Crocs, Inc. Reports Fourth Quarter and Full Year 2018 Results; Fourth Quarter Revenues Increased 8.5%; 2018 Revenues Increased 6.3% and Income from Operations Increased 263.1%; Raises 2019 Revenue Guidance

NIWOT, Colo.–(BUSINESS WIRE)–Crocs, Inc. (NASDAQ: CROX), a world leader in innovative casual footwear
for men, women, and children, today announced its fourth quarter and
full year 2018 financial results.

Andrew Rees, President and Chief Executive Officer, said, “Our fourth
quarter results contributed to what was a very successful year. We had
record revenues in many key markets, with the U.S. market leading the
way. We have hit multi-year highs in revenues and gross margin, while at
the same time significantly reducing our SG&A run rate. Global demand
for our brand remains strong, and as a result, we anticipate delivering
revenue growth of 5% to 7% in 2019.”

Fourth Quarter 2018 Operating Results:

  • Revenues were $216.0 million, growing 8.5% over the fourth quarter of
    2017, or 11.3% on a constant currency basis. Store closures and
    business model changes reduced our revenues by approximately $7
    million. Our wholesale business grew 9.7%, our e-commerce businesses
    grew 18.9% and our retail comparable store sales grew 13.4%.
  • Gross margin was 46.2%, an increase of 80 basis points over last
    year’s fourth quarter. This increase was driven by strong sales of
    high-margin clogs, the strength of our direct-to-consumer business and
    a disciplined approach to promotions.
  • Selling, general and administrative expenses (“SG&A”) were $113.8
    million compared to $120.7 million in the fourth quarter of 2017. As a
    percent of revenues, SG&A improved 790 basis points to 52.7% as we
    continued to take costs out of the business and leverage expenses.
    Fourth quarter 2018 results included $4.6 million of non-recurring
    charges compared to $9.4 million in the fourth quarter of 2017. Our
    adjusted SG&A as a percent of revenues was 50.6% in the fourth quarter
    of 2018, an improvement of 530 basis points over the fourth quarter of
    2017, as detailed on the ‘Non-GAAP selling, general and administrative
    expenses reconciliation’ schedule below.
  • Loss from operations declined 54.1%, coming in at $13.9 million
    compared to $30.4 million in the fourth quarter of 2017. Excluding
    non-recurring SG&A charges, our adjusted loss from operations declined
    55.3% to $9.4 million, as detailed on the ‘Non-GAAP income (loss) from
    operations and operating margin reconciliation’ schedule below.
  • Net loss attributable to common stockholders, primarily related to the
    December 2018 repurchase and conversion of the Company’s preferred
    stock (“the Blackstone Transaction”) previously owned by Blackstone
    Capital Partners VI L.P. and certain of its affiliates and transferees
    (“Blackstone”), was $118.7 million compared to $28.3 million in the
    fourth quarter of 2017. After adjusting for non-recurring SG&A charges
    in the fourth quarters of 2018 and 2017, and for the non-recurring
    accounting adjustments related to the Blackstone Transaction, our
    non-GAAP net loss attributable to common stockholders were $7.7
    million and $18.9 million in the fourth quarters of 2018 and 2017,
    respectively, as detailed on the ‘Non-GAAP earnings per share
    reconciliation’ schedule below.
  • Our diluted net loss per common share was $1.72 for the fourth quarter
    of 2018, compared to a diluted net loss per common share of $0.41 in
    the fourth quarter of 2017. After adjusting for non-recurring SG&A and
    the Blackstone Transaction, our non-GAAP diluted net loss per common
    share was $0.10, compared to a non-GAAP diluted net loss per common
    share of $0.27 in the fourth quarter of 2017, as detailed on the
    ‘Non-GAAP earnings per share reconciliation’ schedule below.

