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Crocs, Inc. Reports Third Quarter 2017 Results

NIWOT, CO, Nov. 07, 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 third quarter of 2017. These results cover the three months ended September 30, 2017, and are compared to the three months ended September 30, 2016.

Andrew Rees, President and Chief Executive Officer, said, “The third quarter was another strong quarter for us, both in terms of our financial performance and the progress made against our strategic initiatives. Consistent with the first half of this year, we again met or exceeded our guidance metrics. Furthermore, the perception of the brand continued to rise, with results from our latest annual brand survey showing double digit increases in brand desirability, relevance and consideration compared to last year. Looking ahead, we are confident that further operational improvements and a disciplined approach to expense management will facilitate a return to double digit EBIT margins.”

Third Quarter 2017 Operating Results:

  • Revenues were $243.3 million, above the top end of our revenue guidance, and decreased 1.1% compared to the third quarter of 2016. On a constant currency basis, revenues decreased 1.6% compared to the third quarter of 2016.

  • Third quarter gross margin was 50.8%, an increase of 100 basis points over last year’s third quarter. Our focus on core molded product and our continued focus on inventory management resulted in higher quality revenue that delivered stronger gross margins.

  • Selling, general and administrative expenses (“SG&A”) were $120.8 million compared to $123.6 million in the third quarter of 2016, a decrease of 2.3%. As a percent of revenues, SG&A improved 70 basis points. Our third quarter 2017 SG&A includes $3.6 million of charges relating to our SG&A reduction plan.
  • Income from operations improved by $3.9 million, coming in at $2.7 million compared to last year’s third quarter loss of $1.2 million.

  • Net loss attributable to common stockholders was $2.3 million, or $0.03 per diluted share. This amount includes $3.6 million related to our SG&A reduction plan. For the quarter ended September 30, 2017, we had 71.9 million weighted average diluted common shares outstanding.

Balance Sheet and Cash Flow Highlights:

  • Cash and cash equivalents as of September 30, 2017 were $178.2 million, compared to $150.2 million as of September 30, 2016.

  • Inventory was $140.3 million as of September 30, 2017, compared to $169.4 million as of September 30, 2016. This 17.2% decline reflects our ongoing efforts to carefully manage inventory levels and improve the quality of goods on hand.

  • Cash provided by operating activities was $80.4 million during the first nine months of 2017, compared to $29.4 million during the first nine months of 2016.

  • Capital expenditures totaled $2.0 million during the third quarter of 2017, compared to $5.4 million during the third quarter of 2016.

  • Cash flows from financing activities during the third quarter of 2017 include $15.6 million used to repurchase 1.9 million shares of our common stock.

  • At September 30, 2017, there were no borrowings outstanding on our credit facility, and in October 2017, we increased the borrowing capacity of the facility to $100 million from $80 million.

Financial Outlook:

Fourth Quarter 2017:

  • The Company expects fourth quarter 2017 revenues to be between $180 and $190 million.

  • The Company expects the gross margin for the fourth quarter to be approximately 43%, or 100 basis points above last year’s 42% gross margin.

  • The Company expects SG&A of approximately $115 million, including approximately $2 million of charges associated with our SG&A reduction plan. This represents a $3 million reduction to last year’s $118.5 million of SG&A in the fourth quarter.

Full Year 2017:

  • The Company continues to expect 2017 revenues to be down low single digits compared to 2016.

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

  • The Company continues to expect SG&A for 2017 to be between $490 and $495 million. Included in the range is approximately $10 million of charges associated with our SG&A reduction plan.

Conference Call Information:

A conference call to discuss third quarter 2017 results is scheduled for today, Tuesday, November 7, 2017, at 8:30 a.m. EDT. 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 45783019. 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 November 7, 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 EBIT margin, 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 November 7, 2017. 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues$243,273 $245,888 $824,401 $848,856
Cost of sales119,810 123,454 397,547 427,416
Gross profit123,463 122,434 426,854 421,440
Selling, general and administrative expenses120,778 123,649 379,141 387,807
Income (loss) from operations2,685 (1,215) 47,713 33,633
Foreign currency gain (loss), net(257) 1,379 181 (1,568)
Interest income269 178 576 558
Interest expense(167) (184) (539) (661)
Other income (expense)54 (1) 187 (108)
Income before income taxes2,584 157 48,118 31,854
Income tax expense955 1,690 13,519 7,704
Net income (loss)1,629 (1,533) 34,599 24,150
Dividends on Series A convertible preferred stock(3,000) (3,000) (9,000) (9,000)
Dividend equivalents on Series A convertible preferred shares related to redemption value accretion and beneficial conversion feature(892) (819) (2,621) (2,406)
Net income (loss) attributable to common stockholders$(2,263) $(5,352) $22,978 $12,744
Net income (loss) per common share:
Basic$(0.03) $(0.07) $0.26 $0.15
Diluted$(0.03) $(0.07) $0.26 $0.14
Weighted average common shares outstanding - basic71,895 73,493 73,212 73,323
Weighted average common shares outstanding - diluted71,895 73,493 74,160 74,730


