Crocs, Inc. lost $148 million, or $1.79 per share, in the third quarter after non-cash charges totaling $104.1 million in restructuring, impairment and inventory writedowns. Revenues dropped 32% to $174.2 million from $256.3 million.
Revenues are net of $29.1 million in returns and allowances during the three months ended Sept. 30, 2008 compared to $9.6 million in the three months ended Sept. 30, 2008.
The charges in the latest quarter included a $31.6 million asset impairment charge related to goodwill, intangible assets and the write-off of excess equipment and tooling; a $70 million charge related to a write-down of certain products held in inventory and expected losses on inventory purchase commitments; and a $2.5 million restructuring charge related to the closing of the companys Canadian manufacturing and distribution operations.
The loss compares to net income of $56.5 million, or 66 cents, a year ago.
When it reported second quarter results for fiscal year 2008, the company said it it expected revenues to be in the range of $195.0 million to $205.0 million in the second quarter and diluted earnings per share of approximately 1 cent to 5 cents a share.
The company also recognized foreign currency exchange rate losses of approximately $14.6 million and increased its provision for returns and allowances, net by $19.5 million to $29.1 million during the three months ended Sept. 30, 2008 from $9.6 million for the three months ended Sept. 30, 2007. These items and charges, when aggregated, contributed $138.2 million, on a pre-tax basis, to our operating loss for the three months ended Sept. 30, 2008.
Gross profit for the third quarter 2008 was $2.4 million, or 1.4% of revenues, compared to $155.4 million, or 60.6% of revenues, for the third quarter of 2007. Selling, general and administrative expenses, including foreign currency exchange rate gain or loss, for the three months ended Sept. 30, 2008 were $104.4 million, or 59.9% of revenues, compared to $77.2 million, or 30.1% of revenues, in the three months ended Sept. 30, 2007.
Ron Snyder, president and CEO of Crocs, Inc. commented: “Our performance was below expectations and continued to be impacted by the extremely challenging retail environments in the U.S. and Europe during the third quarter. Based on current trends we have lowered our projected sales volumes and made the strategic decision to further right-size our operations to better align with our lower volumes and revenues. The realignment of our business included, in part, asset impairment charges on certain machinery and tooling, efforts to consolidate our warehousing and distribution centers, writing down a portion of our inventory and the decision to close our manufacturing facility in Brazil during the fourth quarter. When combined with the shutdown of our Canadian plant and the reductions in headcount since the start of the year, these actions will allow us to begin 2009 with a much leaner, more efficient cost structure. Additionally, we are committed to continuing to aggressively manage expenses and inventories consistent with our planned sales levels. In light of the weak economy, we are closely evaluating our 2009 capital expenditure plan and expect to reduce capital expenditures in 2009 by approximately 50% from 2008.”
Balance Sheet
As of Sept. 30, 2008, including the write-down of $65.8 million related to on-hand inventories, inventories decreased 36.0% to $141.0 million compared to $220.2 million as of June 30, 2008. The company had cash and cash equivalents of $56.6 million as of Sept. 30, 2008, an increase of $5.4 million compared to cash and cash equivalents of $51.2 million as of June 30, 2008. Borrowings under the companys credit facility were $19.8 million at Sept. 30, 2008 compared to $36.9 million at June 30, 2008. Our accounts receivable collections improved as days sales outstanding decreased from 52.3 days for the three months ended June 30, 2008 to 37.5 days for the three months ended Sept. 30, 2008.
Guidance
The company now expects to generate revenues for the fourth quarter of fiscal 2008 of between $100 million and $120 million and diluted loss per share of approximately $0.50 to $0.65.
Snyder concluded, “After several years of rapid expansion, highlighted by triple digit sales and earnings growth, our business has slowed during 2008. During this transitional year we are making significant adjustments to our operating platform that we believe are in the best interests of the long-term success of the company. Despite difficult market conditions and reduced profitability we expect to continue to aggressively manage our working capital. During the third quarter we increased our cash position by $5.4 million and ended the quarter with $56.6 million in cash while, at the same time, we paid down our line of credit by $17.1 million. Longer-term, we are enacting new strategies aimed at reinvigorating our top-line such as developing new and innovative product lines, and refining our merchandising and distribution strategy. We are confident that our brand equity remains strong and believe that our unique and proprietary material continues to provide us with compelling growth opportunities both domestically and overseas.”
Crocs, Inc. Consolidated Statements of Operations (In thousands, except share and per share data) (unaudited) THREE MONTHS ENDED NINE MONTHS ENDED September 30, September 30, 2008 2007 2008 2007 Revenues $
174,187
$
256,275
$
595,497
$
622,554
Cost of sales 171,788 100,883 416,674 250,729 Restructuring Charges –
–
901
–
Gross profit 2,399 155,392 177,922 371,825 Selling, general and administrative expenses 89,782 80,729 266,873 194,632 Foreign Exchange (gain)/loss 14,609
(3,573
)
4,351
(6,674
)
Restructuring Charges 2,450
–
6,769
–
Impairment Charges 31,584
–
45,301
–
Income (loss) from operations (136,026 ) 78,236 (145,372 ) 183,867 Interest expense 413 191 1,385 306 Other income, net (734 ) (1,158 ) (782 ) (2,074 ) Income (loss) before income taxes (135,705 ) 79,203 (145,975 ) 185,635 Income tax expense 12,275
22,655
4,399
55,690
Net income (loss) (147,980 ) 56,548 (150,374 ) 129,945
