Substantial growth in the Americas, alongside even larger e-commerce gains, pushed Crocs to a record fourth quarter and year, the company reported Tuesday.
As it estimated in January, the clog maker ended 2020 with more than 12 percent full-year revenue growth—in line with its pre-Covid forecast. With the strong momentum from the latter half of last year at its back, Crocs’ CEO Andrew Rees said the company anticipates “accelerated revenue growth” in 2021 as it invests in digital, China and its supply chain.
In a Nutshell: E-commerce revenues at Crocs grew an “extraordinary” 92 percent year-on-year in Q4, marking the 15th consecutive quarter of double-digit e-commerce growth, Rees said. Digital, which combines owned e-commerce and third-party e-tailers and marketplaces, increased 87 percent and represented 41 percent of fourth-quarter sales, compared to 34 percent last year.
“Over the long term we believe our digital presence, on both our own sites and those of our partners, will allow us to serve our consumers in their preferred channel, and will continue to be a competitive advantage, relative to other footwear brands,” Rees said on a call with investors Tuesday morning.
Rees, who called Crocs’ digital strategy a “top priority,” said part of the company’s spend in the category will go toward personalizing communication so that it can meaningfully address its broad customer base.
“The intent there is that we speak to them personally, they buy more, they return more often,” Rees said. “That requires people, that requires technology and that requires intent.”
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The CEO described the second piece of Crocs’ planned digital investment as “just generally scaling of the business.” This includes scaling technology and talent across the company’s digital realm, not just in the U.S., but in Europe and Asia too, Rees added.
The last element of the clog maker’s digital strategy pertains to the supply chain. In 2020, Crocs expanded its U.S. supply chain to meet the digital demand it was seeing in the back end of the year, Rees said. “That was very successful and allowed us to really have that banner quarter that we had from a digital perspective as we were able to kind of build out that capability, but we kind of need to do that across the globe,” he continued.
Crocs also identified China as one of its key areas of investment for 2021. As the second-largest footwear market in the world, it stands as one of the company’s “most significant long-term opportunities,” Rees said. As part of its efforts to accelerate growth in the country, Rees said Crocs plans to spend the year “selectively upgrading” retail partners in certain provinces.
“We had a network of partners, they operated largely single-branded stores on a province-by-province basis,” Rees said. “And I think historically, we were with the wrong partners. We were with the people that were not equipped to grow and evolve the brand in the future in the way that we wanted to grow and evolve it.”
However, Rees said Crocs has made some “real progress” on this front. Part of this has been a product strategy reset to the brand’s four core pillars: clogs, sandals, Jibbitz and comfort technology. Historically, the company’s focus in China has been a little bit different than the rest of the globe. “We emphasized more male, we emphasized loafers,” Rees said. With that reset now complete, Crocs is now “in the thick of transitioning” the partners it uses, a process that should finish by the end of the year, the CEO said.
“We feel very confident we have kind of the right strategy, it’s just taken longer than we would have liked and would have hoped, but we really can see light at the end of the tunnel today,” Rees said.
Sales: Fourth-quarter revenue jumped 56.5 percent compared to the same period last year to $411.5 million. Wholesale revenues rose 52.2 percent and retail comparable-store sales increased 40.9 percent.
Full-year revenue grew 12.6 percent to $1.4 billion in 2020 compared to the prior year. Digital sales rose 50.2 percent to represent 41.5 percent of revenue versus 31.1 percent the prior year. Due to Covid closures, retail revenues dropped 3.8 percent compared to 2019. Direct-to-consumer sales, which includes retail and e-commerce, increased 39.2 percent in 2020.
The Americas led the way regionally by a large margin. In 2020, revenues there soared to $863.6 million, a 35.7 percent increase on a constant currency basis. In Asia Pacific, revenues sank 19.2 percent to $278.5 million and in Europe, the Middle East and Africa, revenues inched up 1.5 percent.
As the brand approaches the anniversary of 2020’s early store closures, Crocs anticipates revenue to grow between 40 percent and 50 percent in the first quarter. For full-year 2021, the clog company is forecasting growth between 20 percent and 25 percent.
Earnings: Income from operations increased from $8.4 million in Q4 2019 to $64.6 million last quarter. Adjusted income from operations rose 576.9 percent from the prior-year period to $87 million. Adjusted operating margin reached 21.1 percent, compared to 4.9 percent a year earlier. Adjusted gross margin jumped 670 basis points to 56 percent.
On a full-year basis, income from operations grew 66.4 percent to $214.1 million. Adjusted income from operations rose an even-larger 83.6 percent, while adjusted operating margin grew from 11.6 percent to 18.9 percent. Looking to 2021, Crocs anticipates adjusted operating margin to land between 18 percent and 19 percent.
Diluted earnings per share jumped 174.7 percent compared to 2019 to $4.56, while adjusted diluted earnings per share doubled to $3.22.
Gross margin increased 400 basis points to 54.1 percent. Adjusted gross margin rose 350 basis points to 54.6 percent.
CEO’s Take: “We’re even more confident now than a year ago about the Crocs brand strength, and our long-term growth potential,” Rees said. “We’re incredibly optimistic about 2021 and our growth trajectory. Our four key product pillars and our powerful social and digital marketing are clearly creating exceptional consumer engagement. From a channel and region perspective, our digital-first strategy and our long-term focus on Asia, particularly China, will drive our growth for years to come.”