$ 630,594 $ 566,390


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Six Months Ended June 30,
2017 2016
Cash flows from operating activities:
Net income$32,970 $25,683
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization16,815 17,031
Unrealized gains on foreign exchange, net(1,744) (4,884)
Share-based compensation3,945 5,898
Other non-cash items(2,872) 1,685
Changes in operating assets and liabilities:
Accounts receivable, net of allowances(53,086) (47,129)
Inventories(4,743) 2,148
Prepaid expenses and other assets12,567 (5,107)
Accounts payable, accrued expenses and other liabilities35,528 24,493
Cash provided by operating activities39,380 19,818
Cash flows from investing activities:
Cash paid for purchases of property and equipment(4,958) (10,280)
Proceeds from disposal of property and equipment1,506 2,428
Cash paid for intangible assets(7,273) (2,561)
Change in restricted cash30 (845)
Cash used in investing activities(10,695) (11,258)
Cash flows from financing activities:
Proceeds from bank borrowings5,500 29,582
Repayments of bank borrowings and capital lease obligations(7,565) (30,662)
Dividends—Series A preferred stock(6,000) (6,000)
Repurchases of common stock(10,000)
Other(240) (363)
Cash used in financing activities(18,305) (7,443)
Effect of exchange rate changes on cash(983) 2,204
Net change in cash and cash equivalents9,397 3,321
Cash and cash equivalents—beginning of period89,080 143,341
Cash and cash equivalents—end of period$98,477 $146,662


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 (“U.S. GAAP”), we present “Non-GAAP selling, general, and administrative expenses” and “Non-GAAP net income attributable to common stockholders”, which are non-GAAP financial measures. 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 U.S. 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 U.S. GAAP.


CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)
Three Months Ended June 30,
2017 2016
(in thousands)
Selling, general and administrative expenses reconciliation:
U.S. GAAP SG&A expenses$140,361 $149,035
Reorganization charges (1)(767) (274)
Strategic consulting services (2)(280)
Legal settlement (3)(220)
Financing fees (4)(557)
Total adjustments(1,824) (274)
Non-GAAP SG&A expenses$138,537 $148,761


Three Months Ended June 30,
2017 2016
(in thousands)
Net income attributable to common stockholders reconciliation:
GAAP net income attributable to common stockholders$18,086 $11,735
Reorganization charges (1)767 274
Strategic consulting services (2)280
Legal settlement (3)220
Financing fees (4)557
Total adjustments1,824 274
Non-GAAP net income attributable to common stockholders $19,910 $12,009

__________________
(1) Represents severance and other expenses related to reorganization activities.

(2) Represents operating expenses incurred in 2017 related to strategic consulting.

(3) Represents legal settlement during the quarter.

(4) Represents write-off of deferred financing fees.


Selling, general and administrative expenses reconciliation:
GAAP SG&A $495 to $500
Charges associated with reduction initiatives $7 to $10
Non-GAAP SG&A Approximately $490


CROCS, INC. AND SUBSIDIARIES
REVENUES BY CHANNEL
(UNAUDITED)
Three Months Ended June 30,
Change Constant Currency Change (1)
2017
2016 $ % $ %
(in thousands)
Wholesale:
Americas$57,307 $54,620 $2,687 4.9% $2,516 4.6 %
Asia Pacific 65,146 74,640 (9,494) (12.7)% (8,541) (11.4 )%
Europe 30,947 36,192 (5,245) (14.5)% (5,234) (14.5 )%
Other businesses 103 225 (122) (54.2)% (121) (53.8 )%
Total wholesale 153,503 165,677 (12,174) (7.3)% (11,380) (6.9 )%
Retail:
Americas 55,576 57,786 (2,210) (3.8)% (2,108) (3.6 )%
Asia Pacific 39,429 41,319 (1,890) (4.6)% (1,566) (3.8 )%
Europe 13,071 13,950 (879) (6.3)% (1,138) (8.2 )%
Total retail 108,076 113,055 (4,979) (4.4)% (4,812) (4.3 )%
E-commerce:
Americas 23,271 22,691 580 2.6% 659 2.9 %
Asia Pacific 20,069 14,887 5,182 34.8% 6,008 40.4 %
Europe 8,302 7,518 784 10.4% 902 12.0 %
Total e-commerce 51,642 45,096 6,546 14.5% 7,569 16.8 %
Total revenues$313,221 $323,828 $(10,607) (3.3)% $(8,623) (2.7 )%
Revenues:
Americas$136,154 $135,097 $1,057 0.8% $1,067 0.8 %
Asia Pacific 124,644 130,846 (6,202) (4.7)% (4,099) (3.1 )%
Europe 52,320 57,660 (5,340) (9.3)% (5,470) (9.5 )%
Total segment revenues 313,118 323,603 (10,485) (3.2)% (8,502) (2.6 )%
Other businesses 103 225 (122) (54.2)% (121) (53.8 )%
Total revenues$313,221 $323,828 $(10,607) (3.3)% $(8,623) (2.7 )%

