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Crocs, Inc. Reports Third Quarter 2017 Results

November 7, 2017
Revenues and Gross Margin Exceed Guidance; SG&A In-Line with Guidance

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 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 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, 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 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 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 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-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) 848-7322
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.