The overall shift in consumer trends to comfortable footwear has benefited Crocs as the coronavirus crisis has ravaged much of consumer retail. While global revenues for the brand declined 7.6 percent to $331.5 million in the second quarter, or 6 percent on a currency adjusted basis, the totals come in well ahead of the $249.63 million projection by Thomson Reuters analysts.
Four of the company’s key geographies—the United States, South Korea, China and Germany—delivered revenue growth. And the company has remained profitable, with a net income of $56.6 million in the quarter.
Global e-commerce revenue increased by 67.7 percent with strong growth in all regions, with digital comprising 56.1 percent of total sales.
As of June 30, 98 percent of the 360 Crocs company-operated stores were open.
In a Nutshell: The Morning Consult Most Loved Brands 2020 report said that Crocs had the 14th largest increase in the share “net favorability” among U.S. consumers, with the five-point gain particularly notable as the clog maker was the only footwear or apparel label on the 25-brand list. This is an indicator that the already popular Crocs brand has grown on consumers even more as they shift toward comfortable, casual footwear.
Total inventory, which is calculated on a six-month basis, decreased 14.6 percent to $146.8 million as of June 30, from $172 million as of Dec. 31, 2019.
During the second quarter, Crocs opened a new global headquarters in Broomfield, Colo., less than 20 miles outside of downtown Denver. The facility is designed to allow the company to expand its ability to attract talent. The company also entered into a lease for a new distribution center adjacent to its existing facility in Dayton, Ohio. The new facility will be dedicated to e-commerce fulfillment and will increase the brand’s distribution capacity in the Americas.
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Cash and cash equivalents totaled $151.4 million as of June 30, compared to $108.3 million as of Dec. 31, and up to $224.4 million of available borrowings under its credit facility. The footwear company has $275 million of borrowings outstanding on its credit facility after reducing the amount it needs to loan by $75 million during the second quarter.
Capital expenditures during the six months ended June 30 were $24.3 million, compared to $18.7 million during the same period in 2019.
Selling, general and administrative (SG&A) expenses were $123.3 million, down from $141.5 million last year. SG&A included non-GAAP adjustments of $14 million compared to $0.2 million in last year’s second quarter. Most charges were a result of $8.2 million of frontline healthcare product donations. Thus far, Crocs has donated more than 860,000 pairs of shoes to healthcare workers in need. The company’s adjusted SG&A was 33 percent of revenues versus 39.4 percent, in last year’s second quarter.
The continued disruption from COVID-19 has prevented Crocs from providing a third-quarter guidance. However, excluding the impact of any future shutdowns in major markets for full year 2020, Crocs expects revenue for the remainder of 2020 to be approximately flat compared to the back-half of 2019.
Crocs anticipates inventory will be constrained throughout the remainder of the year, reflecting the company’s decision to significantly reduce inventory purchases because of the pandemic, while capital expenditures will be approximately $50 million, reflecting previously deferred investments to support future growth.
Revenue: Crocs saw revenues decline 7.6 percent (6 percent on a currency adjusted basis) to $331.5 million, with the Americas increasing revenues 1.2 percent.
E-commerce revenue grew 67.7 percent, helping make up declines through both its wholesale and retail channels as stores remained closed throughout April and May. In total, digital sales represented 56.1 percent of total sales at Crocs in the quarter. The online growth was a sizeable jump over the first quarter increase as well, when e-commerce channel sales grew by 15.8 percent.
The Americas saw triple-digit e-commerce growth at 102.2 percent, while the Asia (31.2 percent) and EMEA (52.4 percent) regions generated double-digit digital growth.
Wholesale revenue declined 19.5 percent and retail revenue declined 41.8 percent, although retail comparable store sales on a currency adjusted basis grew 10.5 percent upon the stores’ reopening.
Net Earnings: Crocs remained profitable in the second quarter, with net income increasing 44.3 percent from $39.2 million to $56.6 million. Earnings per share increased 52.7 percent to 84 cents from 55 cents in the second quarter of 2019. Diluted earnings per share increased 50.9 percent to 83 cents, as compared with 55 cents in the year-ago period.
Operating income increased 18.3 percent to $56.6 million in the quarter, and operating margin rose 380 basis points to 17.1 percent.
Gross margin for the quarter was 54.3 percent, an increase of 150 basis points from last year’s second quarter. Adjusted gross margin was 55.2 percent, which excludes $3.2 million or 100 basis points of non-recurring expenditures for COVID-19-related inventory charges in Asia and costs related to our U.S. distribution center. Adjusted gross margin rose 160 basis points compared to last year’s second quarter, benefiting from product mix, higher prices on certain product and lower levels of promotions and discounts.
CEO’s Take: “Amidst unprecedented market conditions globally, we delivered exceptional performance in our Americas and e-commerce businesses and increased profit despite a very challenging environment,” said Andrew Rees, president and CEO of Crocs. “Our performance demonstrates the strength of the Crocs brand and underscores the work we’ve done expanding the desirability, relevance, and consideration of our brand and product offering globally.”