Crocs, Inc. Reports Fiscal 2020 Second Quarter Results

BROOMFIELD, Colo., July 30, 2020 /PRNewswire/ -- Crocs, Inc. (NASDAQ: CROX), a world leader in innovative casual footwear for men, women, and children, today announced its second quarter 2020 financial results.

Andrew Rees, President and Chief Executive Officer, said, "Amidst unprecedented market conditions globally, we delivered exceptional performance in our Americas and e-commerce businesses and increased profit despite a very challenging environment. Our performance demonstrates the strength of the Crocs brand and underscores the work we've done expanding the desirability, relevance, and consideration of our brand and product offering globally."

Q2 Highlights

• Global revenues were $331.5 million, declining 7.6% from the second quarter of 2019, or 6.0% on a constant currency basis. Four out of five of our key geographies delivered revenue growth - United States, Korea, China, and Germany.
• Global e-commerce revenue increased by 67.7% with strong growth in all regions.
• Operating margin rose approximately 380 basis points to 17.1% and adjusted operating margin increased approximately 800 basis points to 22.3%.
• Diluted earnings per share grew 50.9% to $0.83, or 71.2% to $1.01 on an adjusted basis.
• Cash flow from operations nearly doubled.

COVID-19 Update on Operations

As described during our first quarter earnings conference call and subsequent updates, COVID-19 has impacted the Crocs business globally, including through store closures or reduced operating hours and decreased retail traffic. Most of our 360 company-operated stores were closed for some period during the second quarter, as well as many partner stores and wholesale customers' doors. As of June 30, 2020, 98% of our company-operated stores were open. Additional detail by region on company-operated stores is below.

• Americas. Our company-operated stores closed in mid-March and started to reopen in mid-May. Currently, the majority of our stores in the United States are open.
• Asia. Outside of China and Korea, most of our company-operated stores were closed for the majority of the quarter.
• EMEA. Our company-operated stores in Western Europe closed in mid-April and reopened in mid-May, while stores in Russia closed in early April and reopened in early June.

While many brick-and-mortar stores were closed, Crocs.com and other digital commerce platforms remained open. We saw record quarterly sales in e-commerce as well as strong sell-through in e-tail and wholesale partner e-commerce sites, as consumers migrated to online shopping. These strong growth rates have recently started to temper as brick-and-mortar has started to reopen.

As outlined during our first quarter earnings call, we focused on positioning the business for both short- and long-term success. Our leadership quickly established both a defensive and offensive playbook that we began to implement in early March. The defensive measures are now complete and our offensive playbook has started to show results, as evidenced by our second quarter performance.

Second Quarter 2020 Operating Results:

• Revenues were $331.5 million, a decline of 7.6% from the second quarter of 2019, or 6.0% on a constant currency basis. E-commerce revenue grew 67.7%, while wholesale revenue declined 19.5% and retail revenue declined 41.8% due to COVID-19 related store closures. Retail comparable store sales on a constant currency basis grew 10.5% upon re-opening.
• Gross margin was 54.3%, an increase of 150 basis points from last year's second quarter. Adjusted gross margin was 55.2%, which excludes $3.2 million or 100 basis points of non-recurring expenditures for COVID-19-related inventory charges in Asia and costs related to our U.S. distribution center. Adjusted gross margin rose 160 basis points compared to last year's second quarter, benefiting from product mix, higher prices on certain product, and lower levels of promotions and discounts. For a reconciliation of gross margin to adjusted gross margin, see the 'Non-GAAP cost of sales, gross profit, and gross margin reconciliation' schedule below.
• Selling, general and administrative expenses ("SG&A") were $123.3 million, down from $141.5 million in the second quarter of 2019, as we reduced expenses during the pandemic. SG&A included non-GAAP adjustments of $14.0 million compared to $0.2 million in last year's second quarter. Most charges were a result of $8.2 million of frontline healthcare product donations. Our adjusted SG&A was or 33.0% of revenues versus 39.4%, in last year's second quarter. For a reconciliation of SG&A to adjusted SG&A, see the 'Non-GAAP selling, general and administrative expenses reconciliation' schedule below.
• Income from operations increased 18.3% to $56.6 million from $47.8 million in the second quarter of 2019, and operating margin rose 380 basis points to 17.1%. Excluding non-GAAP gross margin and SG&A charges, adjusted income from operations rose 44.2% to $73.8 million and adjusted operating margin was 22.3% compared to 14.3% in the second quarter of 2019, as detailed on the 'Non-GAAP income from operations and operating margin reconciliation' schedule below.
• Diluted earnings per share increased 50.9% to $0.83, as compared with $0.55 in the second quarter of 2019. Excluding non-GAAP charges, adjusted diluted earnings per share was $1.01, or 71.2%, above the $0.59 in the second quarter of 2019, as detailed on the 'Non-GAAP earnings per share reconciliation' schedule below.

