Amid store closures, Crocs Inc. reported revenues that exceeded guidance, coming in at $267.9 million for the first quarter of 2017 ended March 31. On a constant currency basis, revenues decreased 4.4 percent, compared to the first quarter of 2016.
Gross margin exceeded the company’s guidance as well, coming in at 49.9 percent compared to 46.3 percent in 2016, representing a 350 basis point improvement over the prior year’s first quarter. The improvement is attributable to higher-quality sales, a shift to a higher percentage of molded product and lower input costs.
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 the first quarter 2017 results are $2.2 million of costs relating to Crocs’ SG&A reduction initiatives.
“We turned in solid first quarter results by delivering improved product, launching a new and engaging marketing campaign and realizing early benefits from the operational improvements that we’ve been focused on,” said CEO Gregg Ribatt during a conference call. “Our spring and summer 2017 line has been well received by customers and consumers. We’ll continue to keep our clogs fresh and exciting, and grow our business in the sandals, flip, and slide category. Each of these categories represents a significant opportunity for growth for us.”
Net income attributable to common stockholders was $7.2 million, or 8 cents per diluted share. Excluding $2.2 million related to SG&A reduction initiatives, Crocs reported a non-GAAP net income attributable of $9.3 million, or 11 cents a share, topping Wall Street’s consensus estimate of 3 cents. In the year-ago period, Crocs earned $6.4 million, or 7 cents a share, on both a GAAP and non-GAAP basis.
Analysts polled by Thomson Reuters First Call expected earnings of 3 cents per share and revenues of $258.1 million. On Wednesday, shares of Crocs grew $1.08, or 17.4 percent, to $7.28.
“As I look back to the first quarter, I’m pleased with our results and the traction we’re beginning to achieve,” said Andrew Rees, who will become Crocs’ president and CEO on June 1. “We’re improving our product line, brand perception and go-to-market capabilities. Specifically, we’re focusing on clogs, sandals, flips and slides by bringing newness and innovation to these important silhouettes for Crocs.”
Carrie Teffner, EVP and CFO, said Crocs sold 16.4 million pairs of shoes in the first quarter – a 0.8 percent increase from the prior year. The average selling price of footwear was $16.11, down 4.4 percent. “This was anticipated, as we increased our focus on core molded product which carries a lower ASP, but generates a higher gross margin,” she said.
Teffner said the company expects revenues to be between $305 million and $315 million in the second quarter. This range incorporates the impact of the transition of company-operated stores in the Middle East and China, a lower store count, reduced discount channel sales as Crocs continues to elevate its brand and the sale of its Taiwan business in the fourth quarter of 2016.
“We expect second quarter gross margins to increase approximately 150 basis points over the prior year. Our SG&A for the quarter is expected to be relatively flat to last year, including approximately $3 million of charges to support our SG&A reduction plan,” she said. “The year is off to a good start with financial results that are in line with or above our guidance. We remain confident that our strategies will drive better quality sales and enable us to improve our bottom line profitability.”
Crocs now expects 2017 revenues to be down low single digits compared to 2016, whereas its prior guidance contemplated flat revenues.
Gross margin for 2017 is expected to be approximately 50 percent and SG&A to be between $495-500 million, down from the $500-505 million range previously provided. This range includes $7-10 million of charges associated with its SG&A reduction plan.
Crocs 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 its operated stores and will become the exclusive distributor in several countries in this region. Crocs has entered into agreements in China to transfer 11 company-operated stores to existing distributors. While these transactions will reduce retail revenues, they advance the company’s strategic objective to reduce the number of company operated stores and to partner with strong distributors that are well positioned to help profitably grow business.
Photo courtesy Crocs