Crocs, Inc. Reports First Quarter 2019 Results

Exceeded All Guidance Metrics; GAAP EPS Increased 120% from First
Quarter 2018

Share Buyback Authorization Increased by $500 Million

2019 Guidance Reaffirmed

NIWOT, Colo.–(BUSINESS WIRE)–Crocs, Inc. (NASDAQ: CROX), a world leader in innovative casual footwear
for men, women, and children, today announced its first quarter 2019
financial results.

Andrew Rees, President and Chief Executive Officer, said, “2019 is off
to a great start. Revenues exceeded expectations as demand for our
product and excitement around the brand continued to yield accelerated
sell-throughs. We were particularly pleased with the exceptional direct
to consumer performance successfully comping an earlier Easter last
year. We have now delivered five consecutive quarters of double-digit
DTC comp growth. I am more confident than ever in the strength of our
brand and our future. As a reflection of our optimism, our Board of
Directors has increased our share buyback authorization by $500 million.”

First Quarter 2019 Operating Results:

  • Revenues were $295.9 million, growing 4.5% over the first quarter of
    2018, or 9.0% on a constant currency basis. Store closures and
    business model changes reduced our revenues by approximately $6
    million. Wholesale revenues grew 5.2%, e-commerce revenues grew 16.5%,
    and retail comparable store sales grew 8.7%.
  • Gross margin was 46.5%, compared to our guidance of 45.5%, a decrease
    of 290 basis points from 49.4% in last year’s first quarter.
    Non-recurring expenditures related to the relocation of our Americas
    distribution center reduced gross margin by 40 basis points, resulting
    in an adjusted gross margin of 46.9%, 250 basis points below last
    year’s first quarter. Factors impacting our adjusted gross margin were
    currency, freight, and distribution center costs. Currency moves
    negatively impacted results by 140 basis points. For a reconciliation
    of gross margin to adjusted gross margin, see the ‘Non-GAAP cost of
    sales and gross margin reconciliation’ schedule below.
  • Selling, general and administrative expenses (“SG&A”) were $105.0
    million, down from $114.0 million in the first quarter of 2018, with
    improvements stemming from the Company’s SG&A reduction program and
    the movement of some marketing expenses into the second quarter. SG&A
    improved 470 basis points and represented 35.5% of revenues compared
    to our guidance of 37% to 38% and 40.2% in the first quarter of 2018.
    Excluding $0.7 million of non-recurring charges, adjusted SG&A
    improved by 410 basis points to 35.3% of revenues compared to 39.4% in
    last year’s first quarter, as detailed on the ‘Non-GAAP selling,
    general and administrative expenses reconciliation’ schedule below.
  • Income from operations rose 25.7% to $32.6 million from $25.9 million
    in the first quarter of 2018. Excluding non-recurring gross margin and
    SG&A charges, adjusted income from operations rose 21.5% to $34.5
    million. Our adjusted operating margin was 11.7%, up from 10.0% in the
    first quarter of 2018, as detailed on the ‘Non-GAAP income from
    operations and operating margin reconciliation’ schedule below.
  • Net income was $24.7 million, up from $12.5 million in the first
    quarter of 2018. After adjusting for non-recurring gross margin and
    SG&A charges incurred in the first quarter of 2019 and 2018
    respectively, and for the first quarter 2018 pro forma adjustments
    related to previously outstanding Series A Preferred Stock, adjusted
    net income was $26.7 million and $17.5 million in the first quarters
    of 2019 and 2018, respectively, as detailed on the ‘Non-GAAP earnings
    per share reconciliation’ schedule below.
  • Diluted net income per common share was $0.33 for the first quarter of
    2019, up from $0.15 in the first quarter of 2018. After adjusting for
    non-recurring charges relating to gross margin, SG&A, and the pro
    forma adjustments for Series A Preferred Stock, adjusted diluted net
    income per common share was $0.36 compared to $0.23 in the first
    quarter of 2018, as detailed on the ‘Non-GAAP earnings per share
    reconciliation’ schedule below.

Balance Sheet and Cash Flow Highlights:

  • Cash and cash equivalents were $86.3 million as of March 31, 2019,
    compared to $102.0 million as of March 31, 2018. During the first
    quarter of 2019, the Company repurchased 2.1 million shares of its
    common stock, as detailed below.
  • Inventory decreased 6.1% to $139.2 million as of March 31, 2019
    compared to $148.2 million as of March 31, 2018.
  • Capital expenditures during the first quarter of 2019 were $10.6
    million compared to $1.7 million during the same period in 2018. The
    increase primarily reflects expenditures on the planned relocation of
    the Company’s Americas distribution center from California to Ohio.
  • At March 31, 2019, there were $215.0 million in borrowings outstanding
    on the Company’s credit facility. During the first quarter of 2019,
    borrowing capacity on that facility was increased from $250 to $300
    million.

