Crocs Inc., as expected, reported a steep loss in the fourth quarter while improving its margin rate. The company also announced that Andrew Rees, president, in June will replace Gregg Ribatt as CEO as part of a number of organizational changes.

Fourth-Quarter Highlights

  • Revenues were in line with guidance at $187.4 million compared to $208.7 million for the same period last year. On a constant currency basis, revenues decreased 10.5 percent.
  •  Net loss attributable to common stockholders on a GAAP basis was $44.5 million, or a loss of 60 cents per share.
  •  Excluding certain charges not related to core business, the company reported a non-GAAP adjusted net loss attributable to common stockholders of $43.1 million, or a 9 percent improvement compared to the same period last year.

Full-Year Highlights

  • Revenues were $1,036.3 million. On a constant currency basis, revenues decreased 4.7 percent compared to the prior-year period.
  • Net loss attributable to common stockholders on a GAAP basis was $31.7 million, or a loss of 43 cents per share.
  • Excluding certain charges not related to core business, the company reported a non-GAAP adjusted net loss attributable to common stockholders of $26.9 million, or a 22 percent improvement compared to last year.
  • Improved inventory management resulted in a $21.2 million, or 13 percent, decrease in inventory as of December 31, 2016 compared to December 31, 2015.

Gregg Ribatt, chief executive officer, noted that, “Our fourth quarter revenues were in line with our expectations while our adjusted gross margin rate improved by approximately 550 basis points versus prior year. This gross margin gain was less than previously anticipated due to currency and channel mix fluctuations and also to certain one-time events, however we are still on track to achieve our medium-term target for gross margins in the low 50 percent range.  Furthermore, disciplined inventory management practices enabled us to reduce year-end inventory levels by $21.2 million, or 13 percent, and to generate approximately $40 million of cash flow from operations during the year.”

Ribatt continued, “I’m very pleased with the operational progress made in 2016 as we continued to improve our product, systems, processes and team. Given this progress, I am pleased to announce that the Board and I have determined that we are now in a position to consolidate the president and CEO roles.  Effective June 1, Andrew Rees is being promoted to president and CEO, and I will step down as CEO but continue in my Board role. Furthermore, effective immediately, we are expanding responsibilities for certain executive team members to better utilize their talents and leadership expertise. Finally, in order to accelerate improved profitability, we have identified $75 to $85 million of annualized SG&A reductions that we expect will generate an annual $30 to $35 million of improvement in earnings before interest and taxes by 2019. Looking ahead, I am confident that these actions will pave the way for renewed growth and improved shareholder value.”

Fourth-Quarter Operating Results
In the fourth quarter of 2016, the company reported a GAAP net loss attributable to common stockholders of $44.5 million, or 60 cents per basic and diluted share, compared to a net loss attributable to common stockholders of $73.9 million, or $1.01 per basic and diluted share, in the same quarter of the prior year.

As outlined in detail in the GAAP to non-GAAP reconciliations, the company recorded net charges of $1.4 million unrelated to core business in the three months ended December 31, 2016, compared to $26.8 million in the three months ended December 31, 2015. Excluding these items, the company reported on a comparable basis, non-GAAP adjusted net loss attributable to common stockholders of $43.1 million in the three months ended December 31, 2016, versus non-GAAP adjusted net loss attributable to common stockholders of $47.2 million in the three months ended December 31, 2015.

Full-Year Operating Results
For the full year, the company reported a GAAP net loss attributable to common stockholders of $31.7 million, or 43 cents per basic and diluted share, compared to a GAAP net loss attributable to common stockholders of $98 million, or $1.30 per basic and diluted share, in 2015.

As outlined in detail in its GAAP to non-GAAP reconciliations, the company recorded net charges of $4.9 million unrelated to core business in the year ended December 31, 2016, compared to $63.7 million in the year ended December 31, 2015. Excluding these items, the company reported on a comparable basis, non-GAAP adjusted net loss attributable to common stockholders of $26.9 million in the year ended December 31, 2016, versus non-GAAP adjusted net loss attributable to common stockholders of $34.3 million in the year ended December 31, 2015.

Balance Sheet
Cash and cash equivalents as of December 31, 2016 were $147.6 million compared to $143.3 million as of December 31, 2015. Inventory was $147 million as of December 31, 2016 compared to $168.2 million as of December 31, 2015.

The company did not repurchase any shares during the three months or the year ended December 31, 2016.

Full-Year 2017 Outlook

• The company expects 2017 revenue to be relatively flat compared to prior year, reflecting the impact of store closings, the reduction of discount channel business and the disposition of its South Africa and Taiwan businesses during 2016, as it continues to focus on improving its revenue quality.
• The company expects gross margin for 2017 to be approximately 50 percent.
• The company expects non-GAAP SG&A for 2017 to be approximately $495 million.

First-Quarter 2017 Outlook

• The company expects first-quarter 2017 revenue to be between $255 million and $265 million dollars.
• The company expects gross margin for the quarter to be approximately 200 basis points higher than first quarter 2016.
• The company expects non-GAAP SG&A for the quarter to be moderately above prior year in absolute dollars.

SG&A Reduction Plan
Crocs continues to identify opportunities to improve the efficiency and effectiveness of its operations. In doing so, it has identified SG&A reductions in the amount of $75 million to $85 million. These actions are projected to generate an annual $30 million to $35 million improvement in earnings before interest and taxes by 2019. The company expects to achieve approximately $25 million of these SG&A reductions in 2017. Crocs said it expects to incur one-time charges of approximately $10 million to $15 million over the next two years to achieve these SG&A reductions, with approximately $7 million to $10 million of that being incurred this year. In conjunction with these actions, Crocs anticipates closing approximately 160 retail stores by the end of 2018, thereby reducing its total store count to approximately 400 from 558 at the end of 2016.

Executive Leadership Transition
From an organizational and operational perspective, Crocs said it has made “significant progress over the past two years. This progress enables us to further streamline our organization and consolidate the roles of president and CEO.” To that end, Andrew Rees, who joined the company in June 2014 as president, will be promoted to president and chief executive officer effective June 1, 2017. Gregg Ribatt, its current chief executive officer, will remain on the company’s board of directors. In addition, the following changes are taking place, effective immediately:

• Michelle Poole, SVP of global product and merchandising, is assuming responsibility for marketing.
• Ann Chan, SVP and GM of Europe, is transitioning to SVP and general manager of Americas.
• David Thompson, SVP of AMEA, is also assuming responsibility for Europe.
• Crocs has established a new global e-commerce function,which is being headed by Adam Michael, who has been promoted to SVP of global e-commerce.

Photo courtesy Crocs