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Crocs, Inc. Reports Second Quarter 2017 Results
Income from Operations Increases 43% to $29.4 Million; Revenues at High End of Guidance, Gross Margin Gains and SG&A Reductions Exceed Guidance

NIWOT, Colo., Aug. 09, 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 second quarter of 2017.  These results cover the three months ended June 30, 2017, and are compared to the three months ended June 30, 2016.

Andrew Rees, President and Chief Executive Officer, said, “During the second quarter, we continued to revitalize the Crocs brand and drive improvement in the quality of our revenues.  A favorable response to our Spring/Summer 2017 collection, particularly as it relates to clogs and sandals, drove solid growth in these silhouettes.  A focus on our core molded products and effective inventory management enabled us to deliver gross margins which exceeded guidance, while our intense focus on expense management kept SG&A below projected levels.  We are optimistic about the early response to our Fall/Holiday 2017 collection, and anticipate that the positive sentiment seen to date will continue throughout the second half of the year, despite the challenging retail environment."

Second Quarter 2017 Operating Results:

  • Revenues, at the high end of our guidance, came in at $313.2 million. On a constant currency basis, revenues decreased 2.7%, compared to the second quarter of 2016.  We continued to execute against plans to improve the quality of our revenues and strengthen our brand.

  • Second quarter gross margin rose 180 basis points to 54.2% compared to last year’s second quarter.  Improved product and better management of inventory enabled us to generate higher quality revenues.  We also benefited from the continued shift toward more molded product.

  • Selling, general and administrative expenses ("SG&A") were $140.4 million compared to $149.0 million in the second quarter of 2016, a decrease of 5.8%.  As a percent of revenues, SG&A improved 120 basis points.  Our second quarter 2017 SG&A results include $1.8 million of costs relating to our SG&A reduction initiative. The right sizing of our store fleet, operational efficiencies, and a disciplined approach to expense management, coupled with some timing and approximately $1.0 million in recovery of bad debt previously reserved for in China, contributed to this improvement.

  • Net income attributable to common stockholders was $18.1 million, or $0.20 per diluted share.  Excluding $1.8 million related to our SG&A reduction initiatives, the Company reported non-GAAP net income attributable to common stockholders(1) of $19.9 million.  In the second quarter of 2016, our net income attributable to common stockholders was $11.7 million, or $0.13 per diluted share, and our non-GAAP adjusted net income attributable to common stockholders was $12.0 million.

  • For the quarter ended June 30, 2017, we had 74.6 million weighted average diluted common shares outstanding.

Balance Sheet and Cash Flow Highlights:

  • Cash and cash equivalents as of June 30, 2017 were $157.0 million, compared to $146.7 million as of June 30, 2016.
     
  • Inventory was $155.7 million as of June 30, 2017, compared to $169.9 million as of June 30, 2016.  This reflects our ongoing efforts to carefully manage inventory and improve the quality of goods on hand.
     
  • Cash provided by operating activities was $39.4 million during the first six months of 2017, compared to $19.8 million during the first six months of 2016.
     
  • Capital expenditures totaled $6.8 million during the second quarter of 2017, compared to $6.9 million during the second quarter of 2016.
     
  • Cash used by financing activities includes $10.0 million used to repurchase 1.4 million shares of our common stock.

Financial Outlook

Third Quarter 2017:

  • The Company expects third quarter 2017 revenues to be between $230 and $240 million.

  • The Company expects gross margin for the third quarter to be essentially flat to the third quarter of 2016.  Our gross margin in the third quarter of 2016 included a benefit of more than 200 basis points due to a favorable inventory adjustment. 

  • The Company expects SG&A to be down approximately $3 million to last year, including approximately $2 million of charges associated with our SG&A reduction initiative.

Full Year 2017:

  • The Company continues to expect 2017 revenues to be down low single digits compared to 2016.  This is reflective of the various business model changes taking place throughout the year, and an accelerated pace of store closings.

  • The Company continues to expect gross margin for 2017 to be approximately 50%.

  • The Company now expects SG&A for 2017 to be between $490 and $495 million.  This is down from our previous guidance, and $10 to $15 million below the 2016 SG&A of $506.3 million. This lower range reflects the improvement realized in the second quarter, as well as the accelerated pace at which we are reducing company-operated stores.  Included in the range is $7 to $10 million of charges associated with our SG&A reduction plan. 

______________________________________________________________
(1)  Refer to "Reconciliation of GAAP Measures to Non-GAAP Measures" below for a description of and reconciliation of GAAP to non-GAAP measures.

