Crocs, Inc. Reports First Quarter 2017 Revenues and Gross Margin Exceeding Guidance; Introduces Second Quarter 2017 Guidance and Updates Full Year Outlook

5/10/2017, 1:00 PM (Source: GlobeNewswire)

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NIWOT, Colo., May 10, 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 first quarter of 2017.  These results cover the three months ended March 31, 2017, and are compared to the three months ended March 31, 2016.

Gregg Ribatt, Chief Executive Officer, said, “During the first quarter of 2017, we continued to execute against our strategic plan to strengthen the Company and brand.  Customers responded favorably to our Spring/Summer 2017 product, enabling us to achieve revenues that exceeded our guidance, while simultaneously driving gross margin improvements.  We are moving rapidly to implement our SG&A reduction plan, and in connection with that initiative, we closed a net 16 Company operated stores during the first quarter of 2017 and signed agreements to transfer 24 Company operated stores to distributors during the second quarter of 2017."

First Quarter 2017 Operating Results:

  • Revenues exceeded guidance, coming in at $267.9 million. On a constant currency basis, revenues decreased 4.4%, compared to the first quarter of 2016.  We continued to execute against plans to improve the quality of our revenues and strengthen our brand.
     
  • Gross margin exceeded our guidance as well, coming in at 49.9% compared to 46.3% in the first quarter of 2016, representing a 350 basis point improvement over the prior year’s first quarter.  Higher quality sales, a shift to a higher percentage of molded product and lower input costs contributed to this improvement.
     
  • Selling, general and administrative expenses ("SG&A") were $118.0 million compared to $115.1 million in the first quarter of 2016, an increase of 2.5%.  Included in our first quarter 2017 results are $2.2 million of costs relating to our SG&A reduction initiatives.
     
  • Net income attributable to common stockholders was $7.2 million, or $0.08 per basic and diluted share.  Excluding $2.2 million related to our SG&A reduction initiatives, the Company reported non-GAAP net income attributable to common stockholders[1] of $9.3 million.  In the first quarter of 2016, our net income attributable to common stockholders was $6.4 million, or $0.07 per basic and diluted share, and our non-GAAP adjusted net income attributable to common stockholders was $6.4 million. 
     
  • For the quarter ended March 31, 2017, we had 74.6 million weighted average diluted common shares outstanding.

 Balance Sheet and Cash Flow Highlights:

  • Cash and cash equivalents as of March 31, 2017 were $88.9 million compared to $89.1 million as of March 31, 2016.
     
  • Inventory was $178.5 million as of March 31, 2017 compared to $186.1 million as of March 31, 2016, as we continue to manage inventories closely.
     
  • Capital expenditures totaled $5.4 million during the first quarter of 2017 compared to $5.9 million during the first quarter of 2016.
     
  • Cash used in operating activities was $49.9 million during the first quarter of 2017 compared to $56.9 million during the first quarter of 2016.

Middle East and China Agreements:

The Company has entered into agreements transferring certain Company operated stores in the Middle East and China to distributors. In the Middle East, The Apparel Group will assume responsibility for all 13 of our Company operated stores and will become our exclusive distributor in several countries in this region.  In China, we have entered into agreements to transfer 11 of our Company operated stores to existing distributors.  While these transactions will reduce retail revenues, they advance our strategic objective to reduce the number of Company operated stores and to partner with strong distributors that are well positioned to help us profitably grow our business.

Financial Outlook:

Second Quarter 2017:

  • The Company expects second quarter 2017 revenues to be between $305 and $315 million.
     
  • The Company expects gross margin for the second quarter to be approximately 150 basis points higher than the second quarter of 2016.
     
  • The Company expects SG&A to be relatively flat to last year, including approximately $3.0 million of charges associated with our SG&A reduction plan.

Full Year 2017:

  • The Company now expects 2017 revenues to be down low single digits compared to 2016, whereas our prior guidance contemplated flat revenues. This change in guidance reflects the impact of the agreements outlined above and a further reduction in discount channel sales.
     
  • The Company continues to expect gross margin for 2017 to be approximately 50%. 
     
  • The Company now expects SG&A for 2017 to be between $495 and $500 million, down from the $500 to $505 million range previously provided, due to the impact of the agreements outlined above.  This range includes $7 to $10 million of charges associated with our SG&A reduction plan.