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and par value amounts)
September 30,
2017
December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents$178,189 $147,565
Accounts receivable, net of allowances of $49,360 and $48,138, respectively92,708 78,297
Inventories140,282 147,029
Income tax receivable7,421 2,995
Other receivables14,547 14,642
Restricted cash - current2,175 2,534
Prepaid expenses and other assets24,416 32,413
Total current assets459,738 425,475
Property and equipment, net of accumulated depreciation and amortization of $95,512 and $88,603, respectively38,412 44,090
Intangible assets, net66,505 72,700
Goodwill1,663 1,480
Deferred tax assets, net7,098 6,825
Restricted cash2,895 2,547
Other assets13,342 13,273
Total assets$589,653 $566,390
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$55,181 $61,927
Accrued expenses and other liabilities84,836 78,282
Income taxes payable14,096 6,593
Current portion of borrowings and capital lease obligations1,070 2,338
Total current liabilities155,183 149,140
Long-term income tax payable4,926 4,464
Long-term capital lease obligations35 40
Other liabilities13,931 13,462
Total liabilities174,075 167,106
Commitments and contingencies
Series A convertible preferred stock, 1.0 million authorized, 0.2 million shares outstanding, liquidation preference $203 million181,522 178,901
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, 71.0 million and 73.6 million shares outstanding, respectively95 94
Treasury stock, at cost, 23.7 million and 20.3 million shares, respectively(311,302) (284,237)
Additional paid-in capital370,567 364,397
Retained earnings218,703 195,725
Accumulated other comprehensive loss(44,007) (55,596)
Total stockholders’ equity234,056 220,383
Total liabilities and stockholders’ equity$589,653 $566,390


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net income$34,599 $24,150
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization24,701 25,473
Unrealized foreign currency gain (loss), net1,017 (7,863)
Share-based compensation6,851 8,006
Other non-cash items(1,208) 3,669
Changes in operating assets and liabilities:
Accounts receivable, net of allowances(9,068) (15,762)
Inventories12,435 3,750
Prepaid expenses and other assets12,997 (7,559)
Accounts payable, accrued expenses and other liabilities(1,909) (4,510)
Cash provided by operating activities80,415 29,354
Cash flows from investing activities:
Cash paid for purchases of property and equipment(6,553) (12,651)
Proceeds from disposal of property and equipment1,562 2,425
Cash paid for intangible assets(7,710) (5,598)
Change in restricted cash383 953
Cash used in investing activities(12,318) (14,871)
Cash flows from financing activities:
Proceeds from bank borrowings5,500 29,582
Repayments of bank borrowings and capital lease obligations(8,222) (32,378)
Dividends—Series A preferred stock(9,000) (9,000)
Repurchases of common stock(25,645)
Other(233) (338)
Cash used in financing activities(37,600) (12,134)
Effect of exchange rate changes on cash127 4,526
Net change in cash and cash equivalents30,624 6,875
Cash and cash equivalents—beginning of period147,565 143,341
Cash and cash equivalents—end of period$178,189 $150,216

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 September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
SG&A expenses reconciliation:
U.S. GAAP SG&A expenses $120,778 $123,649 $379,141 $387,807
Reorganization charges (1) (2,022) (3,649) (458)
Strategic consulting services (2) (1,481) (3,071)
Other (86) (863) (354)
Total adjustments (3,589) (7,583) (812)
Non-GAAP SG&A expenses $117,189 $123,649 $371,558 $386,995


Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Net income (loss) attributable to common stockholders reconciliation:
GAAP net income (loss) attributable to common stockholders $(2,263) $(5,352) $22,978 $12,744
Reorganization charges (1) 2,022 3,649 458
Strategic consulting services (2) 1,481 3,071
Other 86 3,344 863 354
Total adjustments 3,589 3,344 7,583 812
Non-GAAP net income (loss) attributable to common stockholders $1,326 $(2,008) $30,561 $13,556


(1) Represents severance and other expenses related to reorganization activities.
(2) Represents operating expenses incurred in 2017 related to strategic consulting.



