Crocs Inc. reported earnings rose 65.8 percent excluding non-recurring charges in the second quarter as improved margins and expense management offset a 3.3 percent decline in sales. These results cover the three months ended June 30, 2017, and are compared to the three months ended June 30, 2016.
Andrew Rees, president and chief executive officer, said, “During the second quarter, we continued to revitalize the Crocs brand and drive improvement in the quality of our revenues. A favorable response to our Spring/Summer 2017 collection, particularly as it relates to clogs and sandals, drove solid growth in these silhouettes. A focus on our core molded products and effective inventory management enabled us to deliver gross margins which exceeded guidance, while our intense focus on expense management kept SG&A below projected levels. We are optimistic about the early response to our Fall/Holiday 2017 collection, and anticipate that the positive sentiment seen to date will continue throughout the second half of the year, despite the challenging retail environment.”
Second Quarter 2017 Operating Results
Revenues came in at the high end of guidance at $313.2 million, although down from $323.8 million a year ago. Wall Street’s consensus estimate was $311.3 million. On a constant currency basis, revenues decreased 2.7 percent, compared to the second quarter of 2016. Crocs said it continued to execute against plans to improve the quality of revenues and strengthen the brand.
Second-quarter gross margin rose 180 basis points to 54.2 percent compared to last year’s second quarter. Improved product and better management of inventory enabled us to generate higher quality revenues. Crocs also said benefited from the continued shift toward more molded product.
Selling, general and administrative expenses (SG&A) were $140.4 million compared to $149 million in the second quarter of 2016, a decrease of 5.8 percent. As a percent of revenues, SG&A improved 120 basis points. Second quarter 2017 SG&A results include $1.8 million of costs relating to SG&A reduction initiative. The right sizing of its store fleet, operational efficiencies and a disciplined approach to expense management, coupled with some timing and approximately $1 million in recovery of bad debt previously reserved for in China, contributed to this improvement.
Net income attributable to common stockholders was $18.1 million, or 20 cents per diluted share, up from $11.7 million, or 13 cents, a year ago. Wall Street’s consensus estimate had been 15 cents. Excluding $1.8 million related to SG&A reduction initiatives, the company reported non-GAAP net income attributable to common stockholders of $19.9 million. In the second quarter of 2016, net income attributable to common stockholders was $11.7 million, or 13 cents per diluted share, and non-GAAP adjusted net income attributable to common stockholders was $12 million.
For the quarter ended June 30, 2017, Crocs had 74.6 million weighted average diluted common shares outstanding.
When it reported first-quarter results on May 10, it expected second-quarter revenues in the range of $305 and $315 million., gross margin to be approximately 150 basis points higher than the second quarter of 2016, and SG&A to be relatively flat to last year, including approximately $3 million of charges associated with its SG&A reduction plan.
Balance Sheet And Cash Flow Highlights
Cash and cash equivalents as of June 30, 2017 were $157.0 million, compared to $146.7 million as of June 30, 2016.
Inventory was $155.7 million as of June 30, 2017, compared to $169.9 million as of June 30, 2016. This reflects its ongoing efforts to carefully manage inventory and improve the quality of goods on hand.
Cash provided by operating activities was $39.4 million during the first six months of 2017, compared to $19.8 million during the first six months of 2016.
Capital expenditures totaled $6.8 million during the second quarter of 2017, compared to $6.9 million during the second quarter of 2016.
Cash used by financing activities includes $10 million used to repurchase 1.4 million shares of its common stock.
Third Quarter 2017
The company expects third quarter 2017 revenues to be between $230 and $240 million.
The company expects gross margin for the third quarter to be essentially flat to the third quarter of 2016. Gross margin in the third quarter of 2016 included a benefit of more than 200 basis points due to a favorable inventory adjustment.
The company expects SG&A to be down approximately $3 million to last year, including approximately $2 million of charges associated with SG&A reduction initiative.
Full Year 2017
The company continues to expect 2017 revenues to be down low single digits compared to 2016. This is reflective of the various business model changes taking place throughout the year, and an accelerated pace of store closings.
The company continues to expect gross margin for 2017 to be approximately 50 percent.
The company now expects SG&A for 2017 to be between $490 and $495 million. This is down from its previous guidance of $495 million and $500 million, and $10 million to $15 million below the 2016 SG&A of $506.3 million. This lower range reflects the improvement realized in the second quarter, as well as the accelerated pace at which we are reducing company-operated stores. Included in the range is $7 million to $10 million of charges associated with our SG&A reduction plan.