Crocs sales soared 67 percent in the second year of the pandemic, trouncing the 13 percent bump it saw in 2020, it reported Wednesday.
Unsurprisingly, the clog maker expects revenue growth to moderate in 2022. Excluding Hey Dude—Crocs expects to close on its $2.5 billion purchase of the casual footwear brand in the coming days—the company forecasted sales growth will exceed 20 percent this year.
In a Nutshell: Though rapidly declining Covid cases seem to suggest a more normalized business environment in the virus’ third year, Crocs, like others, expects continued supply chain difficulties for at least the first half of 2022. During the first six months of the year, the company expects to incur $75 million of incremental air freight costs. Additionally, chief financial officer Anne Mehlman said approximately $40 million in orders will slip from the first to second quarter.
Though Crocs was impacted by Covid-related closures in Vietnam last summer—CEO Andrew Rees warned of a volatile, “on again, off again” situation back in October when factories were first getting back online—the supply chain delays it is wrestling with today are more due to transportation. The biggest impact, he added, is in Europe, the Middle East and Asia (EMEA) and among sandals.
“I would say it’s a combination of delays in loading, delays in transit and delays in unloading,” Rees said on a call with investors. “As we look at our overall business, I think we’re confident in the amount of supply that we have and the ability to grow our supply base to meet our overall annual guidance.”
The “majority” of retail partners have been “incredibly understanding” so far, Rees noted. “I think they’re seeing this from lots of people right now and we would not anticipate cancellations at this time,” he added.
As of Dec. 31, Crocs’ total inventories stood at $213.5 million, up from $175 million a year earlier.
Like many businesses, Crocs is raising its prices. According to Mehlman, the company’s average selling price rose 19 percent year over year in the fourth quarter to $25.71—a combination of price increases taken during 2021 and fewer promotions and discounts. In the full year, Crocs’ average selling price increased 12 percent to $22.27.
“Our early action in 2021, of taking price, obviously, allowed us to more than offset the impact of inflation for 2021,” Mehlman said. “I think that puts us in a really good position for 2022.”
Price increases in EMEA and Asia, she noted, will flow through in 2022. Increases in U.S. wholesale, meanwhile, will began flowing through in the back half of last year and will continue to flow into the first half of this year.
“We are seeing competitors take price [increases] and anticipating more of that through the year,” Rees said. “I think we were a little bit early in some of the actions that we took last year. We will monitor that closely. It’s very important to us that we continue to provide incredible value to consumers, but also at the same time capture the value that’s required in terms of the value of the Crocs brand.”
Net Sales: Crocs’ fourth-quarter revenues soared 43 percent year over year—44 percent on a constant-currency basis—to $587 million. Direct-to-consumer sales climbed 45 percent, while wholesale grew 40 percent.
The company recorded $2.31 billion in revenues during the full year, a 67 percent increase—65 percent in constant currency—compared to 2020. Geographically, the Americas led the way with sales soaring 86 percent to $1.61 billion. EMEA revenue grew 42 percent to $356 million, while Asia Pacific improved 22 percent to $350 million.
In China, described by Rees a year ago as one of Crocs’ “most significant long-term opportunities,” the company’s plans remain “on track.” The CEO did note, however, the country’s strict policy around Covid lockdowns. When folks are locked down at home, “obviously, in that city, your business goes to zero for a short period of time,” he said.
“We’ve seen that through Q4 and then, frankly, in our expectations, we assume that will continue through this year,” Rees said. “So, it’s just an interruption to the business that we have to manage. Having said that, we grew China double digits last year and we expect to do the same again this year.”
Direct-to-consumer (DTC) revenues hit $1.14 billion in 2021, a 64 percent jump compared to 2020’s $693 million. Wholesale just edged out DTC at $1.17 billion, a 69 percent increase from $693 million last year. Digital sales—including via company websites, third-party marketplaces and e-tailers—grew 48 percent in 2021 to represent 37 percent of revenues.
Looking to the first quarter of 2022, Crocs expects to see revenues grow approximately 31 percent to 37 percent to $605 million to $630 million. Excluding Hey Dude, it anticipates sales will increase 13 percent to 16 percent to $520 million to $535 million. The company’s forecasted adjusted operating margin, approximately 22 percent, includes a roughly $30 million impact from air freight.
In 2022, Crocs expects sales growth to exceed 20 percent, excluding Hey Dude. It anticipates the casual footwear brand will add $620 million to $670 million, on a reported basis in 2022. Over the full year, including the period prior to its purchase, Crocs expects Hey Dude to record $700 million to $750 million in revenue.
Net Income: The clog maker’s fourth-quarter gross margin and adjusted gross margin both increased 770 basis points to 63 percent and 64 percent, respectively, compared to the year-ago period.
Income from operations rose 148 percent to $160 million, while operating margin grew from 16 percent to 27 percent. Adjusted income from operations increased 93 percent to $168 million and adjusted operating margin was 29 percent—up from 21 percent a year ago.
Diluted earnings per share slid down to $2.57 from $2.69 in the same period a year earlier due to a lower tax benefit, Crocs said. Adjusted diluted earnings per share more than doubled from $1.06 to $2.15.
Crocs’ full-year 2021 adjusted gross margin rose 700 basis points to 61.6 percent. Its adjusted income from operations jumped 165 percent to $695 million, while its adjusted operating margin rose from 18.9 percent in 2020 to 30.1 percent last year. Adjusted diluted earnings per share more than doubled to $8.32.
CEO’s Take: “I’d be remiss if I did not mention the many unknowns in the world today, ranging from [a] challenging supply chain, lingering Covid shutdowns, to rising inflation and a potential impact on consumer spending,” Rees said. “We’re not immune to these many macro headwinds. However, I’m confident in our brand, our team and a demonstrated ability to navigate uncertain times.”