Crocs, Inc. Reports 2010 Third Quarter Financial Results

By: Crocs, Inc. via Business Wire News Releases

November 04, 2010 at 16:00 PM EDT

Crocs, Inc. (NASDAQ: CROX) today reported financial results for the third quarter ended September 30, 2010.

Revenue for the third quarter of 2010 increased 30% to $215.6 million, over recurring revenue of $165.7 million reported in the third quarter of 2009. Recurring revenue is a non-GAAP measure that excludes impaired product sales of $11.5 million in the third quarter of 2009. On a GAAP basis, third quarter revenue increased 22% year-over-year.

Net income for the third quarter 2010 improved to $25.0 million, or $0.28 per diluted share compared to net income of $22.1 million, or $0.25 per diluted share in the third quarter 2009.

Excluding a one-time tax benefit of $3.0 million, or $0.03 per diluted share, and other non-recurring charges, non-GAAP net income was $22.1 million or $0.25 per diluted share in the third quarter 2010. This compares to third quarter 2009 equivalent non-GAAP net income of $1.8 million, or $0.02 per diluted share.

Year-over-year third quarter changes in the Company’s channel revenue streams, as reported, were as follows:

Wholesale sales increased 16% to $123.9 million;
Retail sales increased 35% to $72.5 million;
Internet sales increased 19% to $19.2 million.

Changes in the Company’s regional revenue streams, as reported, during the same quarterly periods were as follows:

Americas increased 31% to $104 million;
Asia increased 16% to $79 million;
Europe increased 9% to $32.6 million.

Gross profit for the third quarter of 2010 increased 32% to $118.8 million, or 55.1% as a percentage of sales, from $89.9 million, or 50.7% of sales in same period last year. Selling, General, & Administrative expenses (including foreign exchange, restructuring, impairment, and charitable contributions) increased 13% to $91.4 million versus $80.9 million a year ago. As a percentage of sales, SG&A decreased to 42.4% from 45.7% in the third quarter of 2009.

Balance Sheet

The Company’s cash and cash equivalents as of September 30, 2010 increased 88% to $143.1 million compared to $76.0 million at September 30, 2009. The Company had no bank debt at September 30, 2010.

Inventory grew 25% to $142.5 million at September 30, 2010 from $113.7 million at September 30, 2009. The increase is a result of multiple factors including a 37% increase in backlog as of September 30, 2010, an increase of 44 retail locations over the third quarter 2009, strong new product sell through and the support of 21% higher anticipated fourth quarter revenue. For the quarter ended September 30, 2010, our inventory turnover was 3.0 on an annualized basis.

The Company ended the third quarter of 2010 with accounts receivable of $81.3 million compared to $65.8 million at September 30, 2009.

John McCarvel, President and Chief Executive Officer, commented, “Our improved operating results continued to be driven by growing consumer demand for our expanded product assortment. After a strong summer selling season we began shipping significantly more of our back-to-school and fall products to our global network of wholesale accounts and distributors versus a year ago. We witnessed similar trends in our consumer direct channel where weekly sell-through rates of our new products exceeded internal projections. Our sales performance year-to-date has been very encouraging and helped fuel the 60% significant increase in our spring / summer 2011 backlog.”

Guidance

For the fourth quarter of 2010, the Company expects revenue of approximately $165 million, a 21% increase over fourth quarter 2009. The company expects fourth quarter inventory to decrease approximately 10% from the third quarter 2010. The Company expects diluted earnings per share for the fourth quarter 2010 to increase to approximately $0.02 per diluted share versus a diluted loss per share of ($0.13) for the fourth quarter 2009.

Conference Call Information

A conference call to discuss Crocs’ third quarter 2010 financial results is scheduled for today (November 4, 2010) at 5:00 PM Eastern Time. A webcast of the call will take place simultaneously and can be accessed by clicking the ‘Investor Relations’ link under the Company section on www.crocs.com or at www.earnings.com. To listen to the broadcast, your computer must have Windows Media Player installed. If you do not have Windows Media Player, go to www.earnings.com prior to the call, where you can download the software for free.

