Crocs Inc. Reports Third Quarter 2015 Financial Results; Carrie Teffner Appointed CFO Effective December 16, 2015

NIWOT, Colo., Nov. 5, 2015 (GLOBE NEWSWIRE) — Crocs Inc. (NASDAQ:CROX) today reported financial results for the third quarter ended September 30, 2015.

Third Quarter Highlights:

  • Revenue was $274.1 million. On a constant currency basis, revenue decreased 0.8% as compared to the prior year.
  • Net loss attributable to common stockholders on a GAAP basis was $27.8 million or a loss of $0.37 per share.
  • Excluding certain non-recurring and special charges, the company reported a non-GAAP adjusted net loss attributable to common shareholders of $19.2 million.

Gregg Ribatt, Chief Executive Officer, said: “We delivered third quarter sales in line with our revised expectations reflecting challenges in China and currency. For the third quarter, revenue on a constant currency basis and adjusted for business model changes was up 3.7%. Our China business is undergoing changes as we transition away from under-performing distributors. We faced some difficult decisions in China and as a result we increased reserves for doubtful accounts by $19 million at the end of the third quarter. We also held shipments to several of our China distributors, which negatively affected Q3 revenue by $4.0 million. However, these actions set us up for improved business performance in the future.

Ribatt continued “We aggressively cleared out aged and excess inventory which impacted margins in the quarter, but positions us for improved results in 2016.Our core business continues to stabilize around the globe and we believe the strategy we outlined last July is positioning Crocs for sustained success in the future.  The company continues to make meaningful progress implementing our strategy which includes: strengthening our brand; elevating our product stories; evolving our international business to focus on our six core markets; strengthening our relationships with key wholesale partners; improving our direct to consumer capabilities; simplifying our business model; enhancing our supply chain and building a best in class management team.”

Third quarter financial results & Balance Sheet

In the third quarter of 2015, the company reported a GAAP net loss attributable to common stockholders of $27.8 million or $0.37 per share, compared with net income of $12.0 million or $0.12 per diluted share in the same quarter of the prior year.

As outlined in detail in the non-GAAP reconciliations set forth later in this press release, the company recorded $8.6 million in non-recurring and special charges in the third quarter of 2015 compared with $17.4 million in non-recurring and special charges in the third quarter of 2014. Excluding these items the company reported:

  • Non-GAAP operating loss of $12.1 million versus net income of $18.5 million in the comparable prior year period.
  • On a comparable basis, non-GAAP adjusted net loss attributable to common shareholders of $19.2 million in the quarter versus net income of $29.4 million in the third quarter of 2014.

Cash and cash equivalents at September 30, 2015, were $168.5 million. Inventory was $190.8 million compared with $171.0 million on December 31, 2014.

Mr. Ribatt stated, “Despite near term challenges in the business from global currencies and macro level economic conditions in China, we continue to make steady progress in the strategic transformation of Crocs. The full impact of our transformation will be seen during the first half of 2016 as we complete the 18-24 month turnaround process that we have been discussing over the past year. As part of this process, our new product and marketing initiatives are driving favorable wholesale bookings that we have seen from customers around the globe. We believe we are on the verge of meaningful growth, as our Spring/Summer 2016 line begins to ship. This is the first product line that our new management team will have had a chance to impact and we believe this new product slate will have a positive impact on our operating results.”

Carrie Teffner Appointed Chief Financial Officer

Carrie Teffner is joining the company as chief financial officer from the company’s board of directors effective December 16, 2015. Teffner is the former chief financial officer of PetSmart, Weber-Stephens, and Timberland. In conjunction with Teffner’s new appointment she will be stepping down from the company’s board of directors.

Mr. Ribatt stated, “We are thrilled to have Carrie Teffner join the company as chief financial officer. Carrie is a great business partner and has a strong finance, operations, and strategy background. We look forward to her joining the company next month.”

Financial Outlook

The company expects Q4 revenue in the $200 to $210 million range compared to $206.5 million last year.