CROCS, INC. AND SUBSIDIARIES
REVENUES BY CHANNEL
(UNAUDITED)
Three Months Ended September 30, Change Constant Currency
Change (1)
2017 2016 $ % $ %
($ in thousands)
Wholesale:
Americas $41,642 $41,389 $253 0.6% $153 0.4%
Asia Pacific 41,005 45,565 (4,560) (10.0)% (4,034) (8.9)%
Europe 23,857 21,909 1,948 8.9% 604 2.8%
Other businesses 254 271 (17) (6.3)% (28) (10.3)%
Total wholesale 106,758 109,134 (2,376) (2.2)% (3,305) (3.0)%
Retail:
Americas 57,404 56,607 797 1.4% 689 1.2%
Asia Pacific 29,497 37,259 (7,762) (20.8)% (7,213) (19.4)%
Europe 12,434 13,194 (760) (5.8)% (1,457) (11.0)%
Total retail 99,335 107,060 (7,725) (7.2)% (7,981) (7.5)%
E-commerce:
Americas 21,413 16,662 4,751 28.5% 4,668 28.0%
Asia Pacific 9,537 8,096 1,441 17.8% 1,708 21.1%
Europe 6,230 4,936 1,294 26.2% 974 19.7%
Total e-commerce 37,180 29,694 7,486 25.2% 7,350 24.8%
Total revenues $243,273 $245,888 $(2,615) (1.1)% $(3,936) (1.6)%


(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
REVENUES BY CHANNEL
(UNAUDITED)
Nine Months Ended September 30, Change Constant Currency
Change (1)
2017 2016 $ % $ %
($ in thousands)
Wholesale:
Americas $169,975 $170,165 $(190) (0.1)% $(1,611) (0.9)%
Asia Pacific 177,086 197,359 (20,273) (10.3)% (18,796) (9.5)%
Europe 95,387 97,163 (1,776) (1.8)% (2,493) (2.6)%
Other businesses 545 667 (122) (18.3)% (127) (19.0)%
Total wholesale 442,993 465,354 (22,361) (4.8)% (23,027) (4.9)%
Retail:
Americas 145,809 150,142 (4,333) (2.9)% (4,377) (2.9)%
Asia Pacific 90,458 101,097 (10,639) (10.5)% (9,943) (9.8)%
Europe 32,924 34,699 (1,775) (5.1)% (3,006) (8.7)%
Total retail 269,191 285,938 (16,747) (5.9)% (17,326) (6.1)%
E-commerce:
Americas 58,552 53,579 4,973 9.3% 4,935 9.2%
Asia Pacific 35,483 27,812 7,671 27.6% 8,819 31.7%
Europe 18,182 16,173 2,009 12.4% 1,845 11.4%
Total e-commerce 112,217 97,564 14,653 15.0% 15,599 16.0%
Total revenues $824,401 $848,856 $(24,455) (2.9)% $(24,754) (2.9)%


(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)
June 30, 2017 Opened Closed (1) September 30, 2017
Company-operated retail locations:
Type:
Kiosk/store-in-store84 9 75
Retail stores191 1 17 175
Outlet stores228 3 7 224
Total503 4 33 474
Operating segment:
Americas184 1 6 179
Asia Pacific228 3 25 206
Europe91 2 89
Total503 4 33 474


(1) We completed the transfer of one company-operated store in China to a distributor during the period.


December 31, 2016 Opened Closed (1) September 30, 2017
Company-operated retail locations:
Type:
Kiosk/store-in-store98 23 75
Retail stores228 5 58 175
Outlet stores232 13 21 224
Total558 18 102 474
Operating segment:
Americas190 2 13 179
Asia Pacific270 15 79 206
Europe98 1 10 89
Total558 18 102 474


(1) We completed the transfer of thirty-one company-operated stores in the Middle East and China to distributors during the period.

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

Constant Currency (1) Constant Currency (1)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Comparable store sales (retail only): (2)
Americas2.8% (2.8)% (0.3)% (1.4)%
Asia Pacific(2.9)% (5.8)% (1.7)% (4.4)%
Europe(2.1)% (0.9)% (2.3)% 2.1%
Global0.4% (3.5)% (1.0)% (2.0)%


Constant Currency (1) Constant Currency (1)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Direct to consumer comparable store sales (includes retail and e-commerce): (2)
Americas9.2% (1.7)% 2.4% 3.0%
Asia Pacific3.7% (2.4)% 8.4% 2.3%
Europe4.8% (6.7)% 2.6% 0.3%
Global7.0% (2.6)% 4.3% 2.4%


(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.


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: Ryan Roccaforte, Crocs, Inc.
(303) 848-7116
rroccaforte@crocs.com

Source:Crocs, Inc.