Crocs, Inc. Reports Record Revenues for Fourth Quarter and Full Year 2019; Full Year Operating Income Increased 104.4%; Operating Margin Improved to 10.5%; Full Year EPS Increased to $1.66

Crocs, Inc. (NASDAQ: CROX), a world leader in innovative casual footwear for men, women, and children, today announced its fourth quarter and full year 2019 financial results.

Andrew Rees, President and Chief Executive Officer, said, “Our record fourth quarter and full year top-line combined with our double-digit operating margin underscores the progress we have made executing our key strategic initiatives. Focusing on our core clog and sandal categories and further igniting brand heat through impactful marketing campaigns and collaborations are fueling strong revenue growth. Equally important, the work we’ve done reducing our expense structure is allowing us to translate our top-line success into even stronger earnings growth as we continue to make important investments in the business.”

“Although we begin the new year with great momentum and exciting plans in place to build on our recent growth, our immediate focus is with everyone affected by the coronavirus and ensuring that our employees in China, along with our partners, safely navigate the risks associated with this global health epidemic. Despite this difficult situation, we continue to be very optimistic about our long-term growth prospects in China and our Asia region.”

Fourth Quarter 2019 Operating Results:

• Revenues were $263.0 million, growing 21.8% over the fourth quarter of 2018, or 22.7% on a constant currency basis. Currencies negatively impacted our revenues by approximately $2.0 million, while store closures reduced our revenues by $2.0 million. Wholesale revenues grew 22.4%, e-commerce revenues grew 34.3%, and retail comparable store sales on a constant currency basis grew 16.0%.

• Gross margin was 48.0%, compared to 46.2% in last year’s fourth quarter. Adjusted gross margin, which excludes 130 basis points of expenses primarily related to the relocation of our distribution centers in the U.S. and the Netherlands, was 49.3%. Adjusted gross margin rose 310 basis points, driven by favorable product mix, price increases on certain products, lower levels of promotions and discounts, and greater volume helping to leverage our fixed costs. For a reconciliation of gross margin to adjusted gross margin, see the ‘Non-GAAP cost of sales and gross margin reconciliation’ schedule below.

• Selling, general and administrative expenses (“SG&A”) were $117.9 million compared to $113.8 million in the fourth quarter of 2018. Non-recurring charges were $1.2 million compared to $4.6 million in the fourth quarter of 2018. SG&A improved 790 basis points and represented 44.8% of revenues compared to 52.7% in the fourth quarter of 2018, as we continued to drive leverage across the business. Our adjusted SG&A improved 620 basis points and represented 44.4% of revenues compared to 50.6% in the fourth quarter of 2018. For a reconciliation of SG&A to adjusted SG&A, see the ‘Non-GAAP selling, general and administrative expenses reconciliation’ schedule below.

• Income from operations was $8.4 million compared to loss from operations of $13.9 million in the fourth quarter of 2018. Excluding expenses incurred in connection with the relocation of our distribution centers in the U.S. and the Netherlands and non-recurring SG&A charges, our adjusted income from operations was $12.9 million. For a reconciliation of income from operations to adjusted income from operations, see the ‘Non-GAAP income (loss) from operations and operating margin reconciliation’ schedule below.

• Our diluted net income per common share was $0.29 for the fourth quarter of 2019, compared to a diluted net loss per common share of $1.72 in the fourth quarter of 2018. Excluding expenses primarily incurred in connection with the relocation of our distribution centers in the U.S. and the Netherlands and non-recurring SG&A charges, adjustments to income tax expense (benefit), and pro forma adjustments related to our previously outstanding Series A Preferred Stock, our adjusted diluted net income per common share was $0.12, compared to a non-GAAP diluted net loss per common share of $0.10 in the fourth quarter of 2018, as detailed on the ‘Non-GAAP earnings per share reconciliation’ schedule below.

2019 Operating Results:

• Revenues were $1,230.6 million, growing 13.1% over 2018, or 15.6% on a constant currency basis. Store closures reduced our revenues by $17.2 million. Our wholesale revenues grew 13.5%, our e-commerce business grew 24.2%, and our retail comparable store sales grew 12.4%.

