CROX Crocs Inc

Crocs, Inc. (NASDAQ:CROX) today reported financial results for the three months ended June 30, 2016.

Second Quarter Highlights:

•  Revenue decreased 6.3% to $323.8 million compared to the three months ended June 30, 2015. On a constant currency basis, revenue decreased 6.2%. 
•  Net income attributable to common stockholders on a GAAP basis increased 21.1% to $11.7 million or $0.13 per diluted share, compared to the three months ended June 30, 2015.

Gregg Ribatt, Chief Executive Officer, said: “Despite a decline in our revenue, I am encouraged by our strategic progress which has enabled us to help mitigate the top-line pressure on profitability by delivering better than expected gross margins and managing expenses while reducing inventories. The global retail environment became more challenging as the second quarter progressed. This impacted our wholesale reorder opportunities and contributed to our sales shortfall relative to expectations. These headwinds were partially offset by a 2.9% increase in global direct-to-consumer comparable store sales, which is a positive indication that consumers are responding favorably to our new product line and enhanced marketing efforts. We remain confident that we have successfully repositioned the business and built the platform to provide sustained growth and profitability over the long-term.”

Second Quarter Operating Results

In the second quarter of 2016, the company reported GAAP net income attributable to common stockholders of $11.7 million or $0.13 per diluted share, compared with net income attributable to common stockholders of $9.7 million or $0.11 per diluted share in the same quarter of the prior year.

As outlined in detail in the non-GAAP reconciliations set forth later in this press release, the company recorded net charges of $0.3 million unrelated to our core business in the three months ended June 30, 2016, compared with $17.6 million in the three months ended June 30, 2015. Excluding these items, the company reported on a comparable basis, non-GAAP adjusted net income attributable to common shareholders of $12.0 million in the three months ended June 30, 2016, versus non-GAAP adjusted net income attributable to common shareholders of $27.3 million in the three months ended June 30, 2015.

For the three months ended June 30, 2016, the company had 73.4 million weighted average common shares outstanding and 74.2 million diluted shares outstanding. The company did not repurchase any shares during the three months ended June 30, 2016.

Balance Sheet

Cash and cash equivalents as of June 30, 2016 were $146.7 million compared with $143.3 million as of December 31, 2015. Inventory was $169.9 million as of June 30, 2016 compared to $168.2 million as of December 31, 2015.

Financial Outlook

The company expects third quarter 2016 revenue in the $245.0 to $255.0 million range compared to $274.1 million in the third quarter 2015. For the full year the company expects revenue to be down low single digits compared to the year ended December 31, 2015. This guidance reflects the more cautious retail environment and the slower turnaround in China.

Conference Call Information

A teleconference call to discuss second quarter 2016 results is scheduled for today, Wednesday, August 3, 2016, at 8:30 am EDT. The call participation number is (888) 771-4371. A recording 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 43001502. 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 August 3, 2017.

About Crocs, Inc.

Crocs, Inc. 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™ 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 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 65 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 prospects, investments in our business and outlook. 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 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 speaks as of August 3, 2016. 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.

CROCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(in thousands, except per share data)

		Three Months Ended June 30,						Six Months Ended June 30,
		2016			2015			2016			2015
Revenues		$	323,828		$	345,671		$	602,968		$	607,864
Cost of sales		154,188			155,801			303,962			290,624
Gross profit		169,640			189,870			299,006			317,240
Selling, general and administrative expenses		148,463			168,636			263,393			294,705
Asset impairment charges		572			2,075			765			2,075
Restructuring charges		—			2,810			—			6,473
Income from operations		20,605			16,349			34,848			13,987
Foreign currency transaction gain (loss), net		(1,700		)	(217		)	(2,947		)	277
Interest income		164			196			380			484
Interest expense		(234		)	(260		)	(477		)	(479		)
Other expense, net		(189		)	(80		)	(107		)	(411		)
Income before income taxes		18,646			15,988			31,697			13,858
Income tax expense		(3,109		)	(2,562		)	(6,014		)	(2,857		)
Net income		$	15,537		$	13,426		$	25,683		$	11,001
Dividends on Series A convertible preferred stock		$	(3,000	)	$	(3,000	)	$	(6,000	)	$	(5,833	)
Dividend equivalents on Series A convertible preferred shares related to redemption value accretion and beneficial conversion feature		(802		)	(736		)	(1,587		)	(1,457		)
Net income attributable to common stockholders		$	11,735		$	9,690		$	18,096		$	3,711
Net income per common share:
Basic		$	0.13		$	0.11		$	0.21		$	0.04
Diluted		$	0.13		$	0.11		$	0.20		$	0.04

CROCS, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES(UNAUDITED)

In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), we present “Non-GAAP selling, general, and administrative expenses”, “Non-GAAP cost of sales”, and “Non-GAAP adjusted net income attributable to common stockholders”, which are non-GAAP financial measures. Adjusted results exclude the impact of items that management believes affect the comparability or underlying business trends in our 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 U.S. GAAP. Constant currency represents current period results that have been restated using prior year 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.

