Crocs, Inc (CROX, Financial), a world leader in innovative casual footwear for men, women and children, offers several distinct shoe collections with more than 300 four-season footwear styles. Since its inception in 2002, Crocs has sold more than 200 million pairs of shoes in more than 90 countries around the world.
Third-quarter results
GAAP revenue increased 4.8% in the third quarter of 2014 to $302.4 million, which is in line with previously provided guidance of $300 million to $305 million. On a constant currency basis, revenue increased 5.4% in the third quarter of 2014. Net income was $0.12 per diluted common share on a GAAP basis in the third quarter of 2014.
Crocs President Andrew Rees said, "Revenues in the quarter were in line with our expectations in three out of four regions. Despite unfavorable exchange rates, we saw 13% year-over-year revenue growth in Europe, with the greatest part of that coming from strong wholesale channel performance. In the Americas, we saw a 10% revenue rise, as U.S. same-store sales trends began to improve in the back half of the quarter. Revenue declined slightly in Asia, where results were substantially impacted by weaker performance in our China wholesale and retail businesses. While Internet sales increased slightly in Japan, revenue for the region was down 9% overall due to weak retail same-store sales, lower at-once demand and continued weakness in the yen."
Global wholesale revenue climbed 8% and global Internet revenue rose 9%, with very strong Internet sales results in the America.
"Factors driving our third quarter 2014 performance included strong revenue growth in Europe, particularly in the wholesale channel, and improvements in the Americas region, where wholesale channel performance also led the way," said Jeff Lasher, Crocs' chief financial officer. "These were offset by negative currency impacts in Europe and Japan and weak performance in Asia, where our China wholesale volume declined significantly and retail sales at comparable stores declined by double digits in China, Korea and Hong Kong. The quarter also was impacted by a reserve for doubtful accounts in excess of $5 million primarily as a result of delayed payments from partner-owned stores in China."
Gross profit for the third quarter of 2014 was $155.0 million, or 51.3% as a percentage of sales, compared with $153.6 million, or 53.2% as a percentage of sales for the prior-year period. The company expects GAAP revenue of approximately $200 to $210 million in the fourth quarter of 2014.
Excluding special items, non-GAAP gross margins were 51.8% and Selling, General and Administrative expenses increased 4.0% to $138.0 million compared with $132.6 million a year ago, as a result of the increase in doubtful account reserves. As a percentage of sales, SG&A decreased slightly to 45.6% compared with 46.0% in the third quarter of 2013.
Stock repurchase
During the quarter the company repurchased approximately 2.9 million shares of common stock at an average price of $14.74 per share under its previously announced stock repurchase program. For the year to date, the company has repurchased approximately $90 million of common stock. The company intends to be patient, methodical and opportunistic in the execution of this buyback plan. (Source: Company’s Website)
To end
Management of CROX is currently focusing on reducing capital expenditures and this could lift the cashflows of the company significantly in 2015. By 2019, the global footwear market can worth anything $200-$220 billion. Asia is expected to contribute significantly to this growth. Crocs has a huge potential in this part of the globe. The good news is that Crocs performed well in this region. Rising income of the middle class, an awareness to look and feel good are contributing to this growth.
The Asian countries hold tremendous opportunities for this company. It is already closing down underperforming stores. It is expanding the products its offers and diversifying into sneakers, loafers, and boots. With robust innovation, continuing research and development activities CROX is bound to create shareholder returns. CROX is headed for a turnaround strategy. The company is expected to comeback in the near future.
