CROX Crocs Inc

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 SUBSIDIARIESCONDENSED 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 sales	119,810				123,454				397,547				427,416
Gross profit	123,463				122,434				426,854				421,440
Selling, general and administrative expenses	120,778				123,649				379,141				387,807
Income (loss) from operations	2,685				(1,215		)		47,713				33,633
Foreign currency gain (loss), net	(257		)		1,379				181				(1,568		)
Interest income	269				178				576				558
Interest expense	(167		)		(184		)		(539		)		(661		)
Other income (expense)	54				(1		)		187				(108		)
Income before income taxes	2,584				157				48,118				31,854
Income tax expense	955				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 - basic	71,895				73,493				73,212				73,323
Weighted average common shares outstanding - diluted	71,895				73,493				74,160				74,730

CROCS, INC. AND SUBSIDIARIESCONDENSED 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, respectively	92,708				78,297
Inventories	140,282				147,029
Income tax receivable	7,421				2,995
Other receivables	14,547				14,642
Restricted cash - current	2,175				2,534
Prepaid expenses and other assets	24,416				32,413
Total current assets	459,738				425,475
Property and equipment, net of accumulated depreciation and amortization of $95,512 and $88,603, respectively	38,412				44,090
Intangible assets, net	66,505				72,700
Goodwill	1,663				1,480
Deferred tax assets, net	7,098				6,825
Restricted cash	2,895				2,547
Other assets	13,342				13,273
Total assets	$	589,653			$	566,390
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	55,181			$	61,927
Accrued expenses and other liabilities	84,836				78,282
Income taxes payable	14,096				6,593
Current portion of borrowings and capital lease obligations	1,070				2,338
Total current liabilities	155,183				149,140
Long-term income tax payable	4,926				4,464
Long-term capital lease obligations	35				40
Other liabilities	13,931				13,462
Total liabilities	174,075				167,106
Commitments and contingencies
Series A convertible preferred stock, 1.0 million authorized, 0.2 million shares outstanding, liquidation preference $203 million	181,522				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, respectively	95				94
Treasury stock, at cost, 23.7 million and 20.3 million shares, respectively	(311,302		)		(284,237		)
Additional paid-in capital	370,567				364,397
Retained earnings	218,703				195,725
Accumulated other comprehensive loss	(44,007		)		(55,596		)
Total stockholders’ equity	234,056				220,383
Total liabilities and stockholders’ equity	$	589,653			$	566,390

CROCS, INC. AND SUBSIDIARIESCONDENSED 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 amortization	24,701				25,473
Unrealized foreign currency gain (loss), net	1,017				(7,863		)
Share-based compensation	6,851				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		)
Inventories	12,435				3,750
Prepaid expenses and other assets	12,997				(7,559		)
Accounts payable, accrued expenses and other liabilities	(1,909		)		(4,510		)
Cash provided by operating activities	80,415				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 equipment	1,562				2,425
Cash paid for intangible assets	(7,710		)		(5,598		)
Change in restricted cash	383				953
Cash used in investing activities	(12,318		)		(14,871		)
Cash flows from financing activities:
Proceeds from bank borrowings	5,500				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 cash	127				4,526
Net change in cash and cash equivalents	30,624				6,875
Cash and cash equivalents—beginning of period	147,565				143,341
Cash and cash equivalents—end of period	$	178,189			$	150,216

CROCS, INC. AND SUBSIDIARIESRECONCILIATION 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 SUBSIDIARIESRECONCILIATION 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 SUBSIDIARIESREVENUES 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 SUBSIDIARIESREVENUES 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 SUBSIDIARIESRETAIL STORE COUNTS(UNAUDITED)
	June 30,  2017			Opened			Closed (1)			September 30, 2017
Company-operated retail locations:
Type:
Kiosk/store-in-store	84			—			9			75
Retail stores	191			1			17			175
Outlet stores	228			3			7			224
Total	503			4			33			474
Operating segment:
Americas	184			1			6			179
Asia Pacific	228			3			25			206
Europe	91			—			2			89
Total	503			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-store	98			—			23			75
Retail stores	228			5			58			175
Outlet stores	232			13			21			224
Total	558			18			102			474
Operating segment:
Americas	190			2			13			179
Asia Pacific	270			15			79			206
Europe	98			1			10			89
Total	558			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)
Americas	2.8	%		(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	%
Global	0.4	%		(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)
Americas	9.2	%		(1.7	)%		2.4	%		3.0	%
Asia Pacific	3.7	%		(2.4	)%		8.4	%		2.3	%
Europe	4.8	%		(6.7	)%		2.6	%		0.3	%
Global	7.0	%		(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) 848-7322mjacobs@crocs.com          andBrendon Frey, ICR(203) 682-8200brendon.frey@icrinc.com
Media Contact:		Ryan Roccaforte, Crocs, Inc.(303) 848-7116rroccaforte@crocs.com