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Crocs Beats Sales, Earnings Projections in Q4 but Stock Falls Anyway

Share prices for Crocs fell during early trading Thursday, despite a better-than-projected showing in Q4—stock from the brand was down nearly 10 percent to $25.68 when the market closed.

In a Nutshell: Crocs made a positive showing for Q4 as it continued to push forward cost-saving initiatives. However, after a year that saw the brand step away from manufacturing and simultaneously reduce its store fleet, the company may have had a hard time convincing investors of its long-term profitability—resulting in a minor sell-off.

However, Crocs doesn’t appear to be slowing down. The brand said it will open a new distribution center in Dayton, Ohio in the fourth quarter this year, and the facility will be 40 percent larger than its previous Los Angeles-based location, and output is expected to increase by 50 percent.

The brand was also responsible for one of the most notable collaborations of 2018 alongside rapper and entertainer Post Malone.

Crocs repurchased 1.2 million shares of its stock in Q4, for a total of $26.1 million at $21.05 per share. For the full year, Crocs repurchased a total of 3.6 million shares for $63.1 million at an average of $17.44 per share. This was part of an announced $500 million in share repurchases, of which $156 million remains available.

Sales: Revenue for Crocs in Q4 amounted to $216 million, an 8.5 percent increase over the same period in 2017, beating Street projections of $213 million. Revenue loss from store closures and a changing business model led to a negative impact of $7 million in the quarter. Its wholesale business increased by 9.7 percent in Q4 and e-commerce channels grew by 18.9 percent. Comparable store sales for its remaining fleet were up 13.4 percent.

Crocs credited its strong performance in Q4 to a lower gross margin of 46.2 percent, up 80 basis points from the comparable period in 2017, made possible by strong sales from high-margin clogs and the strength of its direct-to-consumer business model.

Full-year sales were $1.08 billion, just below analysts’ estimate of $1.09 billion. The negative impact of store closings and the business transition period was much larger in the context of FY18, at around $60 million.

However, full-year wholesale business for Crocs was up 7.8 percent and its e-commerce channels grew by 22.5 percent. Comparable store sales were also up 10.8 percent year on year.

Crocs says that it expects FY19 sales to be around 5 percent to 7 percent larger than FY18, with a more limited impact of $20 million from store closures.

Earnings: Crocs was unable to register a net earnings gain in Q4, losing 10 cents per share after registering a loss of 27 cents in the same period last year. However, this was lower than analysts’ projections of a 24 cents loss for the quarter.

Crocs’ full-year earnings amounted to 86 cents per share when accounting for expenses related to share repurchases, up from 17 cents in 2017.

CEO’s Take: Andrew Rees, president and CEO of Crocs said the brand was happy with its progress in the quarter and planned to emphasize its advantage in the coming months by pushing clogs on a global scale, its highest margin silhouette.

“Our fourth quarter results contributed to what was a very successful year. We had record revenues in many key markets, with the U.S. market leading the way,” said Rees. “We have hit multi-year highs in revenues and gross margin, while at the same time significantly reducing our SG&A run rate. Global demand for our brand remains strong, and as a result, we anticipate delivering revenue growth of 5% to 7% in 2019.”

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