2018 Operating Results:

  • Revenues were $1,088.2 million, growing 6.3% over 2017, or 5.2% on a
    constant currency basis. Store closures and business model changes
    reduced our revenues by approximately $60 million. Our wholesale
    business grew 7.8%, our e-commerce business grew 22.5% and our retail
    comparable store sales grew 10.8%.
  • Gross margin was 51.5%, an increase of 100 basis points over 2017.
  • SG&A was $497.2 million compared to $499.9 million in the prior year.
    Results for 2018 included $21.1 million of non-recurring charges
    compared to $17.0 million in 2017. As a percent of revenues, SG&A
    improved 310 basis points to 45.7%. Excluding non-recurring charges,
    adjusted SG&A as a percent of revenues was 43.8%, an improvement of
    340 basis points over 2017, as detailed on the ‘Non-GAAP selling,
    general and administrative expenses reconciliation’ schedule below.
  • Income from operations grew 263.1%, coming in at $62.9 million
    compared to $17.3 million in 2017, and the operating margin was 5.8%,
    compared to 1.7% in 2017. Excluding non-recurring SG&A charges,
    adjusted income from operations grew 144.8% to $84.0 million, as
    detailed on the ‘Non-GAAP income (loss) from operations and operating
    margin reconciliation’ schedule below. Adjusted operating margin for
    2018 was 7.7% compared to 3.4% in 2017, as detailed on the ‘Non-GAAP
    income (loss) from operations and operating margin reconciliation.’
  • Net loss attributable to common stockholders was $69.2 million,
    compared to $5.3 million in 2017. After adjusting for the
    non-recurring SG&A charges and accounting adjustments relating to the
    Blackstone Transaction, our non-GAAP net income attributable to common
    stockholders was $65.9 million and $9.8 million in 2018 and 2017
    respectively, as detailed on the ‘Non-GAAP earnings per share
    reconciliation’ schedule below.
  • Our diluted net loss per common share was $1.01 in 2018 as a result of
    the accounting adjustments related to the Blackstone Transaction.
    Diluted net loss per common share was $0.07 in 2017. Our non-GAAP
    diluted net income per common share was $0.86 compared to $0.13 in
    2017, as detailed on the ‘Non-GAAP earnings per share reconciliation’
    schedule below.

Balance Sheet and Cash Flow Highlights:

  • Cash provided by operating activities increased 16.2% to $114.2
    million during 2018 compared to $98.3 million during 2017.
  • Cash and cash equivalents were $123.4 million as of December 31, 2018
    compared to $172.1 million as of December 31, 2017. During the fourth
    quarter of 2018, the Company repurchased shares of its common stock on
    the open market and shares of its preferred stock pursuant to the
    Blackstone Transaction.
  • Inventory declined 4.5% to $124.5 million as of December 31, 2018
    compared to $130.3 million as of December 31, 2017, reflecting strong
    fourth quarter performance.
  • Cash paid for capital expenditures for 2018 was $12.0 million compared
    to $13.1 million in 2017.
  • At December 31, 2018, there were $120.0 million in borrowings
    outstanding on the $250 million credit facility. During the first
    quarter of 2019, our borrowing capacity on the credit facility was
    increased to $300 million.

Share Repurchase Activity and the Blackstone Transaction:

During the fourth quarter of 2018, the Company repurchased 1.2 million
shares of its common stock for $26.1 million, at an average price of
$21.05 per share. For the full year, the Company repurchased 3.6 million
shares of its common stock for $63.1 million, at an average price of
$17.44 per share. At year end, $156 million of the Company’s $500
million share repurchase authorization remained available for future
repurchases.

In December 2018, in connection with the Blackstone Transaction, the
Company repurchased half of its outstanding Series A Convertible
Preferred Stock (the “Preferred Shares”), representing approximately 6.9
million common shares on an as-converted basis, for $183.7 million, or
$26.64 per share. In addition, the Company paid Blackstone a one-time
additional payment of $15.0 million to induce the conversion of the
remaining Preferred Shares into approximately 6.9 million shares of the
Company’s common stock.

Distribution Center Investment:

The Company has begun to invest in a new distribution center in Dayton,
Ohio. By the end of 2019, this new facility is expected to completely
replace the Company’s existing facility located outside of Los Angeles,
California. The new distribution center will be approximately 40% larger
than our existing facility, and includes automation, which the Company
expects will increase throughput by approximately 50%. Its central
location will also significantly improve delivery times to customers.
This project is contingent upon the approval of state and local
incentives. Further details relating to expected capital expenditures
and gross margin impact are presented below.

