With its financial turnaround virtually completed, Crocs is considering new initiatives in terms of product development and retailing, including the further development of e-commerce, to help reach a double-digit operating margin going forward, while keep gross margins slightly above 50 percent of sales and operating expenses below 40 percent.
The company told analysts at the IRC conference in the U.S. that it will focus on its two key categories – clogs and sandals. Clogs grew by about 18 percent in 2018, representing 55 percent of sales, while sandals went up at a higher rate of 18 percent, making up 13 percent of the turnover.
Both product lines will be enhanced through value-adding visible comfort technologies, starting with the existing Lite Rite cushioning and a new Reviva line of sandals being launched this spring, which uses molded bubbles to deliver a massaging effect.
While e-commerce continues to grow at a double-digit pace, Crocs will prioritize factory outlet stores, which sell a majority of items that are specifically made for this retail channel. Sales to e-tailers represent more than half of the company's wholesale revenues in the U.S. and the rest of the world, including Tmall in China.
Meanwhile, Crocs improved its guidance for the fourth quarter and the full financial year ended on Dec 31, 2018. The management said it was one of the company's best fourth quarters in years, with a turnover estimated at between $211 million to $214 million, well above the top end of its previous guidance of $195 million to $205 million, and an expected operating profit of more than $60 million. Comparatively, revenues had reached a level of $199.1 million in the fourth quarter of 2017.
Crocs continues to expect that its gross margin rose by 0.8 to 1 percentage points in the latest quarter, up from 45.4 percent in the fourth quarter of 2017. As previously predicted, it should have gone up by one percentage point to 51.5 percent for the full year.
Classic and lined clogs were standouts in the quarter, and strong results in North America contributed to this performance. The management said that the demand for its shoes is now year-round.
For the full 2018 financial year, the company now anticipates revenues to grow by approximately 6 percent, instead of a prior guidance predicting revenue growth of 4 to 5 percent – up from $1,023.5 million in 2017.
Crocs also revised up its expectations for profits. Income from operations is now anticipated to be higher than $60 million, up from its prior guidance that it would be slightly lower than $60 million, as compared with $17.3 million in 2017.
The management credited its restructuring efforts for the big jump in income from operations. Last year, after booking a loss of $31.7 million in 2016, the management announced that it would close its subsidiary in Taiwan and shut down 160 stores globally by the end of 2018.
The emphasis on retailing has shifted from full-price stores, which now make up only one-third of the fleet, to outlet stores, which represent more than half of the total store count. The balance consists of kiosks and shop-in-shops.
Regarding the year 2019, Crocs continues to expect a mid-single digit increase over 2018 revenues, and anticipates that e-commerce and wholesale growth will more than offset lower retail revenues associated with its lower store count, which it expects to reduce sales by approximately $25 million. On a comparable store basis, this year's sales are expected to go up at a mid-to-high single-digit rate from its anticipated 2018 revenues.