By Eric Smith
On the heels of the highest revenue-grossing year in its history, Crocs Inc. has even bigger plans for 2020 and beyond with digital investment as one of its key long-term growth drivers.
During a Tuesday presentation at the ICR Conference in Orlando, FL, the publicly traded company outlined its financial goals for the year, which the company will pursue while also relocating its corporate headquarters to Broomfield, CO, from Niwot, CO.
Crocs has plenty of momentum heading into the new year following the record revenue it achieved in 2019—more than $1.2 billion (the final number will be out when the company reports Q4 and full-year earnings).
“The brand has never been bigger in its entire history,” said Andrew Rees, president and CEO, “so I think that’s an important milestone for us and we look forward to that trajectory continuing.”
That statement wasn’t just based on financial reports. Before introducing Rees and CFO Anne Mehlman, presentation host Erinn Murphy of Piper Sandler (formerly Piper Jaffray) commented on the brand’s popularity growth based on Crocs’ rapid climb up the rankings of a Piper Sandler survey.
“In the most recent call, it was the No. 7 preferred brand in the United States,” Murphy said. “Three years ago, it was No. 37. So you’ve seen a significant resurgence in the relevancy of the brand here, particularly with the younger consumer.”
The company looks to grow on that foundation by focusing on its brand relevance, Rees said. Awareness isn’t the problem, as evidenced by that survey and the sheer ubiquity of Crocs products around the globe.
“Last year, we launched 23 major collaborations that had a big impact on that relevance, and we will do more of those as we look forward into this year,” Rees said.
The long-term growth drivers for Crocs can be broken down into three categories, as Rees outlined for the ICR crowd of investors and analysts.
•Product and marketing – “It’s about visible comfort, technology, personalization and a powerful marketing engine to communicate each of those stories to our consumers,” Rees said.
•Channel – “We are very DTC focused,” Rees said. “We believe strongly in our opportunity to sell our product directly to consumers, and tell our brand stories directly to consumers. And we see that as the highest growth aspect of our business. Wholesale is an incredibly large and important part of our business, and within wholesale we see our distributors and our retailers driving a lot of our growth.”
•Region – “Asia is our largest long-term growth opportunity,” he said. “But we’ve seen strong growth and incredible traction here in North America, which is the largest market so I think that’s a very powerful combination.
Tying those three growth drivers together is Crocs’ heightened focus on its digital capabilities, Rees said. One change will be how the company reports its revenues and comps, which typically have been broken out for each channel.
“As we go forward for 2020 onwards, starting in the first quarter, we’ll actually change our reporting,” Rees said. “We’ll be reporting DTC in aggregate, so that’s both e-commerce and retail in aggregate. But in addition to that, we’ll also report our digital revenues. We believe digital distribution of our products is a very powerful strategy for our brands to be successful. We think that’s the place the consumer is going to increasingly go.
“What we will report is that digital penetration. Our digital penetration will be our e-commerce business—which is crocs.com and marketplaces that we report directly—plus the wholesale business that we do with digital partners. I think this is going to be a very important metric for investors to understand the digital penetration of the brand.”
How will the company carry out its digital strategy? Look for more on the company throughout the year, but the tailwinds behind Crocs’ newfound emphasis on digital is timely because of the strong foundation it built in the fourth quarter. As mentioned, the company raised its revenue guidance for Q4 and hopes to leverage the period for even bigger and better things this year.
“We delivered the strongest fourth quarter in Crocs’ history,” Rees said earlier this week. “Our positive brand momentum allowed us to deliver strong DTC growth combined with excellent wholesale sell-through. Our projected fourth-quarter results represent a strong finish to a record year, and we anticipate building on our 2019 growth trajectory in 2020.”
For the fourth quarter of 2019, the company now expects revenue to be between $260 and $262 million, up from its previous guidance range of $245 to $255 million and compared to $216 million in the fourth quarter of 2018.
For 2019, the company expects revenues to grow 13 percent over 2018 revenues of $1,088.2 million and for adjusted gross margin to be approximately 51 percent, excluding non-recurring charges of approximately 100 basis points associated with the company’s new U.S. distribution center. On a GAAP basis, gross margin is expected to be approximately 50 percent.
The company continues to expect 12 percent to 14 percent growth in 2020 compared to 2019 revenues.
Photo courtesy Business Insider