28 Oct Crocs’ Q3 Earnings Slide on Charges
Crocs Inc. reported operating earnings tumbled 93.8 percent to $1.1 million from $17.9 million a year ago after restructuring and asset impairment charges. Revenues grew 4.8 percent to $302.4 million from $288.5 million with gains of 13 percent in Europe and 10 percent int the Americas offsetting declines in Asia.
Third Quarter Financial Highlights:
- GAAP revenue increased 4.8 percent in the third quarter of 2014 to $302.4 million, which is in line with previously provided guidance of $300 million to $305 million.
- Net income was 12 cents per diluted common share on a GAAP basis in the third quarter of 2014, down from 15 cents as year ago. Excluding certain charges, the company reported a non-GAAP net income per common share of 30 cents a share, up from 18 cents a year ago.
Crocs President Andrew Rees said, “Revenues in the quarter were in line with our expectations in three out of four regions. Despite unfavorable exchange rates, we saw 13 percent year-over-year revenue growth in Europe, with the greatest part of that coming from strong wholesale channel performance. In the Americas, we saw a 10 percent revenue rise, as U.S. same-store sales trends began to improve in the back half of the quarter. Revenue declined slightly in Asia, where results were substantially impacted by weaker performance in our China wholesale and retail businesses. While Internet sales increased slightly in Japan, revenue for the region was down 9 percent overall due to weak retail same-store sales, lower at-once demand and continued weakness in the Yen.”
“From a channel perspective,” Rees continued, “global wholesale revenue climbed 8 percent and global Internet revenue rose 9 percent, with very strong Internet sales results in the Americas. We continue to work to improve performance in our global retail channel, where revenue rose about 1 percent in the quarter but same-store sales were down 4.5 percent. As a follow up to the reorganization efforts in the third quarter, we recently made several key changes to our global management team. Including the consolidation of global product development and merchandising under Michelle Poole, an industry veteran with over 14 years of footwear experience. The addition of Bob Munroe as GM of the Americas; Bob joins us with 30 years of footwear and apparel experience, including 11 years at Reebok where he was ultimately President of North America. And, the promotion of Scott Yuan to the position of General Manager of Greater China. We are excited to enrich our team as we focus on the future and potential growth opportunities of the Crocs brand.”
Financial Review
Third quarter operating results
In the third quarter of 2014, GAAP operating income was $1.1 million versus $17.9 million in the comparable quarter in the prior year. GAAP net income was $15.8 million versus net income of $13.0 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 $17.4 million in non-GAAP charges (of which $6.8 million were non-cash charges). This includes $4.1 million of expenses for the company’s new ERP system in the quarter. The company also recorded $3.8 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 14.0 percent (equal to the equity participation of the preferred investment). Excluding these items the company reported:
Non-GAAP operating income of $18.5 million versus $21.0 million in the comparable prior year period.
“Factors driving our third quarter 2014 performance included strong revenue growth in Europe, particularly in the wholesale channel, and improvements in the Americas region, where wholesale channel performance also led the way,” said Jeff Lasher, Crocs Chief Financial Officer. “These were offset by negative currency impacts in Europe and Japan and weak performance in Asia, where our China wholesale volume declined significantly and retail sales at comparable stores declined by double digits in China, Korea and Hong Kong. The quarter also was impacted by a reserve for doubtful accounts in excess of $5 million primarily as a result of delayed payments from partner-owned stores in China.”
Balance Sheet
Cash and cash equivalents at September 30, 2014, amounted to $350.4 million. Inventory was $202.8 million and Accounts Receivable was $158.7 million.
Margins
Gross profit for the third quarter of 2014 was $155.0 million, or 51.3 percent as a percentage of sales, compared with $153.6 million, or 53.2 percent as a percentage of sales for the prior-year period.
Excluding special items, non-GAAP gross margins were 51.8 percent and Selling, General & Administrative (“SG&A”) expenses increased 4.0 percent to $138.0 million compared with $132.6 million a year ago, as a result of the increase in doubtful account reserves. As a percentage of sales, SG&A decreased slightly to 45.6 percent compared with 46.0 percent in the third quarter of 2013.
Stock Repurchase
During the quarter the company repurchased approximately 2.9 million shares of common stock at an average price of $14.74 per share under its previously announced stock repurchase program. For the year to date, the company has repurchased approximately $90 million of common stock. The company intends to be patient, methodical and opportunistic in the execution of this buyback plan.
ERP System Implementation
The company’s SAP rollout continues to go well, with successful rollouts completed in Australia and Japan, meeting expectations. The company expects full implementation to be complete during the first half of 2015.
Backlog
The company has determined that due to the timing of bookings for future orders, they will no longer be providing detailed backlog. Rees said: “In general, our pre-books for spring 2015 are in line with our expectations. The issues in China are partially offset by growth in Europe, and we will go over more detail in the conference call today.”
Financial Outlook
The company expects GAAP revenue of approximately $200 to $210 million in the fourth quarter of 2014.
CEO Search
As previously announced, a search is underway for a new chief executive officer for the company. The company will make an announcement when the search is successfully concluded.
Conference Call Information
A teleconference call to discuss third quarter 2014 results is scheduled for Monday, October 27, 2014, at 5 p.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 38339914. 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 October 31, 2014.
About Crocs, Inc.
Crocs, Inc. (CROX) is a world leader in innovative casual footwear for men, women and children. Crocs offers a broad portfolio of all-season products, while remaining true to its core molded footwear heritage. All Crocs(TM) shoes feature Croslite(TM) 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 celebrates the fun of being a little different and encourages fans to “Find Your Fun” in every colorful pair of shoes. Since its inception in 2002, Crocs has sold more than 300 million pairs of shoes in more than 90 countries around the world.
