By Eric Smith
Crocs Inc.’s otherwise solid second-quarter earnings report was dampened by the announcement that CFO Carrie Teffner will resign next April.
The news broke before the market opened Tuesday, and while trading was up early in the day, shares of the Niwot, CO-based footwear maker had dipped nearly 3 percent at market close.
Teffner, who joined Crocs in November 2015, is leaving to “pursue strategic board and advisory work,” according to reports. Her successor is Anne Mehlman, who will assume the executive vice president and CFO role effective August 24.
“I want to thank Carrie for the contributions she has made to Crocs over the past three years,” Crocs President and CEO Andrew Rees said on Tuesday morning’s earnings conference call with analysts. “During that time, we have developed and pursued strategic priorities to put the company on a sound footing and position it for future. Carrie was there every step of the way, providing tremendous leadership and counsel. I couldn’t have asked for a better partner.”
Teffner’s departure overshadowed Crocs’ Q2 performance. Crocs reported earnings jumped 68 percent in the second quarter, exceeding Wall Street’s targets. Earnings per share of 35 cents beat Wall Street’s consensus estimate by 4 cents.
Revenues were $328 million, growing 4.7 percent over the second quarter of 2017, or 2.3 percent on a constant currency basis and beating estimates by $6.2 million. This growth was achieved despite the loss of approximately $22 million due to operating fewer stores and business model changes. E-commerce grew 23.8 percent, wholesale grew 7.2 percent and retail comparable store sales increased 7.1 percent.
In the company’s guidance, Crocs had projected revenues in the range of $315 to $325 million, gross margins to be slightly above last year’s 54.2 percent rate and SG&A to be approximately flat.
The company’s journey to reduce SG&A (selling, general and administrative expense) was a hot topic on Tuesday’s conference call. Crocs plans to shutter 160 stores between 2017 and 2018, which the footwear maker is on pace to hit.
During Q2, Crocs closed a net 27 stores, leaving 398 company-operated stores. And Rees said Crocs intends to lower SG&A as a percentage of revenues down to the low 40s, and that the company is “on track to achieve this as we continue to execute against our SG&A reduction plan.”
In the meantime, the focus is shifting heavily toward marketing as Crocs looks to more efficiently acquire new customers and grow brand share.
“Our increases in terms of dollar spend impacting the consumer have grown over the last several years, and that has been an important factor in driving the resurgence of the brand,” Rees said. “We intend to continue to do that.”
Marketing efforts include the company’s successful “Come As You Are” campaign, which features actress Drew Barrymore and “continues to raise the profile of our brand and drive demand for our product,” Rees said.
The campaign has helped Crocs accelerate the company’s digital footprint and attract more PR coverage, Rees said. During the first week of June, for example, “the number of Google searches for Crocs hit a five-year high and has remained at elevated level since then,” he said.
The company also launched a Snapchat filter which was used by more than 6 million people. And Crocs’ collaboration with A-Life generated more than 400 million PR impressions in just a few months, Rees said.
“Our marketing is delivering on two key objectives, elevating our brand positioning and increasing brand consideration to drive sales,” Rees said. “We’re growing our top line, improving the quality of our revenues and taking cost out of the business to ensure we’re doing exactly what we committed to do.”
Second Quarter 2018 Highlights
- Gross margin was 55.3 percent, improving 110 basis points over last year’s second quarter.
- Income from operations of $37.1 million increased 25.9 percent compared to $29.4 million in last year’s second quarter. Net income attributable to common stockholders was $30.4 million, or 35 cents per diluted share, compared to $18.1 million, or 20 cents per diluted share, in last year’s second quarter. Crocs had 71.5 million and 74.6 million weighted average diluted common shares outstanding during the three months ended June 30, 2018 and 2017, respectively.
- The company closed the manufacturing facility in Mexico and moved ahead with plans to close the company’s last manufacturing facility, which is located in Italy. Related non-recurring charges are included in the company’s second quarter SG&A results and the SG&A outlook.
Third Quarter and Full-Year 2018 Outlook
For the third quarter, the company expects to post revenues of $240 million to $250 million, compared to $243.3 million in the third quarter of 2017. For the full year, Crocs expects revenues to increase in the low single digits over 2017 revenues of $1 billion, as the company expects double digit e-commerce growth and moderate wholesale growth to more than offset lower retail revenues due to operating fewer stores and business model changes.
Photo courtesy Crocs