Share Repurchase Activity; Increase in Share Buyback Authorization:

During the first quarter of 2019, the Company repurchased approximately
2.1 million shares of its common stock for $53.5 million, at an average
price of $25.07 per share. As of March 31, 2019, approximately $102
million of the Company’s $500 million share repurchase authorization
remained available for future share repurchases.

The Board of Directors recently approved an increase of $500 million to
the existing $500 million share repurchase program. This leaves the
Company with approximately $600 million available for future share
repurchases. This program does not obligate the Company to acquire any
stated amount of common stock, and may be suspended at any time at the
Company’s discretion.

Financial Outlook:

Full Year 2019:

With respect to 2019, the Company continues to expect:

  • Revenues to be up 5% to 7% over 2018 revenues of $1,088.2 million. The
    Company now anticipates 2019 revenues will be negatively impacted by
    approximately $25 million of currency changes and approximately $20
    million resulting from store closures.
  • Gross margin of approximately 49.5% compared to 51.5% in 2018. The
    projected decline reflects our expectations relating to (i)
    non-recurring charges associated with the Company’s new distribution
    center, which we anticipate will reduce gross margin by approximately
    100 basis points in 2019, (ii) reduced purchasing power associated
    with the strengthening of the U.S. Dollar, and (iii) higher freight
    and distribution costs.
  • 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% including 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.

Second Quarter 2019:

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

  • Revenues to be between $350 and $360 million compared to $328.0
    million in the second quarter of 2018. The Company anticipates
    revenues will be positively impacted by the Easter shift, but
    negatively impacted by approximately $6 million due to store closures
    and $10 million due to the stronger U.S. Dollar as compared to last
    year. This guidance reflects constrained levels of Classic clogs as a
    result of surging demand; however, inventories are expected to be
    restored to appropriate levels by the end of the quarter.
  • Gross margin to be approximately 51% compared to 55.3% in the second
    quarter of 2018. This decline reflects (i) non-recurring charges
    relating to the new distribution center, which are expected to reduce
    gross margin by approximately 120 basis points, (ii) a negative impact
    from the stronger U.S. Dollar of approximately 150 basis points, which
    we expect to have a disproportionately negative impact on the first
    and second quarters of 2019, and (iii) a negative impact of
    approximately 160 basis points from higher freight and distribution
    costs in the Americas.
  • SG&A to be approximately 40% of revenues. This includes non-recurring
    charges of approximately $2 million related to various cost reduction
    initiatives. In the second quarter of 2018, SG&A was 44.0% of revenues
    and included $8.4 million of non-recurring charges.

Impact of New Lease Accounting Rules

On January 1, 2019, we adopted new GAAP lease accounting rules which
resulted in a significant increase in our reported assets and
liabilities associated with our leases. The recognition of rent expense
and payments associated with these lease assets and liabilities will not
result in material differences to operating income or cash flows
compared to the previous accounting rules. The adoption of the new
accounting rules will not impact our credit facility covenants.

Conference Call Information:

A conference call to discuss first quarter 2018 results is scheduled for
today, Tuesday, May 7, 2019 at 8:30 a.m. EDT. The call participation
number is (877) 790-7808. A replay of the conference call will be
available 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 these calls will require the use of the conference identification
number 6361757. 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 May 7, 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 revenues, gross margin, SG&A, operating
margin, and capital expenditure 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 7, 2019. We do not
undertake any obligation to update publicly any forward-looking
statements, including, without limitation, any estimates provided in the
“Financial Outlook” section above, whether as a result of the receipt of
new information, future events, or otherwise.

Category:Investors

CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
 
    Three Months Ended March 31,
2019     2018
Revenues $ 295,949 $ 283,148
Cost of sales 158,334   143,275  
Gross profit 137,615 139,873
Selling, general and administrative expenses 105,037   113,951  
Income from operations 32,578 25,922
Foreign currency gains (losses), net (1,217 ) 1,071
Interest income 195 279
Interest expense (1,817 ) (113 )
Other income, net 590   53  
Income before income taxes 30,329 27,212
Income tax expense 5,619   10,758  
Net income 24,710 16,454
Dividends on Series A convertible preferred stock (3,000 )

Dividend equivalents on Series A convertible preferred stock
related to redemption value accretion and beneficial conversion
feature

  (931 )
Net income attributable to common stockholders $ 24,710   $ 12,523  
Net income per common share:
Basic $ 0.34   $ 0.15  
Diluted $ 0.33   $ 0.15  
Weighted average common shares outstanding:
Basic 73,009   68,705  
Diluted 74,875   71,668  
 
