Crocs Inc.’s earnings jumped 73.5 percent in the third quarter on a 15.7 percent revenue gain and predicted fourth-quarter sales would expand between 20 and 30 percent.
Andrew Rees, CEO, said, “We achieved record third-quarter revenue and EPS despite the challenges presented by the global COVID-19 pandemic. Our extraordinary performance and strong cash flow generation demonstrate the strength of the Crocs brand and product offering globally. I am tremendously proud of how we have executed as a team and am excited for our future.”
Third Quarter 2020 Operating Results
- Revenues were $361.7 million, an increase of 15.7 percent from the same period last year, or 15.9 percent on a constant currency basis. Wall Street’s consensus target had been $344.0 million.
- E-commerce revenues grew 36.3 percent, wholesale revenues grew 12.4 percent, and retail revenues increased 8.9 percent.
- Gross margin of 57.2 percent increased 480 basis points compared to 52.4 percent in the same period last year. Adjusted gross margin of 57.4 percent rose 380 basis points from the same period last year.
- SG&A expenses of $134.7 million increased from $123.9 million in the same period last year and SG&A as a percent of revenue improved by 240 basis points to 37.2 percent. Adjusted SG&A improved to 36.6 percent of revenues versus 39.4 percent for the same period last year.
- Income from operations increased 80.7 percent to $72.1 million from $39.9 million for the same period last year. Operating margin rose 710 basis points to 19.9 percent. Adjusted income from operations rose 69.7 percent to $75.4 million and adjusted operating margin was 20.8 percent compared to 14.2 percent for the same period last year.
- Net earnings rose 73.5 percent to $61.9 million from $35.7 million.
- Diluted earnings per share increased 78.4 percent to a quarterly record of $0.91, as compared to $0.51 for the same period last year. Adjusted diluted earnings per share were $0.94, or 64.9 percent above the $0.57 for the same period last year. Wall Street had expected adjusted EPS of 70 cents.
Third Quarter 2020 Geographic Summary
- Americas: Revenues of $234.0 million increased 27.3 percent on a constant currency basis.
- Asia Pacific: Revenues of $67.7 million decreased 9.0 percent on a constant currency basis.
- EMEA: Revenues of $60.0 million increased 10.7 percent on a constant currency basis.
Third Quarter 2020 Channel Summary
- Wholesale: Revenues increased 12.4 percent to $164.5 million compared to $146.4 million for the same period last year.
- Retail: Revenues increased 8.9 percent to $117.2 million compared to $107.6 million for the same period last year.
- E-Commerce: Revenues increased 36.3 percent to $80.0 million compared to $58.7 million for the same period last year.
- Digital sales, which includes sales through our company-owned websites, third-party marketplaces, and e-tailers, grew 35.5 percent to 37.7 percent of total revenues versus 32.2 percent for the same period last year.
- Direct-to-consumer comparable sales, which includes retail and e-commerce, grew 23.8 percent versus 15.9 percent for the same period last year.
Balance Sheet and Cash Flow
- Cash and cash equivalents were $123.6 million as of September 30, 2020, compared to $108.3 million as of December 31, 2019.
- Inventories increased to $174.1 million as of September 30, 2020, compared to $172.0 million as of December 31, 2019, and $139.8 million as of September 30, 2019, as in-transit inventories were up approximately $20 million from the same period last year.
- Capital expenditures during the nine months ended September 30, 2020 were $33.2 million, relatively flat to the same period last year.
- Borrowings at September 30, 2020 were $135.0 million after repaying $140.0 million in debt during the third quarter. Our liquidity position remains strong with $364.4 million in available borrowing capacity.
Stock Repurchase Activity
Crocs has a track record of investing to fuel growth and returning capital to shareholders. During the third quarter of 2020, it did not repurchase any shares. Earlier in the year the company temporarily suspended the share repurchase program to maximize liquidity and flexibility during COVID-19. As of September 30, 2020, it repurchased $39.2 million of shares this year and approximately $469 million in capacity remains under the share repurchase authorization.
Crocs will continue to provide forward visibility when appropriate. Excluding the potential impact of future COVID-related shutdowns in major markets, it expects:
- Revenues: Fourth-quarter revenue to grow between 20 percent and 30 percent compared to 2019. This translates into full-year 2020 revenue growth of approximately 5 percent to 7 percent.
- Tax rate: A 2020 tax rate of approximately 11 percent as we project to utilize deferred tax assets that were previously subject to a valuation allowance.
- Capital expenditures: Approximately $50 million of capital expenditures for 2020, which reflects investment to support future growth.
Photo courtesy Crocs