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Crocs Stock Rises on Earnings, Revenue Beats Despite Supply Chain Warnings

Crocs released its first-quarter financial report Tuesday morning, sending its stock rising on revenue and earnings beats. However, doubts regarding the supply of its classic clog styles in the second quarter have tempered expectations.

In a Nutshell: When early trading began on Tuesday, Crocs stock rose nearly 8 percent to $30.70 from $28.33. However, once investors were able to dig into the full report, the brand’s share price leveled out to $28.43 at the time of writing—a gain of less than 1 percent.

The possible reasoning behind this comes from Crocs’ warning about its best-selling clog. The brand said that “surging demand”—potentially due to Crocs overnight popularity with young adults—had constrained its supply of classic clogs and that its guidance would be weakened as a result. However, the brand also said that inventories would be returned to optimal levels by the end of the quarter.

While this may have weakened Crocs’ short-term gains in the stock market, the brand was unperturbed, calling the quarter “a great start to 2019” and lauding its better-than-expected performance in both earnings and revenue. In fact, Crocs said its board of directors were so pleased with the outcome that they approved an additional $500 million in stock buybacks to add to the $100 million it had already allocated for that purpose.

Additionally, the brand’s investment in a new distribution center (DC) in Dayton, Ohio has begun to play out on its bottom line. Crocs said it expects around $35 million of its total $65 million in capital expenditures to be dedicated to the DC investment and the rest will go toward additional IT and infrastructure improvements.

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Margins will also fall as a result of non-recurring charges related to the DC as well as higher freight and distribution costs, Crocs noted. The brand said its gross margin will likely decline to 49.5 percent in FY19, compared to 51.5 percent in 2018.

Sales: Crocs recorded revenues of $295.9 million in the first quarter, up 4.5 percent year-over-year. Analysts predicted sales of $292.01 million for the brand. All distribution channels were up, with e-commerce revenues growing the most at 16.5 percent over the comparable quarter last year. Comparable store sales for the brand were also up 8.7 percent and wholesale revenues grew by 5.2 percent.

Crocs added that, despite the strong growth, its sales were likely negatively impacted by both store closures and changes in its business model, resulting in an estimated loss of $6 million in revenue.

The brand also gave revenue outlook for both the second quarter and FY19. Over the next quarter, Crocs expects between $350 and $360 million in sales compared to $328 million in Fy18. It said revenue would likely be boosted by a later Easter but will simultaneously be hindered by a $6 million impact associated with store closures and a $10 million impact associated with a stronger U.S. dollar. Crocs had no guidance for how much the constrained supply of classic clogs would affect its top-line growth over the coming quarter.

For the full year, Crocs said those same headwinds would result in a $25 million loss due to currency changes and a $20 million loss from store closures. However, it still anticipates that revenue should grow by 5 to 7 percent over the $1.088 billion it recorded in 2018.

Earnings: Crocs raised 33 cents per share in the first quarter, up from the 15 cents it earned in the first quarter of last year and beating the 25 cent gain analysts expected. Net income in Q1 more than doubled, year-over-year, at $24.7 million compared to just $12.5 million in FY18.

CEO’s Take: Andrew Rees, president and CEO of Crocs, expressed excitement for the future of his brand and touted its direct-to-consumer growth and strong retail performance in the first quarter.

“2019 is off to a great start. Revenues exceeded expectations as demand for our product and excitement around the brand continued to yield accelerated sell-throughs. We were particularly pleased with the exceptional direct to consumer performance successfully comping an earlier Easter last year,” Rees said. “We have now delivered five consecutive quarters of double-digit DTC comp growth. I am more confident than ever in the strength of our brand and our future. As a reflection of our optimism, our Board of Directors has increased our share buyback authorization by $500 million.”