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Crocs, Inc. Reports Second Quarter 2016 Financial Results

NIWOT, Colo., Aug. 03, 2016 (GLOBE NEWSWIRE) -- Crocs, Inc. (NASDAQ:CROX) today reported financial results for the three months ended June 30, 2016.

Second Quarter Highlights:

  •  Revenue decreased 6.3% to $323.8 million compared to the three months ended June 30, 2015. On a constant currency basis, revenue decreased 6.2%.
     
  •  Net income attributable to common stockholders on a GAAP basis increased 21.1% to $11.7 million or $0.13 per diluted share, compared to the three months ended June 30, 2015.

Gregg Ribatt, Chief Executive Officer, said: “Despite a decline in our revenue, I am encouraged by our strategic progress which has enabled us to help mitigate the top-line pressure on profitability by delivering better than expected gross margins and managing expenses while reducing inventories. The global retail environment became more challenging as the second quarter progressed. This impacted our wholesale reorder opportunities and contributed to our sales shortfall relative to expectations. These headwinds were partially offset by a 2.9% increase in global direct-to-consumer comparable store sales, which is a positive indication that consumers are responding favorably to our new product line and enhanced marketing efforts. We remain confident that we have successfully repositioned the business and built the platform to provide sustained growth and profitability over the long-term.”

Second Quarter Operating Results

In the second quarter of 2016, the company reported GAAP net income attributable to common stockholders of $11.7 million or $0.13 per diluted share, compared with net income attributable to common stockholders of $9.7 million or $0.11 per diluted share in the same quarter of the prior year.

As outlined in detail in the non-GAAP reconciliations set forth later in this press release, the company recorded net charges of $0.3 million unrelated to our core business in the three months ended June 30, 2016, compared with $17.6 million in the three months ended June 30, 2015. Excluding these items, the company reported on a comparable basis, non-GAAP adjusted net income attributable to common shareholders of $12.0 million in the three months ended June 30, 2016, versus non-GAAP adjusted net income attributable to common shareholders of $27.3 million in the three months ended June 30, 2015.

For the three months ended June 30, 2016, the company had 73.4 million weighted average common shares outstanding and 74.2 million diluted shares outstanding. The company did not repurchase any shares during the three months ended June 30, 2016.

Balance Sheet

Cash and cash equivalents as of June 30, 2016 were $146.7 million compared with $143.3 million as of December 31, 2015. Inventory was $169.9 million as of June 30, 2016 compared to $168.2 million as of December 31, 2015.

Financial Outlook

The company expects third quarter 2016 revenue in the $245.0 to $255.0 million range compared to $274.1 million in the third quarter 2015. For the full year the company expects revenue to be down low single digits compared to the year ended December 31, 2015. This guidance reflects the more cautious retail environment and the slower turnaround in China.

Conference Call Information

A teleconference call to discuss second quarter 2016 results is scheduled for today, Wednesday, August 3, 2016, at 8:30 am EDT. 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 43001502. 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 August 3, 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 August 3, 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 per share data)

    Three Months Ended June 30,   Six Months Ended June 30,  
    2016   2015   2016   2015  
Revenues   $ 323,828   $ 345,671   $ 602,968   $ 607,864  
Cost of sales   154,188   155,801   303,962   290,624  
Gross profit   169,640   189,870   299,006   317,240  
Selling, general and administrative expenses   148,463   168,636   263,393   294,705  
Asset impairment charges   572   2,075   765   2,075  
Restructuring charges     2,810     6,473  
Income from operations   20,605   16,349   34,848   13,987  
Foreign currency transaction gain (loss), net   (1,700 ) (217 ) (2,947 ) 277  
Interest income   164   196   380   484  
Interest expense   (234 ) (260 ) (477 ) (479 )
Other expense, net   (189 ) (80 ) (107 ) (411 )
Income before income taxes   18,646   15,988   31,697   13,858  
Income tax expense   (3,109 ) (2,562 ) (6,014 ) (2,857 )
Net income   $ 15,537   $ 13,426   $ 25,683   $ 11,001  
                   
Dividends on Series A convertible preferred stock   $ (3,000 ) $ (3,000 ) $ (6,000 ) $ (5,833 )
Dividend equivalents on Series A convertible preferred shares related to redemption value accretion and beneficial conversion feature   (802 ) (736 ) (1,587 ) (1,457 )
Net income attributable to common stockholders   $ 11,735   $ 9,690   $ 18,096   $ 3,711  
Net income per common share:                  
Basic   $ 0.13   $ 0.11   $ 0.21   $ 0.04  
Diluted   $ 0.13   $ 0.11   $ 0.20   $ 0.04  


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”, “Non-GAAP cost of sales”, and “Non-GAAP adjusted net income 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 U.S. GAAP. Constant currency represents current period results that have been restated 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 U.S. GAAP.


CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)

 
    Three Months Ended June 30,   Six Months Ended June 30,  
    2016   2015   2016   2015  
    (in thousands)  
Selling, general and administrative expenses reconciliation:                  
U.S. GAAP selling, general and administrative expenses   $ 148,463   $ 168,636   $ 263,393   $ 294,705  
Reorganization charges (1)   (274 ) (2,154 ) (458 ) (3,553 )
Customs audit settlements (2)       (354 )  
Improper disbursements (3)     (5,022 )   (5,022 )
ERP implementation (4)     (2,739 )   (8,387 )
Legal settlements (5)     (1,801 )   (1,801 )
Total selling, general and administrative adjustments   (274 ) (11,716 ) (812 ) (18,763 )
Non-GAAP selling, general and administrative expenses   $ 148,189   $ 156,920   $ 262,581   $ 275,942  


    Three Months Ended June 30,   Six Months Ended June 30,  
    2016   2015   2016   2015  
    (in thousands)  
Cost of sales reconciliation:                  
U.S. GAAP cost of sales   $ 154,188   $ 155,801   $ 303,962   $ 290,624  
Favorable settlement of customs audit (6)       650    
Statutory audits (7)     (1,000 )   (1,000 )
Non-GAAP cost of sales   $ 154,188   $ 154,801   $ 304,612   $ 289,624  


    Three Months Ended June 30,   Six Months Ended June 30,  
    2016   2015   2016   2015  
    (in thousands)  
Net income attributable to common stockholders reconciliation:                  
U.S. GAAP net income attributable to common stockholders   $ 11,735   $ 9,690   $ 18,096   $ 3,711  
Reorganization charges (1)   274   2,154   458   3,553  
Favorable settlement of customs audit (6)       (650 )  
Customs audit settlements (2)       354    
Improper disbursements (3)     5,022     5,022  
Restructuring charges (8)     2,810     6,473  
ERP implementation (4)     2,739     8,387  
Asset impairment charges (9)     2,075     2,075  
Legal settlements (5)     1,801     1,801  
Statutory audits (7)     1,000     1,000  
Total adjustments   274   17,601   162   28,311  
Non-GAAP adjusted net income attributable to common stockholders   $ 12,009   $ 27,291   $ 18,258   $ 32,022  

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

(2) Represents penalties and fees related to the settlement of customs audits.

(3) Represents legal expenses and other expenses for matters surrounding disbursements to invalid vendors that occurred in 2015.

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

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

(6) Represents the release of the reserve due to favorable settlement terms of customs audits.

(7) Represents expenses incurred related to statutory audits.

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

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


CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except number of shares)

