Crocs, Inc. reported that first-quarter revenues jumped 43.5 percent due to the Hey Dude brand acquisition and 18.5 percent growth for the Crocs brand. The company raised its outlook for the year.

“Our first-quarter revenue growth of 47 percent on a constant-currency basis is a testament to the underlying strength of the Crocs and Heydude brands,” said Andrew Rees, CEO. “Consumer demand remains strong giving us the confidence to raise our full-year outlook for revenue to approximately $3.5 billion, adjusted operating margin to 26 percent to 27 percent, and adjusted diluted earnings per share to $10.05 to $10.65.”

First Quarter 2022 Highlights

  • Consolidated revenues of $660.1 million increased 43.5 percent, or 46.7 percent on a constant currency basis, as compared to 2021;
  • Crocs brand revenues of $545.2 million increased 18.5 percent, or 21.7 percent on a constant currency basis, as compared to 2021;
  • Hey Dude brand revenues were $114.9 million for the period following the closing of the acquisition on February 17, 2022, through March 31, 2022 (the Partial Period);
  • Direct-to-consumer (DTC) revenues grew 34.6 percent as compared to 2021. Crocs Brand DTC revenues grew 18.2 percent, or 19.7 percent on a constant currency basis, as compared to the prior year; and
  • Crocs brand digital sales grew 20.3 percent, or 23.5 percent on a constant-currency basis to represent 32.8 percent of the Crocs Brand revenue versus 32.3 percent in the prior year. Hey Dude brand digital penetration was 25.9 percent of the Hey Dude brand revenues.

First Quarter 2022 Operating Results
Amounts referred to as “Adjusted” or “Non-GAAP” 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 is contained in the schedules below.

  • Revenues were $660.1 million, an increase of 43.5 percent from the same period last year, or 46.7 percent on a constant-currency basis. DTC revenues grew 34.6 percent, and wholesale revenues grew 48.7 percent; 
  • Gross margin of 49.2 percent decreased by 580 basis points compared to 55.0 percent in the same period last year. Crocs brand’s gross margin of 54.4 percent decreased 60 basis points driven by $24.6 million, or 450 basis points, of incremental air freight costs, mainly offset by stronger average selling prices. Adjusted gross margin of 53.9 percent fell 130 basis points compared to the same period last year. Adjusted gross margin excludes $30.9 million of costs, including a $27.9 million of Hey Dude inventory fair value adjustment and a $1.8 million Russia inventory reserve;
  • Selling, general and administrative (SG&A) expenses of $206.2 million increased from $128.5 million in the same period last year, and SG&A as a percent of revenues increased to 31.2 percent from 27.9 percent in the prior year. Adjusted SG&A improved to 27.3 percent of revenues versus 27.9 percent for the same period last year. Adjusted SG&A excludes $25.9 million of costs, including $20.6 million of the Hey Dude acquisition-related expenses and $5.3 million of bad debt associated with our pause in Russia;
  • Income from operations declined to $118.7 million from $124.7 million for the same period last year, due to increased air freight, acquisition expenses and operating margin decreased to 18.0 percent from 27.1 percent. Adjusted income from operations rose 39.6 percent to $175.5 million and the adjusted operating margin was 26.6 percent compared to 27.3 percent for the same period last year;
  • Diluted earnings per share were $1.19, as compared to $1.47 for the same period last year due to increased air freight and acquisition expenses. Adjusted diluted earnings per share increased 37.6 percent to $2.05 compared to $1.49 for the same period last year.

