Crocs Inc. reported sales and gross margins came ahead of guidance in the first quarter while it ramped up its store-closing initiatives.

Gregg Ribatt, chief executive officer, said, “During the first quarter of 2017, we continued to execute against our strategic plan to strengthen the company and brand. Customers responded favorably to our Spring/Summer 2017 product, enabling us to achieve revenues that exceeded our guidance, while simultaneously driving gross margin improvements. We are moving rapidly to implement our SG&A reduction plan, and in connection with that initiative, we closed a net 16 company operated stores during the first quarter of 2017 and signed agreements to transfer 24 company operated stores to distributors during the second quarter of 2017.”

First Quarter 2017 Operating Results
Revenues exceeded guidance, coming in at $267.9 million. On a constant currency basis, revenues decreased 4.4 percent, compared to the first quarter of 2016. Crocs said it continued to execute against plans to improve the quality of our revenues and strengthen our brand. Crocs had expected sales in the range of $255 and $265 million.

Gross margin exceeded our guidance as well, coming in at 49.9 percent compared to 46.3 percent in the first quarter of 2016, representing a 350 basis point improvement over the prior year’s first quarter. Higher quality sales, a shift to a higher percentage of molded product and lower input costs contributed to this improvement. Under its former guidance, gross margin for the quarter was expected to to be approximately 200 basis points higher than first quarter 2016.

Selling, general and administrative expenses (SG&A) were $118 million compared to $115.1 million in the first quarter of 2016, an increase of 2.5 percent. Included in our first quarter 2017 results are $2.2 million of costs relating to our SG&A reduction initiatives. The company had expected non-GAAP SG&A for the quarter to be moderately above prior year in absolute dollars.

Net income attributable to common stockholders was $7.2 million, or 8 cents per basic and diluted share. Excluding $2.2 million related to our SG&A reduction initiatives, the company reported non-GAAP net income attributable to common stockholders of $9.3 million. In the first quarter of 2016, net income attributable to common stockholders was $6.4 million, or 7 cents per basic and diluted share, and its non-GAAP adjusted net income attributable to common stockholders was $6.4 million.

For the quarter ended March 31, 2017, Crocs had 74.6 million weighted average diluted common shares outstanding.

Balance Sheet And Cash Flow Highlights
Cash and cash equivalents as of March 31, 2017 were $88.9 million compared to $89.1 million as of March 31, 2016.

Inventory was $178.5 million as of March 31, 2017 compared to $186.1 million as of March 31, 2016, as Crocs continued to manage inventories closely.

Capital expenditures totaled $5.4 million during the first quarter of 2017 compared to $5.9 million during the first quarter of 2016.

Cash used in operating activities was $49.9 million during the first quarter of 2017 compared to $56.9 million during the first quarter of 2016.

Middle East And China Agreements
The company has entered into agreements transferring certain company operated stores in the Middle East and China to distributors. In the Middle East, The Apparel Group will assume responsibility for all 13 of our company operated stores and will become our exclusive distributor in several countries in this region. In China, we have entered into agreements to transfer 11 of our company operated stores to existing distributors. While these transactions will reduce retail revenues, they advance our strategic objective to reduce the number of company operated stores and to partner with strong distributors that are well positioned to help us profitably grow our business.

Financial Outlook

Second Quarter 2017

  • The company expects second quarter 2017 revenues to be between $305 and $315 million.
  • The company expects gross margin for the second quarter to be approximately 150 basis points higher than the second quarter of 2016.
  • The company expects SG&A to be relatively flat to last year, including approximately $3 million of charges associated with our SG&A reduction plan.

Full Year 2017

  • The company now expects 2017 revenues to be down low single digits compared to 2016, whereas our prior guidance contemplated flat revenues. This change in guidance reflects the impact of the agreements outlined above and a further reduction in discount channel sales.
  • The company continues to expect gross margin for 2017 to be approximately 50 percent.
  • The company now expects SG&A for 2017 to be between $495 and $500 million, down from the $500 to $505 million range previously provided, due to the impact of the agreements outlined above. This range includes $7 to $10 million of charges associated with our SG&A reduction plan.

Photo courtesy Crocs