Conference Call Information:

A conference call to discuss second quarter 2017 results is scheduled for today, Wednesday, August 9, 2017, 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 45276571. The call will also 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 9, 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 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 August 9, 2017. We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimate regarding revenues, gross margin 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 June 30,   Six Months Ended June 30,
  2017   2016   2017   2016
Revenues 313,221     323,828     581,128     602,968  
Cost of sales 143,414     154,188     277,737     303,962  
Gross profit 169,807     169,640     303,391     299,006  
Selling, general and administrative expenses 140,361     149,035     258,363     264,158  
Income from operations 29,446     20,605     45,028     34,848  
Foreign currency gain (loss), net 162     (1,700 )   438     (2,947 )
Interest income 157     164     307     380  
Interest expense (188 )   (234 )   (372 )   (477 )
Other income (loss) 9     (189 )   133     (107 )
Income before income taxes 29,586     18,646     45,534     31,697  
Income tax expense 7,627     3,109     12,564     6,014  
Net income 21,959     15,537     32,970     25,683  
Dividends on Series A convertible preferred stock (3,000 )   (3,000 )   (6,000 )   (6,000 )
Dividend equivalents on Series A convertible preferred shares related to redemption value accretion and beneficial conversion feature (873 )   (802 )   (1,729 )   (1,587 )
Net income attributable to common stockholders $ 18,086     $ 11,735     $ 25,241     $ 18,096  
Net income per common share:              
Basic $ 0.21     $ 0.13     $ 0.29     $ 0.21  
Diluted $ 0.20     $ 0.13     $ 0.29     $ 0.20  
               
Weighted average common shares outstanding - basic 73,953     73,389     73,882     73,238  
Weighted average common shares outstanding - diluted 74,572     74,243     74,625     74,389  


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except par value)
 
  June 30,
 2017
  December 31,
 2016
ASSETS      
Current assets:      
Cash and cash equivalents 156,962     147,565  
Accounts receivable, net of allowances of $50,700 and $48,138, respectively 135,893     78,297  
Inventories 155,749     147,029  
Income tax receivable 5,830     2,995  
Other receivables 14,219     14,642  
Restricted cash - current 2,461     2,534  
Prepaid expenses and other assets 25,052     32,413  
Total current assets 496,166     425,475  
Property and equipment, net of accumulated depreciation and amortization of $93,929, and $88,603, respectively 41,018     44,090  
Intangible assets, net 68,411     72,700  
Goodwill 1,615     1,480  
Deferred tax assets, net 7,079     6,825  
Restricted cash 2,856     2,547  
Other assets 13,449     13,273  
Total assets $ 630,594     $ 566,390  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 82,980     $ 61,927  
Accrued expenses and other liabilities 84,900     78,282  
Income taxes payable 14,978     6,593  
Current portion of borrowings and capital lease obligations 1,722     2,338  
Total current liabilities 184,580     149,140  
Long-term income tax payable 4,865     4,464  
Long-term capital lease obligations 40     40  
Other liabilities 13,766     13,462  
Total liabilities 203,251     167,106  
Commitments and contingencies      
Series A convertible preferred stock, 1.0 million authorized, 0.2 million shares outstanding, liquidation preference $203 million 180,629     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, 73.0 million and 73.6 million shares outstanding, respectively 95     94  
Treasury stock, at cost, 21.7 million and 20.3 million shares, respectively (294,252 )   (284,237 )
Additional paid-in capital 368,036     364,397  
Retained earnings 220,966     195,725  
Accumulated other comprehensive loss (48,131 )   (55,596 )
Total stockholders’ equity 246,714     220,383  
      Total liabilities and stockholders’ equity $  630,594     $  566,390  


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
   
     Six Months Ended June 30,  
  2017   2016
Cash flows from operating activities:      
Net income $ 32,970     $ 25,683  
Adjustments to reconcile net income to net cash provided by operating activities:            
       