About Crocs, Inc.

A world leader in innovative casual footwear for men, women and children, Crocs, Inc. (NASDAQ: CROX), offers several distinct shoe collections with more than 120 styles to suit every lifestyle. As lighthearted as they are lightweight, Crocs™ footwear provides profound comfort and support for any occasion and every season. All Crocs™ branded shoes feature Croslite™ material, a proprietary, revolutionary technology that produces soft, non-marking, and odor-resistant shoes that conform to your feet.

Crocs™ products are sold in 129 countries. Every day, millions of Crocs™ shoe lovers around the world enjoy the exceptional form, function, versatility and feel-good qualities of these shoes while at work, school and play.

Visit www.crocs.com for additional information.

Forward-looking statements

The matters regarding the future discussed in this news release include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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: macroeconomic issues, including, but not limited to, the current global financial crisis; our ability to effectively manage our future growth or declines in revenue; changing fashion trends; our ability to maintain and expand revenues and gross margin, our management and information systems infrastructure; our ability to repatriate cash held in foreign locations in a timely and cost-effective manner; our ability to develop and sell new products; our ability to obtain and protect intellectual property rights; the effect of competition in our industry; and the effect of potential adverse currency exchange rate fluctuations; 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. We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimate regarding revenues or earnings, whether as a result of the receipt of new information, future events, or otherwise.


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Revenues	$	215,605		$	177,141		$	610,503		$	509,756
Cost of sales		96,797			87,291			273,072			269,115
Gross profit		118,808			89,850			337,431			240,641
Selling, general and administrative expenses		92,192			77,995			261,017			240,654
Foreign Currency Transaction gains, net		(908	)		(1,032	)		(2,329	)		(1,247	)
Restructuring charges		-			17			2,539			5,916
Impairment charges		-			1,722			141			25,447
Charitable contributions expense		78			2,178			496			7,296

Income (loss) from operations		27,446			8,970			75,567			(37,425	)
Interest expense		153			155			445			1,412
Gain on charitable contributions		(19	)		(810	)		(135	)		(2,833	)
Other (income) expense		137			(125	)		87			(833	)
Income (loss) before income taxes		27,175			9,750			75,170			(35,171	)
Income tax (benefit) expense		2,179			(12,318	)		12,173			(4,541	)
Net income (loss)	$	24,996		$	22,068		$	62,997		$	(30,630	)
Net income (loss) per common share:
Basic	$	0.29		$	0.26		$	0.73			($0.36	)
Diluted	$	0.28		$	0.25		$	0.72			($0.36	)


CROCS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

	September 30, 2010			December 31, 2009			September 30, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	143,057		$	77,343		$	76,021
Restricted cash		577			1,144			245
Accounts receivable, net		81,303			50,458			65,794
Inventories		142,531			93,329			113,703
Deferred tax assets, net		7,973			7,358			12,088
Income tax receivable		9,597			8,611			8,248
Other Receivables		11,008			16,140			7,580
Prepaid expenses and other current assets		13,699			12,871			13,567
Total current assets		409,745			267,254			297,246

Property and equipment, net		65,882			71,084			70,738
Restricted cash		1,675			1,506			2,358
Intangible assets, net		42,416			35,984			34,501
Deferred tax assets, net		18,859			18,479			22,507
Marketable Securities		1,040			866			-
Other assets		15,054			14,565			15,623
Total assets	$	554,671		$	409,738		$	442,973

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	66,763		$	23,434		$	37,432
Accrued expenses and other current liabilities		65,216			53,589			55,443
Accrued restructuring charges		1,844			2,616			3,149
Income taxes payable		18,188			6,377			16,308
Note payable, current portion of long-term debt and capital lease obligations		1,861			640			628
Total current liabilities		153,872			86,656			112,960

Long-term debt and capital lease obligations		1,235			912			1,391
Deferred tax liabilities, net		2,085			2,192			5,355
Long-term restructuring		-			520			580
Other liabilities		32,532			31,838			30,043
Total liabilities		189,724			122,118			150,329

