16 Feb Crocs Q4 Revenues Surge 61 Percent; Beats Analyst Targets
Crocs, Inc. reported earnings rose 23 percent in the fourth quarter ended December 31. Sales surged 61 percent with a boost from the acquisition of Heydude. Sales of the Crocs brand grew 14.9 percent. Earnings and sales topped analyst estimates.
Earnings of $2.65 topped Wall Street’s consensus estimate of $2.26. Sales of $945.2 million came out ahead of estimates of $939.26 million.
“Consumer demand for the Crocs and Heydude brands has been exceptional, fueling record 2022 revenues for both brands at a combined $3.6 billion and top-tier adjusted operating margin of 28 percent,” said CEO Andrew Rees. “We anticipate another record year in 2023 with growth expected to be led by sandals and international for the Crocs Brand and increased US market penetration for Heydude.”
“Crocs, Inc. has industry-leading operating margins and generates robust cash flow as a result of the simplicity of our product lines and the high penetration of molded product. Post the acquisition of Heydude, we reduced outstanding debt by $550 million and gross leverage to 2.25 times,” said Anne Mehlman, EVP and CFO. “We remain confident in gross leverage being below 2.0 times by the middle of this year giving us greater flexibility with capital allocation.”
Fourth Quarter 2022 Operating Results
Revenues were $945.2 million, an increase of 61.1 percent from the same period last year, or 64.8 percent on a constant currency basis. Direct-to-consumer which includes retail and e-commerce, revenues grew 61.2 percent and wholesale revenues grew 61.1 percent.
Gross margin of 52.5 percent declined 1,090 basis points and adjusted gross margin of 53.3 percent decreased 1,040 basis points compared to the same period last year. Approximately half of the decline in adjusted gross margin is related to the addition of the Heydude Brand. Adjusted gross margin excludes $7.5 million of costs, primarily related to expansion costs and duplicate rent costs for its distribution centers.
SG&A of $276.3 million increased from $212.0 million in the same period last year and as a percent of revenues improved by 690 basis points to 29.2 percent primarily due to leverage of shared services across both brands. Adjusted SG&A improved by 780 basis points compared to the prior year at 27.3 percent of revenues. Adjusted SG&A excludes $18.2 million of costs, primarily related to the shutdown of Russia’s direct operations and the Heydude acquisition and integration.
Income from operations increased 37.5 percent to $220.1 million and operating margin was 23.3 percent compared to 27.3 percent for the same period last year, due to lower gross margin and Heydude integration expenses. Adjusted income from operations rose 46.3 percent to $245.8 million and adjusted operating margin was 26.0 percent.
Diluted earnings per share were $2.20 as compared to $2.57 for the same period last year due to a lower tax benefit. Adjusted diluted earnings per share increased 23.3 percent to $2.65 compared to $2.15 for the same period last year.
2022 Operating Results
Record revenues of $3.6 billion increased 53.7 percent, or 58.2 percent on a constant-currency basis, over 2021.
Gross margin of 52.3 percent decreased 910 basis points compared to 61.4 percent last year. Adjusted gross margin of 54.4 percent fell 720 basis points from last year. Approximately half of the decline in adjusted gross margin is related to the addition of the Heydude Brand. Adjusted gross margin excludes $74.8 million of costs, primarily related to the Heydude acquisition and integration.
SG&A expenses of $1.0 billion increased from $737.2 million last year and as a percent of revenues improved by 350 basis points to 28.4 percent primarily due to leverage of shared services across both brands. Adjusted SG&A improved to 26.7 percent of revenues versus 31.6 percent last year. Adjusted SG&A excludes $60.7 million of costs, primarily related to the Heydude acquisition and integration as well as the shutdown of Russia’s direct operations.
Income from operations increased 24.5 percent to $850.8 million from $683.1 million last year. Operating margin decreased 560 basis points to 23.9 percent. Adjusted income from operations increased 41.9 percent to $986.3 million and adjusted operating margin was 27.7 percent compared to 30.1 percent last year.
Diluted earnings per share decreased 23.5 percent to $8.71 per share due to a lower tax benefit somewhat offset by higher net income. Adjusted diluted earnings per share increased 31.3 percent to $10.92.
2022 Brand Summary
- Crocs Brand: Revenues increased 14.9 percent, or 19.4 percent on a constant currency basis, to $2,659.1 million. Wholesale revenues increased 17.3 percent, or 23.4 percent on a constant currency basis. DTC revenues rose 12.5 percent, or 15.3 percent on a constant currency basis.
- Heydude Brand: Revenues were $895.9 million for the period following the closing of the acquisition on February 17, 2022 with wholesale revenues of $574.1 million and DTC revenues of $321.7 million. Including the period prior to the acquisition, revenues were $986.2 million.
Balance Sheet and Cash Flow
Cash and cash equivalents were $191.6 million as of December 31, 2022, down from $213.2 million as of December 31, 2021.
Inventories increased to $471.6 million as of December 31, 2022, compared to $213.5 million as of December 31, 2021. This increase was driven primarily by the addition of $168.7 million of Heydude inventory as of December 31, 2022.
Cash provided by operating activities rose 6.3 percent to $603.1 million during 2022 compared to $567.2 million in 2021.
Capital expenditures were $104.2 million in 2022 compared to $55.9 million in 2021.
Borrowings as of December 31, 2022 were $2.3 billion, 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 $191.6 million in cash and cash equivalents and $755.8 million in available borrowing capacity as of December 31, 2022.
For the first quarter 2023, Crocs expects:
- Revenues to grow approximately 27 percent to 30 percent compared to first quarter 2022 revenues of $660.1 million;
- Adjusted operating margin of approximately 24 percent to 25 percent; and
- Adjusted diluted earnings per share of $2.06 to $2.19.
For the Full Year 2023, Crocs expects:
- Revenue growth of 10 percent to 13 percent compared to 2022, resulting in full-year revenues of approximately $3.9 billion to $4.0 billion at current currency rates;
- Adjusted operating margin to be approximately 26.0 percent;
- Non-GAAP adjustments of approximately $30 million to be primarily related to capital investments to support growth and to be fairly balanced across COGS and SG&A;
- Combined GAAP tax rate of approximately 24 percent and Non-GAAP effective tax rate of approximately 20 percent.
- Adjusted diluted earnings per share of $11.00 to $11.31; and
- Capital expenditures of approximately $165 to $180 million, primarily related to the expansion of its distribution capabilities including its new Heydude distribution center in Las Vegas opening later this year, implementation of new technology systems for Heydude and expansion of its corporate facilities to support growth.