    June 30,
2016
  December 31,
2015
 
    (in thousands)  
ASSETS          
Current assets:          
Cash and cash equivalents   $ 146,662   $ 143,341  
Accounts receivable, net of allowances of $55,953 and $49,364, respectively   134,155   83,616  
Inventories   169,853   168,192  
Income tax receivable   10,184   10,233  
Other receivables   21,266   14,233  
Prepaid expenses and other assets   31,270   26,334  
Total current assets   513,390   445,949  
Property and equipment, net   46,409   49,490  
Intangible assets, net   77,393   82,297  
Goodwill   2,561   1,973  
Deferred tax assets, net   6,612   6,608  
Other assets   20,031   21,703  
Total assets   $ 666,396   $ 608,020  
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable   $ 73,429   $ 63,336  
Accrued expenses and other liabilities   105,404   92,573  
Income taxes payable   8,793   6,416  
Current portion of borrowings and capital lease obligations   4,993   4,772  
Total current liabilities   192,619   167,097  
Long-term income tax payable   4,810   4,547  
Long-term borrowings and capital lease obligations   329   1,627  
Other liabilities   13,606   13,120  
Total liabilities   211,364   186,391  
Commitments and contingencies:          
Series A convertible preferred stock, par value $0.001 per share, 1,000,000 shares authorized, 200,000 shares issued and outstanding, redemption amount and liquidation preference of $203,000 and $203,000 as of June 30, 2016 and December 31, 2015, respectively   177,244   175,657  
Stockholders’ equity:          
Preferred stock, par value $0.001 per share, 4,000,000 shares authorized, none outstanding      
Common stock, par value $0.001 per share, 250,000,000 shares authorized, 93,760,311 and 73,481,889 shares issued and outstanding, respectively, as of June 30, 2016 and 93,101,007 and 72,851,418 shares issued and outstanding, respectively, as of December 31, 2015   95   94  
Treasury stock, at cost, 20,278,422 and 20,249,589 shares as of June 30, 2016 and December 31, 2015, respectively   (284,176 ) (283,913 )
Additional paid-in capital   359,554   353,241  
Retained earnings   246,557   227,463  
Accumulated other comprehensive loss   (44,242 ) (50,913 )
Total stockholders’ equity   277,788   245,972  
Total liabilities and stockholders’ equity   $ 666,396   $ 608,020  


The following tables summarize our total revenue by channel for the three and six months ended June 30, 2016 and 2015:

    Three Months Ended June 30,   Change   Constant Currency Change (1)  
    2016   2015   $   %   $   %  
    (in thousands)  
Wholesale:                          
Americas   $ 54,620   $ 65,250   $ (10,630 ) (16.3 )% $ (9,845 ) (15.1 )%
Asia Pacific   74,640   92,824   (18,184 ) (19.6 )% (19,692 ) (21.2 )%
Europe   36,192   30,807   5,385   17.5 % 5,306   17.2 %
Other businesses   225   327   (102 ) (31.2 )% (104 ) (31.8 )%
Total wholesale   165,677   189,208   (23,531 ) (12.4 )% (24,335 ) (12.9 )%
Retail:                          
Americas   57,786   58,309   (523 ) (0.9 )% (397 ) (0.7 )%
Asia Pacific   41,319   45,898   (4,579 ) (10.0 )% (4,498 ) (9.8 )%
Europe   13,950   14,522   (572 ) (3.9 )% 223   1.5 %
Total retail   113,055   118,729   (5,674 ) (4.8 )% (4,672 ) (3.9 )%
E-commerce:                          
Americas   22,691   19,560   3,131   16.0 % 3,196   16.3 %
Asia Pacific   14,887   10,835   4,052   37.4 % 4,423   40.8 %
Europe   7,518   7,339   179   2.4 % (17 ) (0.2 )%
Total e-commerce   45,096   37,734   7,362   19.5 % 7,602   20.1 %
Total revenues   $ 323,828   $ 345,671   $ (21,843 ) (6.3 )% $ (21,405 ) (6.2 )%
                           
Revenues:                          
Americas   $ 135,097   $ 143,119   $ (8,022 ) (5.6 )% $ (7,046 ) (4.9 )%
Asia Pacific   130,846   149,557   (18,711 ) (12.5 )% (19,767 ) (13.2 )%
Europe   57,660   52,668   4,992   9.5 % 5,512   10.5 %
Total segment revenues   323,603   345,344   (21,741 ) (6.3 )% (21,301 ) (6.2 )%
Other businesses   225   327   (102 ) (31.2 )% (104 ) (31.8 )%
Total consolidated revenues   $ 323,828   $ 345,671   $ (21,843 ) (6.3 )% $ (21,405 ) (6.2 )%

(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.

    Six Months Ended June 30,   Change   Constant Currency Change (1)  
    2016   2015   $   %   $   %  
    (in thousands)  
Wholesale:                          
Americas   $ 128,775   $ 126,427   $ 2,348   1.9 % $ 5,258   4.2 %
Asia Pacific   151,793   165,319   (13,526 ) (8.2 )% (13,030 ) (7.9 )%
Europe   75,254   75,460   (206 ) (0.3 )% 695   0.9 %
Other businesses   397   552   (155 ) (28.1 )% (156 ) (28.3 )%
Total wholesale   356,219   367,758   (11,539 ) (3.1 )% (7,233 ) (2.0 )%
Retail:                          
Americas   93,535   92,925   610   0.7 % 843   0.9 %
Asia Pacific   63,838   69,244   (5,406 ) (7.8 )% (4,354 ) (6.3 )%
Europe   21,505   22,933   (1,428 ) (6.2 )% (113 ) (0.5 )%
Total retail   178,878   185,102   (6,224 ) (3.4 )% (3,624 ) (2.0 )%
E-commerce:                          
Americas   36,917   29,536   7,381   25.0 % 7,531   25.5 %
Asia Pacific   19,716   14,769   4,947   33.5 % 5,496   37.2 %
Europe   11,238   10,699   539   5.0 % 489   4.6 %
Total e-commerce   67,871   55,004   12,867   23.4 % 13,516   24.6 %
Total revenues   $ 602,968   $ 607,864   $ (4,896 ) (0.8 )% $ 2,659   0.4 %
                           
