Crocs Inc. Continues Triple-Digit Growth in Q2…

Crocs, Inc. revenues for the second quarter exceeded internal projections by over 80% on strong sales from nearly all channels and higher-than-expected international orders. Crocs management had been expecting international to account for roughly 10% of sales this year, but the segment jumped to 30% of sales this quarter, and the company believes it will remain at this level for the remainder of the year. Domestically, the company has succeeded in increasing shelf space at its larger accounts and adding 300 new doors, bringing the total to 7,600 domestic locations that sell Crocs branded footwear. The company also has 4,000 international doors versus 1,500 last year.

During a conference call with analysts, Ron Snyder, CEO of Crocs, said that the company has been very careful with its distribution and has not opened too many doors too quickly. He also addressed the “perception” that the company has delivery issues. He said, “With the demand we have experienced… there are bound to be instances where certain retailers are not receiving all of the products they have ordered. We perceive this to be a demand issue, not a delivery issue.”

The company is working to enhance manufacturing and warehousing systems, including direct shipping for several retailers and a new ERP program. This direct shipping program is one of the keys to Crocs boosting margins. Currently 30% to 35% of their shipments are through the direct ship program with that number moving over 40% in Q3 and the end goal at over 50% direct ship. Crocs manufacturing capacity is currently 2.6 million to 3.0 million pairs per month with 60% to 65% coming from third party production. The company’s new facility in Mexico, which will be 100% operational at the end of September, will produce 350,000 to 400,000 pairs per month. Currently, GM is being impacted by air freight charges as the company scampers to keep up with its “demand issues.” As more production comes on-line, margins should improve further.

Seventy percent of sales came from the company’s classic Beach and Cayman models, but management is looking for that to decline next quarter as new products take hold.

Crocs has also signed over 50 colleges to licensing deals, and expects over 70 by the end of Q3. These products will be shipped to sporting goods stores and college bookstores just before the beginning of football season. Disney has also signed an agreement with the company to produce women’s and children’s footwear. Currently, kid’s sales are roughly 20% of the total and management expects this to increase considerably once the Disney product ships.