Financial Outlook:

Full Year 2019:

With respect to 2019, the Company expects:

  • Revenues to be up 5% to 7% over 2018 revenues of $1,088.2 million. The
    Company anticipates 2019 revenues will be negatively impacted by
    approximately $20 million resulting from store closures and
    approximately $20 million of currency changes.
  • Gross margin of approximately 49.5% compared to 51.5% in 2018. The
    projected decline reflects our expectations for (i) higher freight
    costs; (ii) reduced purchasing power associated with the strengthening
    of the U.S. dollar; and (iii) non-recurring charges relating to the
    Company’s new distribution center, which are expected to reduce gross
    margin by approximately 100 basis points.
  • SG&A to be approximately 41% of revenues. This includes non-recurring
    charges of $3 to $5 million related to various cost reduction
    initiatives. In 2018, SG&A was 45.7% of revenues and included $21.1
    million of non-recurring charges.
  • An operating margin of approximately 8.5% which includes non-recurring
    charges associated with our new distribution center and SG&A cost
    reduction initiatives. Excluding those non-recurring charges, we
    expect to achieve our interim target of a low double digit operating
    margin.
  • Capital expenditures to be approximately $65 million, compared to
    $12.0 million in 2018. The new distribution center will account for
    approximately $35 million of the total. The remainder relates to
    information technology and infrastructure projects, some of which were
    deferred from 2018, along with routine capital expenditures.

First Quarter 2019:

With respect to the first quarter of 2019, the Company expects:

  • Revenues to be between $280 and $290 million compared to $283.1
    million in the first quarter of 2018. The Company anticipates revenues
    for the first quarter of 2019 will be negatively impacted by
    approximately $6 million due to store closures and by approximately
    $10 million due to currency changes. Revenues are also expected to be
    impacted by strong demand in last year’s fourth quarter, which
    constricted inventory available for certain at-once orders, as well as
    the timing of Easter.
  • Gross margin to be approximately 45.5% compared to 49.4% in the first
    quarter of 2018. This decline reflects four things: (i) higher freight
    costs, including air freight to replenish fast selling items; (ii) the
    negative impact of the stronger U.S. Dollar; (iii) the late Easter,
    causing higher direct-to-consumer sales associated with the holiday to
    shift into the second quarter; and (iv) non-recurring charges relating
    to the new distribution center that will reduce gross margin by
    approximately 50 basis points.
  • SG&A to be between 37% and 38% of revenues. This includes
    non-recurring charges of approximately $1 million related to various
    cost reduction initiatives. In the first quarter of 2018, SG&A was
    40.2% of revenues and included $2.5 million of non-recurring charges.

Conference Call Information:

A conference call to discuss fourth quarter 2018 results is scheduled
for today, Thursday, February 28, 2019, at 8:30 a.m. EST. The call
participation number is (877) 790-7808. A replay of the conference call
will be available approximately two hours after the completion of the
call at (800) 585-8367. International participants can dial (647)
689-5638 to take part in the conference call, and can access a replay of
the call at (416) 621-4642. All of the above calls will require the
input of the conference identification number 7398337. 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 February 28, 2020.

About Crocs, Inc.:

Crocs, Inc. (Nasdaq: CROX) is a world leader in innovative casual
footwear for women, men, and children, combining comfort and style with
a value that consumers know and love. The vast majority of shoes within
Crocs’ collection contains Croslite™ material, a proprietary, molded
footwear technology, delivering extraordinary comfort with each step.

In 2019, Crocs declares that expressing yourself and being comfortable
are not mutually exclusive. To learn more about Crocs or our global
Come As You Are™ campaign, please visit www.crocs.com
or follow @Crocs on Facebook, Instagram and Twitter.

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 revenue, gross margin, SG&A, capital
expenditures and operating margin 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 February 28, 2019. 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.