Depreciation and amortization 16,815     17,031  
Unrealized gains on foreign exchange, net (1,744 )   (4,884 )
Share-based compensation 3,945     5,898  
Other non-cash items (2,872 )   1,685  
Changes in operating assets and liabilities:      
Accounts receivable, net of allowances (53,086 )   (47,129 )
Inventories (4,743 )   2,148  
Prepaid expenses and other assets 12,567     (5,107 )
Accounts payable, accrued expenses and other liabilities 35,528     24,493  
      Cash provided by operating activities 39,380     19,818  
Cash flows from investing activities:      
Cash paid for purchases of property and equipment (4,958 )   (10,280 )
Proceeds from disposal of property and equipment 1,506     2,428  
Cash paid for intangible assets (7,273 )   (2,561 )
Change in restricted cash 30     (845 )
      Cash used in investing activities (10,695 )   (11,258 )
Cash flows from financing activities:      
Proceeds from bank borrowings 5,500     29,582  
Repayments of bank borrowings and capital lease obligations (7,565 )   (30,662 )
Dividends—Series A preferred stock (6,000 )   (6,000 )
Repurchases of common stock (10,000 )    
Other (240 )   (363 )
      Cash used in financing activities (18,305 )   (7,443 )
Effect of exchange rate changes on cash (983 )   2,204  
      Net change in cash and cash equivalents 9,397     3,321  
      Cash and cash equivalents—beginning of period 89,080     143,341  
      Cash and cash equivalents—end of period $ 98,477     $ 146,662  


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 June 30,  
  2017   2016
  (in thousands)
Selling, general and administrative expenses reconciliation:                        
U.S. GAAP SG&A expenses $ 140,361     $ 149,035  
Reorganization charges (1) (767 )   (274 )
Strategic consulting services (2) (280 )    
Legal settlement (3) (220 )    
Financing fees (4) (557 )    
Total adjustments (1,824 )   (274 )
   Non-GAAP SG&A expenses $ 138,537     $ 148,761  


     Three Months Ended June 30,  
  2017   2016
  (in thousands)
Net income attributable to common stockholders reconciliation:      
GAAP net income attributable to common stockholders $ 18,086     $ 11,735  
Reorganization charges (1) 767     274  
Strategic consulting services (2) 280      
Legal settlement (3) 220      
Financing fees (4) 557      
  Total adjustments 1,824     274  
  Non-GAAP net income attributable to common stockholders       $ 19,910     $ 12,009  

__________________
(1) Represents severance and other expenses related to reorganization activities.                                                                                     

(2) Represents operating expenses incurred in 2017 related to strategic consulting.

(3) Represents legal settlement during the quarter.

(4) Represents write-off of deferred financing fees.


Selling, general and administrative expenses reconciliation:            
  GAAP SG&A   $495 to $500
    Charges associated with reduction initiatives   $7 to $10
       Non-GAAP SG&A         Approximately $490      


CROCS, INC. AND SUBSIDIARIES
REVENUES BY CHANNEL
(UNAUDITED)
 
    Three Months Ended June 30, 
  Change    Constant Currency Change (1) 
  2017
  2016   $   %   $   %
  (in thousands)
Wholesale:                            
Americas $ 57,307     $ 54,620     $ 2,687     4.9 %   $ 2,516     4.6   %
Asia Pacific   65,146     74,640       (9,494 )   (12.7 )%     (8,541 )   (11.4  )%
Europe   30,947     36,192       (5,245 )   (14.5 )%     (5,234 )   (14.5  )%
Other businesses   103     225       (122 )   (54.2 )%     (121 )   (53.8  )%
Total wholesale   153,503     165,677       (12,174 )   (7.3 )%     (11,380 )   (6.9  )%
Retail:                            
Americas   55,576     57,786       (2,210 )   (3.8 )%     (2,108 )   (3.6  )%
Asia Pacific   39,429     41,319       (1,890 )   (4.6 )%     (1,566 )   (3.8  )%
Europe   13,071     13,950       (879 )   (6.3 )%     (1,138 )   (8.2  )%
Total retail   108,076     113,055       (4,979 )   (4.4 )%     (4,812 )   (4.3  )%
E-commerce:                            
Americas   23,271     22,691       580     2.6 %     659     2.9   %
Asia Pacific   20,069     14,887       5,182     34.8 %     6,008     40.4   %
Europe   8,302     7,518       784     10.4 %     902     12.0   %
Total e-commerce   51,642     45,096       6,546     14.5 %     7,569     16.8   %
Total revenues $ 313,221     $ 323,828     $ (10,607 )   (3.3 )%   $ (8,623 )   (2.7  )%
                             
Revenues:                            
Americas $ 136,154     $ 135,097     $ 1,057     0.8 %   $ 1,067     0.8   %
Asia Pacific   124,644     130,846       (6,202 )   (4.7 )%     (4,099 )   (3.1  )%
Europe   52,320     57,660       (5,340 )   (9.3 )%     (5,470 )   (9.5  )%
Total segment revenues         313,118     323,603       (10,485 )   (3.2 )%     (8,502 )   (2.6  )%
Other businesses   103     225       (122 )   (54.2 )%     (121 )   (53.8  )%
Total revenues $ 313,221     $ 323,828     $ (10,607 )   (3.3 )%   $ (8,623 )   (2.7  )%

____________________

(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" above for more information.


