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Crocs, Inc. Reports Record Third Quarter Revenue and Raises Full Year Guidance

Industry-Leading Third Quarter Operating Margin of 27%

BROOMFIELD, Colo., Nov. 3, 2022 /PRNewswire/ -- Crocs, Inc. (NASDAQ: CROX), a world leader in innovative casual footwear for women, men, and children, today announced its third quarter 2022 financial results.

"Our exceptional third quarter results, including record revenue and industry-leading adjusted operating margin of 28% are a testament to the strength of the Crocs and HEYDUDE brands," said Andrew Rees, Chief Executive Officer. "We are raising 2022 guidance following our strong back-to-school performance and 20% constant currency revenue growth in the Crocs Brand. We are confident in our ability to continue to gain significant market share, deliver best-in-class profitability, and generate strong cash flow."

Third Quarter 2022 Highlights

  • Consolidated revenues of $985.1 million increased 57.4%, or 63.0% on a constant currency basis, as compared to 2021.

  • Crocs Brand quarterly revenues of $715.7 million increased 14.3%, or 19.9% on a constant currency basis, as compared to 2021. Direct-to-consumer ("DTC") comparable sales increased 18.2%.

  • Crocs Brand international revenues grew 43.7%, or 61.9% on a constant currency basis and North America DTC comparable sales rose 13.0%, as compared to 2021.

  • HEYDUDE Brand revenues were $269.4 million, up approximately 87% compared to 2021.

  • Operating margin was 26.8% and adjusted operating margin was 27.9%.

  • Diluted earnings per share was $2.72, as compared to $2.42 during the same period last year. Adjusted diluted earnings per share increased 20.2% to $2.97.

Third Quarter 2022 Operating Results

Amounts referred to as "adjusted" or "non-GAAP" are non-GAAP measures and include adjustments that are described under the heading "Reconciliation of GAAP Measures to Non-GAAP Measures." A reconciliation of these amounts to their GAAP counterparts are contained in the schedules below.

  • Revenues were $985.1 million, an increase of 57.4% from the same period last year, or 63.0% on a constant currency basis. On a constant currency basis, DTC grew 45.8%, and wholesale grew 80.5% compared to 2021.

  • Gross margin was 54.9% compared to 63.9%, and adjusted gross margin was 55.1% compared to 64.2% in the same period last year, respectively. Crocs Brand gross margin was 57.3%, or 660 basis points lower than prior year driven by approximately 200 basis points of inflationary costs and approximately 270 basis points of higher freight and inventory handling costs, of which we estimate 150 basis points to be transitory. Currency negatively impacted gross margin by 115 basis points. HEYDUDE Brand gross margin was 48.8%, which represents the continued effect of legacy freight contract costs and higher inventory storage costs as we work to expand distribution center capabilities to support a larger business.

  • Selling, general, and administrative expenses ("SG&A") of $277.2 million increased from $196.7 million in the same period last year, and SG&A as a percent of revenues improved to 28.1% from 31.4% in prior year. Adjusted SG&A improved to 27.2% of revenues versus 31.4% for the same period last year. Adjusted SG&A excludes $9.1 million of costs, primarily related to the ongoing HEYDUDE integration.

  • Income from operations increased 30.0% to $264.1 million and operating margin was 26.8%, compared to 32.4% for the same period last year, due to lower gross margin and HEYDUDE integration expenses. Adjusted income from operations rose 33.8% to $274.5 million and adjusted operating margin was 27.9%.

  • Diluted earnings per share was $2.72, as compared to $2.42 for the same period last year. Adjusted diluted earnings per share increased 20.2% to $2.97 compared to $2.47 in 2021.

Third Quarter 2022 Brand Summary

  • Crocs Brand: Revenues increased 14.3%, or 19.9% on a constant currency basis, to $715.7 million. Wholesale revenues increased 14.1%, or 21.8% on a constant currency basis. DTC comparable sales increased 18.2%.

  • HEYDUDE Brand: Revenues during the third quarter were $269.4 million. Wholesale revenues were $181.8 million and DTC revenues were $87.6 million.