Category:Investors

 
 
CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
        Three Months Ended December 31,     Year Ended December 31,
2018     2017 2018     2017
Revenues $ 215,989 $ 199,112 $ 1,088,205 $ 1,023,513
Cost of sales 116,167   108,745   528,051   506,292  
Gross profit 99,822 90,367 560,154 517,221
Selling, general and administrative expenses 113,759   120,744   497,210   499,885  
Income (loss) from operations (13,937 ) (30,377 ) 62,944 17,336
Foreign currency gains (losses), net (269 ) 382 1,318 563
Interest income 434 294 1,281 870
Interest expense (584 ) (330 ) (955 ) (869 )
Other income, net 340   93   569   280  
Income (loss) before income taxes (14,016 ) (29,938 ) 65,157 18,180
Income tax expense (benefit) (3,130 ) (5,577 ) 14,720   7,942  
Net income (loss) (10,886 ) (24,361 ) 50,437 10,238
Dividends on Series A convertible preferred stock (1) (99,224 ) (3,000 ) (108,224 ) (12,000 )
Dividend equivalents on Series A convertible preferred stock related
to redemption value accretion and beneficial conversion feature (1)
(8,575 ) (911 ) (11,429 ) (3,532 )
Net loss attributable to common stockholders $ (118,685 ) $ (28,272 ) $ (69,216 ) $ (5,294 )
Net loss per common share:
Basic $ (1.72 ) $ (0.41 ) $ (1.01 ) $ (0.07 )
Diluted $ (1.72 ) $ (0.41 ) $ (1.01 ) $ (0.07 )
Weighted average common shares outstanding:
Basic 69,010   69,470   68,421   72,255  
Diluted 69,010   69,470   68,421   72,255  
 
Gross margin 46.2 % 45.4 % 51.5 % 50.5 %
Operating margin (6.5 )% (15.3 )% 5.8 % 1.7 %
Selling, general and administrative expenses as a percentage of
revenues
52.7 % 60.6 % 45.7 % 48.8 %
(1)   On December 5, 2018, all issued and outstanding shares of Series A
Convertible Preferred Stock were repurchased in exchange for cash or
converted to common stock. As a result, amounts reported for the
three months and year ended December 31, 2018, include amounts
resulting from the repurchase and conversion, in addition to
dividends, payments to induce conversion, and accretion of dividend
equivalents prior to December 5, 2018.
 
 
EARNINGS PER SHARE
(in thousands, except per share data)
 
    Three Months Ended December 31,     Year Ended December 31,
2018     2017 2018     2017
Numerator:
Net loss attributable to common stockholders (1) $ (118,685 ) $ (28,272 ) $ (69,216 ) $ (5,294 )
Denominator:
Weighted average common shares outstanding – basic and diluted 69,010 69,470 68,421 72,255
 
Net loss per common share:
Basic $ (1.72 ) $ (0.41 ) $ (1.01 ) $ (0.07 )
Diluted $ (1.72 ) $ (0.41 ) $ (1.01 ) $ (0.07 )
(1)   Net loss attributable to common stockholders for the quarter and
year ended December 31, 2018 reflects the repurchase and conversion
of Series A Convertible Preferred Stock.
 
 
CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)
 