CROCS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE
(UNAUDITED)
(in thousands, except per share data)
 
    Three Months Ended March 31,
2019     2018
(in thousands, except per share data)
Numerator:
Net income attributable to common stockholders $ 24,710 $ 12,523
Less: Net income allocable to Series A Convertible Preferred
stockholders (1)
  (2,094 )
Remaining net income available to common stockholders – basic and
diluted
$ 24,710   $ 10,429  
Denominator:
Weighted average common shares outstanding – basic 73,009 68,705
Plus: dilutive effect of stock options and unvested restricted stock
units for both periods and Series A Convertible Preferred in 2018
1,866   2,963  
Weighted average common shares outstanding – diluted 74,875   71,668  
 
Net income per common share:
Basic $ 0.34 $ 0.15
Diluted $ 0.33 $ 0.15
(1)   Represents the amount which would have been paid to preferred
stockholders in the event the Company had declared a dividend on its
common stock.
 
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and par value amounts)
 
    March 31,
2019
    December 31,
2018
ASSETS
Current assets:
Cash and cash equivalents $ 86,333 $ 123,367
Accounts receivable, net of allowances of $21,385 and $20,477,
respectively
176,288 97,627
Inventories 139,209 124,491
Income taxes receivable 3,755 3,041
Other receivables 9,073 7,703
Restricted cash – current 1,878 1,946
Prepaid expenses and other assets 14,980   22,123  
Total current assets 431,516 380,298
Property and equipment, net of accumulated depreciation and
amortization of $81,899 and $80,956, respectively
29,874 22,211
Intangible assets, net 44,724 45,690
Goodwill 1,579 1,614
Deferred tax assets, net 8,510 8,663
Restricted cash 2,129 2,217
Right-of-use assets 163,266
Other assets 7,608   8,208  
Total assets $ 689,206   $ 468,901  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 89,555 $ 77,231
Accrued expenses and other liabilities 78,204 102,171
Income taxes payable 9,466 5,089
Current operating lease liabilities 44,618    
Total current liabilities 221,843 184,491
Long-term income taxes payable 4,344 4,656
Long-term borrowings 215,000 120,000
Long-term operating lease liabilities 125,055
Other liabilities 19   9,446  
Total liabilities 566,261   318,593  
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, 250.0 million shares
authorized, 103.8 million and 103.0 million issued, 72.0 million and
73.3 million outstanding, respectively
104 103
Treasury stock, at cost, 31.8 million and 29.7 million shares,
respectively
(452,196 ) (397,491 )
Additional paid-in capital 484,932 481,133
Retained earnings 145,698 121,215
Accumulated other comprehensive loss (55,593 ) (54,652 )
Total stockholders’ equity 122,945   150,308  
Total liabilities and stockholders’ equity $ 689,206   $ 468,901  
 
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)

 

    Three Months Ended March 31,
2019     2018
Cash flows from operating activities:
Net income $ 24,710 $ 16,454
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,136 7,643
Operating lease cost 14,930
Share-based compensation 3,634 2,674
Other non-cash items (911 ) 154
Changes in operating assets and liabilities:
Accounts receivable, net of allowances (80,722 ) (86,850 )
Inventories (15,099 ) (20,853 )
Prepaid expenses and other assets 6,875 5,112
Accounts payable, accrued expenses and other liabilities (3,658 ) 29,065
Operating lease liabilities (19,610 )  
Cash used in operating activities (63,715 ) (46,601 )
Cash flows from investing activities:
Purchases of property, equipment, and software (10,553 ) (1,668 )
Proceeds from disposal of property and equipment 225   16  
Cash used in investing activities (10,328 ) (1,652 )
Cash flows from financing activities:
Proceeds from bank borrowings 95,000
Repayments of bank borrowings (400 )
Dividends—Series A convertible preferred stock (1) (2,985 ) (3,000 )
Repurchases of common stock (53,478 ) (20,061 )
Other (1,662 ) (692 )
Cash provided by (used in) financing activities 36,875 (24,153 )
Effect of exchange rate changes on cash, cash equivalents, and
restricted cash
(22 ) 2,176  
Net change in cash, cash equivalents, and restricted cash (37,190 ) (70,230 )
Cash, cash equivalents, and restricted cash—beginning of period 127,530   177,055  
Cash, cash equivalents, and restricted cash—end of period $ 90,340   $ 106,825  
(1)   Represents $3.0 million paid to induce conversion of Series A
Convertible Preferred Stock to common stock for the three months
ended March 31, 2019 and $3.0 million paid in Series A Convertible
Preferred Stock cash dividends for the three months ended March 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
attributable to common stockholders,” “Non-GAAP operating margin,”
Non-GAAP weighted average common shares outstanding – basic and
diluted,” and “Non-GAAP basic and diluted net income 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 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 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 and trends. For the three months ended March 31, 2019,
management believes it is helpful to evaluate our results excluding the
impacts of the Series A Preferred Stock transaction and various pro
forma adjustments. 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
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)
 