Balance Sheet and Cash Flow

  • Cash and cash equivalents were $143.0 million as of September 30, 2022, compared to $213.2 million as of December 31, 2021.

  • Inventories increased to $513.7 million as of September 30, 2022, compared to $213.5 million as of December 31, 2021 and $212.5 million as of September 30, 2021. This increase was driven primarily by the addition of $189.5 million of HEYDUDE inventory as of September 30, 2022.

  • Capital expenditures during the nine months ended September 30, 2022 were $89.6 million, compared to $35.8 million for the same period last year, reflecting investments in our new distribution centers.

  • Borrowings were $2.62 billion as of September 30, 2022 compared to $771.4 million as of December 31, 2021, an increase driven by borrowings used to finance a portion of the HEYDUDE acquisition. Our liquidity position remains strong with $143.0 million in cash and cash equivalents and $611.1 million in available borrowing capacity as of September 30, 2022. During the third quarter, we repaid $155.3 million of debt.

Financial Outlook

Full Year 2022

With respect to 2022, we expect:

  • Consolidated revenues to now be approximately $3.455 to $3.520 billion, representing growth between 49% and 52% compared to 2021.

  • Adjusted operating income to now be approximately $920 to $950 million and adjusted operating margin to be approximately 27%. This excludes non-GAAP adjustments primarily related to the HEYDUDE acquisition and integration of $75 million in cost of sales and $55 million in SG&A.

  • GAAP tax rate of approximately 25% and non-GAAP effective tax rate to now be approximately 21%.

  • Adjusted diluted earnings per share to now be between $9.95 and $10.30.

  • Capital expenditures to now be approximately $150 to $170 million, primarily for supply chain investments to support growth.

Long-Term Projections

We expect:

  • Crocs Brand revenues to still be $5.0 billion by 2026.

  • HEYDUDE Brand revenues to now be over $1.0 billion in 2023.

  • Consolidated adjusted operating margins to still exceed 26% by 2026.

  • Gross leverage to still be below 2.0x by mid-year 2023 following strong earnings and cash flow expectations for 2022.

Conference Call Information

A conference call to discuss third quarter 2022 results is scheduled for today, Thursday, November 3, 2022, at 8:30 am ET. To receive conference call details, please register at the Investor Relations section of the Crocs website, investors.crocs.com. The webcast will also be available live and on replay through November 3, 2023 at this site.

About Crocs, Inc.

Crocs, Inc. (Nasdaq: CROX) is a world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers know and love. The Company's brands include Crocs and HEYDUDE and its products are sold in more than 85 countries through wholesale and direct-to-consumer channels. For more information on Crocs, Inc. please visit investors.crocs.com. To learn more about our brands, please visit www.crocs.com or www.heydudeshoesusa.com or follow @Crocs or @heydudeshoes on Facebook, Instagram and Twitter.

Forward Looking Statements

This press release includes estimates, projections, and statements relating to our business plans, commitments, objectives, and expected operating results that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements regarding potential impacts to our business related to our supply chain challenges, cost inflation, the COVID-19 pandemic, our financial condition, brand and liquidity outlook, and expectations regarding our future revenue, margins, non-GAAP adjustments, tax rate, earnings per share and capital expenditures, the acquisition of HEYDUDE and benefits thereof, Crocs' strategy, plans, objectives, expectations (financial or otherwise) and intentions, future financial results and growth potential, statements regarding full year and fourth quarter 2022 financial outlook and future profitability, cash flows, and brand strength, anticipated product portfolio and our ability to deliver sustained, highly profitable growth and create significant shareholder value. These statements involve known and unknown risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the following: our expectations regarding supply chain disruptions; the COVID-19 pandemic and related government, private sector, and individual consumer responsive actions; cost inflation; current global financial conditions, including economic impacts resulting from the COVID-19 pandemic; the effect of competition in our industry; our ability to effectively manage our future growth or declines in revenues; changing consumer preferences; our ability to maintain and expand revenues and gross margin; our ability to accurately forecast consumer demand for our products; our ability to successfully implement our strategic plans; our ability to develop and sell new products; our ability to obtain and protect intellectual property rights; the effect of potential adverse currency exchange rate fluctuations and other international operating risks; and other factors described in our most recent Annual Report on Form 10-K under the heading "Risk Factors" and our subsequent filings with the Securities and Exchange Commission. Readers are encouraged to review that section and all other disclosures appearing in our filings with the Securities and Exchange Commission.