Stock Repurchase

The company repurchased 2.3 million shares of common stock in the third quarter of 2015 at an average price of $14.50. The company ended the quarter at 73.6 million common shares outstanding and third quarter weighted average shares outstanding was 74.3 million.

Conference Call Information

A teleconference call to discuss third quarter 2015 results is scheduled for today, Thursday November 5th, 2015, at 8:30 am EST. The call participation number is (888) 771-4371. A recording of the conference call will be available two hours after the completion of the call at (888) 843-7419. International participants can dial (847) 585-4405 to take part in the conference call and can access a replay of the call at (630) 652-3042. All of the above calls will require the input of the conference identification number 41044719. The call also will be streamed on the Crocs website, www.crocs.com.  An audio recording of the conference call will be available at www.crocs.com through December 5, 2015

About Crocs, Inc.

Crocs, Inc. is a world leader in innovative casual footwear for men, women and children. Crocs offers a broad portfolio of all-season products, while remaining true to its core molded footwear heritage. All Crocs™ shoes feature Croslite™ material, a proprietary, revolutionary technology that gives each pair of shoes the soft, comfortable, lightweight, non-marking and odor-resistant qualities that Crocs fans know and love. Crocs celebrates the fun of being a little different and encourages fans to “Find Your Fun” in every colorful pair of shoes. Since its inception in 2002, Crocs has sold more than 300 million pairs of shoes in more than 90 countries around the world.

Visit www.crocs.com for additional information.

The matters regarding the future discussed in this news release include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding prospects, investments in our business and outlook. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the following: macroeconomic issues, including, but not limited to, the current global financial conditions; the effect of competition in our industry; our ability to effectively manage our future growth or declines in revenue; changing fashion trends; our ability to maintain and expand revenues and gross margin; our ability to accurately forecast consumer demand for our products; our ability to successfully implement our strategic plans; our ability to develop and sell new products; our ability to obtain and protect intellectual property rights; the effect of potential adverse currency exchange rate fluctuations and other international operating risks;; and other factors described in our most recent annual report on Form 10-K under the heading “Risk Factors” and our subsequent filings with the Securities and Exchange Commission. Readers are encouraged to review that section and all other disclosures appearing in our filings with the Securities and Exchange Commission.

All information in this document speaks as of November 5, 2015.  We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimate regarding revenues or earnings, whether as a result of the receipt of new information, future events, or otherwise.
 

     
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ thousands, except per share data)
     
  Three Months Ended
September 30,
Nine Months Ended
September 30,
  2015 2014 2015 2014
         
Revenues  $ 274,088  $ 302,401 $ 881,952  $ 991,750
Cost of sales   153,267  146,801  443,891  475,323
Restructuring charges  —  583  —  2,612
Gross profit   120,821  155,017  438,061  513,815
Selling, general and administrative expenses   135,110  143,719  429,815  434,244
Restructuring charges  981  7,585  7,454  13,895
Asset impairment charges  5,460  2,600  7,535  5,830
Income (loss) from operations   (20,730)  1,113  (6,743)  59,846
Foreign currency transaction gain (loss), net   (2,908)  (1,290)  (2,631)  (4,278)
Interest income  268  424  752  1,304
Interest expense  (171)  (366)  (650)  (685)
Other income (loss), net   405  217  (6)  388
Income (loss) before income taxes   (23,136)  98  (9,278)  56,575
Income tax benefit (expense)  (888)  15,669  (3,745)  (8,407)
Net income (loss) $ (24,024) $ 15,767 $ (13,023) $ 48,168
         
Dividends on Series A convertible preferred stock  (3,000)  (3,067)  (8,833)  (8,233)
Dividend equivalents on Series A convertible preferred shares related to redemption value accretion and beneficial conversion feature  (752)  (691)  (2,209)  (2,030)
Net income (loss) attributable to common stockholders $ (27,776) $ 12,009 $ (24,065) $ 37,905
         
Net income per common share:        
Basic  $ (0.37) $ 0.12 $ (0.32) $ 0.38
Diluted $ (0.37) $ 0.12 $ (0.32) $ 0.37

CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)

In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), we present current period ‘adjusted results’, which are non-GAAP financial measures. Adjusted results of operations exclude the impact of items that management believes affect the comparability or underlying business trends in our condensed consolidated financial statements in the periods presented.

