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Crocs, Inc. Reports Third Quarter 2016 Financial Results

November 9, 2016

NIWOT, Colo., Nov. 09, 2016 (GLOBE NEWSWIRE) -- Crocs, Inc. (NASDAQ:CROX) today reported financial results for the three months ended September 30, 2016.

Third Quarter Highlights:

  • Revenues were in-line with guidance at $245.9 million for the three months ended September 30, 2016. On a constant currency basis, revenues decreased 11.6%, compared to the three months ended September 30, 2015.

  • Improved inventory management resulted in a $21.4 million, or 11.2%, decrease in inventory as of September 30, 2016 compared to September 30, 2015.

Gregg Ribatt, Chief Executive Officer, said: “We continue to manage our business tightly in what remains a challenging consumer environment. Revenues were in-line with our expectations while gross margin exceeded our guidance by approximately 200 basis points as we further limited off-price selling and promotional activities. At the same time, we reduced our inventories 11% compared with last year. Looking ahead, we continue to plan conservatively given the current top-line headwinds. We are working hard to drive quality growth through our product, marketing, and distribution strategies and we remain confident that the steps we’ve taken to build a better business model will result in increased profitability and greater shareholder value.”

Third Quarter Operating Results

In the third quarter of 2016, the company reported GAAP net loss attributable to common stockholders of $5.4 million, or $0.07 per basic and diluted share, compared to a net loss attributable to common stockholders of $27.8 million, or $0.37 per basic and diluted share, in the same quarter of the prior year.

As outlined in detail in the GAAP to non-GAAP reconciliations set forth later in this press release, the company recorded net charges of $3.3 million unrelated to our core business in the three months ended September 30, 2016, compared to $8.6 million in the three months ended September 30, 2015. Excluding these items, the company reported on a comparable basis, non-GAAP adjusted net loss attributable to common shareholders of $2.0 million in the three months ended September 30, 2016, versus non-GAAP adjusted net loss attributable to common shareholders of $19.2 million in the three months ended September 30, 2015.

Balance Sheet

Cash and cash equivalents as of September 30, 2016 were $150.2 million compared to $143.3 million as of December 31, 2015. Inventory was $169.4 million as of September 30, 2016 compared to $190.8 million as of September 30, 2015.

The company did not repurchase any shares during the three or nine months ended September 30, 2016.

Financial Outlook

The company expects fourth quarter 2016 revenues in the $185.0 to $195.0 million range compared to $208.7 million in the fourth quarter of 2015. For the year ended December 31, 2016, the company expects revenues to be $1,034.0 million to $1,044.0 million.

Conference Call Information

A teleconference call to discuss third quarter 2016 results is scheduled for today, Wednesday, November 9, 2016, at 8:30 am EST. 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 43651803. The call also will be streamed on the Crocs website, www.crocs.com. An audio recording of the conference call will be available at www.crocs.com through November 9, 2017.

About Crocs, Inc.

Crocs, Inc. 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, non-marking, and odor-resistant qualities that Crocs fans know and love. Crocs celebrates the fun of being a little different and encourages fans to “Find Your Fun” in every colorful pair of shoes. Since its inception in 2002, Crocs has sold more than 300 million pairs of shoes in more than 65 countries around the world.

Visit www.crocs.com for additional information.

The matters regarding the future discussed in this news release include “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, investments in our business and 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: macroeconomic issues, including, but not limited to, the current global financial conditions; the effect of competition in our industry; our ability to effectively manage our future growth or declines in revenue; changing fashion trends; 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 9, 2016. We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimate regarding revenues or earnings, whether as a result of the receipt of new information, future events, or otherwise.

CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts)
 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2016   2015   2016   2015
Revenues $ 245,888     $ 274,088     $ 848,856     $ 881,952  
Cost of sales 123,454     153,267     427,416     443,891  
Gross profit 122,434     120,821     421,440     438,061  
Selling, general and administrative expenses 122,719     135,110     386,112     429,815  
Asset impairment charges 930     5,460     1,695     7,535  
Restructuring charges     981         7,454  
Income (loss) from operations (1,215 )   (20,730 )   33,633     (6,743 )
Foreign currency transaction gain (loss), net 1,379     (2,908 )   (1,568 )   (2,631 )
Interest income 178     268     558     752  
Interest expense (184 )   (171 )   (661 )   (650 )
Other income (expense), net (1 )   405     (108 )   (6 )
Income (loss) before income taxes 157     (23,136 )   31,854     (9,278 )
Income tax expense (1,690 )   (888 )   (7,704 )   (3,745 )
Net income (loss) $ (1,533 )   $ (24,024 )   $ 24,150     $ (13,023 )
               
