Led by the Americas region, Crocs Inc.’s Q3 earnings nearly tripled on a 19.8 percent revenue gain. Full-year revenue guidance was raised to 11 percent to 12 percent growth over 2018.

The comfy footwear maker also provided initial guidance for 2020, projecting growth would accelerate to between 12 percent and 14 percent.

“Wholesale, e-com and retail comps all grew nicely, with the Americas delivering exceptional growth, driven by another successful back-to-school season,” said Andrew Rees, president and CEO, on a conference call with analysts. “Our brand continues to resonate strongly with consumers as a result of our impactful marketing and our iconic products.”

In the quarter ended September 30, earnings on an adjusted basis jumped 272 percent to $40.2 million, or 57 cents a share, from $14.8 million, or 19 cents, a year ago. Results were well above Wall Street’s consensus estimate of 41 cents.

Adjusted earnings exclude non-recurring gross margin and SG&A charges and pro-forma adjustments related to Croc’s previously outstanding Series A preferred stock. With the charges, net income was reduced to $35.7 million, or 51 cents, in the latest quarter and $6.5 million, or 7 cents, in the year-ago quarter.

Revenues increased 19.8 percent to $312.8 million and expanded 21.0 percent on a constant-currency basis. Sales exceeded Crocs’s guidance calling for sales in the range of $295 and $305 million.

Wholesale revenues grew 25.4 percent, e-commerce revenues jumped 28.2 percent, and retail comps gained 12.5 percent. Global comps advanced 12.5 percent, its ninth consecutive quarter of positive comps.

By region, sales in the Americas jumped 35.2 percent to $185.2 million. Wholesale revenues in the region jumped 68.6 percent to $75.7 million, retail sales climbed 19.8 percent to $78.1 million, and e-commerce sales advanced 17.0 percent to $31.4 million. Comparable-store sales in the region advanced 19.1 percent.

“Following terrific work to increase capacity in order to keep up with rapidly rising demand, our Classic Clog inventories have been restored to appropriate levels,” said Anne Mehlman, EVP and CFO, regarding the Americas region. “Additionally, the relocation of our Americas distribution center from LA to Dayton is on track, and the LA facility will be closed by year-end. We are excited about the great benefits we anticipate receiving from our Dayton facility, including higher throughput, greater efficiency and an improved customer experience. We are evaluating investments in similar projects next year and beyond that would support our anticipated growth.”

In Asia Pacific, sales were down 1.2 percent to $74.3 million. On a constant currency basis, revenues rose slightly. E-commerce revenues jumped 54.8 percent due to growth across the company’s own dot-coms and the brand’s expanding online marketplace presence. Wholesale declined 10.5 percent mainly due to the timing of revenues between quarters and ongoing efforts to reposition the business in China. Retail was down 12.2 percent overall and 4.2 percent on a comp basis. The comp decline was primarily due to continuing unrest in Hong Kong and weakness in its Korea.

EMEA revenues were up 12.3 percent to $53.3 million. Increases of 16.0 percent at wholesale and 28.2 online offset a 9.6 percent decline at retail due to store closings. EMEA comps were up 2.4 percent. Said Mehlman, “Our business is benefitting from steadily growing brand heat and our continued focus on digital commerce.”

Product-wise, clog revenues grew approximately 36 percent in the quarter and made up 63 percent of its footwear sales, up from 55 percent during last year’s third quarter. Clogs sales increased in every region, “with exceptional growth in North America,” said Rees.

The CEO added, “In our fall holiday collection, we refreshed our core clog assortment with seasonally appropriate colors and prints and, of course, led in great offerings of lined clogs, which are perfect for cooler weather.”

Sandals grew 9 percent over last year’s third quarter, generating 19 percent of footwear revenues and representing the 11th consecutive quarter of sandal revenue growth.

Crocs expanded its LiteRide franchise to kids’ sizes to a “very strong” response. Jibbitz Charms “continued to grow at an accelerated pace” and a new personalization tool was added to Crocs’ website that enables consumers to add a Jibbitz to their purchased clog at checkout. Several wholesale accounts further successfully tested Jibbitz in key locations and more are expected to add Jibbitz in the fourth quarter and next year.

Gross margin was 52.4 percent in the quarter, compared to 53.3 percent in last year’s third quarter. Adjusted gross margin, which excludes 120 basis points of non-recurring expenditures related to the relocation of its U.S. distribution center, was 53.6 percent, up 30 basis points year over year. Adjusted gross margin was well above Croc’s guidance of 51.5 percent.