Conference Call Information:

A conference call to discuss first quarter 2017 results is scheduled for today, Wednesday, May 10, 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 44739443. 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 May 10, 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. Since its inception in 2002, Crocs has sold more than 366 million pairs of shoes in more than 90 countries around the world.

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 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 May 10, 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.

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


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
  
 Three Months Ended March 31,
 2017 2016
Revenues$267,907  $279,140 
Cost of sales134,323  149,774 
Gross profit133,584  129,366 
Selling, general and administrative expenses118,002  115,123 
Income from operations15,582  14,243 
Foreign currency gain (loss), net276  (1,247)
Interest income150  216 
Interest expense(184) (243)
Other income124  82 
Income before income taxes15,948  13,051 
Income tax expense(4,938) (2,905)
Net income11,010  10,146 
Dividends on Series A convertible preferred stock(3,000) (3,000)
Dividend equivalents on Series A convertible preferred shares related to redemption value accretion and beneficial conversion feature(855) (785)
Net income attributable to common stockholders$7,155  $6,361 
Net income per common share:   
Basic$0.08  $0.07 
Diluted$0.08  $0.07 
    
Weighted average shares outstanding used in computing earnings per share:   
Basic73,810  73,087 
Diluted74,561  74,033 



CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
    
 March 31,
 2017
 December 31,
 2016
ASSETS   
Current assets:   
Cash and cash equivalents$88,884  $147,565 
Accounts receivable, net of allowances of $49,176 and $48,138, respectively148,624  78,297 
Inventories178,467  147,029 
Income tax receivable5,062  2,995 
Other receivables16,991  14,642 
Restricted cash - current2,539  2,534 
Prepaid expenses and other assets

21,955  32,413 
Total current assets462,522  425,475 
Property and equipment, net of accumulated depreciation of $92,643 and $88,603, respectively43,801  44,090 
Intangible assets, net69,671  72,700 
Goodwill1,506  1,480 
Deferred tax assets, net6,930  6,825 
Restricted cash3,430  2,547 
Other assets13,296  13,273 
Total assets$601,156  $566,390 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$81,387  $61,927 
Accrued expenses and other liabilities73,516  78,282 
Income taxes payable9,103  6,593 
Current portion of borrowings and capital lease obligations4,459  2,338 
Total current liabilities168,465  149,140 
Long-term income tax payable4,854  4,464 
Long-term capital lease obligations43  40 
Other liabilities13,615  13,462 
Total liabilities186,977  167,106 
Commitments and contingencies   
Series A convertible preferred stock, 1.0 million authorized, 0.2 million shares outstanding, liquidation preference $203 million179,756  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, 94.4 million and 93.9 million issued, 74.1 million and 73.6 million shares outstanding, respectively94  94 
Treasury stock, at cost, 20.3 million shares(284,477) (284,237)
Additional paid-in capital367,008  364,397 
Retained earnings202,880  195,725 
Accumulated other comprehensive loss(51,082) (55,596)
Total stockholders’ equity234,423  220,383 
Total liabilities and stockholders’ equity$601,156  $566,390 



CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
  
 Three Months Ended March 31,
 2017 2016
Cash flows from operating activities:   
Net income$11,010  $10,146 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization8,446  8,595 
Unrealized (gain) loss on foreign exchange, net856  (5,613)
Share-based compensation2,611  2,826 
Other non-cash items(689) 808 
Changes in operating assets and liabilities:   
Accounts receivable, net of allowances(66,917) (69,763)
Inventories(28,591) (14,383)
Prepaid expenses and other assets9,618  (6,814)
Accounts payable, accrued expenses and other liabilities13,766  17,260 
Cash used in operating activities(49,890) (56,938)
Cash flows from investing activities:   
Cash paid for purchases of property and equipment(3,243) (3,216)
Proceeds from disposal of property and equipment12   
Cash paid for intangible assets(2,167) (2,714)
Change in restricted cash(850) (1,760)
Cash used in investing activities(6,248) (7,690)
Cash flows from financing activities:   
Proceeds from bank borrowings5,500  20,000 
Repayments of bank borrowings and capital lease obligations(3,376) (12,842)
Dividends—Series A preferred stock(3,000) (3,000)
Other(240) (158)
Cash provided by (used in) financing activities(1,116) 4,000 
Effect of exchange rate changes on cash(1,427) 6,367 
Net change in cash and cash equivalents(58,681) (54,261)
Cash and cash equivalents—beginning of period147,565  143,341 
Cash and cash equivalents—end of period$88,884  $89,080 



