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COVID-19 Has ‘Profound’ Effect on Crocs in Q1

The first quarter proved challenging for Crocs, despite positive brand momentum in 2019.

In a Nutshell: Crocs first sounded the alarm in February that the coronavirus outbreak may cost the clog maker $60 million in revenue this year.

Many of its 367 company-owned stores were closed in Q1, the company said, and retail traffic suffered accordingly.

Unfortunately, Crocs expects this impact to increase in the second quarter as many retailers will be closed throughout much, if not all, of the period.

“We are beginning to see some recovery in store traffic and sales in China and Korea where almost all stores are now open,” Crocs said in a statement. “However, we are also seeing declines in Japan, India, and much of Southeast Asia, areas that have been impacted by a second wave of the virus.”

Crocs has “significantly reduced” executive compensation for the foreseeable future and temporarily furloughed retail employees while reducing hiring and expenses. For the time being, Crocs will maintain its distribution centers as “essential businesses,” according to the company.

“Despite our optimism for the future, the near-term impact on our business has been profound,” Crocs president and CEO Andrew Rees said.

Sales: Combined revenues totaled $281.2 million in the first quarter of fiscal 2020, below the Wall Street estimate of $286 million and down 5 percent from the comparable period in 2019.

Wholesale revenue fell by 5.6 percent and retail comparable sales dropped 7.5 percent, sending total retail revenue down 15 percent as a result of coronavirus countermeasures. Crocs said comparable-store sales were up 23 percent prior to the pandemic.

Income from operations also declined 36.1 percent to $20.8 million from $32.6 million during the same period last year.

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Meanwhile, Crocs’ e-commerce channel sales grew by 15.8 percent and helped partially offset those losses. The company also said it had seen its highest level of Google search interest in the past 15 years.

Earnings: Adjusted diluted earnings per share fell to 22 cents in the first quarter, below the 36 cents recorded in Q1 of 2019. This result also fell well below the 36 cents expected by Wall Street analysts.

CEOs Take: Rees spoke of “unprecedented market conditions globally” while offering encouragement that the company could remain “strong” and “vibrant” through the current crisis.

“In the near-term, we have no liquidity concerns and have taken quick action to ensure we will be strongly cash-flow positive for the remainder of the year,” Rees said. “Over the long-term, we are confident we will restore our momentum in 2021 and continue our positive growth trajectory for years to come.

“Our immediate focus remains on the well-being of our customers, employees, and communities,” he added.