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Crocs Sees Strength in Sandals in Blockbuster Quarter

Although Crocs has been one of the rising stars of the Covid-19 pandemic, the casual footwear brand is confident its product will remain in the spotlight even in the next version of normal. On an enormous first-quarter revenue bump of 64 percent to $460 million, Crocs has raised its full-year guidance for sales growth, anticipating a jump anywhere between 40 percent and 50 percent. This new projection doubles the 20 percent and 25 percent growth first anticipated at the end of its fourth quarter.

In a Nutshell: Known initially for its clogs but more recently for its high-profile collaborations—with names like Post Malone, Justin Bieber and Bad Bunny—Crocs has become a pandemic darling amid consumer shifts to comfort.

But what has sustained the company’s success appears to a product strategy extending beyond the pandemic bubble, focusing on growing four core pillars: clogs, sandals, the company’s “Jibbitz” shoe charm accessories and comfort technology.

Crocs said that sandals revenues increased 17.1 percent to represent 17.3 percent of footwear sales. CEO Andrew Rees noted in an earnings call that while sandals are expected to grow less quickly than clogs this year, he expects them to be a higher-growth category in the long run.

“The Jibbit-able or the personalizable sandals that we released last year and this year continue to do extremely well,” said Rees. “The classic slide that we released last year is really strengthening this year, and the two-strap classic sandal that released this year has had a very strong kind of initial introduction so personalization is definitely working really well for consumer.”

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The popularity of Crocs’ merchandise throughout the pandemic has strengthened the brand’s pricing power, enabling the company to raise prices on its Classic Clogs and other products in the quarter.

“As we look at pricing, we’re really looking to make sure that number one, we give incredible value to our consumers,” Rees said. “The second thing that we’re looking at is appropriately matching supply and demand, and we really felt like we had an opportunity to take some pricing action. We feel like that pricing action has been well received.”

While Rees said the impact of the pricing will take six to nine months to flow through to Crocs’ overall financials, chief financial officer Anne Mehlman pointed out that the pricing increases do impact the overall 2021 guidance changes when combined with the growing volume of goods sold.

Inventories increased to $196.5 million at the end of the quarter, in line with the $195.8 million to close the first quarter last year. While inventory was lean throughout the quarter, Crocs ended the period with higher in-transit inventory, due to global logistics challenges, Mehlman said.

Although wholesale revenues were a big part of the sales jump, still boosting 50.1 percent to $290 million, Rees confirmed Crocs’ decision to “pull back from certain wholesale partners that didn’t feel like they were consistent with our future strategy,” similar to Nike’s decision to trim its roster of retailers while focusing on DTC and premium partners. The clog maker hasn’t revealed which partners it exited.

Crocs saw a gross margin of 55 percent, increasing 730 basis points compared to 47.7 percent in the same period last year. Adjusted gross margin of 55.2 percent rose 720 basis points from the same period last year.

Capital expenditures during first quarter totaled $8 million, compared to $16.1 million for the same period last year.

Cash and cash equivalents were $255.9 million as of March 31, while borrowings were $341.1 million.  The company’s liquidity position remains strong with $499.7 million in available borrowing capacity.

Crocs expects the second quarter to be similar to the first, with expectations between 60 percent and 70 percent above the $331.5 million posted in the 2020 quarter. Approximately $3 million related to distribution center investments will impact gross margin, with adjusted operating margins expected to fall between 21 percent and 23 percent.

As far as full-year projections go, the 40 to 50 percent revenue growth estimate is a sizable bump compared to the 12.6 percent year-over-year growth to $1.4 billion in 2020. The distribution center investments that impact gross margin will be between $12 million and $15 million, while adjusted operating margin is projected to be between 22 percent and 24 percent.

Capital expenditures for supply chain investments are expected to be in the range of $100 million to $130 million.

Net Sales: Crocs generated record first-quarter revenues of $460.1 million, an increase of 63.6 percent, or 60.5 percent on a constant currency basis, with growth in all regions and channels. This surpassed projected revenue from analysts polled by Refinitiv, which called for $415 million.

Digital sales grew 75.3 percent to represent 32.3 percent of revenue versus 30.1 percent last year. Direct-to-consumer revenues increased 93.3 percent to $170.1 million compared to $88 million for the same period last year, while wholesale revenues increased 50.1 percent to $290 million compared to $193.2 million in the year-ago period.

When splitting up by region, the Americas saw revenues increase 87.5 percent on a constant currency basis to $276.4 million, while EMEA revenues reached $101.1 million, a boost of 41 percent. The Asia Pacific region grew revenue 20.1 percent to $82.6 million.

Net Earnings: Net income at Crocs grew nearly nine-fold to $98.4 million in the first quarter, from $11.1 million in the year-ago quarter.

Operating income increased to $124.7 million from $20.8 million last year and operating margins expanded significantly to 27.1 percent versus 7.4 percent in 2020.

Diluted earnings per share were a quarterly record $1.47 compared to 16 cents for the same period last year. Adjusted diluted earnings per share were $1.49, well above the 22 cents per share generated in last year’s second quarter and ahead of Refinitiv analyst projections of 89 cents per share.

CEO’s Take: Rees expressed confidence in Croc’s recent supply-chain investments, with expansions of its Dayton, Ohio, distribution center, the launch of its main European distribution center in the Netherlands and a new 3PL partner distribution center in Japan.

“From a sourcing of manufacturing perspective, we have some phenomenal partners,” Rees said. “We have major partner groups in Asia that have very significant resources. They have opened new facilities, they’ve expanded existing facilities, and will continue to do that in the future. We’re also in conversations with a couple of significant new partners as well, so we feel really confident in the partner base that we have, and our ability to work with new partners in potentially new regions for the manufacturing.”