CROX Crocs Inc

Revenues and Gross Margin Exceeded GuidanceIncome from Operations Grew 418% and Diluted Earnings Per Share Rose to $0.07Raises Full Year Guidance

___________________________________________________________________________

Crocs, Inc. (NASDAQ: CROX) a world leader in innovative casual footwear for men, women, and children, today announced its third quarter 2018 financial results.

Andrew Rees, President and Chief Executive Officer, said, “By executing against our strategic priorities, we drove strong quarterly performance with revenues up 7.3%, gross margin increasing 250 basis points to 53.3% and income from operations increasing 418% to $13.9 million. Our diluted EPS was $0.07, improving significantly compared to last year’s third quarter $0.03 loss. We achieved these strong results by continuing to grow our brand strength and demand for our clogs and sandals. We anticipate a strong finish to the year and have increased our 2018 guidance accordingly, and we are excited about our growth prospects for 2019.”

Third Quarter 2018 Operating Results:

• Revenues were $261.1 million, a 7.3% increase over the third quarter of 2017, or 9.3% on a constant currency basis. This growth was achieved despite the loss of approximately $15 million due to operating fewer stores and business model changes. E-commerce grew 23.2%, wholesale grew 9.3%, and retail comparable store sales increased 15.0%.
• Gross margin was 53.3%, improving 250 basis points over last year’s third quarter.
• Selling, general and administrative expenses (“SG&A”) were $125.2 million compared to $120.8 million in the third quarter of 2017. This was higher than guidance due to incentive compensation and other variable costs associated with higher revenues. As a percent of revenues, SG&A improved 170 basis points to 47.9%. Third quarter 2018 results included $6.3 million of non-recurring charges compared to $3.6 million in last year’s third quarter. Those charges consisted of $5.0 million incurred in connection with the closure of the Company’s manufacturing facilities, approximately $3.7 million of which were non-cash, and $1.3 million associated with the Company’s SG&A reduction plan.
• Income from operations increased to $13.9 million from $2.7 million in last year’s third quarter. Net income attributable to common stockholders was $6.5 million, or $0.07 per diluted share, compared to a loss of $2.3 million, or a $0.03 loss per diluted share, in last year’s third quarter. We had 72.8 million and 71.9 million weighted average diluted common shares outstanding during the three months ended September 30, 2018 and 2017, respectively.

Balance Sheet and Cash Flow Highlights:

• Cash and cash equivalents as of September 30, 2018 increased 13.9% to $203.0 million compared to $178.2 million as of September 30, 2017 in response to higher sales and gross margins in combination with a disciplined approach to expenses. At September 30, 2018, there were no borrowings outstanding on our credit facility, and in November 2018, we increased the size of the facility to $150 million from $100 million.
• Inventory declined 16.1% to $117.7 million as of September 30, 2018 compared to $140.3 million as of September 30, 2017, reflecting the Company’s continued focus on inventory management.
• Cash provided by operating activities increased 6.8% to $85.9 million during the first nine months of 2018 compared to $80.4 million during the first nine months of 2017.
• Capital expenditures during the first nine months of 2018 were $5.2 million compared to $14.3 million during the same period in 2017, as the Company incurred lower technology-related expenditures.

Share Repurchase Activity:

During the third quarter of 2018, the Company repurchased 604,000 shares of its common stock for $11.1 million, at an average price of $18.39 per share. As of September 30, 2018, approximately $182 million of the Company’s current $500 million share repurchase authorization remained available for future share repurchases.

Financial Outlook:

Fourth Quarter 2018:

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

• Revenues of $195 to $205 million compared to $199.1 million in the fourth quarter of 2017, including a negative currency impact estimated at $5 million.
• Gross margin to be approximately 80 to 100 basis points above last year’s 45.4% rate.
• SG&A to be approximately $10 million below last year’s fourth quarter SG&A of $120.7 million. This includes non-recurring charges of approximately $2 million compared to $9.4 million of non-recurring charges in the fourth quarter of 2017.