• Gross margin was 50.1% compared to 51.5% in 2018, while gross profit increased $56.9 million. Adjusted gross margin, which excluded 90 basis points of expenses primarily related to the relocation of our distribution centers in the U.S. and the Netherlands, was 51.1%. Adjusted gross margin declined 40 basis points, driven by reduced purchasing power related to currency, offset in part by a higher margin product mix, price increases on certain products, and lower levels of promotions and discounts. For a reconciliation of gross margin to adjusted gross margin, see the ‘Non-GAAP cost of sales and gross margin reconciliation’ schedule below.

• SG&A was $488.4 million compared to $497.2 million in 2018. Results for 2019 included $2.9 million of non-recurring charges compared to $21.1 million in 2018. As a percent of revenues, SG&A improved 600 basis points to 39.7%. Excluding non-recurring charges, adjusted SG&A as a percent of revenues was 39.5%, an improvement of 430 basis points over 2018. For a reconciliation of SG&A to adjusted SG&A, see the ‘Non-GAAP selling, general and administrative expenses reconciliation’ schedule below.

• Income from operations of $128.6 million grew 104.4%, compared to $62.9 million in 2018, and operating margin was 10.5%, compared to 5.8% in 2018. Excluding expenses primarily incurred in connection with the relocation of our distribution centers in the U.S. and the Netherlands and non-recurring SG&A charges, adjusted income from operations grew 70.2% to $143.0 million. Adjusted operating margin for 2019 was 11.6% compared to 7.7% in 2018. For a reconciliation of income from operations to adjusted income from operations, see the ‘Non-GAAP income (loss) from operations and operating margin reconciliation’ schedule below.

• Our diluted net income per common share was $1.66 in 2019 compared to diluted net loss per common share of $1.01 in 2018. Excluding expenses primarily incurred in connection with the relocation of our distribution centers in the U.S. and the Netherlands and non-recurring SG&A charges, adjustments to income tax expense (benefit), and pro forma adjustments related to our previously outstanding Series A Preferred Stock, our adjusted diluted net income per common share was $1.61 compared to $0.86 in 2018, as detailed on the ‘Non-GAAP earnings per share reconciliation’ schedule below.

Balance Sheet and Cash Flow Highlights:

• Cash and cash equivalents were $108.3 million as of December 31, 2019, compared to $123.4 million as of December 31, 2018. The change in cash and cash equivalents was driven primarily by share repurchases and capital expenditures, partially offset by cash generated from operating activities.

• Cash provided by operating activities decreased 21.2% to $90.0 million during 2019 compared to $114.2 million during 2018.

• Inventory increased 38.2% to $172.0 million as of December 31, 2019 compared to $124.5 million as of December 31, 2018, while our inventory turnover ratio increased to 4.3 turns per year.

• Capital expenditures, including accruals, during the year ended December 31, 2019 were $50.6 million compared to $10.9 million during 2018. The increase primarily reflects expenditures for the relocation of our U.S. distribution center from California to Ohio.

• At December 31, 2019, there were $205.0 million of borrowings outstanding on our $450.0 million credit facility.

Share Repurchase Activity:

During the fourth quarter of 2019, we repurchased 0.4 million shares of our common stock for $13.7 million, at an average price of $34.73 per share. For the full year, we repurchased 6.1 million shares of our common stock for $147.2 million, at an average price of $24.20 per share. At year end, $508.6 million of our $1 billion share repurchase authorization remained available for future repurchases.

Distribution Center Investment:

The Company completed the relocation of its U.S. distribution center from California to Ohio during the fourth quarter of 2019. In 2019, we entered into a lease to relocate our distribution center in the Netherlands to a larger facility in 2021. We are evaluating similar investments this year and beyond designed to support our anticipated growth.

Financial Outlook:

First Quarter 2020:

With respect to the first quarter of 2020, we expect:

• Revenues to be between $305 and $325 million compared to $295.9 million in the first quarter of 2019. We anticipate revenues for the first quarter of 2020 will be negatively impacted by approximately $20 to $30 million due to disruptions to our Asia business from COVID-19 (the “coronavirus”) and by approximately $3 million due to currency;

• Many of our partner stores in China are closed temporarily. For those that remain open, they are operating on a reduced schedule and experiencing lower than usual traffic levels. We are also seeing the broader impact as we are experiencing traffic declines throughout many of our key countries in Asia.