Dividends on Series A convertible preferred stock $ (3,000 )   $ (3,000 )   $ (9,000 )   $ (8,833 )
Dividend equivalents on Series A convertible preferred shares related to redemption value accretion and beneficial conversion feature  (819 )   (752 )   (2,406 )   (2,209 )
Net income (loss) attributable to common stockholders $ (5,352 )   $ (27,776 )   $ 12,744     $ (24,065 )
Net income (loss) per common share:              
Basic $ (0.07 )   $ (0.37 )   $ 0.15     $ (0.32 )
Diluted $ (0.07 )   $ (0.37 )   $ 0.14     $ (0.32 )
               
Weighted average shares outstanding used in computing earnings per share              
Basic 73,493     74,332     73,323     76,318  
Diluted 73,493     74,332     74,730     76,318  

 

 
CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
 
   September 30, 
 2016
   December 31, 
 2015
ASSETS      
Current assets:      
Cash and cash equivalents $ 150,216     $ 143,341  
Accounts receivable, net of allowances of $50,412 and $49,364, respectively 101,651     83,616  
Inventories 169,376     168,192  
Income tax receivable 6,979     10,233  
Other receivables 17,793     14,233  
Prepaid expenses and other assets 29,925     26,334  
Total current assets 475,940     445,949  
Property and equipment, net of accumulated depreciation of $104,213 and $97,650, respectively  45,820     49,490  
Intangible assets, net 75,740     82,297  
Goodwill 2,586     1,973  
Deferred tax assets, net 6,699     6,608  
Other assets 18,388     21,703  
Total assets $ 625,173     $ 608,020  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 50,881     $ 63,336  
Accrued expenses and other liabilities 90,194     92,573  
Income taxes payable 9,173     6,416  
Current portion of borrowings and capital lease obligations 3,593     4,772  
Total current liabilities 153,841     167,097  
Long-term income tax payable 4,965     4,547  
Long-term borrowings and capital lease obligations 27     1,627  
Other liabilities 13,848     13,120  
Total liabilities 172,681     186,391  
       
Series A convertible preferred stock 178,063     175,657  
Stockholders’ equity:      
Preferred stock      
Common stock 94     94  
Treasury stock, at cost (284,176 )   (283,913 )
Additional paid-in capital 361,688     353,241  
Retained earnings 241,205     227,463  
Accumulated other comprehensive loss (44,382 )   (50,913 )
Total stockholders’ equity 274,429     245,972  
Total liabilities and stockholders’ equity $ 625,173     $ 608,020  
 

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 (“GAAP”), we present “Non-GAAP selling, general, and administrative expenses”, “Non-GAAP cost of sales”, and “Non-GAAP adjusted net income (loss) attributable to common stockholders”, which are non-GAAP financial measures. Adjusted results exclude the impact of items that management believes affect the comparability or underlying business trends in our 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 GAAP. Constant currency represents current period results that have been recasted using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.

Management uses adjusted results to assist in comparing business trends from period to period on a consistent non-GAAP 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 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 GAAP.

CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)
 
   Three Months Ended September 30,     Nine Months Ended September 30, 
  2016   2015   2016   2015
  (in thousands)
Selling, general and administrative expenses reconciliation:              
GAAP selling, general and administrative expenses $ 122,719     $ 135,110     $ 386,112     $ 429,815  
Reorganization charges (1)     (573 )   (458 )   (4,126 )
Customs audit settlements (2)         (354 )    
ERP implementation (3)     (712 )       (9,099 )
Improper disbursements and related legal fees (4)     (631 )       (5,653 )
Legal settlements (5)     (234 )       (2,035 )
Total adjustments     (2,150 )   (812 )   (20,913 )
Non-GAAP selling, general and administrative expenses  $ 122,719     $ 132,960     $ 385,300     $ 408,902  


   Three Months Ended September 30,     Nine Months Ended September 30, 
  2016   2015   2016   2015
  (in thousands)
Cost of sales reconciliation:              
GAAP cost of sales $ 123,454     $ 153,267     $ 427,416     $ 443,891  
Customs audit settlements (6)                       (3,344 )         (2,694 )    
Statutory audits (7)                     (1,000 )
Non-GAAP cost of sales $ 120,110     $ 153,267     $ 424,722     $ 442,891  


   Three Months Ended September 30,     Nine Months Ended September 30, 
  2016   2015   2016   2015
  (in thousands)
Net income (loss) attributable to common stockholders reconciliation:              
GAAP net income (loss) attributable to common stockholders $ (5,352 )   $ (27,776 )   $ 12,744     $ (24,065 )
Customs audit settlements (2, 6) 3,344         3,048      
Reorganization charges (1)     573     458     4,126  
Asset impairment charges (8)     5,460         7,535  
Restructuring charges (9)     981         7,454  
ERP implementation (3)     712         9,099  
Improper disbursements and related legal fees (4)     631         5,653  
Legal settlements (5)     234         2,035  
Statutory audits (7)             1,000  
Total adjustments 3,344     8,591     3,506     36,902  
Non-GAAP adjusted net income (loss) attributable to common stockholders   $ (2,008 )   $ (19,185 )   $ 16,250     $ 12,837  

__________________
(1) Relates to severance expense, bonuses, store closure costs, consulting fees, and other expenses related to reorganization activities and our investment agreement with Blackstone.  

