Crocs, Inc. posted weaker growth in the fourth quarter while still exceeding expectations and capping off a record year that approached $4 billion in sales. CROX shares were up in early trading on strong earnings and positive outlook.

Fourth quarter revenues were $960 million, an increase of just 1.6 percent, or 1.5 percent on a constant-currency (CC) basis, from the corresponding period in 2022.

  • Direct-to-consumer (DTC) revenues grew 6.8 percent and wholesale revenues contracted 4.6 percent. By brand,
  • Crocs revenues were $732 million, an increase of 10.0 percent from the same period last year (+9.9 percent CC).
  • HeyDude revenues were $228 million, a decrease of 18.5 percent from the same period last year, or 18.7 percent on a constant currency basis.

Income Statement
Gross margin was 55.3 percent of sales in Q4, compared to 52.5 percent in the prior-year quarter.

  • Adjusted gross margin improved 240 basis points to 55.7 percent of sales, compared to 53.3 percent in Q4 2022.

Selling, general, and administrative expenses (SG&A) of $321 million increased from $276 million in Q4 2022, and SG&A as a percent of revenues rose to 33.5 percent from 29.2 percent in the prior-year quarter.

  • Adjusted SG&A increased to 31.6 percent of revenues versus 27.3 percent for the same period last year.

Income from operations decreased 4.8 percent to $210 million and operating margin fell to 21.8 percent of sales, compared to 23.3 percent for the 2022 fourth quarter.

  • Adjusted income from operations fell 6.0 percent to $231 million in Q4 and adjusted operating margin fell to 24.1 percent from 26.0 percent in the prior-year corresponding period.

Diluted EPS was $4.16 a share in the fourth quarter as compared to $2.20 for the prior-year period due to an increased tax benefit.

  • Adjusted diluted EPS decreased 2.6 percent to $2.58 a share compared to $2.65 for the 2022 fourth quarter.

During the fourth quarter, $277 million of debt was repaid, and the company reduced gross leverage to 1.5x and net leverage to 1.3x.

CROX repurchased approximately 0.3 million shares for $25 million at an average share price of $86.34. At year-end, $875 million of share repurchase authorization remained available for future repurchases.

Full Year 2023 Results

  • Record revenues of $3.96 billion increased 11.5 percent (+12.0 percent CC) over 2022.
  • Gross margin of 55.8 percent of sales increased 350 basis points compared to 52.3 percent in full-year 2022.
    • Adjusted gross margin of 56.5 percent rose 210 basis points from full-year 2022.
  • SG&A expenses were $1.17 billion for the year, increasing from $1.01 billion in 2022 and as a percent of revenues increased by 120 basis points to 29.6 percent of sales.
    • Adjusted SG&A increased to 28.7 percent of revenues versus 26.7 percent in full-year 2022.
  • Income from operations increased 21.9 percent to $1.04 billion from $851 million in full-year 2022. Operating margin increased 230 basis points to 26.2 percent of sales from 23.9 percent in full-year 2022.
    • Adjusted income from operations increased 11.4 percent to $1.10 billion and adjusted operating margin was flat at 27.7 percent of sales compared versus full-year 2022.
  • Diluted EPS increased 46.8 percent to $12.79 per share in 2023.
    • Adjusted diluted EPS increased 10.2 percent to $12.03 a share, which excludes the fourth-quarter tax benefit.

2023 Brand Summary

Crocs Brand revenues increased 13.3 percent (+14.0 percent CC) to $3.0 billion. Wholesale revenues increased 8.4 percent (+9.3 percent CC). DTC revenues rose 18.5 percent (+19.0 percent CC).

  • North America revenues of $1.8 billion increased 8.1 percent (+8.3 percent CC).
  • International revenues of $1.2 billion increased 21.7 percent (+23.2 percent CC).

HeyDude Brand revenues increased 6.0 percent to $949 million. Wholesale revenues decreased 1.3 percent and DTC revenues increased 18.9 percent. Including the period before the acquisition in February 2022, revenues contracted 3.7 percent.

Balance Sheet and Cash Flow

  • Cash and cash equivalents were $149 million as of December 31, 2023, down from $192 million as of December 31, 2022.
  • Inventories decreased 18.3 percent to $385 million as of December 31, 2023 compared to $472 million as of December 31, 2022.
  • Cash provided by operating activities rose 54.3 percent to $930 million during 2023 compared to $603 million during 2022.
  • Capital expenditures were $116 million during 2023 compared to $104 million during 2022.
  • Borrowings as of December 31, 2023 were $1.66 billion, compared to $2.32 billion as of December 31, 2022, as CROX repaid $666 million of debt in 2023. The company said its liquidity position remains strong with $149 million in cash and cash equivalents and $570 million in available borrowing capacity as of December 31, 2023.

Financial Outlook

First Quarter 2024

  • Revenues to be down 1.5 percent to up 0.5 percent compared to first quarter 2023
  • Crocs Brand to grow 6 percent to 8 percent compared to first quarter 2023
  • HeyDude Brand to contract 23 percent to 20 percent compared to first quarter 2023
  • Adjusted operating margin of approximately 22 percent
  • Adjusted diluted earnings per share of $2.15 to $2.25

Full Year 2024

  • Revenue growth of 3 percent to 5 percent compared to 2023 at currency rates as of December 31, 2023
  • Revenues for the Crocs Brand to grow 4 percent to 6 percent
  • Revenues for the HeyDude Brand flat to slightly up
  • Adjusted operating margin of approximately 25 percent
  • Non-GAAP adjustments of approximately $10 million primarily related to HeyDude’s distribution and logistics project, impacting cost of goods sold
  • Combined GAAP tax rate of approximately 21.5 percent and Non-GAAP effective tax rate of approximately 18 percent
  • Adjusted diluted earnings per share of $12.05 to $12.50. Adjusted diluted earnings per share guidance does not assume any impact from potential future share repurchases
  • Capital expenditures of approximately $120 to $130 million

Segment Reporting Change
In the fourth quarter of 2023, to reflect changes in the way management evaluates performance makes operating decisions, and allocates resources, CROX said it updated its reportable operating segments to be Crocs Brand and the HeyDude Brand. The North America, Asia Pacific, and EMEALA segments as well as revenues and expenses related to Crocs Brand corporate were consolidated into the Crocs Brand.

Image courtesy Crocs