Full Year 2018:

With respect to 2018, the Company now expects:

• Revenues to be 4 to 5% higher than 2017 revenues of $1,023.5 million, up from prior guidance of a low single digit increase based on the strength of our results.
• Gross margin to increase approximately 100 basis points over 2017 gross margin of 50.5%, up from our prior guidance of a 70 to 100 basis point increase.
• SG&A to be approximately $495 million compared to last year’s $499.9 million and prior guidance calling for SG&A to be slightly higher than $485 million. This change reflects increased incentive compensation and other variable costs associated with higher revenues. Non-recurring charges are expected to be $19 million. Approximately $13 million of that amount relates to the closure of our manufacturing facilities, approximately $6 million of which will be non-cash. Non-recurring charges in 2017 were $17 million.
• Income from operations to be slightly under $60 million compared to $17.3 million in 2017 and our prior guidance of $50 million.
• Depreciation and amortization to be approximately $30 million compared to $33.1 million in 2017.
• Income tax expense of approximately $17 million compared to $7.9 million in 2017.

2019 Preview:

With respect to 2019 revenues, the Company expects a mid-single digit increase over 2018 revenues. We anticipate that e-commerce and wholesale growth will more than offset lower retail revenues associated with our reduced store count, which we expect to reduce revenues by approximately $25 million. Adding back that $25 million reduction, we would expect 2019 revenues to be up mid to high single digits over our anticipated 2018 revenues.

Conference Call Information:

A conference call to discuss third quarter 2018 results is scheduled for today, Thursday, November 8, 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 these calls will require the use of the conference identification number 47676603. 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 8, 2019.

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. 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:

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, income from operations, depreciation and amortization, and tax expense 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 8, 2018. 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, 2018     2017 2018     2017 Revenues $ 261,064 $ 243,273 $ 872,216 $ 824,401 Cost of sales 122,005   119,810   411,884   397,547   Gross profit 139,059 123,463 460,332 426,854 Selling, general and administrative expenses 125,164   120,778   383,451   379,141   Income from operations 13,895 2,685 76,881 47,713 Foreign currency gains (losses), net 233 (257 ) 1,587 181 Interest income 422 269 847 576 Interest expense (126 ) (167 ) (371 ) (539 ) Other income, net 160   54   229   187   Income before income taxes 14,584 2,584 79,173 48,118 Income tax expense 4,092   955   17,850   13,519   Net income 10,492 1,629 61,323 34,599 Dividends on Series A convertible preferred stock (3,000 ) (3,000 ) (9,000 ) (9,000 ) Dividend equivalents on Series A convertible preferred stock related to redemption value accretion and beneficial conversion feature (972 ) (892 ) (2,854 ) (2,621 ) Net income (loss) attributable to common stockholders $ 6,520   $ (2,263 ) $ 49,469   $ 22,978   Net income (loss) per common share: Basic $ 0.08   $ (0.03 ) $ 0.60   $ 0.26   Diluted $ 0.07   $ (0.03 ) $ 0.58   $ 0.26   Weighted average common shares outstanding: Basic 67,821   71,895   68,223   73,212   Diluted 72,774   71,895   71,104   74,160            

EARNINGS PER SHARE

(UNAUDITED)

(in thousands, except per share data)

  Three Months Ended September 30, Nine Months Ended September 30, 2018     2017 2018     2017 (in thousands, except per share data) Numerator: Net income (loss) attributable to common stockholders $ 6,520 $ (2,263 ) $ 49,469 $ 22,978 Less: Net income allocable to Series A Preferred stockholders (1) (1,114 ) —   (8,319 ) (3,642 ) Remaining net income (loss) available to common stockholders - basic and diluted $ 5,406   $ (2,263 ) $ 41,150   $ 19,336   Denominator: Weighted average common shares outstanding - basic 67,821 71,895 68,223 73,212 Plus: dilutive effect of stock options and unvested restricted stock units 4,953   —   2,881   948   Weighted average common shares outstanding - diluted 72,774   71,895   71,104   74,160     Net income (loss) per common share: Basic $ 0.08 $ (0.03 ) $ 0.60 $ 0.26 Diluted $ 0.07 $ (0.03 ) $ 0.58 $ 0.26 (1)   Represents the amount which would have been paid to preferred stockholders in the event the Company had declared a dividend on its common stock.            