(2) Represents penalties and fees related to customs audit settlements.

(3) Represents operating expenses incurred in 2015 related to the implementation of the new ERP system.

(4) Represents invalid disbursements and related legal expenses that occurred in 2015.

(5) Relates primarily to legal expenses for matters surrounding California wage settlements that occurred in 2015. 

(6) Represents the increase or release of tariff reserves related to customs audit settlements.

(7) Represents expenses incurred related to statutory audits.

(8) Represents retail asset impairment charges for certain underperforming locations in our Americas, Asia Pacific, and Europe operating segments.

(9) Relates to bonuses, consulting fees, and other expenses related to restructuring activities that concluded in December 2015.

CROCS, INC. SUBSIDIARIES
REVENUES BY SEGMENT AND CHANNEL
(UNAUDITED)
 
  Three Months Ended
 September 30,
  Change   Constant Currency Change (1)
  2016   2015   $   %   $   %
  (in thousands)
Wholesale:                            
Americas $ 41,389     $ 48,880     $ (7,491 )   (15.3 )%   $ (6,913 )   (14.1 )%
Asia Pacific   45,565     53,411       (7,846 )   (14.7 )%     (10,822 )   (20.3 )%
Europe   21,909     30,260       (8,351 )   (27.6 )%     (8,288 )   (27.4 )%
Other businesses   271     418       (147 )   (35.2 )%     (150 )   (35.9 )%
Total wholesale   109,134     132,969       (23,835 )   (17.9 )%     (26,173 )   (19.7 )%
Retail:                            
Americas   56,607     59,468       (2,861 )   (4.8 )%     (2,818 )   (4.7 )%
Asia Pacific   37,259     38,374       (1,115 )   (2.9 )%     (2,626 )   (6.8 )%
Europe   13,194     13,813       (619 )   (4.5 )%     (150 )   (1.1 )%
Total retail   107,060     111,655       (4,595 )   (4.1 )%     (5,594 )   (5.0 )%
E-commerce:                            
Americas   16,662     16,321       341     2.1 %     351     2.2 %
Asia Pacific   8,096     7,094       1,002     14.1 %     801     11.3 %
Europe   4,936     6,049       (1,113 )   (18.4 )%     (1,105 )   (18.3 )%
Total e-commerce   29,694     29,464       230     0.8 %     47     0.2 %
Total revenues $ 245,888     $ 274,088     $ (28,200 )   (10.3 )%   $ (31,720 )   (11.6 )%
                             
Revenues:                            
Americas $ 114,658     $ 124,669     $ (10,011 )   (8.0 )%   $ (9,380 )   (7.5 )%
Asia Pacific   90,920     98,879       (7,959 )   (8.0 )%     (12,647 )   (12.8 )%
Europe   40,039     50,122       (10,083 )   (20.1 )%     (9,543 )   (19.0 )%
Total segment revenues   245,617     273,670       (28,053 )   (10.3 )%     (31,570 )   (11.5 )%
Other businesses   271     418       (147 )   (35.2 )%     (150 )   (35.9 )%
Total consolidated revenues   $ 245,888     $ 274,088     $ (28,200 )   (10.3 )%   $ (31,720 )   (11.6 )%

____________________
(1)  Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” above for more information.

CROCS, INC. SUBSIDIARIES
REVENUES BY SEGMENT AND CHANNEL
(UNAUDITED)
 
