Crocs Inc. Reports Record Second Quarter Revenue of $363.8 Million and Positive Quarterly Global Com
Crocs Inc. Reports Record Second Quarter Revenue of $363.8 Million and Positive Quarterly Global Comparable Store Sales Growth
Second Quarter 2013 Review
- Record revenue of $363.8 million
- Gross Margin of 55.2 percent
- Net income of $35.4 million
- Earnings per diluted share of $0.40
- Non-GAAP adjusted net income1 per diluted share of $0.48
"Our second quarter revenue grew 12.5% on a constant currency basis and reflects the global appeal of the Crocs brand, the success of our new spring/summer collections, including the Huarache, A-Leigh, Beach Line Boat and Retro collections, combined with the ongoing strength of our core product line-up," said John McCarvel, President and Chief Executive Officer. "Globally, our direct to consumer channel continues to be a key component of our success. Our Asia Pacific region remains a fundamental driver of our growth strategy as all channels in the region continue to exceed expectations."
"During the quarter we strategically managed our global sales channels and balance sheet. Our direct to consumer channel performed very well, growing nearly 20% on a constant currency basis, with positive same store sales in Asia, the Americas and Europe. Wholesale revenue was higher globally, but margins in this channel, particularly in the Americas and Europe, were down due to lower than anticipated late season at-once revenue and increased discount activity late in the quarter, which negatively impacted earnings per share. Challenges during the quarter included continued weakness in consumer spending in the U.S., Europe and Japan, compounded by colder than normal temperatures during April and May in the U.S. and Europe. Our cash balance at quarter-end was $289 million, and inventory decreased to $161 million or 2.5% from December 31, 2012, as inventory turns increased to 3.8."
Second Quarter Results
Revenue for the second quarter of 2013 increased 9.9% to $363.8 million compared with revenue of $330.9 million reported in the second quarter of 2012. On a constant currency basis revenue increased 12.5% for the second quarter of 2013.
For second quarter of 2013, the company had net income of $35.4 million or $0.40 per diluted share, compared with net income of $61.5 million or $0.68 per diluted share in the prior year period. Diluted earnings per share during the second quarter of 2013 were negatively impacted by lower than expected gross margins, a one-time net charge of $6.1 million related to the resolution of a statutory tax audit in Brazil, which reduced earnings by $0.07 per share, and a higher than anticipated tax rate of 29%, which reduced earnings by $0.02 per share.
Adjusting for the impact of the statutory tax audit in Brazil and $1.6 million relating to the implementation of a new ERP system including non-cash accelerated depreciation and cash expenses for program management, training and other non-capitalized costs, the company had Non-GAAP adjusted net income of $43.1 million in the quarter or $0.48 per diluted share.
Mr. McCarvel continued, "When we look back on the second quarter we had various items impact our results versus our guidance. Those included lower gross margins, the resolution of the tax audit in Brazil and a higher tax rate. Together with year-over-year impacts of currency which reduced our earnings per share by $0.06 plus our investments in our new ERP system and increased marketing, the impact of these items totaled $0.17 per share in the quarter."
Gross profit for the second quarter of 2013 increased 2.4% to $200.9 million, or 55.2% as a percentage of sales, compared with $196.1 million, or 59.3% as a percentage of sales in the prior year period. The year- over-year decrease in gross profit as a percentage of sales was primarily related to slower late season at-once revenue and increased discounting late in the quarter in the Americas and Europe. Selling, General & Administrative ("SG&A") expenses increased 20.5% to $150.2 million compared with $124.7 million a year ago, reflecting increases in retail store space, marketing expenses, resolution of the Brazil tax audit, and the company's ERP project. As a percentage of sales, SG&A increased to 41.3% compared with 37.7% in the second quarter of 2012. The impact of the non-recurring Brazil expense and the ERP expense contributed approximately 200 basis points to the increase in SG&A expense as a percentage of sales in the quarter.
Second Quarter Revenue Results
The following tables detail the company's second quarter 2013 and 2012 revenues:
|Three Months Ended June 30,||Change||Constant Currency Change(1)|
|Three Months Ended June 30,||Change||Constant Currency Change(1)|
(1) Current period results have been restated using 2012 average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.