Commitments and contingencies

Stockholders’ equity:
Common shares, par value $0.001 per share; 250,000,000 shares authorized, 87,705,254 and 87,136,697 shares issued and outstanding, respectively, at September 30, 2010 and 86,224,760 and 85,659,581 shares issued and outstanding, respectively, at December 31, 2009 and 86,167,242 and 85,643,242 shares issued and outstanding, respectively, at September 30, 2009.		87			85			85

Treasury Stock, at cost, 568,557 and 565,179 and 524,000 shares, respectively		(23,610	)		(25,260	)		(25,022	)
Additional paid-in capital		273,418			266,472			259,205
Retained earnings		85,152			22,155			33,603
Accumulated other comprehensive income		29,900			24,168			24,773
Total stockholders’ equity		364,947			287,620			292,644
Total liabilities and stockholders’ equity	$	554,671		$	409,738		$	442,973


Crocs, Inc.
Reconciliation of GAAP Measures to Non-GAAP Measures
(In thousands, except share and per share data)
(Unaudited)

The Company prepares and reports its financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). Internally, management monitors the operating performance of its business using non-GAAP metrics similar to those below. These non-GAAP measures exclude the effects of non-recurring revenues from impaired inventory sales and a one-time tax benefit resulting from the restructuring of our international operations. In management’s opinion, these non-GAAP measures are important indicators of the continuing operations of our business and provide better comparability between reporting periods because they exclude items that may not be indicative of current period results and provide a better baseline for analyzing trends in our operations. The Company does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company believes the disclosure of the effects of these items increases the reader’s understanding of the underlying performance of the business and that such non-GAAP financial measures provide investors with an additional tool to evaluate our financial results and assess our prospects for future performance.


Non-GAAP Reconciliations
	3 months ended			3 months ended
	September 30, 2010			September 30, 2009

GAAP revenue	215,605			177,141
Effect on revenue from sales of previously impaired units	-			(11,480	)	(1)
Non-GAAP revenue	215,605			165,661

	3 months ended			3 months ended
	September 30, 2010			September 30, 2009

GAAP gross profit	118,808			89,850
Effect on gross profit from sales of previously impaired units	-			(9,644	)	(1)
Restructuring charges included in cost of goods sold	91			459		(2)
Non-GAAP gross profit	118,899			80,665



	3 months ended September 30, 2010			GAAP Diluted EPS to Non-GAAP Diluted EPS			3 months ended September 30, 2009			GAAP Diluted EPS to Non-GAAP Diluted EPS
GAAP net income/(loss)	24,996			0.28			22,068			0.25
One-time tax benefit	(3,000	)					(14,400	)	(3)
Effect on gross profit from sales of previously impaired units	-						(9,644	)	(1)
Asset impairment	-						1,722		(2)
Total restructuring charges	91						476		(2)
Tax impact on above adjustments:(4)	(17	)	(4)				1,593		(4)
Non-GAAP net (loss) income	22,070			0.25			1,815			0.02

(1) This pro forma adjustment in the GAAP to Non-GAAP reconciliations above represents the revenue from impaired units at selling prices higher than our previously estimated net realizable value for those units. Because the amounts presented represent a substantial change to our previous estimate, management believes that excluding these revenues in evaluating our results of operations provides important information for the reader of our financial statements as these items are not anticipated to be recurring to the extent or magnitude they occurred during prior quarters.

(2) This proforma adjustment in the GAAP to Non-GAAP reconciliations above represents non-recurring restructuring and asset impairment charges.

(3) Represents benefits from the restructuring of our international operations and cost sharing arrangements which resulted in one-time benefits from a reduction in certain tax accruals during the periods presented.

(4) The assumed tax rates used for the three months ended September 30, 2010 and 2009 were 19.1% and 21.4%, respectively.

Contacts:

Investors
ICR, Inc.
Brendon Frey, 203-682-8200
brendon.frey@icrinc.com
or
Media
Crocs, Inc.
Shelley Weibel, 303-848-7000
sweibel@crocs.com