Shares of Crocs, Inc. climbed $9.55, or 14.2 percent, to $76.60 on Thursday after the parent of Crocs and Heydude reported third-quarter results that handily exceeded Wall Street expectations while raising its outlook for the year.
“Consumer demand for both the Crocs and Heydude brands is exceptional and led to strong double-digit revenue growth,” said Andrew Rees, CEO, on a call with analysts. “As we continue to navigate a dynamic macro environment, our teams remain focused on driving market share gains and executing our long-term growth strategies for sustainable profitable growth.”
In the quarter ended September 30, earnings rose 10.3 percent to $169.3 million, or $2.72 a share, from $153.5 million, or $2.42, a year ago. On an adjusted basis, net earnings rose 18.4 percent to $185.4 million, or $2.97 a share, from $156.6 million, or $2.47, a year ago. Adjusted EPS of $2.97 easily exceeded Wall Street’s consensus estimate of $2.61.
Consolidated revenues of $985.1 million jumped 57.4 percent, or 63.0 percent on a constant-currency basis, as compared to 2021. Crocs had guided sales to come in the range of $915 to $955 million and Wall Street’s consensus estimates had been $942.4 million.
Crocs Brand Currency-Neutral Revenues Expand 20 Percent
Crocs Brand quarterly revenues of $715.7 million increased 14.3 percent, or 19.9 percent on a constant-currency basis. The company had guided Crocs Brand revenues to be between $680 to $700 million.
Wholesale revenues for Crocs Brand increased 14.1 percent, or 21.8 percent on a constant currency basis. DTC comparable sales increased 18.2 percent.
By region for the Crocs Brand, North America revenues increased 1.8 percent to $445 million.
Anne Mehlman, EVP and CFO, said the Crocs Brand continued to gain share in North America. She said, “The North America DTC channel for the Crocs Brand, an indicator of underlying consumer demand, was the key growth driver with DTC comparable sales up 13 percent on top of 70 percent comparable sales growth in 2021. Wholesale selling was down 15 percent; however, wholesale sell-out was at high single digits as we continue to partner with major wholesale accounts to carefully manage market-level inventories.”
International was the largest growth driver for the Crocs Brand in Q3 with momentum in both Asia and EMEALA. International represented nearly 40 percent of Crocs Brand revenues.
Crocs Brand revenues in Asia grew 82.3 percent to $138 million during the quarter. The strong growth was broad-based across India, Southeast Asia, Japan, and South Korea. Said Mehlman, “Additionally, the green shoots in China continued despite headwinds from the continued COVID lockdowns with revenues increasing more than 30 percent compared to last year.”
Crocs Brand revenues for EMEALA were $132 million growing 45.6 percent with distributors, brick-and-mortar wholesale partners, and e-commerce driving the growth. Momentum continued from Q2 with strong growth in our top direct markets, the UK and Germany.
By product category for Crocs Brand, Clogs continued to exhibit strong double-digit growth this quarter. Sandals increased nearly 20 percent in Q3. Said Rees, “We’re confident that sandals will deliver strong back half growth, as we experienced exceptional growth internationally and see high sandal penetration in markets, such as India, Southeast Asia, and the Middle East.”
Jibbitz grew double-digits from last year.
Online, Crocs Brand had 22 percent constant-currency growth, and digital penetration increased to 37.4 percent with growth across all regions, driven by increases in new customers combined with repeat purchasing from existing customers.
Heydude Revenues Surge 87 Percent
Heydude revenues were $269.4 million, up approximately 87 percent compared to 2021. Crocs had guided Heydude sales to come in between $235 to $255 million. Wholesale revenues were $181.8 million and DTC revenues were $87.6 million.
“The momentum of the Heydude brand has been exceptional, and we remain confident about realizing the full potential the Crocs playbook will have on the brand,” said Mehlman.
Rees said Heydude is now expected to see revenues exceed $1 billion in 2023, a full year earlier than previously committed. He added, “In Piper Sandler’s Fall Taking Stock With Teens survey, Heydude ascended to the number seven favorite footwear brand among teens, up from number eight in the Fall of 2021 and number nine in the Spring of 2022. We’re also seeing early evidence of success with our marketing campaigns, as the Piper study noted increased Heydude mindshare in the Northeast and the South regions of the United States. We’re excited about the rebrand that went live in July.”
From a product perspective, the Heydude brand is continuing to expand wearing cases to support sales in colder seasons with products such as the Britt, Denny, and Scott boots. Additionally, the introduction of the Axel is testing the relevance of the Heydude brand in the sneaker category.
Operating Income Improves Despite Margin Pressures
Income from operations increased 30.0 percent to $264.1 million and operating margin was 26.8 percent, compared to 32.4 percent for the same period last year, due to lower gross margin and Heydude integration expenses. Adjusted income from operations rose 33.8 percent to $274.5 million and adjusted operating margin was 27.9 percent. Crocs had expected adjusted operating margin of approximately 25 percent to 26 percent.
Gross margin was 54.9 percent, down from 63.9 percent, and adjusted gross margin was 55.1 percent compared to 64.2 percent in the same period last year, respectively.
Crocs’ Brand gross margin was 57.3 percent, or 660 basis points lower than prior year driven by approximately 200 basis points of inflationary costs and approximately 270 basis points of higher freight and inventory handling costs, of which Crocs estimate 150 basis points to be transitory. Currency negatively impacted gross margin by 115 basis points.
Heydude’s gross margin was 48.8 percent, which represents the continued effect of legacy freight contract costs and higher inventory storage costs as Crocs works to expand distribution center capabilities to support a larger business.
SG&A expenses of $277.2 million increased 40.9 percent from $196.7 million in the same period last year but SG&A as a percent of revenues improved to 28.1 percent from 31.4 percent in prior year. Adjusted SG&A improved to 27.2 percent of revenues versus 31.4 percent for the same period last year. Adjusted SG&A excludes $9.1 million of costs, primarily related to the ongoing Heydude integration.
Inventories at September 30 were $514 million, an increase of $301 million versus last year, reflecting the addition of $189.5 million of Heydude inventory. The Crocs Brand had $324 million in inventory, an increase of 52.6 percent over prior year. Said Mehlman, “Our higher inventory reflects revenue growth, higher cost and inventory, and a very low level of inventory last year due to limited availability with the factory closures and elongated transit times related to the pandemic.”
The updated outlook for 2022 calls for:
- Consolidated revenues to now be approximately $3.455 billion to $3.520 billion, representing growth between 49 percent and 52 percent compared to 2021, previously, approximately $3.395 billion to $3.505 billion, representing growth between 47 percent and 52 percent;
- Adjusted operating income to now be approximately $920 to $950 million and adjusted operating margin to be approximately 27 percent. This excludes adjustments primarily related to the Heydude acquisition and integration of $75 million in cost of sales and $55 million in SG&A, previously, adjusted operating margin was expected in the range of 26 percent to 27 percent;
- GAAP tax rate of approximately 25 percent and the non-GAAP effective tax rate to now be approximately 21 percent, previously, GAAP tax rate was expected to be approximately 25 percent and the non-GAAP effective tax rate to be approximately 22 percent.
- Adjusted diluted earnings per share to now be between $9.95 and $10.30, previously, adjusted EPS was expected in the range of $9.50 and $10.30.
- Capital expenditures are now expected to be approximately $150 to $170 million, primarily for supply chain investments to support growth, previously, capital expenditures were expected to be approximately $170 million to $200 million.
Photo courtesy Crocs x Christian Cowan/Getty