  Nine Months Ended
September 30,
  Change   Constant Currency Change (1)
  2016   2015   $   %   $   %
  (in thousands)
Wholesale:                            
Americas $ 170,165     $ 175,306     $ (5,141 )   (2.9 )%   $ (1,654 )   (0.9 )%
Asia Pacific   197,359     218,730       (21,371 )   (9.8 )%     (23,853 )   (10.9 )%
Europe   97,163     105,719       (8,556 )   (8.1 )%     (7,591 )   (7.2 )%
Other businesses   667     970       (303 )   (31.2 )%     (306 )   (31.5 )%
Total wholesale   465,354     500,725       (35,371 )   (7.1 )%     (33,404 )   (6.7 )%
Retail:                            
Americas   150,142     152,394       (2,252 )   (1.5 )%     (1,976 )   (1.3 )%
Asia Pacific   101,097     107,619       (6,522 )   (6.1 )%     (6,981 )   (6.5 )%
Europe   34,699     36,747       (2,048 )   (5.6 )%     (264 )   (0.7 )%
Total retail   285,938     296,760       (10,822 )   (3.6 )%     (9,221 )   (3.1 )%
E-commerce:                            
Americas   53,579     45,857       7,722     16.8 %     7,882     17.2 %
Asia Pacific   27,812     21,862       5,950     27.2 %     6,298     28.8 %
Europe   16,173     16,748       (575 )   (3.4 )%     (616 )   (3.7 )%
Total e-commerce   97,564     84,467       13,097     15.5 %     13,564     16.1 %
Total revenues $ 848,856     $ 881,952     $ (33,096 )   (3.8 )%   $ (29,061 )   (3.3 )%
                             
Revenues:                            
Americas $ 373,886     $ 373,557     $ 329     0.1 %   $ 4,252     1.1 %
Asia Pacific   326,268     348,211       (21,943 )   (6.3 )%     (24,536 )   (7.0 )%
Europe   148,035     159,214       (11,179 )   (7.0 )%     (8,471 )   (5.3 )%
Total segment revenues   848,189     880,982       (32,793 )   (3.7 )%     (28,755 )   (3.3 )%
Other businesses   667     970       (303 )   (31.2 )%     (306 )   (31.5 )%
Total consolidated revenues   $ 848,856     $ 881,952     $ (33,096 )   (3.8 )%   $ (29,061 )   (3.3 )%

____________________
(1) Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” above for more information.

CROCS, INC. SUBSIDIARIES
RETAIL STORE COUNTS
(UNAUDITED)
 
   June 30, 
2016
   Opened     Closed    September 30,
2016
Company-operated retail locations                
Type              
Kiosk/store in store 103     3     7     99  
Retail stores 253     4     20     237  
Outlet stores 202     16         218  
Total 558     23     27     554  
Operating segment              
Americas 195         4     191  
Asia Pacific 258     22     16     264  
Europe 105     1     7     99  
Total 558     23     27     554  


  December 31,
2015
  Opened   Closed   September 30,
2016
Company-operated retail locations                
Type              
Kiosk/store in store 98     12     11     99  
Retail stores 275     14     52     237  
Outlet stores 186     34     2     218  
Total 559     60     65     554  
Operating segment              
Americas 196     3     8     191  
Asia Pacific 261     49     46     264  
Europe (1) 102     8     11     99  
Total 559     60     65     554  

___________________
(1)  Includes retail locations acquired in Austria on March 31, 2016 as revenues associated with those locations began to be recognized in the three months ended June 30, 2016.

CROCS, INC. AND SUBSIDIARIES
COMPARABLE STORE SALES
RETAIL AND DIRECT TO CONSUMER
(UNAUDITED)
 
  Constant Currency (2)
   Three Months Ended 
September 30, 2016
   Three Months Ended 
September 30, 2015
Comparable store sales (retail only) (1)        
Americas (2.8 )%   (1.6 )%
Asia Pacific (5.8 )%   (1.5 )%
Europe (0.9 )%   2.9 %
Global (3.5 )%   (0.9 )%


  Constant Currency (2)
   Three Months Ended 
September 30, 2016
   Three Months Ended 
September 30, 2015
Direct to Consumer comparable store sales (includes retail and e-commerce) (1)        
Americas (1.7 )%   4.3 %
Asia Pacific (2.4 )%   4.1 %
Europe (6.7 )%   7.1 %
Global (2.6 )%   4.7 %


  Constant Currency (2)
  Nine Months Ended
 September 30, 2016 
   Nine Months Ended 
September 30, 2015
Comparable store sales (retail only) (1)          
Americas (1.4 )%   (3.2 )%
Asia Pacific (4.4 )%   (6.7 )%
Europe 2.1 %   2.5 %
Global (2.0 )%   (3.6 )%


  Constant Currency (2)
  Nine Months Ended
 September 30, 2016 
  Nine Months Ended
 September 30, 2015 
Direct to Consumer comparable store sales (includes retail and e-commerce) (1)        
Americas 3.0 %   2.2 %
Asia Pacific 2.3 %   (4.9 )%
Europe 0.3 %   6.6 %
Global 2.4 %   0.7 %

_________________
(1) Comparable store status is determined on a monthly basis. Comparable store sales includes 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.

(2)  Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” above for more information.

Investor Contact:
Brendon Frey, ICR
(203) 682-8200
Brendon.Frey@icrinc.com

Media Contact:
Patrick Rich, Crocs, Inc.
(303) 848-7000
prich@crocs.com


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