Management uses adjusted results to assist in comparing business trends from period to period on a consistent non-GAAP 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 consolidated financial statements as an additional tool for evaluating operating performance. We believe they also provide a useful baseline for analyzing trends in our operations. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

CROCS, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES(UNAUDITED)

		Three Months Ended June 30,						Six Months Ended June 30,
		2016			2015			2016			2015
		(in thousands)
Selling, general and administrative expenses reconciliation:
U.S. GAAP selling, general and administrative expenses		$	148,463		$	168,636		$	263,393		$	294,705
Reorganization charges (1)		(274		)	(2,154		)	(458		)	(3,553		)
Customs audit settlements (2)		—			—			(354		)	—
Improper disbursements (3)		—			(5,022		)	—			(5,022		)
ERP implementation (4)		—			(2,739		)	—			(8,387		)
Legal settlements (5)		—			(1,801		)	—			(1,801		)
Total selling, general and administrative adjustments		(274		)	(11,716		)	(812		)	(18,763		)
Non-GAAP selling, general and administrative expenses		$	148,189		$	156,920		$	262,581		$	275,942

		Three Months Ended June 30,						Six Months Ended June 30,
		2016			2015			2016			2015
		(in thousands)
Cost of sales reconciliation:
U.S. GAAP cost of sales		$	154,188		$	155,801		$	303,962		$	290,624
Favorable settlement of customs audit (6)		—			—			650			—
Statutory audits (7)		—			(1,000		)	—			(1,000		)
Non-GAAP cost of sales		$	154,188		$	154,801		$	304,612		$	289,624

		Three Months Ended June 30,						Six Months Ended June 30,
		2016			2015			2016			2015
		(in thousands)
Net income attributable to common stockholders reconciliation:
U.S. GAAP net income attributable to common stockholders		$	11,735		$	9,690		$	18,096		$	3,711
Reorganization charges (1)		274			2,154			458			3,553
Favorable settlement of customs audit (6)		—			—			(650		)	—
Customs audit settlements (2)		—			—			354			—
Improper disbursements (3)		—			5,022			—			5,022
Restructuring charges (8)		—			2,810			—			6,473
ERP implementation (4)		—			2,739			—			8,387
Asset impairment charges (9)		—			2,075			—			2,075
Legal settlements (5)		—			1,801			—			1,801
Statutory audits (7)		—			1,000			—			1,000
Total adjustments		274			17,601			162			28,311
Non-GAAP adjusted net income attributable to common stockholders		$	12,009		$	27,291		$	18,258		$	32,022

(1) Relates to severance expenses, bonuses, store closure costs, consulting fees and other expenses related to recent reorganization activities and our investment agreement with Blackstone.

(2) Represents penalties and fees related to the settlement of customs audits.

(3) Represents legal expenses and other expenses for matters surrounding disbursements to invalid vendors that occurred in 2015.

(4) Represents operating expenses incurred in 2015 related to the implementation of the new ERP system.

(5) Relates primarily to legal expenses for matters surrounding California wage settlements that occurred in 2015.

(6) Represents the release of the reserve due to favorable settlement terms of customs audits.

(7) Represents expenses incurred related to statutory audits.

(8) Relates to bonuses, consulting fees, and other expenses related to recent restructuring activities that concluded in December 2015.

(9) Represents retail asset impairment charges for certain underperforming locations in our Americas, Asia Pacific and Europe segments.

CROCS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (UNAUDITED)(in thousands, except number of shares)