Management uses adjusted results to assist in comparing business trends from period to period on a consistent non-GAAP basis in communications with the board of directors, stockholders, analysts and investors concerning our financial performance. We believe that these non-GAAP measures are used by, and are useful to, investors and other users of our financial statements as an additional tool to evaluate our performance. We believe they also provide a useful baseline for analyzing trends in our operations. We do not suggest that investors should consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

 

  Three Months Ended
September 30,
Nine Months Ended
September 30,
  2015 2014 2015 2014
  (in thousands) (in thousands)
Selling, general and administrative expenses reconciliation:        
GAAP selling, general and administrative expenses $ 135,110 $ 143,719 $ 429,815 $ 434,244
Legal settlements, disbursements and reorganization (1)  (1,438)  (1,612)  (11,814)  (7,909)
New ERP implementation (2)  (712)  (4,094)  (9,099)  (11,122)
Non-GAAP selling, general and administrative expenses $ 132,960 $ 138,013 $ 408,902 $ 415,213
         
  Three Months Ended
September 30,
Nine Months Ended
September 30,
  2015 2014 2015 2014
  (in thousands) (in thousands)
Net income attributable to common stockholders reconciliation:        
GAAP net income attributable to common stockholders $ (27,776) $ 12,009 $ (24,065) $ 37,905
Legal settlements, disbursements, asset impairment, reorganization, statutory audits, and inventory write-downs (3)  6,898  5,108  20,349  14,635
Restructuring (4)  981  8,168  7,454  16,507
New ERP implementation (2)  712  4,094  9,099  11,122
Non-GAAP net income attributable to common stockholders $ (19,185) $ 29,379 $ 12,837 $ 80,169
 


(1) This represents certain legal liabilities, disbursements made to invalid vendors, and reorganization expenses related to our investment agreement with Blackstone.

(2) This represents operating expenses related to the implementation of our new enterprise resource planning (“ERP”) system.

(3) This represents certain legal liabilities, disbursements made to invalid vendors, the impairment of certain retail locations, reorganization expenses related to our investment agreement with Blackstone, inventory write-downs, and out-of-period customs/duty obligations.

(4) This relates to bonuses, consulting fees and other expenses related to recent restructuring activities.
 

 
CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
($ thousands, except number of shares)
 
  September 30, December 31,
  2015 2014
ASSETS    
Current assets:    
Cash and cash equivalents $ 168,466 $ 267,512
Accounts receivable, net of allowances of $55,178 and $32,392, respectively  117,767  101,217
Inventories  190,819  171,012
Deferred tax assets, net  3,855  4,190
Income tax receivable  16,933  9,332
Other receivables  11,508  11,989
Prepaid expenses and other assets  29,782  30,156
Total current assets  539,130  595,408
Property and equipment, net  50,188  68,288
Intangible assets, net  87,420  97,337
Goodwill  2,030  2,044
Deferred tax assets, net  19,570  17,886
Other assets  23,587  25,968
Total assets $ 721,925 $ 806,931
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $ 79,160 $ 42,923
Accrued expenses and other liabilities  85,394  80,216
Deferred tax liabilities, net  11,675  11,869
Accrued restructuring  2,420  4,511
Income taxes payable  10,558  9,078
Current portion of long-term borrowings and capital lease obligations  5,383  5,288
Total current liabilities  194,590  153,885
Long-term income tax payable  4,335  8,843
Long-term borrowings and capital lease obligations  2,350  6,381
Long-term accrued restructuring  237  348
Other liabilities  12,430  12,277
Total liabilities  213,942  181,734
Commitments and contingencies    
Series A convertible preferred stock, par value $0.001 per share, 1,000,000 shares authorized, 200,000 shares issued and outstanding, redemption amount and liquidation preference of $203,000 and $203,067 as of September 30, 2015 and December 31, 2014, respectively  174,888  172,679
     