Crocs said gross margins were bolstered by lower promotions and higher clog sales in the Americas and savings from exiting its company-operated manufacturing facilities last year. Those benefits more than offset various headwinds, including channel mix, higher distribution costs, and 130 basis points of reduced purchasing power associated with currency.

SG&A expenses were reduced 1 percent to $123.9 million from $125.2 million in the third quarter of 2018. Non-recurring charges were $0.8 million compared to $5.7 million in last year’s third quarter. SG&A improved 830 basis points to 39.6 percent of revenues due to the sale leverage. On an adjusted basis, SG&A was reduced 640 basis points to 39.4 percent. SG&A was fairly close to guidance calling for SG&A to be approximately 40 percent of revenues.

Operating earnings catapulted 187.0 percent to $39.9 million. Excluding non-recurring gross margin and SG&A charges, adjusted income from operations vaulted 126.9 percent to $44.4 million.

Inventory increased 18.8 percent to $139.8 million as of September 30.

On the marketing front, Crocs continues to gain exposure through collaborations, including drops with Chinatown Market, Vivienne Tam and Beams; along with a first-time collaboration with Ruby Rose, the newest Batwoman. A Crocs account was launched on TikTok, a popular video sharing app. The actress Priyanka Chopra Jonas was added to its ambassador line-up for 2020 to support the fourth year of the “Come As You Are” campaign. Zooey Deschanel, Kim Se-jeong and Susan Huroso will be returning as ambassadors.

Addressing the strong demand for Crocs, Rees noted that Piper Jaffray’s 2019 Taking Stock With Teens survey released earlier this month showed Crocs advancing in all teen preferred footwear rankings to the number seven spot, up from number 13 last year and number 27 two years ago. In Crocs’ internal survey measuring participants’ views about the Crocs brand, 2019 results were up double digits for each of the key metrics: brand desirability, brand relevance and brand consideration. Crocs has now averaged double-digit growth across these same metrics over the past three years.

“Product acceptance and brand heat are rising,” said Rees. “Hence we are driving sustainable profitable revenue growth and effectively leveraging our cost base. We’re on an exciting journey, and one that’s just getting started.”

For the fourth quarter, revenues are projected to be between $245 and $255 million, up in the range of 13.4 percent to 18.1 percent from $216.0 million in the fourth quarter of 2018. Adjusted gross margin is expected to be approximately 50 percent compared to 46.2 percent a year ago. Gains from increased pricing and higher clog sales plus leveraging fixed supply chain costs are expected to more than offset approximately 100 basis points of reduced purchasing power associated with currency, along with changes in channel mix.

On a GAAP basis, gross margin in the fourth quarter is expected to be approximately 49 percent, which includes 100 basis points of non-recurring charges associated with the company’s new U.S. distribution center. SG&A is expected to be approximately 47 percent of revenues compared to 52.7 percent of revenues in 2018. Non-recurring charges during the quarter are expected to be immaterial compared to $4.6 million in the fourth quarter of 2018.

For the full year, Crocs now expects:

  • Revenues to grow 11 percent to 12 percent, compared to prior guidance of 9 percent to 11 percent.
  • Adjusted gross margin to be approximately 51 percent, compared to prior guidance of 50.5 percent, reflecting the increased strength of the Americas business. The 50 basis point reduction from 51.5 percent in 2018 reflects an expectation of approximately 120 basis points of reduced purchasing power associated with currency, along with higher freight and distribution costs and channel mix, partially offset by higher clog sales, higher pricing, reduced promotions, and savings from exiting our company-operated manufacturing facilities last year.
  • On a GAAP basis, gross margin to be approximately 50 percent, reflecting non-recurring charges of approximately 100 basis points associated with the company’s new U.S. distribution center.
  • SG&A to be approximately 40 percent of revenues, unchanged from prior guidance. Non-recurring charges in 2019 are expected to be approximately $3 million. In 2018, SG&A was 45.7 percent of revenues and included $21.1 million of non-recurring charges.
  • Adjusted operating margin to be approximately 11 percent, which meets the company’s near-term target of returning to a low double-digit operating margin. Including the non-recurring charges associated with the new U.S. distribution center and certain SG&A costs, the company now anticipates a GAAP operating margin of approximately 10 percent.
  • A 2019 tax rate of approximately 12 percent, down from prior guidance of 15 percent.
  • Capital expenditures to be approximately $60 million, compared to prior guidance of approximately $65 million, reflecting the movement of certain expenditures into 2020.

Photo courtesy Crocs Inc.