Crocs Inc. reported revenues in the fourth quarter topped Wall Street’s expectations, boosted by healthy double-digit growth in the Americas region. The loss for the company in the period also came in better than expected due to cost-cutting initiatives.

In the Americas, revenue grew by 15 percent to $121.6 million in the fourth quarter, including a negative currency impact of $2 million.

“We saw exceptional strength, across all channels, particularly in our North American direct-to-consumer business, which benefited from the growing demand for our Classic Clog,” said Anne Mehlman, EVP and CFO, on a conference call with analysts. “The strength we’ve been seeing in our DTC business for some time now is clearly migrating to our wholesale business.”

Wholesale revenues increased 9.6 percent to $45.3 million. Added Mehlman, “In North America, in particular we had a very good quarter, as we work closely with wholesale customers to boost sell-through rates.”

Americas DTC comps grew 21.2 percent, following on the heels of a 21.6 percent increase in Q3. Retail comps surged 17.3 percent, representing the region’s seventh quarter in a row of positive comp growth. Total retail revenues grew 13.4 percent, to $48.2 million despite having seven fewer stores than in last year’s fourth quarter.

E-commerce revenues increased 28.3 percent to $28.1 million as site traffic surged. Active customers increased over last year and the number of new customers grew at a significantly faster rate. Said Mehlman, ”During 2019, our focus will be on maximizing clog growth and expanding our sandal penetration in the Americas, among the wholesale customers, while driving our DTC growth.”

Overall, Crocs’ revenues in the quarter were $216.0 million, growing 8.5 percent over the fourth quarter of 2017, or 11.3 percent on a constant currency basis. Revenues exceeded Wall Street’s average estimates of $213.18 million.

Store closures and business model changes reduced Crocs’ net revenues by approximately $7 million. Wholesale business grew 9.7 percent, e-commerce gained 18.9 percent and retail comparable store sales were ahead 13.4 percent.

In other regions, Asia’s revenues in the quarter were $56 million, down 2.5 percent. Strong wholesale results were more than offset by the impacted store closures and lower e-commerce sales in China.

In EMEA, revenues grew 5.1 percent to $37.4 million over last year’s fourth quarter, with currency negatively impacting the quarter by $1.8 million. Strong wholesale and e-commerce results more than offset the decline in retail sales

On a non-GAPP basis excluding non-recurring items, Crocs reduced its net loss in the quarter to $7.7 million, or 10 cents a share, from $18.9 million, or 27 cents, a year ago. Wall Street expected an adjusted loss of 24 cents. Crocs typically shows a loss in the fourth quarter due to the seasonality of its business.

The net loss came to $118.7 million, or $1.72, from a loss of $28.3 million, or 41 cents, a year ago.

The latest quarter was dragged down by a charge related to its buy back of some of the preferred shares held by Blackstone Group LP. Blackstone made a part of a $200 million investment into Crocs in January 2014 to support its turnaround efforts. In December of last year, Crocs said it was purchasing half of Blackstone’s outstanding preferred shares, representing approximately 6.9 million shares on an as-converted basis, for $183.7 million, or $26.64 per share. The transaction increased pro-forma 2018 EPS by approximately 30 percent. The year-ago charges stemmed from restructuring activities, including door closings.

Beyond the top-line growth, the reduced loss in the quarter was helped by 80-basis point of improvement in gross margin, to 46.2 percent. The increase was driven by strong sales of high-margin clogs, the strength of the direct-to-consumer business and disciplined promotions.

As a percent of revenues, SG&A improved 790 basis points to 52.7 percent as Crocs continued to take costs out of the business and leverage expenses. Fourth quarter 2018 results included $4.6 million of non-recurring charges compared to $9.4 million in the fourth quarter of 2017. On an adjusted basis, SG&A was 50.6 percent, an improvement of 530 basis points over the fourth quarter of 2017.

In the full year, revenues were $1.09 billion, growing 6.3 percent over 2017, or 5.2 percent on a constant currency basis. Store closures and business model changes reduced revenues by approximately $60 million. Wholesale grew 7.8 percent, e-commerce gained 22.5 percent and retail comps jumped 10.8 percent.

On a non-GAAP basis, earnings in the year improved significantly to $65.9 million, or 86 cents a share, from $5.3 million, or 13 cents, a year ago. Including non-recurring items, Crocs lost $69.2 million, or $1.01, compared to a loss of $5.3 million, or 7 cents, in 2017.

Shares of Crocs on Thursday fell $2.84, or 10 percent, to $25.68. Some attributed the decline to to first-quarter guidance that came in below Wall Street’s targets although management maintained guidance for the full year. The stock could also be taking a breather from the strong run-up seen over the last year in recognition of its turnaround. Crocs’ 52-week range is between $12.64 and $31.88.

For the first quarter, Crocs expects to be between $280 and $290 million compared to $283.1 million in the first quarter of 2018. Wall Street’s consensus estimate had been $293 million. Sales are expected to be hurt by approximately $6 million due to store closures and by approximately $10 million due to currency changes. Revenues are also expected to be impacted by strong demand in last year’s fourth quarter, which constricted inventory available for certain at-once orders, as well as the timing of Easter.

Gross margin is expected to decline to 45.5 percent from 49.4 percent in the first quarter of 2018 due to higher freight costs, including air freight to replenish fast selling items; the negative impact of the stronger U.S. dollar; the late Easter, causing higher DTC sales associated with the holiday to shift into the second quarter; and non-recurring charges relating to the new distribution center that will reduce gross margin by approximately 50 basis points.

SG&A is projected to land between 37 percent and 38 percent of revenues. This includes non-recurring charges of approximately $1 million related to various cost reduction initiatives. In the first quarter of 2018, SG&A was 40.2 percent of revenues and included $2.5 million of non-recurring charges.

For the full year, revenues are expected to climb in the range of 5 percent to 7 percent over 2018 revenues of $1,088.2 million. Negative Impacts include approximately $20 million resulting from store closures and approximately $20 million of currency headwinds.

Gross margin is expected to ease to 49.5 percent compared to 51.5 percent in 2018. The projected decline reflects higher freight costs, the strengthening U.S. dollar; and non-recurring charges relating to the company’s new distribution center. SG&A is projected to be approximately 41 percent of revenues. This includes non-recurring charges of $3 to $5 million related to various cost reduction initiatives. In 2018, SG&A was 45.7 percent of revenues and included $21.1 million of non-recurring charges.

Crocs expects an operating margin of approximately 8.5 percent in 2019 which includes non-recurring charges associated with the new distribution center and SG&A cost reduction initiatives. Excluding those non-recurring charges, the interim target of a low double-digit operating margin.

Image courtesy Crocs