Crocs, Inc. Reports First Quarter 2014 Financial Results

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| Source: Crocs, Inc.

NIWOT, Colo., April 30, 2014 (GLOBE NEWSWIRE) -- Crocs, Inc. (Nasdaq:CROX) today reported financial results for the first quarter ended March 31, 2014.

First Quarter Financial Highlights:

  • GAAP revenue increased 0.2% in the first quarter of 2014 to $312.4 million, which is in-line with previously provided guidance of $305 million to $315 million. On a constant currency basis, revenue increased 1.5% in the first quarter of 2014.
  • The company reported net income of $0.06 per diluted common share on a GAAP basis in the first quarter of 2014. Excluding certain charges, the company reported a non-GAAP net income1 per common share of $0.14.

Crocs President and Chief Executive Officer John McCarvel said, "Revenues for our business globally in the quarter were in line with our expectations. From a segment perspective, our Asia segment continued to deliver solid quarterly revenue growth across all channels and our Europe segment remained on the positive trajectory, which started late last year. We saw continued momentum in our non-clog portfolio during the quarter, as new collections like our Stretch Sole, with its patent-pending Fit2U TechnologyTM, and our Busy Day collection helped us further expand our brand into a casual footwear leader."

Financial Review

First quarter operating results

In the first quarter of 2014, the company reported GAAP operating income of $16.8 million versus $37.7 million in the comparable quarter in the prior year.

The company had GAAP net income attributable to common shareholders of $6.4 million versus net income of $29.0 million in the comparable quarter in the prior year.

As outlined in the non-GAAP reconciliations set forth later in this press release, the company recorded $8.1 million in non-GAAP charges (of which $1.1 million were non-cash charges). The company also recorded $2.8 million of dividends and dividend equivalents on the preferred stock that was issued in the first quarter of 2014. Undistributed earnings related to preferred stock reduced net income for common shareholders by 13.5% (equal to the equity participation of the preferred investment). Excluding these items the company reported:

  • Non-GAAP operating income of $25.0 million versus $39.5 million in the comparable prior year period.
  • On a comparable basis, non-GAAP adjusted net income of $17.3 million in the quarter versus $30.8 million in the first quarter of 2013.

"Factors driving our first quarter 2014 performance included the impact of the shift of the Easter holiday from March into April, negative currency impacts in Japan and Russia, and the change in product mix," said Jeff Lasher, Crocs Chief Financial Officer. "Russia represents about 15 percent of our business in Europe and our results in the region were impacted by the sudden weakening of the ruble in mid-January. As we continue to diversify our product line with new footwear brands such as the Stretch Sole and Busy Day and carryover products such as the Huarache and A-Leigh wedge, we are experiencing a reduction in Clog sales as a percentage of revenues. During the three months ended March 31, 2014, Clog silhouettes represented approximately 42% of sales, as compared with 47% in the three months ended March 31, 2013.

"With the closing of the Blackstone investment in the quarter," Lasher added, "this is a time of transition for Crocs as we focus our strategy on enhancing returns for shareholders. We see opportunities to make significant improvements in our business model going forward in order to deliver on that goal."

Balance Sheet

Cash and cash equivalents at March 31, 2014, amounted to $411.8 million, which is an increase of 29.9% from December 31, 2013. This increase is primarily attributable to net proceeds of $182.2 million related to issuance of preferred stock to Blackstone on January 27, 2014. Inventories increased 18.5% during the first quarter of 2014 to $192.4 million, reflecting the normal seasonal build of product ahead of the company's core spring summer selling season and the impact of the Easter holiday shift.

Stock Repurchase

During the quarter the company repurchased approximately 870,000 shares of common stock for $13 million under its previously announced $350 million stock repurchase program. The company repurchased approximately another 310,000 shares of common stock in April and intends to be patient, methodical and opportunistic in the execution of this buyback plan.

Financial Outlook

The company expects GAAP revenue of approximately $370 to $375 million in the second quarter of 2014.

