Crocs Inc. reported sales surged 73.0 percent in the third quarter, led by a 94.5 percent gain in the Americas region. Earnings more than doubled.

“Our third quarter was exceptional, underscored by 73 percent revenue growth over 2020 and industry-leading operating margin of 32 percent,” said Andrew Rees, Chief Executive Officer. “Globally, our teams are managing through the supply chain disruptions to mitigate the impact on our business. Despite the temporary disruptions, we expect 2022 revenues to grow over 20 percent from 2021 fueled by the strength of our brand and consumer demand globally.”

Global Supply Chain Disruptions
During the third quarter Crocs’ business was impacted by Vietnamese factory closures and widespread disruption in the global supply chain. To minimize the impact, Crocs said it has taken action to shift production, improve factory throughput, leverage air freight, and strategically allocate units. Despite ongoing global supply challenges, Crocs said it remains confident in its ability to deliver on its short- and long-term goals.

Third Quarter 2021 Highlights

  • Record revenues of $625.9 million increased 73.0 percent, or 72.2 percent, on a constant-currency basis as compared to 2020. Revenue growth was strong in all regions, with the Americas up 94.5 percent, Asia Pacific up 21.2 percent and Europe, Middle East and Africa (“EMEA”) up 42.8 percent on a constant-currency basis versus the prior year.
  • Digital sales grew 68.9 percent to represent 36.8 percent of revenues versus 37.7 percent and 32.2 percent of revenues in 2020 and 2019, respectively. Within digital, all regions experienced double-digit growth from the prior year.
  • Operating income more than doubled to $203.1 million as compared to third quarter 2020 and operating margin expanded to 32.4 percent from 19.9 percent versus the prior year.
  • During the third quarter, production began on bio-based products, which Crocs expect will go on sale in 2022, using materials sourced from waste and by-products from other industries.

Third Quarter 2021 Operating Results
Amounts referred to as “Adjusted” are Non-GAAP measures and include adjustments that are described under the heading “Reconciliation of GAAP Measures to Non-GAAP Measures.” A reconciliation of these amounts to their GAAP counterparts are as follows:

  • Revenues were $625.9 million, an increase of 73.0 percent from the same period last year, or 72.2 percent on a constant currency basis. Direct-to-consumer (“DTC”) revenues grew 60.4 percent and wholesale revenues grew 88.2 percent.
  • Gross margin of 63.9 percent increased 670 basis points compared to 57.2 percent in the same period last year. Adjusted gross margin of 64.2 percent rose 680 basis points compared to the same period last year.
  • SG&A expenses of $196.7 million increased from $134.7 million in the same period last year and SG&A as a percent of revenues improved to 31.4 percent from 37.2 percent. Adjusted SG&A improved to 31.4 percent of revenues versus 36.6 percent for the same period last year.
  • Income from operations grew to $203.1 million from $72.1 million for the same period last year, while the operating margin expanded to 32.4 percent from 19.9 percent. Adjusted income from operations rose 172.1 percent to $205.1 million and the adjusted operating margin was 32.8 percent compared to 20.8 percent for the same period last year.
  • Diluted earnings per share were $2.42, as compared to $0.91 for the same period last year. Adjusted diluted earnings per share were $2.47, up $1.53 compared to $0.94 for the same period last year.

When it reported second-quarter results on July 22, Crocs had forecast third-quarter revenues would grow 60 percent and 70 percent. The non-GAAP operating margin was projected to be between 24 percent and 26 percent. Results came in well ahead of Wall Street’s consensus target of $1.87 on sales of $607 million.

Third Quarter 2021 Geographic Summary

  • Americas: Revenues of $455.9 million increased 94.5 percent on a constant-currency basis from the same period last year.
  • Asia Pacific: Revenues of $83.6 million increased 21.2 percent on a constant-currency basis from the same period last year.
  • EMEA: Revenues of $86.3 million increased 42.8 percent on a constant-currency basis from the same period last year.

Third Quarter 2021 Channel Summary

  • DTC: Revenues increased 60.4 percent to $316.3 million compared to $197.2 million for the same period last year.
  • Wholesale: Revenues increased 88.2 percent to $309.6 million compared to $164.5 million for the same period last year.

Balance Sheet and Cash Flow

  • Cash and cash equivalents were $436.6 million as of September 30, 2021, compared to $135.8 million as of December 31, 2020.
  • Inventories increased to $212.5 million as of September 30, 2021, compared to $175.1 million as of December 31,
  • 2020 and $174.1 million as of September 30, 2020.
  • Capital expenditures during the nine months ended September 30, 2021 were $35.8 million, compared to $33.2 million for the same period last year.
  • Borrowings as of September 30, 2021 were $686.0 million, compared to borrowings as of December 31, 2020 of $180.0 million. Crocs liquidity position remains strong with $499.7 million in available borrowing capacity.

Share Repurchase Activity
During the third quarter, Crocs repurchased $150.0 million, or approximately 1.1 million shares of common stock on the open market at an average price of $142.17 per share. Crocs is currently executing the previously announced $500.0 million fourth-quarter accelerated share repurchase (“ASR”) arrangement, which is expected to bring its total 2021 fiscal year repurchases to $1.0 billion. Following the execution of the fourth quarter ASR, Crocs expects to have approximately $1.0 billion of share repurchase authorization remaining available for future share repurchases.

Financial Outlook

»Full Year 2021

With respect to 2021, Crocs expects:

  • Revenue growth to be between 62 percent and 65 percent compared to 2020 revenues of $1,386.0 million.
  • Non-GAAP adjustments of approximately $8 to $10 million related to distribution center investments that will negatively impact gross margin.
  • Non-GAAP operating margin of approximately 28 percent.
  • Non-GAAP effective tax rate of approximately 23 percent.
  • Capital expenditures of approximately $75 million for supply chain investments to support growth.

»Full Year 2022

With respect to 2022, Crocs expects:

  • Revenue growth to exceed 20 percent compared to 2021.
  • Gross margin to include an incremental $75 million of air freight compared to 2021.
  • Non-GAAP operating margin excluding the impact of air freight of approximately 28 percent.

When it reported second-quarter results on July 22, guidance called for revenue growth in 2021 to be between 60 percent and 65 percent. Non-GAAP operating margin was guided to approximately 25 percent. Capital expenditures were projected in the range of $80 million to $100 million for supply chain investments to support growth. Guidance was. not provided for 2022.