Other Financial Information
Comparable Store Sales Results2
Comparable store sales on a constant currency basis for the second quarter of 2013 compared to the second quarter 2012 were as follows: Global increased 1.0%, Americas increased 1.5%, Asia Pacific increased 8.3%, Japan decreased 19.5% and Europe increased 1.0%. Excluding Japan, comparable store sales growth increased 4.4%.
|Constant Currency||Constant Currency|
|Three Months Ended||Three Months Ended|
|Comparable store sales growth||June 30, 2013||June 30, 2012|
Mr. McCarvel continued, "We saw same store sales growth accelerate throughout the quarter with improved weather. Our Asia Pacific business expanded 8 percent on a same store sales basis with limited discounting or promotional activity."
Cash and cash equivalents at June 30, 2013 decreased 1.7% compared with December 31, 2012. During the first six months of 2013 the Company repurchased approximately 834,000 shares of common stock for an aggregate of approximately $12.5 million in cash.
Inventories at June 30, 2013 were $160.8 million, down 2.5% compared with inventory at December 31, 2012.
Backlog at June 30, 2013 was $161.0 million, down 6.7% compared with $172.6 million in the prior year period. On a constant currency basis backlog at June 30, 2013 was lower by an estimated 3% compared with the prior year period. The Company believes the decline in backlog is reflective of wholesale accounts taking a cautious view towards fall holiday 2013 orders based on weaker than expected spring 2013 sales and also the desire of some accounts to order product more on an at-once basis.
For the third quarter of 2013, the company expects revenue between $300 million and $310 million and diluted earnings per share between $0.20 and $0.23. This outlook includes $(0.02) per share of ERP implementation expense and reflects an impact of $(0.04) for currency translation.
Conference Call Information
A conference call to discuss Crocs' second quarter 2013 results is scheduled for today (July 24, 2013) at 5:00 PM Eastern Time. A webcast of the call will take place simultaneously and can be accessed by clicking the 'Investor Relations' link under the Company section on www.crocs.com and at www.earnings.com. An audio replay of the webcast will be available on the Crocs website for one year.
Interested parties are advised to log on to the live webcast at least fifteen minutes prior to the call in order to download the necessary software.
About Crocs, Inc.
Crocs, Inc. is a world leader in innovative casual footwear for men, women and children. Crocs offers several distinct shoe collections with more than 300 four-season footwear styles. All Crocs™ shoes feature Croslite™ 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 fans "Get Crocs Inside" every pair of shoes, from the iconic clog to new sneakers, sandals, boots and heels. Since its inception in 2002, Crocs has sold more than 200 million pairs of shoes in more than 90 countries around the world.
Visit www.crocs.com for additional information.
The matters regarding the future discussed in this news release include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding future revenue and earnings, backlog, future orders, prospects, investments in our business, outlook and product pipeline. 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: macroeconomic issues, including, but not limited to, the current global financial conditions; the effect of competition in our industry; our ability to effectively manage our future growth or declines in revenue; changing fashion trends; our ability to maintain and expand revenues and gross margin; our ability to accurately forecast consumer demand for our products; 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; our ability to open and operate additional retail locations; 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 speaks as of July 24, 2013. We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimate regarding revenues or earnings, whether as a result of the receipt of new information, future events, or otherwise.
1 Non-GAAP adjusted net income is a financial measure not calculated in accordance with U.S. Generally Accepted Accounting Principles (non-GAAP). See the non-GAAP reconciliations set forth later in this press release for additional information.
2 Comparable store status is determined on a monthly basis. Comparable store sales begin in the thirteenth month of a store's operation. Stores in which selling square footage has changed more than 15% as a result of a remodel, expansion or reduction are excluded until the thirteenth month they have comparable prior year sales. Temporarily closed stores are excluded from the comparable store sales calculation during the month of closure. Location closures in excess of three months are excluded until the thirteen month post re-opening. Current period results have been restated using 2012 average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.
|CROCS, INC. AND SUBSIDIARIES|
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|($ thousands, except per share data)||2013||2012||2013||2012|
|Cost of sales||162,960||134,857||308,767||261,856|
|Selling, general and administrative expenses||150,246||124,718||278,445||229,009|
|Income from operations||50,419||71,261||88,069||111,056|
|Foreign currency transaction (gains) losses, net||814||(1,627||)||3,414||2,649|
|Other (income) expense, net||195||(520||)||167||(761||)|
|Income before income taxes||49,661||73,825||84,836||109,896|
|Income tax expense||14,305||12,301||20,519||20,026|
|Net income per common share:|
|CROCS, INC. AND SUBSIDIARIES|
|CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)|