First Quarter 2022 Brand Summary

  • Crocs brand revenues increased 18.5 percent, or 21.7 percent on a constant-currency basis, to $545.2 million compared to $460.1 million for the same period last year.
  • Wholesale revenues increased 18.7 percent, or 22.9 percent on a constant currency basis. DTC revenues increased 18.2 percent, or 19.7 percent on a constant currency basis.
  • North America revenues of $319.5 million increased 19.5 percent on both a reported and on a constant-currency basis, compared to $267.3 million for the same period last year.
  • Asia Pacific revenues of $95.8 million increased 16.0 percent, or 22.1 percent on a constant-currency basis, compared to $82.6 million for the same period last year.
  • Europe, Middle East, Africa, and Latin America (EMEALA) revenues of $129.9 million increased 17.9 percent, or 26.8 percent on a constant currency basis, compared to $110.2 million for the same period last year.
  • Heydude brand revenues during the Partial Period were $114.9 million.

First Quarter 2022 Consolidated Channel Summary

  • DTC revenues increased 34.6 percent to $229.0 million compared to $170.1 million for the same period last year, or 36.1 percent on a constant currency basis.
  • Wholesale revenues increased 48.7 percent to $431.2 million compared to $290.0 million for the same period last year, or 52.9 percent on a constant currency basis.

Balance Sheet and Cash Flow

  • Cash and cash equivalents were $172.0 million as of March 31, 2022, compared to $213.2 million as of December 31, 2021.
  • Inventories increased to $407.6 million as of March 31, 2022, compared to $213.5 million as of December 31, 2021, and $196.5 million as of March 31, 2021. This increase was driven primarily by the addition of the Hey Dude brand and increased in-transit inventory for the Crocs brand.
  • Capital expenditures during the three months ended March 31, 2022, were $39.8 million, compared to $8.0 million for the same period last year.
  • Borrowings as of March 31, 2022, were $2,876.4 million compared to borrowings as of December 31, 2021, of $771.4 million, driven primarily by borrowings used to finance a portion of the acquisition of the Hey Dude brand. The company’s liquidity position remains strong with $172.0 million in cash and cash equivalents and $371.1 million in available borrowing capacity as of March 31, 2022.

Full Year 2022 Financial Outlook

  • Consolidated revenues to be approximately $3.5 billion, representing growth between 52 percent and 55 percent compared to 2021;
  • Revenue growth for the Crocs brand, excluding the Hey Dude brand, to exceed 20 percent compared to 2021;
  • Revenues for the Hey Dude brand to be approximately $750 to $800 million on a reported basis, implying $840 to $890 million, including the period of time prior to the closing of the acquisition;
  • Gross margin to include an incremental $75 million of air freight in the first half of 2022;
  • Adjusted operating margin to be approximately 26 percent to 27 percent;
  • Non-GAAP adjustments of $75 million of non-cash costs in cost of sales, primarily related to the write-up of Hey Dude inventory costs to fair market value at the close of the acquisition and an additional $60 million in SG&A costs;
  • GAAP tax rate of approximately 25 percent and Non-GAAP effective tax rate of approximately 22 percent;
  • Adjusted diluted earnings per share of $10.05 to $10.65;
  • Capital expenditures of approximately $170 to $200 million, primarily for supply chain investments to support growth; and
  • Gross leverage to be below 2.0x by mid-year 2023 following strong earnings and cash flow expectations for 2022.

Second Quarter 2022 Financial Outlook:

  • Consolidated revenues to be approximately $918 to $957 million, implying approximately 43 percent to 49 percent growth compared to second quarter 2021 revenues of $641 million;
  • Crocs brand revenue growth to be approximately 17 percent to 20 percent on a constant-currency basis, and 12 percent to 15 percent on a reported basis, which implies revenues of approximately $718 to $737 million on a reported basis. The impact to the prior year of pausing Russia is approximately $20 million;
  • Hey Dude brand revenues of approximately $200 to $220 million;
  • Adjusted operating margin of approximately 26 percent, including an estimated $50 million impact from air freight;
  • Non-GAAP adjustments of an additional $45 million of non-cash costs in cost of sales, primarily related to the write-up of Hey Dude inventory costs to fair market value at the close of the acquisition, and $20 million in SG&A costs.

Photo courtesy Crocs