Stockholders’ equity:    
Preferred stock, par value $0.001 per share, 4,000,000 shares authorized, none outstanding  —  —
Common stock, par value $0.001 per share, 250,000,000 shares authorized, 92,666,222 and 73,634,604 shares issued and outstanding, respectively, as of September 30, 2015 and 92,325,201 and 78,516,566 shares issued and outstanding, respectively, as of December 31, 2014   93  92
Treasury stock, at cost, 19,331,618 and 13,808,635 shares as of September 30, 2015 and December 31, 2014, respectively  (273,915)  (200,424)
Additional paid-in capital  353,174  345,732
Retained earnings  301,401  325,470
Accumulated other comprehensive loss  (47,658)  (18,352)
Total stockholders’ equity  333,095  452,518
Total liabilities, commitments and contingencies and stockholders’ equity $ 721,925 $ 806,931



The following tables summarize our total revenue by channel for the three and nine months ended September 30, 2015 and 2014:

 
     
  Three Months Ended
September 30,

Change
Constant Currency
Change (1)
  2015 2014 $ % $ %
  (in thousands)
Wholesale:            
Americas $ 48,880 $ 53,097 $ (4,217) (7.9)% $ (1,629) (3.1)%
Asia Pacific  53,411  63,972  (10,561) (16.5)  (4,343) (6.8)
Europe  30,260  33,691  (3,431) (10.2)  2,442 7.2
Other businesses  418  435  (17) (3.9)  (31) (7.1)
Total wholesale  132,969  151,195  (18,226) (12.1)  (3,561) (2.4)
Consumer-direct:            
Retail:            
Americas  59,468  61,721  (2,253) (3.7)  (1,455) (2.4)
Asia Pacific  38,374  44,387  (6,013) (13.5)  (1,786) (4.0)
Europe  13,813  19,494  (5,681) (29.1)  (1,561) (8.0)
Total retail  111,655  125,602  (13,947) (11.1)  (4,802) (3.8)
E-commerce:            
Americas  16,321  12,657  3,664 28.9  3,891 30.7
Asia Pacific  7,094  5,487  1,607 29.3  2,192 39.9
Europe  6,049  7,460  (1,411) (18.9)  (91) (1.2)
Total e-commerce  29,464  25,604  3,860 15.1  5,992 23.4
Total revenues $ 274,088 $ 302,401 $ (28,313) (9.4)% $ (2,371) (0.8)%
             
             
Revenues:            
Americas $ 124,669 $ 127,475 $ (2,806)  (2.2)% $ 807  0.6%
Asia Pacific  98,879  113,846  (14,967)  (13.1)  (3,938)  (3.5)
Europe  50,122  60,645  (10,523)  (17.4)  791  1.3
Total segment revenues  273,670  301,966  (28,296)  (9.4)  (2,340)  (0.8)
Other businesses  418  435  (17)  (3.9)  (31)  (7.1)
Total consolidated revenues $ 274,088 $ 302,401 $ (28,313)  (9.4)% $ (2,371)  (0.8)%
 

(1) Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” above for more information.
 