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and par value amounts)

  September 30, 2018 December 31, 2017 ASSETS Current assets: Cash and cash equivalents $ 203,046 $ 172,128 Accounts receivable, net of allowances of $20,508 and $31,389, respectively 110,478 83,518 Inventories 117,684 130,347 Income taxes receivable 11,872 3,652 Other receivables 9,387 10,664 Restricted cash - current 1,908 2,144 Prepaid expenses and other assets 25,856   22,596   Total current assets 480,231 425,049 Property and equipment, net of accumulated depreciation and amortization of $81,043 and $91,806, respectively 24,216 35,032 Intangible assets, net 48,196 56,427 Goodwill 1,634 1,688 Deferred tax assets, net 12,567 10,174 Restricted cash 2,244 2,783 Other assets 8,858   12,542   Total assets $ 577,946   $ 543,695     LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 57,125 $ 66,381 Accrued expenses and other liabilities 99,793 84,446 Income taxes payable 24,683 5,515 Current portion of borrowings and capital lease obligations 11   676   Total current liabilities 181,612 157,018 Long-term income taxes payable 4,334 6,081 Other liabilities 9,679   12,298   Total liabilities 195,625   175,397   Commitments and contingencies: Series A convertible preferred stock, par value $0.001 per share, 1.0 million shares authorized, 0.2 million outstanding, liquidation preference $203 million 185,288 182,433 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, 250 million shares authorized, 96.0 million and 94.8 million issued, 67.6 million and 68.8 million outstanding, respectively 96 95 Treasury stock, at cost, 28.4 million and 26.0 million shares, respectively (371,107 ) (334,312 ) Additional paid-in capital 383,090 373,045 Retained earnings 239,900 190,431 Accumulated other comprehensive loss (54,946 ) (43,394 ) Total stockholders’ equity 197,033   185,865   Total liabilities and stockholders’ equity $ 577,946   $ 543,695        

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

  Nine Months Ended September 30, 2018     2017 Cash flows from operating activities: Net income $ 61,323 $ 34,599 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,535 24,701 Unrealized foreign currency (gain) loss, net (2,028 ) 1,017 Share-based compensation 9,320 6,851 Other non-cash items 8,104 (1,208 ) Changes in operating assets and liabilities: Accounts receivable, net of allowances (37,394 ) (9,068 ) Inventories 4,468 12,435 Prepaid expenses and other assets 5,271 12,997 Accounts payable, accrued expenses and other liabilities 15,271   (1,909 ) Cash provided by operating activities 85,870 80,415 Cash flows from investing activities: Purchases of property, equipment, and software (5,224 ) (14,263 ) Proceeds from disposal of property and equipment 1,325   1,562   Cash used in investing activities (3,899 ) (12,701 ) Cash flows from financing activities: Proceeds from bank borrowings — 5,500 Repayments of bank borrowings and capital lease obligations (680 ) (8,222 ) Dividends—Series A convertible preferred stock (9,000 ) (9,000 ) Repurchases of common stock (37,046 ) (25,645 ) Other 31   (233 ) Cash used in financing activities (46,695 ) (37,600 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash (5,133 ) 499   Net change in cash, cash equivalents, and restricted cash 30,143 30,613 Cash, cash equivalents, and restricted cash—beginning of period 177,055   152,646   Cash, cash equivalents, and restricted cash—end of period $ 207,198   $ 183,259    

CROCS, INC. AND SUBSIDIARIESNON-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 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

REVENUES BY CHANNEL

(UNAUDITED)

 

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

% Change

Constant Currency % Change (1)

2018     2017 2018     2017

Q3 2018-2017

    YTD 2018-2017 Q3 2018-2017     YTD 2018-2017 (in thousands) Wholesale: Americas $ 44,883 $ 41,642 $ 171,477 $ 169,975 7.8 % 0.9 % 12.2 % 2.2 % Asia Pacific (2) 40,938 36,286 172,152 155,541 12.8 % 10.7 % 16.1 % 7.6 % Europe (2) 29,373 28,576 130,150 116,932 2.8 % 11.3 % 5.5 % 3.8 % Other businesses 1,525   254   2,133   545   500.4 % 291.4 % 515.0 % 288.3 % Total wholesale 116,719 106,758 475,912 442,993 9.3 % 7.4 % 12.9 % 4.9 % Retail: Americas 65,247 57,404 156,557 145,809 13.7 % 7.4 % 13.9 % 7.4 % Asia Pacific (2) 22,942 29,497 71,359 87,631 (22.2 )% (18.6 )% (22.1 )% (21.0 )% Europe (2) 10,345   12,434   29,601   35,751   (16.8 )% (17.2 )% (13.3 )% (18.5 )% Total retail 98,534 99,335 257,517 269,191 (0.8 )% (4.3 )% (0.2 )% (5.3 )% E-commerce: Americas 26,827 21,413 70,515 58,552 25.3 % 20.4 % 25.7 % 20.3 % Asia Pacific 11,283 9,537 45,134 35,483 18.3 % 27.2 % 19.6 % 22.2 % Europe 7,701   6,230   23,138   18,182   23.6 % 27.3 % 25.4 % 20.8 % Total e-commerce 45,811   37,180   138,787   112,217   23.2 % 23.7 % 24.1 % 21.0 % Total revenues $ 261,064   $ 243,273   $ 872,216   $ 824,401   7.3 % 5.8 % 9.3 % 3.8 % (1)   Reflects year over year change as if the current period results were in constant currency, which is a non-GAAP financial measure. See “Non-GAAP Measures” on page 8 for more information. (2) In the third quarter of 2018, certain revenues previously reported within the ‘Asia Pacific’ segment were shifted to the ‘Europe’ segment. The previously reported amounts for wholesale and retail revenues in these regions for the three and nine months ended September 30, 2017 have been revised to conform to the current year presentation. See ‘Impacts on revenue of segment composition change’ table below for more information.  

