After reporting better-than-expected earnings for the third quarter, led by strong demand for its clogs and sandals, Crocs has raised its guidance for the full year. The company's shares boomed after the announcement, rising by more than 9 percent.
Net income rocketed from $1.6 million in the third quarter of 2017 to 10.4 million for the latest quarter. Reaching a level of $261.1 million, Crocs revenues increased by 7.3 percent from the year-ago period, or by 9.3 percent on a constant-currency basis. The company now expects revenues for the full year to be 4 to 5 percent higher than the level of $1,023.5 million reached in 2017. It also anticipates that the gross margin will increase by approximately 1 percentage point to 51.5 percent.
In latest quarter, Crocs obtained strong growth despite a loss of approximately $15 million in revenues due to a smaller number of stores in operation and changes in the business model. Last year, after booking a loss of $31.7 million in 2016, the management had announced that it would close its subsidiary in Taiwan and shut down 160 stores globally by the end of 2018. During the latest quarter, Crocs closed a net quantity of 12 stores, leaving 389 company-operated stores. The emphasis in 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.
The management credited its restructuring efforts for a big jump of 418 percent in income from operations, which reached $13.9 million.
In Crocs' retail segment, comparable store sales went up by 15.0 percent in the third quarter, for a fifth consecutive quarter of same-store growth. However, global retail sales were down by 0.8 percent in absolute terms to $98.5 million, as the company operated 58 fewer stores as compared with the end of the fourth quarter of 2017.
In constant currencies, retail sales in the Americas improved by 13.9 percent, while they decreased by 13.3 percent in Europe and by 22.1 percent in the Asia-Pacific region. On the other hand, on a comparable-store basis, currency-neutral retail sales went up by 19.9 percent in the Americas, by 15.1 percent in Europe and by 3.2 percent in Asia-Pacific.
In contrast with the declining revenues from Crocs' own remaining stores, e-commerce saw sales rocket by 23.2 percent to $45.8 million, with currency-neutral increases of 25.7 percent in the Americas, 19.6 percent in Europe and 25.4 percent in Asia-Pacific.
In the wholesale segment, the company's revenues went up by 9.3 percent to $116.7 million. In constant currencies, Europe saw sales rise by 5.5 percent at the wholesale level. In the Americas, they advanced by 12.2 percent, while they improved by 16.1 percent in Asia-Pacific.
In terms of product, the management said it prioritized molded footwear, particularly clog and sandal silhouettes, introducing more creativity in clogs and adding new sandal styles. During the third quarter, the company recorded a growth of 21 percent in sandal revenues, while clogs grew by 13 percent.
Regionally speaking, revenues grew in Europe by 0.4 percent to $47.4 million, following on the heels of an exceptionally strong second quarter. Crocs said it benefited from warm weather, which drove high levels of sandal and clog sales well into the autumn. Foreign exchange currencies negatively impacted the quarter by $1.3 million.
Wholesale revenues in the region grew by 2.8 percent on a reported basis, exceeding expectations. On a comparable-store basis, direct-to-consumer (DTC) sales were up by 19.3 percent in Europe, while retail sales gained 15.1 percent, benefiting from increased demand as well as better availability of its built-for-outlet product. The company operated 24 fewer retail stores in the region, which accounted for a 16.8 percent reduction in retail revenues on a reported basis. Meanwhile, e-commerce grew by 23.6 percent.
Overall, Crocs' gross margin for the quarter improved by 2.5 percentage points to 53.3 percent, which the company attributed to the benefits of more molded products, disciplined DTC promotions and the benefits of a weaker dollar.
With respect to 2019 revenues, the company expects a mid-single digit increase over 2018 revenues. Crocs anticipates that e-commerce and wholesale growth will more than offset lower retail revenues associated with the reduced store count, which it expects will reduce annual revenues by around $25 million.