		June 30, 2016			December 31, 2015
		(in thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	146,662		$	143,341
Accounts receivable, net of allowances of $55,953 and $49,364, respectively		134,155			83,616
Inventories		169,853			168,192
Income tax receivable		10,184			10,233
Other receivables		21,266			14,233
Prepaid expenses and other assets		31,270			26,334
Total current assets		513,390			445,949
Property and equipment, net		46,409			49,490
Intangible assets, net		77,393			82,297
Goodwill		2,561			1,973
Deferred tax assets, net		6,612			6,608
Other assets		20,031			21,703
Total assets		$	666,396		$	608,020
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	73,429		$	63,336
Accrued expenses and other liabilities		105,404			92,573
Income taxes payable		8,793			6,416
Current portion of borrowings and capital lease obligations		4,993			4,772
Total current liabilities		192,619			167,097
Long-term income tax payable		4,810			4,547
Long-term borrowings and capital lease obligations		329			1,627
Other liabilities		13,606			13,120
Total liabilities		211,364			186,391
Commitments and contingencies:
Series A convertible preferred stock, par value $0.001 per share, 1,000,000 shares authorized, 200,000 shares issued and outstanding, redemption amount and liquidation preference of $203,000 and $203,000 as of June 30, 2016 and December 31, 2015, respectively		177,244			175,657
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 4,000,000 shares authorized, none outstanding		—			—
Common stock, par value $0.001 per share, 250,000,000 shares authorized, 93,760,311 and 73,481,889 shares issued and outstanding, respectively, as of June 30, 2016 and 93,101,007 and 72,851,418 shares issued and outstanding, respectively, as of December 31, 2015		95			94
Treasury stock, at cost, 20,278,422 and 20,249,589 shares as of June 30, 2016 and December 31, 2015, respectively		(284,176		)	(283,913		)
Additional paid-in capital		359,554			353,241
Retained earnings		246,557			227,463
Accumulated other comprehensive loss		(44,242		)	(50,913		)
Total stockholders’ equity		277,788			245,972
Total liabilities and stockholders’ equity		$	666,396		$	608,020

The following tables summarize our total revenue by channel for the three and six months ended June 30, 2016 and 2015:

		Three Months Ended June 30,						Change					Constant Currency Change (1)
		2016			2015			$			%		$			%
		(in thousands)
Wholesale:
Americas		$	54,620		$	65,250		$	(10,630	)	(16.3	)%	$	(9,845	)	(15.1	)%
Asia Pacific		74,640			92,824			(18,184		)	(19.6	)%	(19,692		)	(21.2	)%
Europe		36,192			30,807			5,385			17.5	%	5,306			17.2	%
Other businesses		225			327			(102		)	(31.2	)%	(104		)	(31.8	)%
Total wholesale		165,677			189,208			(23,531		)	(12.4	)%	(24,335		)	(12.9	)%
Retail:
Americas		57,786			58,309			(523		)	(0.9	)%	(397		)	(0.7	)%
Asia Pacific		41,319			45,898			(4,579		)	(10.0	)%	(4,498		)	(9.8	)%
Europe		13,950			14,522			(572		)	(3.9	)%	223			1.5	%
Total retail		113,055			118,729			(5,674		)	(4.8	)%	(4,672		)	(3.9	)%
E-commerce:
Americas		22,691			19,560			3,131			16.0	%	3,196			16.3	%
Asia Pacific		14,887			10,835			4,052			37.4	%	4,423			40.8	%
Europe		7,518			7,339			179			2.4	%	(17		)	(0.2	)%
Total e-commerce		45,096			37,734			7,362			19.5	%	7,602			20.1	%
Total revenues		$	323,828		$	345,671		$	(21,843	)	(6.3	)%	$	(21,405	)	(6.2	)%
Revenues:
Americas		$	135,097		$	143,119		$	(8,022	)	(5.6	)%	$	(7,046	)	(4.9	)%
Asia Pacific		130,846			149,557			(18,711		)	(12.5	)%	(19,767		)	(13.2	)%
Europe		57,660			52,668			4,992			9.5	%	5,512			10.5	%
Total segment revenues		323,603			345,344			(21,741		)	(6.3	)%	(21,301		)	(6.2	)%
Other businesses		225			327			(102		)	(31.2	)%	(104		)	(31.8	)%
Total consolidated revenues		$	323,828		$	345,671		$	(21,843	)	(6.3	)%	$	(21,405	)	(6.2	)%

(1)  Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” above for more information.