Revenues:                          
Americas   $ 259,227   $ 248,888   $ 10,339   4.2 % $ 13,632   5.5 %
Asia Pacific   235,347   249,332   (13,985 ) (5.6 )% (11,888 ) (4.8 )%
Europe   107,997   109,092   (1,095 ) (1.0 )% 1,071   1.0 %
Total segment revenues   602,571   607,312   (4,741 ) (0.8 )% 2,815   0.5 %
Other businesses   397   552   (155 ) (28.1 )% (156 ) (28.3 )%
Total consolidated revenues.   $ 602,968   $ 607,864   $ (4,896 ) (0.8 )% $ 2,659   0.4 %

(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)

    March 31,
2016
  Opened   Closed   June 30, 2016  
Company-operated retail locations                  
Type                  
Kiosk/store in store   97   7   1   103  
Retail stores   265   9   21   253  
Outlet stores   188   15   1   202  
Total   550   31   23   558  
Operating segment                  
Americas   196   2   3   195  
Asia Pacific   254   22   18   258  
Europe   100   7   (1 ) 2   105  
Total   550   31   23   558  


    December 31,
2015
  Opened   Closed   June 30, 2016  
Company-operated retail locations                  
Type                  
Kiosk/store in store   98   9   4   103  
Retail stores   275   10   32   253  
Outlet stores   186   18   2   202  
Total   559   37   38   558  
Operating segment                  
Americas   196   3   4   195  
Asia Pacific   261   27   30   258  
Europe   102   7   (1 ) 4   105  
Total   559   37   38   558  

(1)  Includes retail locations acquired in Austria on March 31, 2016 as revenue 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)   Constant Currency (2)  
    Three Months Ended   Three Months Ended  
    June 30, 2016   June 30, 2015  
Comparable store sales (retail only) (1)          
Americas   (2.5 )% (3.4 )%
Asia Pacific   (6.8 )% (9.4 )%
Europe   1.8 % 0.3 %
Global   (3.4 )% (5.1 )%


    Constant Currency (2)   Constant Currency (2)  
    Three Months Ended   Three Months Ended  
    June 30, 2016   June 30, 2015  
Direct to Consumer comparable store sales (includes retail and e-commerce) (1)          
Americas   2.4 % 4.1 %
Asia Pacific   4.3 % (0.6 )%
Europe   1.6 % 8.6 %
Global   2.9 % 3.2 %


    Constant Currency (2)   Constant Currency (2)  
    Six Months Ended   Six Months Ended  
    June 30, 2016   June 30, 2015  
Comparable store sales (retail only) (1)          
Americas   (0.5 )% (4.3 )%
Asia Pacific   (3.7 )% (9.4 )%
Europe   3.9 % 2.3 %
Global   (1.0 )% (5.2 )%


    Constant Currency (2)   Constant Currency (2)  
    Six Months Ended   Six Months Ended  
    June 30, 2016   June 30, 2015  
Direct to Consumer comparable store sales (includes retail and e-commerce) (1)          
Americas   5.9 % 0.9 %
Asia Pacific   4.8 % (2.3 )%
Europe   4.4 % 6.2 %
Global   5.4 % 0.7 %

(1) Comparable store status is determined on a monthly basis. Comparable store sales includes the revenue 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 revenue is based on same site sales period over period.

(2) Reflects quarter-over-quarter and year-over-year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. Constant currency is a measure utilized by management in which current period results have been restated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends by excluding the impact of foreign currency exchange rate fluctuations. We do not suggest that investors should consider this non-GAAP measure in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

 

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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