Crocs’ Q2 Tops Guidance | SGB ​​Media Online

Crocs, Inc. reported sales and earnings came in above guidance in the second quarter ended June 30 as Crocs brand sales grew 19.4 percent on a constant currency basis. The footwear maker still slightly lowered its sales and earnings guidance for the year.

“I am very proud of our second quarter results,” said Andrew Rees, Chief Executive Officer. “I am particularly excited by record revenues for the Crocs Brand and the strong growth internationally. Heydude continues to outperform our expectations and we now expect nearly $1 billion in pro forma revenues this year.”

“We have two incredibly strong brands that are well positioned to meet the needs of our core consumer with our value and comfort proposition. The consumer demand for both our brands is exceptional and we expect both brands to gain market share in this dynamic environment. We remain incredibly confident in our long-term growth and our ability to generate best-in-class profitability.”

Second Quarter 2022 Highlights

  • Consolidated revenues of $964.6 million increased 50.5 percent, or 55.6 percent on a constant currency basis, as compared to 2021.
  • Crocs Brand record quarterly revenues of $732.2 million increased 14.3 percent, or 19.4 percent on a constant currency basis, as compared to 2021.
  • Heydude Brand revenues were $232.4 million for the second quarter of 2022, up approximately 96 percent compared to 2021.
  • Crocs Brand digital sales grew 16.8 percent, or 20.8 percent on a constant currency basis, to represent 37.2 percent of Crocs Brand revenues versus 36.4 percent in the previous year. Heydude Brand digital penetration was 31.5 percent of Heydude Brand revenues.
  • Operating margin was 25.7 percent and adjusted operating margin was 30.1 percent.
  • Diluted earnings per share was $2.58, a decrease as a result of a favorable, discrete impact of a tax legislation change in the previous year. Adjusted diluted earnings per share increased 45.3 percent to $3.24 compared to $2.23 in 2021.

Revenues of $964.6 million were ahead of guidance calling for sales between $918 to $957 million. Adjusted operating margin of 30.1 percent was above guidance of approximately 26 percent, including an estimated $50 million impact from air freight.

Second Quarter 2022 Operating Results

  • Revenues were $964.6 million, an increase of 50.5 percent from the same period last year, or 55.6 percent on a constant currency basis. Direct-to-consumer (“DTC”), which includes retail and e-commerce, grew 22.8 percent, and wholesale grew 80.6 percent.
  • Gross margin was 51.6 percent compared to 61.7 percent and adjusted gross margin was 55.2 percent compared to 61.8 percent in the same period last year. Adjusted gross margin excludes $35.1 million of costs, of which $34.3 million is a Heydude inventory fair value step-up related to the acquisition. Crocs Brand gross margin was 57.7 percent, 400 basis points lower than the previous year driven primarily by 445 basis points of freight headwinds, including 340 basis points of air freight, and 105 basis points of currency, partially offset by increased prices and product mix.
  • Selling, general, and administrative expenses (“SG&A”) of $249.8 million increased from $199.9 million in the same period last year, and SG&A as a percentage of revenues improved to 25.9 percent from 31.2 percent in the previous year. Adjusted SG&A improved to 25.1 percent of revenues versus 31.2 percent for the same period last year. Adjusted SG&A excludes $7.5 million of costs, primarily related to the Heydude integration.
  • Income from operations increased 27.0 percent to $248.0 million and operating margin was 25.7 percent compared to 30.5 percent for the same period last year due to increased air freight and Heydude acquisition and integration expenses. Adjusted income from operations rose 47.9 percent to $290.6 million and adjusted operating margin was 30.1 percent. Incremental air freight costs negatively impacted adjusted operating margin by 240 basis points and currency impacted by 80 basis points.
  • Diluted earnings per share were $2.58, a decrease as a result of a favorable, discrete impact of a tax legislation change in the previous year. Adjusted diluted earnings per share increased 45.3 percent to $3.24 compared to $2.23 in 2021.

Second Quarter 2022 Brand Summary

  • Crocs Brand: Revenues increased 14.3 percent, or 19.4 percent on a constant currency basis, to $732.2 million. Wholesale revenues increased by 27.7 percent, or 35.2 percent on a constant currency basis. DTC comparable sales increased 7.5 percent.
  • Heydude Brand: Revenues during the second quarter were $232.4 million. Wholesale revenues were $162.5 million and DTC revenues were $69.9 million.

Balance Sheet and Cash Flow

  • Cash and cash equivalents were $187.4 million as of June 30, 2022, compared to $213.2 million as of December 31, 2021.
  • Inventories increased to $501.5 million as of June 30, 2022, compared to $213.5 million as of December 31, 2021 and $209.1 million as of June 30, 2021. This increase was driven primarily by the addition of Heydude and increased in transit inventory for the Crocs Brand.
  • Capital expenditures during the six months ended June 30, 2022 were $56.7 million, compared to $21.3 million for the same period last year.
  • Borrowings were $2.77 billion as of June 30, 2022 compared to $771.4 million as of December 31, 2021, an increase driven primarily by borrowings used to finance a portion of the Heydude acquisition. Its liquidity position remains strong with $187.4 million in cash and cash equivalents and $475.8 million in available borrowing capacity as of June 30, 2022.

Financial Outlook

Full Year 2022

With respect to 2022, Crocs expects:

  • Consolidated revenues to be approximately $3,395 to $3,505 billion, representing growth between 47 percent and 52 percent compared to 2021. Previously, guidance called for sales of approximately $3.5 billion.
  • Gross margin to still include $75 million of air freight in 2022.
  • Adjusted operating income of approximately $880 to $945 million and adjusted operating margin to still be approximately 26 percent to 27 percent. 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 still of approximately 25 percent and non-GAAP effective tax rate still of approximately 22 percent.
  • Adjusted diluted earnings per share to now be between $9.50 and $10.30. Previously, guidance called for adjusted EPS between $10.05 and $10.65.
  • Capital expenditures will still be approximately $170 to $200 million, primarily for supply chain investments to support growth.
  • Gross leverage to still be below 2.0x by mid-year 2023 following strong earnings and cash flow expectations for 2022.

Third Quarter 2022

With respect to the third quarter of 2022, Crocs expects:

  • Consolidated revenues to be approximately $915 to $955 million, implying approximately 46 percent to 53 percent growth compared to third quarter 2021 revenues of $626 million.
  • Adjusted operating margin of approximately 25 percent to 26 percent, including approximately $15 million impact from air freight and excluding non-GAAP adjustments of $10 million in SG&A primarily related to the Heydude integration.

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