		Six Months Ended June 30,						Change					Constant Currency Change (1)
		2016			2015			$			%		$			%
		(in thousands)
Wholesale:
Americas		$	128,775		$	126,427		$	2,348		1.9	%	$	5,258		4.2	%
Asia Pacific		151,793			165,319			(13,526		)	(8.2	)%	(13,030		)	(7.9	)%
Europe		75,254			75,460			(206		)	(0.3	)%	695			0.9	%
Other businesses		397			552			(155		)	(28.1	)%	(156		)	(28.3	)%
Total wholesale		356,219			367,758			(11,539		)	(3.1	)%	(7,233		)	(2.0	)%
Retail:
Americas		93,535			92,925			610			0.7	%	843			0.9	%
Asia Pacific		63,838			69,244			(5,406		)	(7.8	)%	(4,354		)	(6.3	)%
Europe		21,505			22,933			(1,428		)	(6.2	)%	(113		)	(0.5	)%
Total retail		178,878			185,102			(6,224		)	(3.4	)%	(3,624		)	(2.0	)%
E-commerce:
Americas		36,917			29,536			7,381			25.0	%	7,531			25.5	%
Asia Pacific		19,716			14,769			4,947			33.5	%	5,496			37.2	%
Europe		11,238			10,699			539			5.0	%	489			4.6	%
Total e-commerce		67,871			55,004			12,867			23.4	%	13,516			24.6	%
Total revenues		$	602,968		$	607,864		$	(4,896	)	(0.8	)%	$	2,659		0.4	%
Revenues:
Americas		$	259,227		$	248,888		$	10,339		4.2	%	$	13,632		5.5	%
Asia Pacific		235,347			249,332			(13,985		)	(5.6	)%	(11,888		)	(4.8	)%
Europe		107,997			109,092			(1,095		)	(1.0	)%	1,071			1.0	%
Total segment revenues		602,571			607,312			(4,741		)	(0.8	)%	2,815			0.5	%
Other businesses		397			552			(155		)	(28.1	)%	(156		)	(28.3	)%
Total consolidated revenues.		$	602,968		$	607,864		$	(4,896	)	(0.8	)%	$	2,659		0.4	%

(1) Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” above for more information.

CROCS, INC. SUBSIDIARIESRETAIL STORE COUNTS(UNAUDITED)

		March 31, 2016		Opened				Closed		June 30, 2016
Company-operated retail locations
Type
Kiosk/store in store		97		7				1		103
Retail stores		265		9				21		253
Outlet stores		188		15				1		202
Total		550		31				23		558
Operating segment
Americas		196		2				3		195
Asia Pacific		254		22				18		258
Europe		100		7		(1	)	2		105
Total		550		31				23		558

		December 31, 2015		Opened				Closed		June 30, 2016
Company-operated retail locations
Type
Kiosk/store in store		98		9				4		103
Retail stores		275		10				32		253
Outlet stores		186		18				2		202
Total		559		37				38		558
Operating segment
Americas		196		3				4		195
Asia Pacific		261		27				30		258
Europe		102		7		(1	)	4		105
Total		559		37				38		558

(1)  Includes retail locations acquired in Austria on March 31, 2016 as revenue associated with those locations began to be recognized in the three months ended June 30, 2016.

CROCS, INC. AND SUBSIDIARIESCOMPARABLE STORE SALESRETAIL AND DIRECT TO CONSUMER(UNAUDITED)

		Constant Currency (2)		Constant Currency (2)
		Three Months Ended		Three Months Ended
		June 30, 2016		June 30, 2015
Comparable store sales (retail only) (1)
Americas		(2.5	)%	(3.4	)%
Asia Pacific		(6.8	)%	(9.4	)%
Europe		1.8	%	0.3	%
Global		(3.4	)%	(5.1	)%

		Constant Currency (2)		Constant Currency (2)
		Three Months Ended		Three Months Ended
		June 30, 2016		June 30, 2015
Direct to Consumer comparable store sales (includes retail and e-commerce) (1)
Americas		2.4	%	4.1	%
Asia Pacific		4.3	%	(0.6	)%
Europe		1.6	%	8.6	%
Global		2.9	%	3.2	%

		Constant Currency (2)		Constant Currency (2)
		Six Months Ended		Six Months Ended
		June 30, 2016		June 30, 2015
Comparable store sales (retail only) (1)
Americas		(0.5	)%	(4.3	)%
Asia Pacific		(3.7	)%	(9.4	)%
Europe		3.9	%	2.3	%
Global		(1.0	)%	(5.2	)%

		Constant Currency (2)		Constant Currency (2)
		Six Months Ended		Six Months Ended
		June 30, 2016		June 30, 2015
Direct to Consumer comparable store sales (includes retail and e-commerce) (1)
Americas		5.9	%	0.9	%
Asia Pacific		4.8	%	(2.3	)%
Europe		4.4	%	6.2	%
Global		5.4	%	0.7	%

(1) Comparable store status is determined on a monthly basis. Comparable store sales includes the revenue of stores that have been in operation for more than twelve months. 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 in which 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 thirteenth month post re-opening. E-commerce revenue is based on same site sales period over period.

(2) Reflects quarter-over-quarter and year-over-year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. Constant currency is a measure utilized by management in which current period results have been restated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends by excluding the impact of foreign currency exchange rate fluctuations. We do not suggest that investors should consider this non-GAAP measure in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

 

Investor Contact:
Brendon Frey, ICR
(203) 682-8200
Brendon.Frey@icrinc.com

Media Contact:
Patrick Rich/Crocs, Inc.
(303) 848-7000
prich@crocs.com