Non-GAAP cost of sales and gross margin reconciliation:
 
        Three Months Ended March 31,
2019     2018
(in thousands)
GAAP revenues $ 295,949 $ 283,148
 
GAAP cost of sales $ 158,334 $ 143,275
New distribution center (1) (1,165 )
Other (110 )  
Total adjustments (1,275 )
Non-GAAP cost of sales $ 157,059 $ 143,275
 
GAAP gross margin $ 137,615 $ 139,873
GAAP gross margin as a percent of revenues 46.5 % 49.4 %
 
Non-GAAP gross margin $ 138,890 $ 139,873
Non-GAAP gross margin as a percent of revenues 46.9 % 49.4 %
(1)   Represents non-recurring expenses related to our new distribution
center in Dayton, Ohio.
 

Non-GAAP selling, general and administrative expenses
reconciliation:

 
    Three Months Ended March 31,
2019     2018
(in thousands)
GAAP revenues $ 295,949 $ 283,148
 
GAAP selling, general and administrative expenses (1) $ 105,037 $ 113,951
Non-recurring expenses associated with cost reduction initiatives (2) (685 ) (2,499 )
Total adjustments (685 ) (2,499 )
Non-GAAP selling, general and administrative expenses $ 104,352 $ 111,452
 
GAAP selling, general and administrative expenses as a percent of
revenues
35.5 % 40.2 %
Non-GAAP selling, general and administrative expenses as a percent
of revenues
35.3 % 39.4 %
(1)   Non-GAAP selling, general and administrative expenses are presented
gross of tax.
(2) Non-recurring expenses associated with cost reduction initiatives in
2019 and the SG&A reduction plan in 2018.
 
CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)
 
Non-GAAP income from operations and operating margin
reconciliation:
 
    Three Months Ended March 31,
2019     2018
(in thousands)
GAAP income from operations $ 32,578 $ 25,922
Non-GAAP cost of sales adjustments (1) 1,275
Non-GAAP selling, general and administrative expenses adjustments (2) 685   2,499  
Non-GAAP income from operations $ 34,538   $ 28,421  
 
GAAP operating margin 11.0 % 9.2 %
Non-GAAP operating margin 11.7 % 10.0 %
(1)   See ‘Non-GAAP cost of sales reconciliation’ above for more details.
(2) See ‘Non-GAAP selling, general and administrative expenses
reconciliation’ above for more details.
 
CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)
 

Non-GAAP earnings per share reconciliation: (1)

 
        Three Months Ended March 31,
2019     2018
(in thousands, except per share data)
Numerator:
GAAP net income attributable to common stockholders $ 24,710 $ 12,523
Less: GAAP adjustment for net income allocable to Series A Preferred
stockholders
  (2,094 )
GAAP remaining net income available to common stockholders- basic
and diluted
$ 24,710   $ 10,429  
 
GAAP net income attributable to common stockholders $ 24,710 $ 12,523
Preferred share dividends and dividend equivalents (2) 3,931
Non-GAAP cost of sales adjustments (3) 1,275
Non-GAAP selling, general and administrative expenses adjustments (4) 685 2,499
Pro forma interest (5)   (1,407 )
Non-GAAP net income attributable to common stockholders $ 26,670   $ 17,546  
Denominator:
GAAP weighted average common shares outstanding – basic 73,009 68,705
Plus: GAAP dilutive effect of stock options and unvested restricted
stock units in both periods and Series A Preferred in 2018
1,866   2,963  
GAAP weighted average common shares outstanding – diluted 74,875   71,668  
 
GAAP weighted average common shares outstanding – basic 68,705
Plus: Non-GAAP weighted average converted common shares outstanding
adjustment (6)
6,897  
Non-GAAP weighted average common shares outstanding – basic (7) 75,602
Plus: Non-GAAP dilutive effect of stock options and unvested
restricted stock units (8)
1,719  
Non-GAAP weighted average common shares outstanding – diluted (9) 77,321  
 
GAAP net income per common share:
Basic $ 0.34   $ 0.15  
Diluted $ 0.33   $ 0.15  
 
Non-GAAP net income per common share:
Basic (10) $ 0.37   $ 0.23  
Diluted (11) $ 0.36   $ 0.23  

Contacts

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

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