Crocs’ Sales Jump 42 Percent In Fourth Quarter

Crocs, Inc. reported earnings in the fourth quarter slightly more than doubled as sales grew 42 percent. For the year, earnings likewise more than doubled on a 63 percent revenue gain.

Results were in line with an updated forecast given on January 10. Crocs affirmed its 2022 guidance.

“A strong 2021 holiday season completed a very successful year for our brand. We achieved incredible results with record revenues of $2.3 billion, 67 percent revenue growth and industry-leading 30 percent operating margin,” said Andrew Rees, Chief Executive Officer. “Our fourth straight year of revenue growth was fueled by continued strong consumer demand for the Crocs brand globally. We are excited about our sustainable growth trajectory for both the Crocs and HEYDUDE brands and are confident in our plan to grow to $6 billion in revenues by 2026.”

Fourth Quarter 2021 Operating Results

• Revenues were $586.6 million, an increase of 42.6 percent from the same period last year, or 43.5 percent on a constant-currency basis. Direct-to-consumer (DTC), which includes retail and e-commerce, revenues grew 44.5 percent and wholesale revenues grew 40.3 percent.
  
• Gross margin of 63.4 percent and adjusted gross margin of 63.7 percent both increased 770 basis points compared to the same period last year.
  
• Selling, general and administrative expenses (“SG&A”) of $212.0 million increased from $164.5 million in the same period last year and as a percent of revenues improved by 390 basis points to 36.1 percent. Adjusted SG&A was relatively flat compared to the prior year at 35.1 percent of revenues.
  
• Income from operations increased 147.5 percent to $160.0 million and operating margin rose to 27.3 percent from 15.7 percent for the same period last year. Adjusted income from operations rose 93.1 percent to $168.1 million and the adjusted operating margin was 28.6 percent compared to 21.1 percent for the same period last year.
  
• Diluted earnings per share were $2.57 compared to $2.69 for the same period last year due to a lower tax benefit. Adjusted diluted earnings per share doubled to $2.15 compared to $1.06 for the same period last year.
  

2021 Operating Results

• Record revenues of $2,313.4 million increased 66.9 percent, or 65.2 percent on a constant-currency basis, over 2020.
  
• Gross margin of 61.4 percent increased 730 basis points compared to 54.1 percent last year. Adjusted gross margin of 61.6 percent rose 700 basis points from last year.
  
• SG&A expenses of $737.2 million increased from $535.8 million last year and as a percent of revenues improved by 680 basis points to 31.9 percent. Adjusted SG&A improved to 31.6 percent of revenues versus 35.6 percent for the same period last year.
  
• Income from operations increased 219.0 percent to $683.1 million from $214.1 million last year. Operating margin rose 1,410 basis points to 29.5 percent. Adjusted income from operations increased 164.8 percent to $695.3 million and the adjusted operating margin was 30.1 percent compared to 18.9 percent last year.
  
• Diluted earnings per share increased 149.8 percent to $11.39 per share. Adjusted diluted earnings per share more than doubled to $8.32.
  

On January 10, Crocs said it expected fourth-quarter revenue growth of approximately 42 percent and non-GAAP operating margin to reach approximately 28 percent. Crocs also said it expected full-year 2021 revenues to grow approximately 67 percent, up from prior guidance of approximately 62 percent to 65 percent growth. Full-year 2021 non-GAAP operating margin guidance was raised to nearly 30 percent, up from previous guidance calling for a margin of approximately 28 percent.

2021 Geographic Summary

• Americas: Revenues of $1,607.0 million increased 85.9 percent on a constant-currency basis.
  
• Asia Pacific: Revenues of $350.2 million increased 21.5 percent on a constant-currency basis.
  
• Europe, Middle East, and Africa (“EMEA”): Revenues of $356.2 million increased 41.7 percent on a constant-currency basis.
  

2021 Channel Summary

• DTC: Revenues of $1,139.3 million increased 64.4 percent compared to $693.0 million last year.
  
• Wholesale: Revenues of $1,174.1 million increased 69.4 percent compared to $692.9 million last year.
  
• Digital sales, which includes sales through its company-owned websites, third-party marketplaces, and e-tailers, grew 47.6 percent in 2021 with double-digit growth in all regions to represent 36.7 percent of revenues.
  

Balance Sheet and Cash Flow

• Cash and cash equivalents were $213.2 million as of December 31, 2021, up from $135.8 million as of December 31, 2020.
  
• Inventories increased to $213.5 million as of December 31, 2021 compared to $175.1 million as of December 31, 2020.
  
• Cash provided by operating activities rose 112.5 percent to $567.2 million during 2021 compared to $266.9 million during 2020.
  
• Capital expenditures were $55.9 million during 2021 compared to $42.0 million during 2020.
  
• Borrowings at December 31, 2021 were $771.4 million. Crocs’ liquidity position remains strong with $414.7 million in available borrowing capacity.
  

Share Repurchase Activity
During 2021, Crocs spent $1.0 billion to repurchase 8.2 million shares of its common stock, including the impact of the Accelerated Share Repurchase share delivery in January 2021. At year-end, $1.1 billion of share repurchase authorization remained available for future repurchases. In the immediate term, Crocs plan to prioritize repayments of debt, including debt incurred to finance a portion of the HeyDude acquisition and thus have suspended its share repurchase program until such time that its gross leverage is under 2.0x. Crocs said it does not expect this to occur in 2022.

HeyDude Acquisition
The transaction is expected to close in February 2022, subject to customary closing conditions. As previously announced, the acquisition will be funded by $2.05 billion in cash and 2,852,280 shares issued to one of the sellers based on the average of the daily volume-weighted average price of its stock for the 20 days immediately prior to the signing date of December 22, 2021. To fund the cash consideration, we have secured commitments for and expect to enter into a $2.0 billion Term Loan B Facility. Crocs also expects to borrow $50.0 million under its existing Senior Revolving Credit Facility as well as exercise the accordion provision on the Revolving Credit Agreement to increase the borrowing capacity thereunder by $100.0 million.

Financial Outlook
(first quarter 2022)

• Revenues are expected to be approximately $605 to $630 million, implying approximately 31 percent to 37 percent growth compared to first quarter 2021 revenues of $460.1 million. This assumes the HeyDude acquisition closes in February 2022.
  
• Excluding HeyDude, the company expects Crocs brand revenues of $520 to $535 million, which implies organic growth of approximately 13 percent to 16 percent.
  
• Adjusted operating margin of approximately 22 percent including a roughly $30 million impact from air freight.
  
• Non-GAAP adjustments of $30 million in SG&A costs, primarily associated with the HeyDude acquisition, and an additional $40 million of non-cash costs in cost of sales, primarily related to the write-up of HeyDude inventory costs to fair market value at the close of the acquisition.
  

Full Year 2022

• Crocs expects revenue growth for the Crocs brand, excluding HeyDude, to exceed 20 percent compared to 2021.
  
• Revenues for HeyDude to be approximately $700 to $750 million, including the period of time prior to the closing of the acquisition, and $620 to $670 million on a reported basis.
  
• 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.
  
• Non-GAAP adjustments of $60 million in SG&A costs, primarily associated with the HeyDude acquisition, and an additional $75 million of non-cash costs in cost of sales, primarily related to the write-up of HeyDude inventory costs to fair market value at the close of the acquisition.
  
• Combined GAAP tax rate of approximately 25 percent and Non-GAAP effective tax rate of approximately 22 percent.
  
• Adjusted diluted earnings per share of $9.70 to $10.25.
  
• Capital expenditures of approximately $170 to $200 million, primarily for supply chain investments to support growth.
  

Photo courtesy Crocs