CEO Search

As previously announced, Mr. McCarvel will retire as President, Chief Executive Officer and board member, today, April 30, 2014. The board is in the process of a search for Mr. McCarvel's replacement and Mr. Thomas J. Smach, Chairman of the Board of Crocs, will serve as interim Chief Executive Officer until the Board appoints a permanent President and/or Chief Executive Officer. The company will make an announcement when the search is successfully concluded.

"It has been an honor to be part of the Crocs global team for the past decade and to lead it since 2010," Mr. McCarvel said. "We've made tremendous progress as a company over these past 10 years – from a one-season, one-shoe, and one-country brand to a diversified, four-season global footwear leader that is on solid financial footing."

"John's contributions to this company are immeasurable," said Thomas J. Smach, Chairman of the Board of Crocs. "As our CEO, he led a turnaround of Crocs and established it as a profitable, diversified company with more than $1 billion in annual revenue, strong cash flows, and a very healthy balance sheet. Under his leadership, Crocs has grown into a global branded company that employs 4,500 people and sells more than 55 million shoes per year in more than 90 different countries. On behalf of the company's employees and directors, I would like to extend our appreciation and gratitude to John and wish him and his family continued success as he pursues his personal endeavors."

Conference Call Information

A teleconference call to discuss first quarter 2014 results is scheduled for Thursday, May 1, 2014, at 8:00 a.m. ET. The call participation number is (888) 771-4371. A replay 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 37141714. The call also will be streamed on the Crocs website, www.crocs.com. An audio recording of the conference call will be available at www.crocs.com through May 15, 2014.

About Crocs, Inc.

Crocs, Inc. is a world leader in innovative casual footwear for men, women and children. Crocs offers several distinct shoe collections with more than 300 four-season footwear styles. All Crocs™ shoes feature Croslite™ material, a proprietary, revolutionary technology that gives each pair of shoes the soft, comfortable, lightweight, non-marking and odor-resistant qualities that Crocs fans know and love. Crocs fans "Get Crocs Inside" every pair of shoes, from the iconic clog to new sneakers, sandals, boots and heels. Since its inception in 2002, Crocs has sold more than 300 million pairs of shoes in more than 90 countries around the world.

Visit www.crocs.com for additional information.

The matters regarding the future discussed in this news release include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding prospects, investments in our business and outlook. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the following: macroeconomic issues, including, but not limited to, the current global financial conditions; the effect of competition in our industry; our ability to effectively manage our future growth or declines in revenue; changing fashion trends; our ability to maintain and expand revenues and gross margin; our ability to accurately forecast consumer demand for our products; our ability to 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; our ability to open and operate additional retail locations; 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 April 30, 2014. We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimate regarding revenues or earnings, whether as a result of the receipt of new information, future events, or otherwise. 

1 Non-GAAP net income is a financial measure not calculated in accordance with U.S. Generally Accepted Accounting Principles (non-GAAP). See the non-GAAP reconciliations set forth later in this press release for additional information.

     
     
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
     
  Three Months Ended
March 31,
($ thousands, except per share data) 2014 2013
Revenues   $ 312,429  $ 311,656
Cost of sales   156,202  145,807
Gross profit   156,227  165,849
Selling, general and administrative expenses   139,405  128,199
Income from operations   16,822  37,650
Foreign currency transaction losses, net   2,768  2,600
Interest income  (477)  (306)
Interest expense  191  209
Other income, net   (141)  (28)
Income before income taxes   14,481  35,175
Income tax expense  5,357  6,214
Net income  9,124  28,961
Dividends on Series A convertible preferred shares  2,133  --
Dividend equivalents on Series A convertible preferred shares related to redemption value accretion and beneficial conversion feature  618  --
Net income attributable to common stockholders  $ 6,373  $ 28,961
Net income per common share:    
Basic   $ 0.06  $ 0.33
Diluted  $ 0.06  $ 0.33
 
 
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 current period 'adjusted results of operations', which is a non-GAAP financial measure. Adjusted results of operations 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.
 
