03 Nov Crocs Lifts Guidance As Q3 Results Beat Plan
Crocs Inc. raised its outlook for the year after reporting third-quarter earnings and sales topped guidance.
“Our exceptional third quarter results, including record revenue and industry-leading adjusted operating margin of 28 percent are a testament to the strength of the Crocs and Heydude brands,” said Andrew Rees, Chief Executive Officer. “We are raising 2022 guidance following our strong back-to-school performance and 20 percent constant currency revenue growth in the Crocs Brand. We are confident in our ability to continue to gain significant market share, deliver best-in-class profitability, and generate strong cash flow.”
Third Quarter 2022 Highlights
- Consolidated revenues of $985.1 million increased 57.4 percent, or 63.0 percent on a constant currency basis, as compared to 2021.
- Crocs Brand quarterly revenues of $715.7 million increased 14.3 percent, or 19.9 percent on a constant currency basis, as compared to 2021. Direct-to-consumer (“DTC”) comparable sales increased 18.2 percent.
- Crocs Brand international revenues grew 43.7 percent, or 61.9 percent on a constant currency basis and North America DTC comparable sales rose 13.0 percent, as compared to 2021.
- Heydude Brand revenues were $269.4 million, up approximately 87 percent compared to 2021.
- Operating margin was 26.8 percent and adjusted operating margin was 27.9 percent.
- Diluted earnings per share was $2.72, as compared to $2.42 during the same period last year. Adjusted diluted earnings per share increased 20.2 percent to $2.97.
- EPS of $2.97 exceeded Wall Street’s consensus estimate of $2.61. Sales of $985.1 million topped consensus estimates of $942.4 million. Crocs had guided sales in the range of $915 to $955 million with Crocs brand revenues expected to be between $680 to $700 million and Heydude between $235 to $255 million. Crocs expected adjusted operating margin of approximately 25 percent to 26 percent.
Third Quarter 2022 Operating Results
- Revenues were $985.1 million, an increase of 57.4 percent from the same period last year, or 63.0 percent on a constant currency basis. On a constant currency basis, DTC grew 45.8 percent, and wholesale grew 80.5 percent compared to 2021.
- Gross margin was 54.9 percent compared to 63.9 percent, and adjusted gross margin was 55.1 percent compared to 64.2 percent in the same period last year, respectively. Crocs Brand gross margin was 57.3 percent, or 660 basis points lower than prior year driven by approximately 200 basis points of inflationary costs and approximately 270 basis points of higher freight and inventory handling costs, of which Crocs estimate 150 basis points to be transitory. Currency negatively impacted gross margin by 115 basis points. Heydude Brand gross margin was 48.8 percent, which represents the continued effect of legacy freight contract costs and higher inventory storage costs as Crocs works to expand distribution center capabilities to support a larger business.
- Selling, general, and administrative expenses (“SG&A”) of $277.2 million increased from $196.7 million in the same period last year, and SG&A as a percent of revenues improved to 28.1 percent from 31.4 percent in prior year. Adjusted SG&A improved to 27.2 percent of revenues versus 31.4 percent for the same period last year. Adjusted SG&A excludes $9.1 million of costs, primarily related to the ongoing Heydude integration.
- Income from operations increased 30.0 percent to $264.1 million and operating margin was 26.8 percent, compared to 32.4 percent for the same period last year, due to lower gross margin and Heydude integration expenses. Adjusted income from operations rose 33.8 percent to $274.5 million and adjusted operating margin was 27.9 percent.
- Diluted earnings per share was $2.72, as compared to $2.42 for the same period last year. Adjusted diluted earnings per share increased 20.2 percent to $2.97 compared to $2.47 in 2021.
Third Quarter 2022 Brand Summary
- Crocs Brand: Revenues increased 14.3 percent, or 19.9 percent on a constant currency basis, to $715.7 million. Wholesale revenues increased 14.1 percent, or 21.8 percent on a constant currency basis. DTC comparable sales increased 18.2 percent.
- Heydude Brand: Revenues during the third quarter were $269.4 million. Wholesale revenues were $181.8 million and DTC revenues were $87.6 million.
Balance Sheet and Cash Flow
- Cash and cash equivalents were $143.0 million as of September 30, 2022, compared to $213.2 million as of December 31, 2021.
- Inventories increased to $513.7 million as of September 30, 2022, compared to $213.5 million as of December 31, 2021 and $212.5 million as of September 30, 2021. This increase was driven primarily by the addition of $189.5 million of Heydude inventory as of September 30, 2022.
- Capital expenditures during the nine months ended September 30, 2022 were $89.6 million, compared to $35.8 million for the same period last year, reflecting investments in its new distribution centers.
- Borrowings were $2.62 billion as of September 30, 2022 compared to $771.4 million as of December 31, 2021, an increase driven by borrowings used to finance a portion of the Heydude acquisition. Crocs’ liquidity position remains strong with $143.0 million in cash and cash equivalents and $611.1 million in available borrowing capacity as of September 30, 2022. During the third quarter, Crocs repaid $155.3 million of debt.
Full Year 2022
With respect to 2022, Crocs expects:
- Consolidated revenues to now be approximately $3.455 to $3.520 billion, representing growth between 49 percent and 52 percent compared to 2021.
- Adjusted operating income to now be approximately $920 to $950 million and adjusted operating margin to be approximately 27 percent. This excludes non-GAAP adjustments primarily related to the Heydude acquisition and integration of $75 million in cost of sales and $55 million in SG&A.
- GAAP tax rate of approximately 25 percent and non-GAAP effective tax rate to now be approximately 21 percent.
- Adjusted diluted earnings per share to now be between $9.95 and $10.30.
- Capital expenditures to now be approximately $150 to $170 million, primarily for supply chain investments to support growth.
- Previously, consolidated revenues was expected to be approximately $3.395 to $3.505 billion, representing growth between 47 percent and 52 percent compared to 2021. Adjusted operating margin was expected in the range of 26 percent to 27 percent. Adjusted EPS was expected in the range of $9.50 and $10.30.
- Crocs Brand revenues to still be $5.0 billion by 2026.
- Heydude Brand revenues to now be over $1.0 billion in 2023.
- Consolidated adjusted operating margins to still exceed 26 percent by 2026.
- Gross leverage to still be below 2.0x by mid-year 2023 following strong earnings and cash flow expectations for 2022.