In Crocs’ first conference call with analysts since its surprise announcement of its investment by The Blackstone Group, John McCarvel, CEO, on the company’s fourth-quarter conference call indicated the future of Crocs will be more about profits than sales.
“Our aim will be a sharper focus on earnings growth, with less emphasis on top-line growth,” said McCarvel on the call. “Looking forward, we will focus on improving financial performance, particularly in the Americas and in the Japan regions, as well as enhancing our global retail execution. As we increasingly focus on profitable growth and retail excellence, we have moderated the pace of our investments in new retail stores as well as consolidating some of our existing locations.”
With the company undergoing a significant transition period in 2014, Crocs did not provide earnings guidance for 2014 and also didn’t include the standard Q&A session as part of its Q4 conference call.
As reported, ultimately steering the turnaround will be someone else with the Blackstone announcement also including news that McCarvel intends to retire in April. Crocs board has begun a search for McCarvel's replacement.
As part of the deal announced on Dec. 29, Blackstone purchased $200 million of Crocs' newly issued series A convertible preferred stock, taking a 13 percent ownership in the shoemaker. In connection with the closing, Stephen Cannon and Jeffrey Margolis resigned from Crocs' eight-person board, making way for Prakash Melwani and Gregg Ribatt, both Blackstone nominees. Melwani is a Blacksone partner while Ribatt most recently served as the president and chief executive of Collective Brands Performance + Lifestyle Group.
McCarvel said Blackstone is “actively involved, already adding significant value in many aspects of our business,” while the reconstituted board starts to “refine our short-term and long-term strategic plans, which have started by undertaking a full strategic and operational review in order to maximize our long-term shareholder value.”
The fourth quarter results came in line with the slightly-lowered forecast provided on Dec. 29, when the Blackstone deal was revealed.
The loss in the period came to $66.9 million, or 76 cents a share, compared with a net loss of $3.6 million or 4 cents, a year ago. Crocs recorded $49.2 million in non-recurring charges during the period. Excluding non-recurring items in both periods, the loss came to $17.7 million, or 20 cents a share, compared to net income of $4.4 million, or 5 cents, in the fourth quarter of 2012.
Gross margin decreased year over year by 180 basis points to 52.3 percent, primarily driven by rising product costs, the evolution of its changing product assortment, and the continual impact of unfavorable currency trends.
Sales inched ahead 1.6 percent to $228.7 million, and added 4.1 percent on a currency-neutral (C-N) basis.
Global Wholesale revenues were up 1.2 percent to $111.7 million and gained 4.1 percent on C-N basis. Retail revenues added 0.4 percent to $89.9 million and 2.6 percent on a C-N basis. Comps were up 4 percent. Internet sales inched up 8.1 percent to $228.7 million and grew 9.5 percent on a C-N basis.
By region, sales in the Americas were down 4.7 percent to $106.7 million, and grew 3.8 percent on a C-N basis. Wholesale sales were down 10.1 percent to $43.3 million and were down 8.8 percent C-N. Retail sales in the Americas were down 2.7 percent to $46.1 million and off 1.8 percent C-N. E-commerce sales in the Americas gained 4.9 percent and tacked on 5.4 percent on a C-N basis.
Jeff Lasher, Crocs CFO, said the company’s U.S. business was particularly impacted by its “wholesale accounts remaining lean on inventory.” Its stores were also hurt by a “less-than-stellar holiday season and continued economic pressure on our core consumer.”
Outside the U.S., Latin America growth was constrained by import restrictions, currency devaluation, and lower market demand. Its partnership with its Chile distributor was ended and the brand stopped importing product into Argentina, with both moves expected to have a $10 million annual impact on revenue.
Outside the Americas, Europe revenues jumped 46.2 percent to $40.8 million and gained 41.2 percent on a C-N basis. The performance reflected a 7.1 5 percent C-N gain in Wholesale revenues and a 16.7 percent C-N Retail gain.
In the Asia Pacific region, revenues nudged up 0.7 percent to $61.1 million and added 2.6 percent on a C-N basis. Japan revenues were down 17.3 percent to $20.0 million but grew 2.3 percent on C-N basis.
For the full year, Crocs overall earnings plunged 92.1 percent to $10.4 million, or 12 cents a share, from $131.3 million, or $1.46, a year ago. Excluding non-recurring charges, earnings fell 43.6 percent to $72.8 million, or 82 cents, from $129.1 million, or $1.42, a year ago.
Revenues in the year grew 6.2 percent to $1.19 billion, and advanced 8.8 percent on C-N basis. The gains were driven by a 7 percent increase in Wholesale revenue, with particular strength in Europe, as well as its global retail expansion. Footwear unit sales in 2013 increased 9 percent over 2012 to a record 54.3 million pairs sold.
For 2014, Crocs expects its spring/summer product line will further expand its reach into new product categories and segments.
“Our new stretch sole product, for example, expands our already successful loafer business,” noted Lasher. “The women's Busy Day product expands our casual women's shoe products and carryover products such as the Huarache and A-leigh wedge lines are proving more successful in their second seasons.”
For the first quarter of 2014, Crocs expects revenue in the range of $305 million to $315 million globally, reflecting the shift in the Easter holiday, weather patterns, and the timing of wholesale orders. In the 2013 first quarter, sales were $311.7 million.
McCarvel, who was appointed Crocs' CEO in March 2010, concluded the call by noting that since its inception in 2002, Crocs has sold more than 300 million pairs of shoes in more than 90 countries while also pointing to the progress the brand has made expanding its product well beyond the traditional clog.
“Consumer demand continues to grow around the world, as our most recent results have shown,” said McCarvel. “I believe our best days are ahead and I am proud to have been part of the team responsible for building such a powerful, enduring brand and business in such a short period of time.”