Management uses adjusted results of operations to assist in comparing business trends from period to period on a consistent basis without regard to the impact of non-GAAP adjustments in communications with the board of directors, stockholders, analysts and investors concerning our financial performance. We believe that these non-GAAP measures are used by, and are useful to, investors and other users of our financial statements in evaluating operating performance by providing better comparability between reporting periods because they provide an additional tool to evaluate our performance without regard to non-GAAP adjustments that may not be indicative of overall business trends. They also provide a better baseline for analyzing trends in our operations. We do not suggest that investors should consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.
                 
  Three Months Ended March 31,
  2014  2013
    Non-GAAP     Non-GAAP  
    Adjustments     Adjustments  
($ thousands, except per share data) GAAP Cash Non-Cash Non-GAAP GAAP Cash Non-Cash Non-GAAP
Revenues   $ 312,429  $  $  $ 312,429  $ 311,656  $  $  $ 311,656
Cost of sales   156,202  --  --  156,202  145,807  --  --  145,807
Gross profit   156,227      156,227  165,849      165,849
Gross margin 50.0%     50.0% 53.2%     53.2%
                 
Selling, general and administrative expenses ("SG&A")  139,405        128,199      
Restructuring charges and expenses (1)    (3,645)  --  (3,645)    --  --  --
New ERP implementation (2)    (1,985)  --  (1,985)    (1,131)  --  (1,131)
Contingency accruals (3)    (1,422)  --  (1,422)    --  --  
Store closure costs (4)    --  (675)  (675)    --  --  --
Depreciation and amortization (5)    --  (404)  (404)    --  (722)  (722)
SG&A    (7,052)  (1,079)  131,274    (1,131)  (722)  126,346
SG&A as a percentage of revenues 44.6%     42.0% 41.1%     40.5%
                 
Income from operations   16,822  (7,052)  (1,079)  24,953  37,650  (1,131)  (722)  39,503
Foreign currency transaction losses, net   2,768  --  --  2,768  2,600  --  --  2,600
Interest income  (477)  --  --  (477)  (306)  --  --  (306)
Interest expense  191  --  --  191  209  --  --  209
Other income, net   (141)  --  --  (141)  (28)  --  --  (28)
Income before income taxes   14,481  (7,052)  (1,079)  22,612  35,175  (1,131)  (722)  37,028
Income tax expense  5,357  --  --  5,357  6,214  --  --  6,214
Net income  $ 9,124  $ (7,052)  $ (1,079)  $ 17,255  $ 28,961  $ (1,131)  $ (722)  $ 30,814
                 
Net income per common share (exclusive of series A preferred shares):                
Diluted        $ 0.19        $ 0.35
                 
Dividends on Series A preferred shares  $ 2,133  $ --   $ --   $ 2,133  $ --   $ --   $ --   $ -- 
Dividend equivalents on Series A preferred shares related to redemption value accretion and beneficial conversion feature  618  --  --  618  --  --  --  --
Net income attributable to common stockholders  $ 6,373  $ (7,052)  $ (1,079)  $ 14,504  $ 28,961  $ (1,131)  $ (722)  $ 30,814
                 
Net income per common share:                
Diluted  $ 0.06      $ 0.14  $ 0.33      $ 0.35
                 
(1) This relates to severance expenses, bonuses and consulting fees related to recent restructuring activities and our investment agreement with Blackstone.
(2) This represents operating expenses related to the implementation of our new ERP system.
(3) This represents certain legal contingency accruals.
(4) This represents a non-cash liability recorded as a result of exit costs related to retail store restructuring.
(5) This represents the add-back of accelerated depreciation and amortization on tangible and intangible items related to our current ERP system and supporting platforms that will no longer be utilized once the implementation of a new ERP is complete.
     