____________________

(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" above for more information.


CROCS, INC. AND SUBSIDIARIES
REVENUES BY CHANNEL
(UNAUDITED)
Six Months Ended June 30, Change Constant Currency Change (1)
2017 2016 $ % $ %
(in thousands)
Wholesale:
Americas $128,333 $128,775 $(442) (0.3)% $(1,762) (1.4 )%
Asia Pacific 136,081 151,793 (15,712) (10.4)% (14,760) (9.7 )%
Europe 71,530 75,254 (3,724) (4.9)% (3,096) (4.1 )%
Other businesses 291 397 (106) (26.7)% (100) (25.2 )%
Total Wholesale 336,235 356,219 (19,984) (5.6)% (19,718) (5.5 )%
Retail:
Americas 88,405 93,535 (5,130) (5.5)% (5,066) (5.4 )%
Asia Pacific 60,961 63,838 (2,877) (4.5)% (2,730) (4.3 )%
Europe 20,490 21,505 (1,015) (4.7)% (1,549) (7.2 )%
Total Retail 169,856 178,878 (9,022) (5.0)% (9,345) (5.2 )%
E-commerce:
Americas 37,139 36,917 222 0.6% 267 0.7 %
Asia Pacific 25,946 19,716 6,230 31.6% 7,111 36.1 %
Europe 11,952 11,238 714 6.4% 869 7.7 %
Total E-commerce 75,037 67,871 7,166 10.6% 8,247 12.2 %
Total revenues $581,128 $602,968 $(21,840) (3.6)% $(20,816) (3.5 )%
Revenues:
Americas $253,877 $259,227 $(5,350) (2.1)% $(6,561) (2.5 )%
Asia Pacific 222,989 235,347 (12,358) (5.3)% (10,379) (4.4 )%
Europe 103,971 107,997 (4,026) (3.7)% (3,776) (3.5 )%
Total segment revenues 580,837 602,571 (21,734) (3.6)% (20,716) (3.4 )%
Other businesses 291 397 (106) (26.7)% (100) (25.2 )%
Total Revenues $581,128 $602,968 $(21,840) (3.6)% $(20,816) (3.5 )%

____________________

(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" above for more information.

CROCS, INC. AND SUBSIDIARIES
RETAIL STORE COUNTS
(UNAUDITED)
December 31, 2016 Opened Closed June 30, 2017
Company-operated retail locations:
Type:
Kiosk/store-in-store98 14 84
Retail stores228 4 41 191
Outlet stores232 10 14 228
Total558 14 69 503
Operating segment:
Americas190 1 7 184
Asia Pacific270 12 54 228
Europe98 1 8 91
Total558 14 69 503

Comparable retail sales and direct to consumer sales by operating segment are as follows:

Constant Currency (1)
Three Months Ended June 30,
2017 2016
Comparable store sales (retail only) (2)
Americas0.4 % (2.5)%
Asia Pacific(0.9)% (6.8)%
Europe0.7 % 1.8 %
Global0.0 % (3.4)%


Constant Currency (1)
Three Months Ended
June 30, 2017 June 30, 2016
Direct to consumer comparable store sales (includes retail and e-commerce) (2)
Americas1.1 % 2.4 %
Asia Pacific13.3 % 4.3 %
Europe5.1 % 1.6 %
Global5.7 % 2.9 %

____________________

(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” above 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.

Investor Contacts: Marisa Jacobs, Crocs, Inc. (303) 848-7322 mjacobs@crocs.com and Brendon Frey, ICR (203) 682-8200 Brendon.Frey@icrinc.com Media Contact: Patrick Rich, Crocs, Inc. (303) 848-7408 prich@crocs.com

Source:Crocs, Inc.