All information in this document speaks only as of the date of this press release. We do not undertake any obligation to update publicly any forward-looking statements, except as required by applicable law.

Category:Investors

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)



Three Months Ended September 30,


Nine Months Ended September 30,


2022


2021


2022


2021

Revenues

$ 985,094


$ 625,919


$ 2,609,823


$ 1,726,790

Cost of sales

443,792


226,123


1,245,864


678,594

Gross profit

541,302


399,796


1,363,959


1,048,196

Selling, general and administrative expenses

277,239


196,728


733,255


525,120

Income from operations

264,063


203,068


630,704


523,076

Foreign currency gains (losses), net

(393)


537


(1,115)


(84)

Interest income

31


615


219


713

Interest expense

(34,142)


(6,486)


(86,357)


(12,830)

Other income (expense), net

16


2


(512)


15

Income before income taxes

229,575


197,736


542,939


510,890

Income tax expense (benefit)

60,226


44,247


140,515


(59,951)

Net income

$ 169,349


$ 153,489


$ 402,424


$ 570,841

Net income per common share:








Basic

$ 2.75


$ 2.47


$ 6.59


$ 8.96

Diluted

$ 2.72


$ 2.42


$ 6.51


$ 8.79

Weighted average common shares outstanding:








Basic

61,693


62,033


61,042


63,695

Diluted

62,367


63,324


61,840


64,937

CROCS, INC. AND SUBSIDIARIES

EARNINGS PER SHARE

(UNAUDITED)

(in thousands, except per share data)



Three Months Ended September 30,


Nine Months Ended September 30,


2022


2021


2022


2021

Numerator:








Net income

$ 169,349


$ 153,489


$ 402,424


$ 570,841

Denominator:








Weighted average common shares outstanding - basic

61,693


62,033


61,042


63,695

Plus: Dilutive effect of stock options and unvested restricted stock units

674


1,291


798


1,242

Weighted average common shares outstanding - diluted

62,367


63,324


61,840


64,937









Net income per common share:








Basic

$ 2.75


$ 2.47


$ 6.59


$ 8.96

Diluted

$ 2.72


$ 2.42


$ 6.51


$ 8.79

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and par value amounts)



September 30,
2022


December 31,
2021

ASSETS




Current assets:




Cash and cash equivalents

$ 142,971


$ 213,197

Restricted cash - current

2


65

Accounts receivable, net of allowances of $31,039 and $20,715, respectively

397,657


182,629

Inventories

513,748


213,520

Income taxes receivable

2,464


22,301

Other receivables

23,560


12,252

Prepaid expenses and other assets

42,770


22,605

Total current assets

1,123,172


666,569

Property and equipment, net of accumulated depreciation and amortization of $91,037 and $83,745, respectively

163,374


108,398

Intangible assets, net of accumulated amortization of $121,717 and $108,167, respectively

1,802,576


28,802

Goodwill

714,380


1,600

Deferred tax assets, net

481,897


567,201

Restricted cash

2,980


3,663

Right-of-use assets

248,548


160,768

Other assets

6,241


8,067

Total assets

$ 4,543,168


$ 1,545,068

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$ 190,097


$ 162,145

Accrued expenses and other liabilities

228,971


166,887

Income taxes payable

76,990


16,279

Current borrowings

20,000


Current operating lease liabilities

55,102


42,932

Total current liabilities

571,160


388,243

Deferred tax liabilities, net

312,813


Long-term income taxes payable

204,769


219,744

Long-term borrowings

2,595,767


771,390

Long-term operating lease liabilities

225,395


149,237

Other liabilities

2,462


2,372

Total liabilities

3,912,366


1,530,986

Commitments and contingencies




Stockholders' equity:




Preferred stock, par value $0.001 per share, 5.0 million shares authorized including 1.0 million authorized as Series A Convertible Preferred Stock, none outstanding


Common stock, par value $0.001 per share, 250.0 million shares authorized, 109.5 million and 105.9 million issued, 61.7 million and 58.3 million outstanding, respectively

109


106

Treasury stock, at cost, 47.7 million and 47.6 million shares, respectively

(1,695,463)


(1,684,262)

Additional paid-in capital

791,750


496,036

Retained earnings

1,681,464


1,279,040

Accumulated other comprehensive loss

(147,058)


(76,838)

Total stockholders' equity

630,802


14,082

Total liabilities and stockholders' equity

$ 4,543,168


$ 1,545,068

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)



Nine Months Ended September 30,


2022


2021

Cash flows from operating activities:




Net income

$ 402,424


$ 570,841

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

26,498


23,832

Operating lease cost

47,945


44,067

Share-based compensation

25,463


29,939

Deferred income taxes


(176,873)

Other non-cash items

12,568


(2,672)

Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:




Accounts receivable

(166,864)


(80,981)

Inventories

(139,682)


(41,193)

Prepaid expenses and other assets

(20,526)


(9,936)

Accounts payable, accrued expenses and other liabilities

51,608


30,997

Right-of-use assets and operating lease liabilities

(45,824)


(37,723)

Income taxes

53,075


4,867

Cash provided by operating activities

246,685


355,165

Cash flows from investing activities:




Purchases of property, equipment, and software

(89,588)


(35,758)

Acquisition of HEYDUDE, net of cash acquired

(2,046,881)


Other

(20)


(9)

Cash used in investing activities

(2,136,489)


(35,767)

Cash flows from financing activities:




Proceeds from notes issuance


700,000

Proceeds from borrowings

2,240,677


170,000

Repayments of borrowings

(350,285)


(350,000)

Deferred debt issuance costs

(51,395)


(14,491)

Repurchases of common stock


(500,000)

Repurchases of common stock for tax withholding

(11,439)


(18,766)

Other

95


237

Cash provided by (used in) financing activities

1,827,653


(13,020)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

(8,821)


(3,907)

Net change in cash, cash equivalents, and restricted cash

(70,972)


302,471

Cash, cash equivalents, and restricted cash—beginning of period

216,925


139,273

Cash, cash equivalents, and restricted cash—end of period

$ 145,953


$ 441,744

CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America ("GAAP"), we present "Non-GAAP cost of sales," "Non-GAAP gross profit," "Non-GAAP gross margin," "Non-GAAP gross margin by brand," "Non-GAAP selling, general, and administrative expenses," "Non-GAAP selling, general and administrative expenses as a percent of revenues," "Non-GAAP income from operations," "Non-GAAP operating margin," "Non-GAAP income tax expense (benefit)," "Non-GAAP effective tax rate," "Non-GAAP net income," and "Non-GAAP basic and diluted net income per common share," which are non-GAAP financial measures. We also present future period guidance for "Non-GAAP operating margin," "Non-GAAP operating income," "Non-GAAP effective tax rate," and "Non-GAAP diluted earnings per share." Non-GAAP results exclude the impact of items that management believes affect the comparability or underlying business trends in our condensed consolidated financial statements in the periods presented.

We also present certain information related to our current period results of operations through "constant currency," which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under GAAP. Constant currency represents current period results that have been retranslated using exchange rates used in the prior year comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.