     
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
     
($ thousands, except number of shares) March 31,
2014
December 31,
2013
ASSETS    
Current assets:    
Cash and cash equivalents   $ 411,806  $ 317,144
Accounts receivable, net of allowances of $14,513 and $10,513, respectively   206,213  104,405
Inventories   192,376  162,341
Deferred tax assets, net   4,521  4,440
Income tax receivable   14,004  10,630
Other receivables   17,025  11,942
Prepaid expenses and other current assets   34,559  29,175
Total current assets   880,504  640,077
Property and equipment, net   86,413  86,971
Intangible assets, net   81,415  74,822
Deferred tax assets, net   19,688  19,628
Other assets   40,930  53,661
Total assets   $ 1,108,950  $ 875,159
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable   $ 89,130  $ 57,450
Accrued expenses and other current liabilities   119,127  97,111
Deferred tax liabilities, net   11,193  11,199
Income taxes payable   16,924  15,992
Current portion of long-term borrowings and capital lease obligations   5,192  5,176
Total current liabilities   241,566  186,928
Long term income tax payable   36,508  36,616
Long-term borrowings and capital lease obligations  10,359  11,670
Other liabilities   15,934  15,201
Total liabilities   304,367  250,415
     
Commitments and contingencies    
Series A convertible preferred shares, par value $0.001 per share, 200,000 shares issued and outstanding, redemption amount and liquidation preference of $202,133 and $0 at March 31, 2014 and December 31, 2013, respectively  182,838  --
     
Stockholders' equity:    
Preferred shares, par value $0.001 per share, 5,000,000 shares authorized, none outstanding   --  --
Common shares, par value $0.001 per share, 250,000,000 shares authorized, 91,987,136 and 87,888,964 shares issued and outstanding, respectively, at March 31, 2014 and 91,662,656 and 88,450,203 shares issued and outstanding, respectively, at December 31, 2013   92  92
Treasury stock, at cost, 4,098,172 and 3,212,453 shares, respectively   (68,265)  (55,964)
Additional paid-in capital   325,441  321,532
Retained earnings   350,805  344,432
Accumulated other comprehensive income   13,672  14,652
Total stockholders' equity   621,745  624,744
Total liabilities, commitments and contingencies and stockholders' equity   $ 1,108,950  $ 875,159
     

Schedule 1: Revenue Results – Channel and Regional First Quarter 2014 (UNAUDITED)

  Three Months Ended March 31, Change Constant Currency Change (1)
($ thousands) 2014 2013 $ % $ %
Channel revenues:            
Wholesale:            
Americas  $ 70,175  $ 81,604  $ (11,429) (14.0)%  $ (10,294) (12.6)%
Asia Pacific  77,997  69,554  8,443 12.1  8,888 12.8
Japan  21,047  22,527  (1,480) (6.6)  536 2.4
Europe  47,780  46,533  1,247 2.7  (325) (0.7)
Other businesses  258  65  193 296.9  166 255.4
Total Wholesale  217,257  220,283  (3,026) (1.4)  (1,029) (0.5)
Consumer-direct:            
Retail:            
Americas  36,581  35,904  677 1.9  1,089 3.0
Asia Pacific  22,119  19,597  2,522 12.9  3,007 15.3
Japan  6,130  5,901  229 3.9  930 15.8
Europe  10,730  9,689  1,041 10.7  1,085 11.2
Total Retail  75,560  71,091  4,469 6.3  6,111 8.6
Internet:            
Americas  10,364  11,921  (1,557) (13.1)  (1,444) (12.1)
Asia Pacific  1,749  1,306  443 33.9  548 42.0
Japan  1,873  1,931  (58) (3.0)  166 8.6
Europe  5,626  5,124  502 9.8  337 6.6
Total Internet  19,612  20,282  (670) (3.3)  (393) (1.9)
Total revenues:  $ 312,429  $ 311,656  $ 773 0.2%  $ 4,689 1.5%
             
             
             
  Three Months Ended March 31, Change Constant Currency Change(1)
($ thousands) 2014 2013 $ % $ %
Regional Revenue:            
Americas  $ 117,120  $ 129,429  $ (12,309) (9.5)%  $ (10,649) (8.2)%
Asia Pacific  101,865  90,457  11,408 12.6  12,443 13.8
Japan  29,050  30,359  (1,309) (4.3)  1,632 5.4
Europe  64,136  61,346  2,790 4.5  1,097 1.8
Other businesses  258  65  193 296.9  166 255.4
Total revenues:  $ 312,429  $ 311,656  $ 773 0.2%  $ 4,689 1.5%
             