• Operating margin to be between 9% and 12%, including $3 million of non-recurring expenses for store closures and other provisions in Asia as a result of business disruptions from the coronavirus.

Full Year 2020:

With respect to 2020, we expect:

• Revenues to be up 8% to 12% over 2019 revenues of $1,230.6 million. We anticipate 2020 revenues will be negatively impacted by $40 to $60 million as a result of disruptions to our Asia business from the coronavirus and approximately $10 million of currency;

• An operating margin of between 11% and 13%, which includes expenses associated with our new distribution center in the Netherlands and charges for store closures and other provisions in Asia as a result of business disruptions from the coronavirus;

• Interest expense of approximately $9 million; and

• A tax rate of approximately 17%.

Conference Call Information:

A conference call to discuss fourth quarter and full year 2019 results is scheduled for today, Thursday, February 27, 2020, at 8:30 a.m. EST. The call participation number is (877) 790-7808. A replay of the conference call will be available approximately two hours after the completion of the call at (800) 585-8367. International participants can dial (647) 689-5638 to take part in the conference call and can access a replay of the call at (416) 621-4642. All of the above calls will require the input of the conference identification number 4936999. The call will also be streamed live on the Crocs website, www.crocs.com, and that audio recording will be available at www.crocs.com through February 27, 2021.

About Crocs, Inc.:

Crocs, Inc. (Nasdaq: CROX) is a world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers know and love. The vast majority of shoes within Crocs’ collection contains Croslite™ material, a proprietary, molded footwear technology, delivering extraordinary comfort with each step.

In 2020, Crocs declares that expressing yourself and being comfortable are not mutually exclusive. To learn more about Crocs or our global Come As You Are™ campaign, please visit www.crocs.com or follow @Crocs on Facebook, Instagram and Twitter.

Forward Looking Statements:

This news release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding full year and first quarter 2020 financial outlook. 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: current global financial conditions; the effect of competition in our industry; our ability to effectively manage our future growth or declines in revenues; changing consumer preferences; our ability to maintain and expand revenues and gross margin; our ability to accurately forecast consumer demand for our products; our ability to successfully implement our strategic plans; our ability to develop and sell new products; our ability to obtain and protect intellectual property rights; the effect of potential adverse currency exchange rate fluctuations and other international operating risks; 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.

All information in this document speaks as of February 27, 2020. We do not undertake any obligation to update publicly any forward-looking statements, including, without limitation, any estimate regarding revenues, margins, capital expenditures, or SG&A, whether as a result of the receipt of new information, future events, or otherwise.

Category:Investors

CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America (“GAAP”), we present “Non-GAAP cost of sales,” “Non-GAAP gross margin,” “Non-GAAP selling, general, and administrative expenses,” “Non-GAAP income (loss) from operations and operating margin,” “Non-GAAP income tax expense (benefit) and effective tax rate,” “Non-GAAP net income (loss) attributable to common stockholders,” “Non-GAAP weighted average common shares outstanding - basic and diluted,” and “Non-GAAP basic and diluted net income (loss) per common share,” which are non-GAAP financial measures. Non-GAAP results exclude the impact of items that management believes affect the comparability or underlying business trends in our consolidated financial statements for the periods presented.

We also present certain information related to our current period results of operations through “constant currency,” which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under GAAP. Constant currency represents current period results that have been retranslated using exchange rates used in the prior year comparative period. We believe the use of constant currency enhances the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.

We use non-GAAP results to assist in comparing business trends from period to period on a consistent basis in communications with the board of directors, stockholders, analysts, and investors concerning our financial performance. We believe that these non-GAAP measures are useful to investors and other users of our consolidated financial statements as an additional tool for evaluating operating performance and trends. For the three months and year ended December 31, 2019, we believe it is helpful to evaluate our results excluding the impacts of the Series A Preferred Stock transaction, expenses incurred in connection with relocating our distribution centers, and certain non-recurring charges. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

CROCS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

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