        December 31,
2018     2017
ASSETS
Current assets:
Cash and cash equivalents $ 123,367 $ 172,128
Accounts receivable, net of allowances of $20,477 and $31,389,
respectively
97,627 83,518
Inventories 124,491 130,347
Income taxes receivable 3,041 3,652
Other receivables 7,703 10,664
Restricted cash – current 1,946 2,144
Prepaid expenses and other assets 22,123   22,596  
Total current assets 380,298 425,049
Property and equipment, net 22,211 35,032
Intangible assets, net 45,690 56,427
Goodwill 1,614 1,688
Deferred tax assets, net 8,663 10,174
Restricted cash 2,217 2,783
Other assets 8,208   12,542  
Total assets $ 468,901   $ 543,695  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 77,231 $ 66,381
Accrued expenses and other liabilities 102,171 84,460
Income taxes payable 5,089 5,515
Current portion of borrowings   662  
Total current liabilities 184,491 157,018
Long-term income taxes payable 4,656 6,081
Long-term borrowings 120,000
Other liabilities 9,446   12,298  
Total liabilities 318,593   175,397  
Commitments and contingencies:
Series A convertible preferred stock, 0.0 million and 0.2 million
shares outstanding, liquidation preference $0 million and $203
million, respectively
182,433
Stockholders’ equity:
Preferred stock, par value $0.001 per share, none outstanding
Common stock, par value $0.001 per share, 103.0 million and 94.8
million issued, 73.3 million and 68.8 million shares outstanding,
respectively
103 95
Treasury stock, at cost, 29.7 million and 26.0 million shares,
respectively
(397,491 ) (334,312 )
Additional paid-in capital 481,133 373,045
Retained earnings 121,215 190,431
Accumulated other comprehensive loss (54,652 ) (43,394 )
Total stockholders’ equity 150,308   185,865  
Total liabilities and stockholders’ equity $ 468,901   $ 543,695  
 
 
CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
        Year Ended December 31,
2018     2017
Cash flows from operating activities:
Net income $ 50,437 $ 10,238
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 29,250 33,130
Unrealized foreign currency (gain) loss, net (1,455 ) 1,025
(Gain) loss on disposals of assets 5,019 (842 )
Share-based compensation 13,105 9,773
Asset impairments 2,182 5,284
Provision (recovery) for doubtful accounts, net 711 (589 )
Deferred taxes 959 (3,093 )
Other non-cash items 1,994 (1,564 )
Changes in operating assets and liabilities:
Accounts receivable, net of allowances (24,623 ) 620
Inventories (1,987 ) 23,319
Prepaid expenses and other assets 9,703 18,907
Accounts payable 12,953 (2,714 )
Accrued expenses and other liabilities 18,065 5,489
Income taxes (2,151 ) (719 )
Cash provided by operating activities 114,162 98,264
Cash flows from investing activities:
Purchases of property, equipment, and software (11,979 ) (13,117 )
Proceeds from disposal of property and equipment 1,856 1,579
Other 13    
Cash used in investing activities (10,110 ) (11,538 )
Cash flows from financing activities:
Proceeds from borrowings 120,000 5,500
Repayments of borrowings (662 ) (8,611 )
Series A preferred stock repurchase (183,724 )
Dividends — Series A convertible preferred stock (1) (21,015 ) (12,000 )
Repurchases of common stock (63,131 ) (50,000 )
Other (270 ) (259 )
Cash used in financing activities (148,802 ) (65,370 )
Effect of exchange rate changes on cash, cash equivalents, and
restricted cash
(4,775 ) 3,053  
Net change in cash, cash equivalents, and restricted cash (49,525 ) 24,409
Cash, cash equivalents, and restricted cash—beginning of year 177,055   152,646  
Cash, cash equivalents, and restricted cash—end of year $ 127,530   $ 177,055  
 
Cash paid for interest $ 462 $ 434
Cash paid for income taxes 18,633 13,208
(1)   Represents Series A Convertible Preferred Stock cash dividends
declared and paid of $9.0 million and $12.0 million paid to induce
conversion for the year ended December 31, 2018.
 
 

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

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 cost of sales,” “Non-GAAP gross margin,” “Non-GAAP
selling, general, and administrative expenses,” “Non-GAAP net income
(loss) attributable to common stockholders,” “Non-GAAP weighted average
common shares outstanding – basic and diluted,” and “Non-GAAP basic and
diluted net income (loss) per common share,” 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 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
and trends. For the three months and year ended December 31, 2018,
management believes it is helpful to evaluate our results excluding the
impacts of the Series A Preferred Stock transaction and higher than
usual amount of non-recurring charges. 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
RECONCILIATIO

Contacts

Investor Contact:
Marisa Jacobs, Crocs, Inc.
(303)
848-7322
[email protected]

Media
Contact:

Ryan Roccaforte, Crocs, Inc.
(303) 848-7116
[email protected]

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