Crocs said its results for the first quarter exceeded its own guidance and financial analysts' projections, with the spring/summer 2018 collection being well-received, with the launch of LiteRide - a range of athleisure shoes with light materials - surpassing its own expectations. This led the company to raise its guidance for the full year and pushed up its stock market valuation by 2.6 percent.
Apparently, Crocs has become a relatively cool brand again. Revenues were up by 5.7 percent to $283.1 million in the quarter, or by 0.7 percent on a constant-currency basis. The management said this growth was achieved despite a loss of about $12 million due to operating fewer stores and changes in its business model.
The losses were offset by a strong performance in Crocs' e-commerce channel, which grew by 24.1 percent to $29.0 million, or by 19.1 percent in constant currencies, with double-digit growth in every region. The company said that traffic to its websites was driven by the digital marketing and social media activations relating to its LiteRide, Drew Loves Crocs, and Come As You Are campaign materials.
In the wholesale segment, the company's revenues went up by 6.5 percent to $194.6 million, or by 0.7 percent in constant currencies. The Europe regions saw sales jump by 22.9 percent at the wholesale level. Lower increases of 2.3 percent and 1.1 percent were recorded at wholesale in the Americas and the Asia-Pacific regions, respectively.
In Crocs' retail segment, comparative store sales rose by 7.6 percent, representing the third consecutive quarter of same-store growth. However, global retail sales were down by 3.7 percent in absolute terms, as the company operated 117 fewer stores as compared to the end of the first quarter of 2017. Retail sales in the Americas improved by 5.7 percent, while they decreased by 3.3 percent in Europe and by 18.2 percent in the Asia-Pacific region.
In terms of product, the management said it prioritized molded footwear this quarter, particularly clog and sandal silhouettes. The clogs category - which grew by 12 percent - made up the largest portion of the company's revenues in the quarter, with its share rising to 53 percent from 49 percent in last year's first quarter. This season, the company expanded its offering of sandals to address additional wearing opportunities for consumers. Examples include the introduction of fresh colors and graphics and the addition of a new flip to its successful Swiftwater outdoor franchise. Crocs also updated its women's Capri model with new embellishments to give it a dressier touch.
Sandals represented 26 percent of Crocs' footwear sales, up from 22 percent in last year's first quarter. Overall, sandal revenues grew by 21 percent, boosted by the launch of the LiteRide collection, which combines a new material with Croslite to produce extremely lightweight shoes, with a highly cushioned footpad.
Regionally speaking, Europe scored best, helped by the weak dollar, with revenues going up by 19.7 percent to $61.8 million, reflecting strong double-digit growth in wholesale and e-commerce. In terms of local currencies, European sales went up by 8 percent at the wholesale level and by 15 percent online. Currency-neutral retail sales declined by 13 percent in the region with a drop of 2.6 percent on a same-store basis.
The Americas generated revenues of $123.8 million, an increase of 5.2 percent over last year's first quarter, with each channel growing thanks to increasing demand. In Asia, revenues of $97.2 million were down by 1.2 percent, primarily reflecting the reduced store count in the region.
These strong results follow the company's announcement last year that it would close its Taiwan business and shut down 160 stores globally by 2018, after a loss of $31.7 million incurred in 2016. Crocs said that, in connection with ongoing efforts to simplify the business and improve profitability, the company would also close its manufacturing and distribution facilities in Mexico. Manufacturing in the country has already been stopped and the distribution center is expected to close before the end of the third quarter.
Overall, Crocs' gross margin for the quarter declined by 0.5 percentage points to 49.4 percent due to a change in accounting. However, operating profits jumped by 66.4 percent to $25.9 million and net income soared by 73.6 percent to $12.5 million.
Crocs raised its full-year guidance. Revenues in 2018 are expected to increase by low single digits, with e-commerce and wholesale growth expected to offset lower retail sales. Previously, it had anticipated flat revenues for the year. The gross margin is expected to go up by approximately 0.7 to 1 percentage point. Savings of $15 million should lead to a threefold increase in operating income for the year to around $50 million.
However, Crocs faces the possibility that it will not be able to protect its classical clog design in the European Union. On March 14, the General Court of the EU ruled that it had filed its patent application too late and gave the company two months to appeal the case to the European Court of Justice (see Shoe Intelligence Vol. 20 N° 5+6 of March 22, 2018). The case involves a lawsuit originally filed in 2003 by Gifi, a French low-priced retailer of giftware and items for the home and the garden.