Crocs, Inc. filed its 2008 annual report on Form 10-K filed with the Securities and Exchange Commission on March 17 and announced that its consolidated financial statements for the fiscal year ended December 31, 2008 are accompanied by an unqualified audit opinion from the companys independent registered public accounting firm, which has been modified to contain an explanatory paragraph that raises substantial doubt about the companys ability to continue as a going concern.
The announcement made by Crocs, Inc. is being made in compliance with NASDAQ Marketplace Rule 4350(b)(1)(B), which requires separate disclosure of a recent audit opinion that contains a going concern modification opinion. This announcement does not represent any change or amendment to the companys 2008 financial statements or to its annual report on Form 10-K.
As of December 31, 2008, the company had $51.6 million in cash and cash equivalents and $22.4 million in borrowings under its revolving credit facility, which matures on April 2, 2009 and is due and payable on that date. The company is in discussions on extending the current credit facility and is currently negotiating with financial institutions to obtain an asset backed lending arrangement. The company said it may also “explore other sources for capital to meet ongoing needs.”
Crocs, Inc. reported in the 10-K report that it incurred losses of $185.1 million in the year ended December 31, 2008, experienced declines in revenue and incurred one time charges related primarily to restructuring activities. The company said it took significant cost cutting measures during 2008 and intends to continue its cost cutting actions throughout 2009.
The company said in the filing that it is currently evaluating its operating plans for 2009 and “considering certain restructuring and right-sizing activities to address the potential for continued decreases in revenues.”
Also in the 10-K filing Crocs \provided additional insight into its most recent quarter and year. In a release and subsequent conference call with analysts in February (SEW_0908), CROX had indicated that revenues had decreased 14.8% $721.6 million for the year ended December 31, compared to the previous year, attributing that decline to a decrease in revenues in the companys Americas and European markets, specifically driven by a decrease in unit sales of footwear and Jibbitz products.
Unit sales of footwear products decreased 24.7% or 11.6 million pairs, to 35.3 million pairs for the year, while sales of Jibbitz products decreased 30.2% to $47.2 million. Crocs acquired the Jibbitz business in December 2006 for $10 million in cash and another $10 million in potential earn-outs.
Sales of the companys classic models, the Beach and Cayman, represented 25% of total revenues in 2008, compared to 30% in 2007.
Overall wholesale channel revenues decreased 25.3% to $552.1 million in 2008, a decline the company attributed to “lessening consumer demand due to the global economic downturn” in the SEC filing. They did, however, also suggest that unit sales of footwear “also declined due to the challenges we face in merchandising our expanded product lines in existing wholesale channels as well as lessening consumer demand for our products as such products reach a more mature stage in their product life and competitors enter the market with imitation products that are sold at substantially lower prices.”
Declines in revenue were also said to be “attributable to an increase in sales returns and allowances.” Sales returns and allowances increased from $32.2 million, or 3.8% of sales, in 2007 to $83.6 million, or 11.6% of sales, in 2008.
On the owned-retail front, Crocs, Inc. operated 279 retail locations at 2008 year-end, including retail stores, kiosks and outlets, up from 209 such locations in 2007. Total revenues from owned-retail increased 68.5% to $125.8 million in the year ended December 31. The company indicated revenues from owned-retail will continue to increase in the future as they continue to increase the number of retail locations and focus on expanding their visual and fixture merchandising platforms. However, they did leave open the possibility that expansion of the retail side of the business could be adjusted should economic conditions worsen or demand for their products decline.
Revenues from the Internet increased 28.8% to $43.7 million in 2008.
Changes in foreign currency exchange rates contributed $31.3 million to revenues in 2008, suggesting that the constant currency revenue decline was closer to 18.5% for the year.