 
Nine Months Ended
September 30,

Change
Constant Currency
Change (1)
  2015 2014 $ % $ %
  (in thousands)
Wholesale:            
Americas $ 175,306 $ 188,987 $ (13,681) (7.2)% $ (8,479) (4.5)%
Asia Pacific  218,730  261,461  (42,731) (16.3)  (26,239) (10.0)
Europe  105,719  126,047  (20,328) (16.1)  3,147 2.5
Other businesses  970  607  363 59.8  304 50.1
Total wholesale  500,725  577,102  (76,377) (13.2)  (31,267) (5.4)
Consumer-direct:            
Retail:            
Americas  152,394  158,924  (6,530) (4.1)  (4,890) (3.1)
Asia Pacific  107,619  129,612  (21,993) (17.0)  (12,400) (9.6)
Europe  36,747  49,844  (13,097) (26.3)  (2,164) (4.3)
Total retail  296,760  338,380  (41,620) (12.3)  (19,454) (5.7)
E-commerce:            
Americas  45,857  38,252  7,605 19.9  8,107 21.2
Asia Pacific  21,862  16,369  5,493 33.6  6,851 41.9
Europe  16,748  21,647  (4,899) (22.6)  (926) (4.3)
Total e-commerce  84,467  76,268  8,199 10.8  14,032 18.4
Total revenues $ 881,952 $ 991,750 $ (109,798) (11.1)% $ (36,689) (3.7)%
             
             
Revenues:            
Americas $ 373,557 $ 386,163 $ (12,606)  (3.3)% $ (5,262)  (1.4)%
Asia Pacific  348,211  407,442  (59,231)  (14.5)  (31,789)  (7.8)
Europe  159,214  197,538  (38,324)  (19.4)  58  0.0
Total segment revenues  880,982  991,143  (110,161)  (11.1)  (36,993)  (3.7)
Other businesses  970  607  363  59.8  304  50.1
Total consolidated revenues $ 881,952 $ 991,750 $ (109,798)  (11.1)% $ (36,689)  (3.7)%
 

(1) Reflects year over year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” above for more information

 
CROCS, INC. SUBSIDIARIES
RETAIL STORE COUNTS (UNAUDITED)
 
 
  December 31,
2014

Opened

Closed
September 30,
2015
Company-operated retail locations        
Type        
Kiosk/store in store  100  9  11  98
Retail stores  311  10  42  279
Outlet stores  174  10  4  180
Total  585  29  57  557
Operating segment        
Americas  210  3  15  198
Asia Pacific  258  24  26  256
Europe  117  2  16  103
Total  585  29  57  557
     
CROCS, INC. AND SUBSIDIARIES
COMPARABLE STORE SALES
(UNAUDITED)
     
  Constant Currency Constant Currency
  Three Months Ended Three Months Ended
  September 30, 2015 (2) September 30, 2014 (2)
Comparable store sales (1)    
Americas  (1.6)%  (3.1)%
Asia Pacific  (1.5)%  (8.8)%
Europe  2.9%  0.1%
Global  (0.9)%  (4.5)%
  Constant Currency Constant Currency
  Nine Months Ended Nine Months Ended
  September 30, 2015 (2) September 30, 2014 (2)
Comparable store sales (1)    
Americas  (3.2)%  (4.7)%
Asia Pacific  (6.7)%  (5.2)%
Europe  2.5%  0.6%
Global  (3.6)%  (4.1)%
 

(1) Comparable store status is determined on a monthly basis. Comparable store sales begin in the thirteenth month of a store’s operation. Stores in which selling square footage has changed more than 15% as a result of a remodel, expansion or reduction are excluded until the thirteenth month in which they have comparable prior year sales. Temporarily closed stores are excluded from the comparable store sales calculation during the month of closure. Location closures in excess of three months are excluded until the thirteenth month post re-opening. Comparable store sales exclude the impact of our internet channel revenues and are calculated on a currency neutral basis using historical quarterly average currency rates.

(2) Reflects quarter-over-quarter and year-over-year change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. Constant currency is a measure utilized by management in which current period results have been restated using 2014 and 2013 average foreign exchange rates, respectively, for the comparative period to enhance the visibility of the underlying business trends by excluding the impact of foreign currency exchange rate fluctuations. We do not suggest that investors should consider this non-GAAP measure in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

CONTACT: Investor Contact: Brendon Frey, ICR
         (203) 682-8200
         Brendon.Frey@icrinc.com
         Media Contact: Patrick Rich/Crocs Inc.
         (303) 848-7000
         prich@crocs.com

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