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Crocs Says Coronavirus Could Clog Up $60 Million in Revenue

Despite high-profile collaborations with the likes of Post Malone and KFC, Crocs may find its good fortunes give way to coronavirus-induced supply chain disruption.

In a Nutshell: Crocs estimates a $40 million to $60 million coronavirus impact throughout fiscal year 2020, which excludes possible supply chain disruption and includes “store closures and overall consumer demand in the Asia region,” executive vice president and CFO Anne Mehlman said.

During Thursday’s quarterly conference call, Mehlman said Crocs has reopened its factories in China but warned of varying levels of activity as they come back online. On the consumer end, Crocs generated about five percent of its total revenue from China in 2018, according to Mehlman.

Crocs’ e-commerce operations in China were shut down for most of February as the company’s distribution partner was ordered closed by the local government, president and CEO Andrew Rees added, though the partner has since reopened.

Crocs currently sources a little more than 10 percent of its finished goods from China, Rees said, with another 70 percent coming from Vietnam.

“Vietnam is not free from impacts, right? So, we do get components that go into the product that we make in Vietnam out of China,” Rees said during the call. “Some of that is dual-sourced, so we can switch to a Vietnam-only source and some of it is solely sourced out of China, so we’ll have to look for different sources around that.”

Crocs’ inventory is 37 percent higher versus the prior-year period, most of that product is in the U.S., Mehlman noted. Close to half of that stems from a push to flow product in ahead of the Chinese New Year holiday, a decision Mehlman deemed “prudent” in light of the current climate.

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Sales: Crocs reported $263 million in revenue during the fourth quarter, growing by 21.8 percent over the comparable period in FY18 and above Wall Street estimates of $260.08 million. Wholesale revenue was up 22.4 percent and e-commerce growth reached 34.3 percent in the quarter.

Margins grew in Q4 to 48 percent, improving 310 basis points on a favorable product mix, price increases and lower levels of promotional activity.

Annual revenue rose by 13.1 percent to $1.23 billion in fiscal year 2019, in line with Wall Street estimates. Wholesale revenue grew 13.5 percent alongside a 24.2 percent increase in e-commerce business.

Crocs closed a net of 16 stores during the year and said revenue was reduced by $17.2 million as a result. The company expects revenue to increase in the range of 8 percent to 12 percent in fiscal year 2020.

Earnings: Crocs earned 29 cents per diluted share in the fourth quarter, above the Wall Street estimate of 7 cents, an improvement over the loss of $1.72 it recorded in the comparable period.

In FY19, Crocs recorded diluted EPS of $1.66, beating Wall Street estimates of $1.6 and improving upon the loss of $1.01 in fiscal year 2018.

CEOs Take: “Our record fourth quarter and full-year top-line combined with our double-digit operating margin underscores the progress we have made executing our key strategic initiatives,” Rees said. “Focusing on our core clog and sandal categories and further igniting brand heat through impactful marketing campaigns and collaborations are fueling strong revenue growth.

“Equally important, the work we’ve done reducing our expense structure is allowing us to translate our top-line success into even stronger earnings growth as we continue to make important investments in the business,” he added.