(1) Reflects quarter-over-quarter and year-over-year change as if the current period results were in "constant currency," which is a non-GAAP financial measure. Constant currency is a measure utilized by management in which current period results have been restated using 2013 average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends by excluding the impact of foreign currency exchange rate fluctuations. We do not suggest that investors should consider this non-GAAP measure in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

Schedule 2: Company Operated Retail Highlights (UNAUDITED)

2014 First Quarter Comparable Store Sales

Comparable store sales (1) Constant Currency
Three Months Ended
March 31, 2014 (2)
Constant Currency
Three Months Ended
March 31, 2013 (2)
Americas  (5.0)% (10.3)%
Asia Pacific  4.5  7.3
Japan  (0.1)  (5.8)
Europe   0.6  (7.3)
Global (1.5)% (5.2)%
     
(1) Comparable store status is determined on a monthly basis. Comparable store sales begin in the thirteenth month of a store's operation. 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. Comparable store sales growth is calculated on a currency neutral basis using historical annual average currency rates.
 
(2) Reflects quarter-over-quarter and year-over-year change as if the current period results were in "constant currency," which is a non-GAAP financial measure. Constant currency is a measure utilized by management in which current period results have been restated using 2013 average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends by excluding the impact of foreign currency exchange rate fluctuations. We do not suggest that investors should consider this non-GAAP measure in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

Retail store counts

Company-operated retail locations: December 31,
2013
 
Opened 
 
Closed 
March 31,
2014
Type:        
Kiosk/Store in Store   122  2  (4)  120
Retail Stores   327  14  (7)  334
Outlet Stores   170  9  (10)  169
Total   619  25  (21)  623
Operating segment:        
Americas   216  4  (7)  213
Asia Pacific  236  15  (11)  240
Japan  49  4  (1)  52
Europe   118  2  (2)  118
Total   619  25  (21)  623
         
Company-operated retail locations: March 31,
2013
 
Opened 
 
Closed 
March 31,
2014
Type:        
Kiosk/Store in Store   116  19  (15)  120
Retail Stores   295  64  (25)  334
Outlet Stores   136  45  (12)  169
Total   547  128  (52)  623
Operating segment:        
Americas   203  31  (21)  213
Asia Pacific  195  70  (25)  240
Japan  46  9  (3)  52
Europe   103  18  (3)  118
Total   547  128  (52)  623

Schedule 3: CROCS, INC. BACKLOG (UNAUDITED)

  March 31,
($ thousands) 2014 2013
Americas  $ 107,275  $ 95,701
Asia Pacific  124,487  113,972
Japan  52,687  49,394
Europe  65,841  33,871
Total backlog (1)  $ 350,290  $ 292,938
     
(1) We receive a significant portion of orders from our wholesale customers and distributors that remain unfilled as of any date and, at that point, represent orders scheduled to be shipped at a future date. We refer to these unfilled orders as backlog. While all orders in our backlog are subject to cancellation by customers, we expect that the majority of such orders will be filled within one year. Backlog as of a particular date is affected by a number of factors, including seasonality, manufacturing schedule and the timing of product shipments. Further, the mix of future and immediate delivery orders can vary significantly period over period. Backlog only relates to wholesale and distributor orders for the next season and current season fill-in orders and excludes potential sales in our retail and internet channels. Backlog also is affected by the timing of customers' orders and product availability. Due to these factors and since the unfulfilled orders can be canceled at any time prior to shipment by our customers, we believe that backlog may be an imprecise indicator of future revenues that may be achieved in a fiscal period and comparisons of backlog from period to period may be misleading. In addition, our historical cancellation experience may not be indicative of future cancellation rates. 
Investor Contact:
William I. Kent/Crocs Inc.
(303) 848-7000


Media Contact:
Katy Michael/Crocs Inc.
(303) 848-7000