Impacts on revenue of segment composition change:

   

Three Months EndedSeptember 30, 2017

     

Nine Months EndedSeptember 30, 2017

Increase (Decrease) (in thousands) Wholesale: Asia Pacific $ (4,719 ) $ (21,545 ) Europe 4,719 21,545 Retail: Asia Pacific — (2,827 ) Europe — 2,827                  

CROCS, INC. AND SUBSIDIARIES

RETAIL STORE COUNTS

(UNAUDITED)

 

June 30,2018

Opened

Closed/Transferred

September 30,2018

Company-operated retail locations: Type: Kiosk/store in store 69 — — 69 Retail stores 126 1 6 121 Outlet stores 203   2     6   199 Total 398 3 12 389 Operating segment: Americas 169 1 1 169 Asia Pacific 161 2 8 155 Europe 68   —   3   65 Total 398   3   12   389  

December 31,2017

Opened

Closed/Transferred

September 30,2018

Company-operated retail locations: Type: Kiosk/store-in-store 71 — 2 69 Retail stores 161 1 41 121 Outlet stores 215   3   19   199 Total 447   4   62   389 Operating segment: Americas 175 1 7 169 Asia Pacific 186 3 34 155 Europe 86   —   21   65 Total 447   4   62   389      

CROCS, INC. AND SUBSIDIARIES

COMPARABLE RETAIL STORE SALES AND DIRECT TO CONSUMER COMPARABLE STORE SALES

(UNAUDITED)

 

Comparable retail sales and direct to consumer sales by operating segment were:

  Constant Currency (1)

Three Months EndedSeptember 30,

   

Nine Months EndedSeptember 30,

2018     2017 2018     2017 Comparable retail store sales: (2) Americas 19.9 % 2.8 % 13.0 % (0.3 )% Asia Pacific (3) 3.2 % (2.9 )% 3.4 % (1.8 )% Europe 15.1 % (2.1 )% 11.4 % (2.1 )% Global 15.0 % 0.4 % 10.1 % (1.0 )%   Constant Currency (1)

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2018 2017 2018 2017 Direct to consumer comparable store sales (includes retail and e-commerce): (2) Americas 21.6 % 9.2 % 15.2 % 2.4 % Asia Pacific (3) 8.4 % 3.7 % 10.4 % 8.6 % Europe (3) 19.3 % 4.9 % 15.4 % 2.5 % Global 17.9 % 7.0 % 13.8 % 4.3 % (1)   Reflects period over period change as if the current period results were in constant currency, which is a non-GAAP financial measure. See “Non-GAAP Measures” on page 8 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. (3) In the third quarter of 2018, certain revenues and expenses previously reported within the ‘Asia Pacific’ segment were shifted to the ‘Europe’ segment. The previously reported amounts for comparable retail store sales and direct to consumer store sales for the three months ended September 30, 2017 were not impacted. The previously reported amounts for comparable retail store sales and direct to consumer store sales for the nine months ended September 30, 2017 have been revised to conform to the current period presentation. The adjustments for this revision had the following impacts: Asia Pacific comparable retail stores decreased by 0.1%; Europe comparable retail stores increased by 0.2%; Asia Pacific direct to consumer comparable store sales increased by 0.2%; Europe direct to consumer comparable store sales decreased by 0.1%.  

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Crocs, Inc.Investor Contacts:Marisa Jacobs, 303-848-7322mjacobs@crocs.comorMedia Contact:Ryan Roccaforte, 303-848-7116rroccaforte@crocs.com