CROCS, INC. AND SUBSIDIARIES
REVENUES BY CHANNEL
(UNAUDITED)
             
       Six Months Ended June 30,     Change    Constant Currency Change (1) 
    2017   2016   $   %   $   %
  (in thousands)
Wholesale:                            
  Americas   $ 128,333     $ 128,775       $ (442 )   (0.3 )%     $ (1,762 )   (1.4  )%
  Asia Pacific   136,081     151,793       (15,712 )   (10.4 )%     (14,760 )   (9.7  )%
  Europe   71,530     75,254       (3,724 )   (4.9 )%     (3,096 )   (4.1  )%
  Other businesses   291     397       (106 )   (26.7 )%     (100 )   (25.2  )%
  Total Wholesale   336,235     356,219       (19,984 )   (5.6 )%     (19,718 )   (5.5  )%
Retail:                            
  Americas   88,405     93,535       (5,130 )   (5.5 )%     (5,066 )   (5.4  )%
  Asia Pacific   60,961     63,838       (2,877 )   (4.5 )%     (2,730 )   (4.3  )%
  Europe   20,490     21,505       (1,015 )   (4.7 )%     (1,549 )   (7.2  )%
  Total Retail   169,856     178,878       (9,022 )   (5.0 )%     (9,345 )   (5.2  )%
E-commerce:                            
  Americas   37,139     36,917       222     0.6 %     267     0.7   %
  Asia Pacific   25,946     19,716       6,230     31.6 %     7,111     36.1   %
  Europe   11,952     11,238       714     6.4 %     869     7.7   %
  Total E-commerce   75,037     67,871       7,166     10.6 %     8,247     12.2   %
  Total  revenues   $ 581,128     $ 602,968       $ (21,840 )   (3.6 )%     $ (20,816 )   (3.5  )%
                             
Revenues:                            
  Americas   $ 253,877     $ 259,227       $ (5,350 )   (2.1 )%     $ (6,561 )   (2.5  )%
  Asia Pacific   222,989     235,347       (12,358 )   (5.3 )%     (10,379 )   (4.4  )%
  Europe   103,971     107,997       (4,026 )   (3.7 )%     (3,776 )   (3.5  )%
  Total segment revenues         580,837     602,571       (21,734 )   (3.6 )%     (20,716 )   (3.4  )%
  Other businesses   291     397       (106 )   (26.7 )%     (100 )   (25.2  )%
  Total Revenues   $ 581,128     $ 602,968       $ (21,840 )   (3.6 )%     $ (20,816 )   (3.5  )%

____________________

(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" above for more information.

  

CROCS, INC. AND SUBSIDIARIES
RETAIL STORE COUNTS
(UNAUDITED)
 
   December 31, 2016         Opened            Closed          June 30, 2017  
Company-operated retail locations:                    
Type:              
Kiosk/store-in-store 98         14     84  
Retail stores 228     4     41     191  
Outlet stores 232     10     14     228  
Total 558     14     69     503  
Operating segment:              
Americas 190     1     7     184  
Asia Pacific 270     12     54     228  
Europe 98     1     8     91  
Total 558     14     69     503  

Comparable retail sales and direct to consumer sales by operating segment are as follows:

  Constant Currency (1)
   Three Months Ended June 30, 
  2017   2016
Comparable store sales (retail only) (2)                                                                            
Americas 0.4  %   (2.5 )%
Asia Pacific (0.9 )%   (6.8 )%
Europe 0.7  %   1.8  %
Global 0.0  %   (3.4 )%


  Constant Currency (1)
  Three Months Ended
   June 30, 2017     June 30, 2016 
Direct to consumer comparable store sales (includes retail and e-commerce) (2)            
Americas 1.1  %   2.4  %
Asia Pacific 13.3  %   4.3  %
Europe 5.1  %   1.6  %
Global 5.7  %   2.9  %

____________________

(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” above 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:
Patrick Rich, Crocs, Inc.
(303) 848-7408
prich@crocs.com

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Crocs, Inc.