Management uses non-GAAP results to assist in comparing business trends from period to period on a consistent basis in communications with the board of directors, stockholders, analysts, and investors concerning our financial performance. We believe that these non-GAAP measures are useful to investors and other users of our condensed consolidated financial statements as an additional tool for evaluating operating performance and trends. For the three and nine months ended September 30, 2022, management believes it is helpful to evaluate our results excluding the impacts of various adjustments relating to special or non-recurring items. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

CROCS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(UNAUDITED)


Non-GAAP cost of sales, gross profit, and gross margin reconciliation:



Three Months Ended September 30,


Nine Months Ended September 30,


2022


2021


2022


2021


(in thousands)

GAAP revenues

$ 985,094


$ 625,919


$ 2,609,823


$ 1,726,790









GAAP cost of sales

$ 443,792


$ 226,123


$ 1,245,864


$ 678,594

Distribution centers (1)

(2,316)


(2,031)


(4,896)


(4,131)

HEYDUDE inventory fair value step-up (2)

12



(62,238)


Inventory reserve in Russia (3)

1,025



(200)


Total adjustments

(1,279)


(2,031)


(67,334)


(4,131)

Non-GAAP cost of sales

$ 442,513


$ 224,092


$ 1,178,530


$ 674,463









GAAP gross profit

$ 541,302


$ 399,796


$ 1,363,959


$ 1,048,196

GAAP gross margin

54.9 %


63.9 %


52.3 %


60.7 %









Non-GAAP gross profit

$ 542,581


$ 401,827


$ 1,431,293


$ 1,052,327

Non-GAAP gross margin

55.1 %


64.2 %


54.8 %


60.9 %

Non-GAAP gross margin reconciliation by brand:


Crocs Brand:



Three Months Ended September 30,


2022


2021


(in thousands)

GAAP Crocs Brand gross margin

57.3 %


63.9 %

Non-GAAP adjustments:




Distribution centers (1)

0.3 %


0.3 %

Inventory reserve in Russia (3)

(0.1) %


— %

Non-GAAP Crocs Brand gross margin

57.5 %


64.2 %


(1) Represents expenses, including expansion costs and duplicate rent costs, related to our distribution centers in Dayton, Ohio and Dordrecht, the Netherlands.

(2) Primarily represents a step-up of HEYDUDE inventory costs to fair value upon the close of the acquisition on February 17, 2022.

(3) Represents the net impact of an inventory reserve expense in our EMEALA segment associated with the continued shutdown of our direct operations in Russia.

Non-GAAP selling, general and administrative expenses and selling, general and administrative expenses as a percent of revenues reconciliation:



Three Months Ended September 30,


Nine Months Ended September 30,


2022


2021


2022


2021


(in thousands)

GAAP revenues

$ 985,094


$ 625,919


$ 2,609,823


$ 1,726,790









GAAP selling, general and administrative expenses

$ 277,239


$ 196,728


$ 733,255


$ 525,120

HEYDUDE acquisition-related costs (1)

(6,863)



(33,205)


Impact of shutdown of Russia direct operations (2)

40



(5,797)


Other (3)

(2,300)



(3,502)


Total adjustments

(9,123)



(42,504)


Non-GAAP selling, general and administrative expenses (4)

$ 268,116


$ 196,728


$ 690,751


$ 525,120









GAAP selling, general and administrative expenses as a percent of revenues

28.1 %


31.4 %


28.1 %


30.4 %

Non-GAAP selling, general and administrative expenses as a percent of revenues

27.2 %


31.4 %


26.5 %


30.4 %


(1) Represents costs related to the acquisition and integration of HEYDUDE, including legal, professional, consulting, and transaction fees.

(2) Represents various costs associated with the continued shutdown of our direct operations in Russia, including severance and lease exit costs and penalties.

(3) Primarily represents duplicate rent costs associated with our upcoming move to a new headquarters.

(4) Non-GAAP selling, general and administrative expenses are presented gross of tax.

Non-GAAP income from operations and operating margin reconciliation:



Three Months Ended September 30,


Nine Months Ended September 30,


2022


2021


2022


2021


(in thousands)

GAAP revenues

$ 985,094


$ 625,919


$ 2,609,823


$ 1,726,790









GAAP income from operations

$ 264,063


$ 203,068


$ 630,704


$ 523,076

Non-GAAP cost of sales adjustments (1)

1,279


2,031


67,334


4,131

Non-GAAP selling, general and administrative expenses adjustments (2)