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 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 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 March 31,
  2017 2016
  (in thousands)
Selling, general and administrative expenses reconciliation:    
U.S. GAAP SG&A expenses $118,002  $115,123 
Reorganization charges (1) (860) (184)
Strategic consulting services (2) (1,310)  
Customs audit settlements (3)   (354)
Total adjustments (2,170) (538)
Non-GAAP SG&A expenses $115,832  $114,585 


 Three Months Ended March 31,
 2017 2016
 (in thousands)
Net income attributable to common stockholders reconciliation:   
GAAP net income attributable to common stockholders$7,155  $6,361 
Reorganization charges (1)860  377 
Strategic consulting services (2)1,310   
Customs audit settlements (3)  (296)
Total adjustments2,170  81 
Non-GAAP net income attributable to common stockholders$9,325  $6,442 

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

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

(3) Represents penalties and fees of $0.3 million offset by release of reserve of $0.7 million related to offer for settlement of customs audit.



CROCS, INC.  AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP 2017 FINANCIAL GUIDANCE
(UNAUDITED)
(in millions)
   
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. SUBSIDIARIES
REVENUES BY SEGMENT AND CHANNEL
(UNAUDITED)
       
  Three Months Ended
March 31,
 Change Constant Currency Change (1)
  2017 2016 $ % $ %
 (in thousands)
Wholesale:              
Americas$71,023  $74,155  $(3,132) (4.2)% $(4,279) (5.8)%
Asia Pacific 70,935  77,154   (6,219) (8.1)%  (6,220) (8.1)%
Europe 40,583  39,062   1,521  3.9%  2,137  5.5%
Other businesses 190  172   18  10.5%  21  12.2%
Total wholesale 182,731  190,543   (7,812) (4.1)%  (8,341) (4.4)%
Retail:              
Americas 32,829  35,749   (2,920) (8.2)%  (2,958) (8.3)%
Asia Pacific 21,532  22,519   (987) (4.4)%  (1,164) (5.2)%
Europe 7,419  7,555   (136) (1.8)%  (411) (5.4)%
Total retail 61,780  65,823   (4,043) (6.1)%  (4,533) (6.9)%
E-commerce:              
Americas 13,869  14,226   (357) (2.5)%  (392) (2.8)%
Asia Pacific 5,877  4,829   1,048  21.7%  1,103  22.8%
Europe 3,650  3,719   (69) (1.9)%  (32) (0.9)%
Total e-commerce 23,396  22,774   622  2.7%  679  3.0%
Total revenues$267,907  $279,140  $(11,233) (4.0)% $(12,195) (4.4)%
               
Revenues:              
Americas$117,721  $124,130  $(6,409) (5.2)% $(7,629) (6.1)%
Asia Pacific 98,344  104,502   (6,158) (5.9)%  (6,281) (6.0)%
Europe 51,652  50,336   1,316  2.6%  1,694  3.4%
Total segment revenues 267,717  278,968   (11,251) (4.0)%  (12,216) (4.4)%
Other businesses 190  172   18  10.5%  21  12.2%
Total revenues$267,907  $279,140  $(11,233) (4.0)% $(12,195) (4.4)%

____________________

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



CROCS, INC. SUBSIDIARIES
RETAIL STORE COUNTS
(UNAUDITED)
        
 December 31, 2016 Opened Closed March 31, 2017
Company-operated retail locations:       
Type:       
Kiosk/store-in-store98    8  90 
Retail stores228  3  12  219 
Outlet stores232  7  6  233 
Total558  10  26  542 
Operating segment:       
Americas190  1  5  186 
Asia Pacific270  9  19  260 
Europe98    2  96 
Total558  10  26  542 


 Constant Currency (1)
 Three Months Ended March 31,
 2017 2016
Comparable store sales (retail only): (2)   
Americas(6.0)% 2.9%
Asia Pacific(1.4)% 2.0%
Europe(7.7)% 7.5%
Global(4.8)% 3.1%

_________________

(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 to Non-GAAP Measures” above for more information.

(2)  Comparable store sales are 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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