Crocs’ run as a high-growth footwear seller hasn’t slowed down to kick off 2023.
The celebrity collaborator, whose clogs have been promoted by Bad Bunny, Justin Bieber and SZA, generated fourth-quarter revenue of $945.2 million, rising 61.1 percent from $586.6 million in the same period last year, or 64.8 percent on a constant currency basis.
Net income for Crocs came in at $137.7 million, sending the company’s stock up as much as 7 percent on Thursday morning.
In a Nutshell: During the company’s earnings call, Crocs CEO Andrew Rees stressed sandals, international growth and product and marketing innovation as the three key long-term growth drivers for the Crocs brand.
Identifying sandals as a $30 billion global category and currently a $310 million business at Crocs, Rees said the category grew by 31 percent in the second half of 2022.
“We believe our molded technologies, accessible price points, strong go-to-market, will allow us to compete effectively in a relatively fragmented market,” Rees said. “The category also provides an additional entry point to the Crocs brand for consumers who may not choose to engage with the clog.”
Crocs, which has inked partnerships with Post Malone and Diplo, expects sandals to be the company’s fastest-growing product category in 2023, reaching approximately $400 million in sales.
And while other footwear brands like Adidas and Nike have experienced challenges in the China, Crocs saw 38 percent revenue growth in the region during the quarter. Although Rees called the consumer market “a smaller base than we would like,” he said the company expects China to grow approximately 30 percent in 2023.
Internationally, the clog seller has now seen eight consecutive quarters of “strong double-digit growth” outside of North America, the CEO said.
As for Hey Dude, the comfort footwear brand Crocs acquired for $2.5 billion to close out 2021, Rees continued to praise the label’s performance. He noted that casual Hey Dude silhouettes represented 27 percent of 2022 revenues at Crocs.
Looking at the bigger picture, Rees said Hey Dude “enables us to access a larger addressable market, which is now approximately $160 billion on a global basis versus $40 billion prior to the acquisition.”
Inventories increased 120.8 percent to $471.6 million as of Dec. 31, 2022, up from $213.5 million on the prior-year period. This increase was driven primarily by the addition of $168.7 million of Hey Dude inventory. The Crocs brand inventory balance was $303 million, a 42 percent increase over the prior year, but continues to decline sequentially, down 7 percent versus the third quarter.
Gross margin of 52.5 percent declined 1,090 basis points (10.9 percentage points) and adjusted gross margin of 53.3 percent decreased 1,040 basis points (10.4 percentage points) compared to the same period last year. Approximately half of the decline in adjusted gross margin is related to the addition of the Hey Dude brand and the expansion of its Las Vegas distribution center. Adjusted gross margin excludes $7.5 million of costs, primarily related to expansion costs and duplicate rent costs for its distribution centers.
For the upcoming first quarter, Crocs anticipates revenues to grow approximately 27 percent to 30 percent compared to 2022 period revenues of $660.1 million. Adjusted diluted earnings per share are forecast at $2.06 to $2.19. Adjusted operating margin is expected to reach approximately 24 percent to 25 percent of total sales.
Full-year 2023 revenue projections are projected to grow 10 percent to 13 percent compared to 2022, resulting in full-year revenues of approximately $3.9 billion to $4 billion at current currency rates.
Crocs brand revenues are expected to grow 6 percent to 8 percent and 9 percent to 11 percent on a constant-currency basis, while Hey Dude is expected to grow in the mid-20 percentage range.
Adjusted diluted earnings per share are expected to be between $11.00 and $11.31, with adjusted operating margin forecast to be approximately 26 percent.
Capital expenditures are expected to be between approximately $165 million to $180 million, primarily related to the expansion of Crocs’ distribution capabilities and the new Hey Dude distribution center, the implementation of new technology systems for Hey Dude and expansion of Crocs’ corporate facilities to support growth.
Cash and cash equivalents were $191.6 million, down from $213.2 million to close out 2021. Cash provided by operating activities rose 6.3 percent to $603.1 million during 2022, up from $567.2 million last year.
Capital expenditures were $104.2 million during 2022, compared to $55.9 million during 2021.
Total borrowings were $2.3 billion, compared to $771.4 million as of Dec. 31, 2021, an increase driven by borrowings used to finance a portion of the Hey Dude acquisition. Crocs has $755.8 million in available borrowing capacity to end the calendar year.
Net Revenues: Revenues at Crocs were $945.2 million, an increase of 61.1 percent from the $586.6 million in the same period last year, or 64.8 percent on a constant currency basis. Direct-to-consumer (DTC), which includes brick-and-mortar retail and e-commerce sales, saw revenues grow 61.2 percent and wholesale revenues grow 61.1 percent.
Crocs brand revenues increased 13.5 percent to $666 million from $586.6 million in the year-ago period. Wholesale revenues increased 7.5 percent to $287.2 million from $267.1 million in the 2021 fourth quarter, while DTC revenues rose 18.5 percent to $378.7 million from $319.5 million.
By region, North America revenues inched up 0.3 percent to $456.9 million in the fourth quarter from $455.7 million last year. Asia Pacific revenues skyrocketed 59 percent to $90.7 million from $57.1 million in the prior-year quarter. Europe, the Middle East, Africa and Latin America (EMEALA) had the highest revenue growth at 60.3 percent to $118.3 million, up from last year’s $73.8 million.
For the Hey Dude brand, revenues were $279.2 million in the fourth quarter.
Across both brands, full-year revenues totaled $3.55 billion, increasing 53.7 percent, or 58.2 percent on a constant currency basis, over 2021’s $2.31 billion.
Net Earnings: Fourth-quarter net income was $137.7 million, down from $154.9 million to close out 2021.
Diluted earnings per share were $2.20 as compared to $2.57 for the same period last year due to a lower tax benefit. Adjusted diluted earnings per share were $2.65 compared to $2.15 for the same period last year.
Income from operations increased to $220.1 million from $160 million, with operating margin contracting to 23.3 percent from 27.3 percent in the same period last year, due to lower gross margin and Hey Dude integration expenses. Adjusted income from operations rose to $245.8 million from $168.1 million in the prior-year quarter. Adjusted operating margin was 26 percent.
For the full year, net income was $540.2 million, down from $154.9 million to close out 2021.
Diluted earnings per share decreased to $8.71 from $11.39 due to a lower tax benefit somewhat offset by higher net income. Adjusted diluted earnings per share increased to $10.92 from $8.32 in the year-ago period.
CEO’s Take: Rees also touched on one of the few black marks for Crocs in the quarter—a 25 percent decline in North American wholesale—saying that the company took advantage of the current promotional environment by clearing out of end-of-season goods. Overall, inventories in the channel were down double digits, the CEO said.
“I think in the first half of 2023, we’ll definitely see a normalization of North American wholesale, sell-in and sell-out,” Rees said.
He also said that Hey Dude’s growth trajectory in wholesale will be more of a long-term project.
“As we look at 2023, we do feel like there is incremental door penetration and there’s still long-term door penetration available in the U.S.,” Rees said. “There are still a number of key and significant customers that we have not yet penetrated that we’re obviously working on.”