Balance Sheet and Cash Flow Highlights: 

• Cash and cash equivalents were $151.4 million as of June 30, 2020, compared to $108.3 million as of December 31, 2019.
• Inventory decreased to $146.8 million as of June 30, 2020, compared to $172.0 million as of December 31, 2019.
• Capital expenditures during the six months ended June 30, 2020, were $24.3 million, compared to $18.7 million during the same period in 2019.
• At June 30, 2020, there were $275.0 million of borrowings outstanding on our credit facility after reducing borrowings by $75.0 million during the second quarter. We have ample liquidity, including $151.4 million in cash and cash equivalents and up to $224.4 million of available borrowings under our facility.

Share Repurchase Activity

As previously announced, we temporarily suspended share repurchases to preserve maximum liquidity and flexibility. During the second quarter of 2020, we did not repurchase any shares. As of June 30, 2020, approximately $469 million remained on our share repurchase authorization.

Investments to Support Long-Term Growth

During the second quarter of 2020, we opened our new global headquarters in Broomfield, Colorado, less than 20 miles outside of downtown Denver. The state-of-the-art facility will allow us to significantly expand our ability to attract talent. We also entered into a lease for a new distribution center adjacent to our existing facility in Dayton, Ohio. The new facility will be dedicated to e-commerce fulfillment and will significantly increase our distribution capacity in the Americas. Finally, we anticipate completing the relocation of our distribution center in the Netherlands in 2021.

Financial Outlook:

Given the continued disruption and global uncertainty related to COVID-19, we previously withdrew the guidance provided on February 27, 2020. We are not providing third quarter guidance. However, excluding the impact of any future shutdowns in major markets for full year 2020, we expect:

• Revenue: Revenue for the remainder of 2020 to be approximately flat compared to the back-half of 2019
• Tax: A tax rate of 11% for 2020
• Inventory: Inventory to be constrained throughout the remainder of 2020 reflecting our decision to significantly reduce inventory purchases as a result of the pandemic
• Capital Expenditures: Approximately $50 million, which reflects investment to support future growth that we had previously deferred

Conference Call Information:

A conference call to discuss second quarter 2020 results is scheduled for today, Thursday, July 30, 2020 at 8:30 am ET. The call participation number is (877) 790-7808. A replay of the conference call will be available approximately two hours after the completion of the call at (800) 585-8367. International participants can dial (647) 689-5638 to take part in the conference call and can access a replay of the call at (416) 621-4642. All of these calls will require the input of the conference identification number 4756429. The call will also be streamed live on the Crocs website, www.crocs.com. This audio webcast will remain available at www.crocs.com through July 30, 2021.

About Crocs, Inc.:

Crocs, Inc. (Nasdaq: CROX) is a world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers know and love. The vast majority of shoes within Crocs' collection contains Croslite™ material, a proprietary, molded footwear technology, delivering extraordinary comfort with each step.

In 2020, Crocs declares that expressing yourself and being comfortable are not mutually exclusive. To learn more about Crocs or our global Come As You Are™ campaign, please visit www.crocs.com or follow @Crocs on Facebook, Instagram, and Twitter.

Forward Looking Statements:

This press release includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, statements regarding potential impacts to our business related to the COVID-19 pandemic, our financial condition, brand and liquidity outlook and expectations regarding our 2020 revenue, tax rate, inventory, and capital expenditures. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the COVID-19 outbreak and related government, private sector, and individual consumer responsive actions; current global financial conditions, including economic impacts resulting from the COVID-19 outbreak; the effect of competition in our industry; our ability to effectively manage our future growth or declines in revenues; changing consumer preferences; our ability to maintain and expand revenues and gross margin; our ability to accurately forecast consumer demand for our products; our ability to successfully implement our strategic plans; our ability to develop and sell new products; our ability to obtain and protect intellectual property rights; the effect of potential adverse currency exchange rate fluctuations and other international operating risks; and other factors described in our most recent Annual Report on Form 10-K under the heading "Risk Factors" and our subsequent filings with the Securities and Exchange Commission. Readers are encouraged to review that section and all other disclosures appearing in our filings with the Securities and Exchange Commission.

All information in this document speak only as of the date of this press release. We do not undertake any obligation to update publicly any forward-looking statements.

Category:Investors

CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America ("GAAP"), we present "Non-GAAP cost of sales," "Non-GAAP gross profit," "Non-GAAP gross margin," "Non-GAAP selling, general, and administrative expenses," "Non-GAAP net income," "Non-GAAP income from operations",  "Non-GAAP operating margin," "Non-GAAP weighted average common shares outstanding - basic and diluted," and "Non-GAAP basic and diluted net income per common share," which are non-GAAP financial measures. Non-GAAP results exclude the impact of items that management believes affect the comparability or underlying business trends in our condensed consolidated financial statements in the periods presented.

We also present certain information related to our current period results of operations through "constant currency," which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under GAAP. Constant currency represents current period results that have been retranslated using exchange rates used in the prior year comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.

Management uses non-GAAP results to assist in comparing business trends from period to period on a consistent basis in communications with the board of directors, stockholders, analysts, and investors concerning our financial performance. We believe that these non-GAAP measures are useful to investors and other users of our condensed consolidated financial statements as an additional tool for evaluating operating performance and trends. For the three and six months ended June 30, 2020, management believes it is helpful to evaluate our results excluding the impacts of various adjustments relating to special or non-recurring items. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

SOURCE Crocs, Inc.