10 May Crocs’ Q1 Earnings Soar
Crocs Inc. reported earnings rose 73.6 percent in the first quarter as sales improved 5.7 percent and operating expenses were reduced. Results topped Wall Street’s targets.
Andrew Rees, president and chief executive officer, said, “The year is off to a strong start, with first quarter results exceeding guidance on all metrics. Our Spring/Summer 2018 collection is being well-received and our LiteRide launch surpassed our expectations. We continue to successfully execute against our strategic priorities and are increasing our guidance. We now expect full year revenues to be up low single digits, as double-digit e-commerce growth and moderate wholesale growth more than offset the decline in retail revenues associated with our store closure plan.”
First Quarter 2018 Operating Results
- Revenues were $283.1 million, growing 5.7 percent over the first quarter of 2017, or 0.7 percent on a constant currency basis. Top line growth was achieved despite the loss of approximately $12 million due to operating fewer stores and business model changes. E-commerce grew 24.1 percent, wholesale grew 6.5 percent and the retail channel delivered positive comparable store sales of 7.6 percent.
- Gross margin was 49.4 percent, declining 50 basis points from last year’s first quarter. At the beginning of the first quarter, the company changed its inventory costing methodology from average cost to first-in-first-out, or FIFO. This change resulted in a timing-related charge to cost of sales in the first quarter, but will have no impact on the full year. Absent this charge, first quarter gross margin would have been up modestly to prior year.
- Selling, general and administrative expenses were $114.0 million compared to $118.0 million in the first quarter of 2017. As a percent of revenues, SG&A improved 380 basis points and represented 40.2 percent of revenues. First quarter 2018 results included $2.5 million of non-recurring charges associated with our SG&A reduction plan compared to $2.2 million in last year’s first quarter.
- Income from operations of $25.9 million increased 66.4 percent compared to $15.6 million in last year’s first quarter.
- Net income attributable to common stockholders was $12.5 million, or $0.15 per diluted share, compared to $7.2 million, or $0.08 per diluted share, in last year’s first quarter. Crocs had 71.7 million and 74.6 million weighted average diluted common shares outstanding on March 31, 2018 and 2017, respectively.
Wall Street’s consensus targets had been earnings of 12 cents per share on sales of $272 million. When it reported fourth-quarter results, Crocs predicted sales to come in between $265 and $275 million, gross margins to be approximately 49 percent and SG&A to reach approximately $115 million.
Balance Sheet and Cash Flow Highlights
- Cash used in operating activities decreased 6.6 percent to $46.6 million during the first quarter of 2018 compared to $49.9 million during the first quarter of 2017.
- Cash and cash equivalents as of March 31, 2018 increased 14.7 percent to $102.0 million compared to $88.9 million as of March 31, 2017. This growth reflects the successful execution of the company’s strategic objectives along with improved working capital management.
- Inventory declined 17.0 percent to $148.2 million as of March 31, 2018 compared to $178.5 million as of March 31, 2017, reflecting the company’s continued focus on inventory management.
- Capital expenditures during the first quarter of 2018 were $1.7 million compared to $5.4 million during the same quarter in 2017, as the company opened fewer stores, completed fewer store remodels and incurred lower technology-related expenditures.
- At March 31, 2018, no borrowings were outstanding against the company’s $100 million credit facility. This compares to $3.5 million of borrowings at March 31, 2017.
Share Repurchase Activity
During the first quarter of 2018, the company repurchased 1.4 million shares of its common stock for $20.1 million, at an average price of $14.32 per share. At March 31, 2018, $198.8 million of the company’s $500 million share repurchase authorization remained available for future share repurchases.
Closure of Company-Operated Mexico Manufacturing and Distribution Facilities
In connection with ongoing efforts to simplify the business and improve profitability, the company has made the decision to close its manufacturing and distribution facilities in Mexico. Manufacturing has ceased, and the distribution center will be closed by the end of the third quarter. Related one-time charges are identified in the company’s second quarter and full year SG&A guidance.
Second Quarter 2018
With respect to the second quarter of 2018, the company expects:
- Revenues of $315 to $325 million compared to $313.2 million in the second quarter of 2017.
- Gross margin to be slightly above last year’s 54.2 percent rate.
- SG&A to be approximately flat with $140.4 million last year. Non-recurring charges incurred in connection with its SG&A reduction plan are estimated at $1 million, compared to $1.8 million in last year’s second quarter. In addition, the company will incur approximately $5.0 million of non-recurring charges in connection with the closure of its Mexico manufacturing and distribution facilities.
Full Year 2018
With respect to 2018, the company now expects:
- Revenues to increase low single digits over 2017 revenues of $1,023.5 million, as we expect double digit e-commerce growth and moderate wholesale growth to more than offset lower retail revenues due to operating fewer stores and business model changes.
- Gross margin to be up approximately 70 to 100 basis points over 2017 gross margin of 50.5 percent.
- SG&A to be approximately $485 million. This includes approximately $15 million of non-recurring charges. Approximately $5 million of the non-recurring charges relate to the SG&A reduction plan.
- Approximately $10 million relate to the closure of the Mexico manufacturing and distribution facilities, with approximately half being non-cash. 2017 SG&A was $499.9 million, including $17.0 million of non-recurring charges.
- Income from operations to be approximately $50 million compared to $17.3 million in 2017.
- Depreciation and amortization to be approximately $30 million compared to $33.1 million in 2017.
- Income tax expense of approximately $17 million compared to $7.9 million i