Demand for footwear is on the rise as people are getting attracted to a variety of new designs and technological advancements. With an increase in competition among the industry peers, this industry has evolved and come a long way. However, if a company is unable to provide customers as per their changing tastes and preferences, it is obvious to suffer.
One such company is Crocs (CROX, Financial), which has suffered a lot as people got bored of its same old colorful clogs. This resulted in declining sales for the retailer. However, the company has finally managed to improve its performance and register decent third quarter results. The numbers were ahead of the Street's expectations, sending its shares higher.
Into the numbers
Revenue for the quarter surged 5% over last year's quarter, clocking in at $302.4 million. However, the estimate was at $295.4 million. The growth in the top line was driven by a number of factors, such as a 2% jump in the number of stores, an 8% surge in wholesale revenue and a 9% increase in e-commerce revenue. Thus, it is clear that the retailer's online business and the wholesale business are doing extremely well.
In fact, this growth is commendable since the company closed 31 underperforming stores as it wanted to remain focused on its popular products. Further, it plans to close another 30 by the year end. Also, same store sales of the footwear giant dropped 4.5% this quarter.
However, Crocs' restructuring efforts resulted in the growth of the top line. Revenue from Europe grew 13% and that of America climbed 10%. Wholesale revenue from both Europe and America surged 23% and 17.6%, respectively.
On the contrary, regions such as China and Japan were weak due to lower demand and unfavorable currency movements. Wholesale revenue dropped 11% to $21 million, over the prior year. But these regions make a small portion of the total sales. Hence, it did not affect the overall revenue much.
Earnings for the quarter jumped to $0.30 per share as compared to $0.18 last year. This was a remarkable increase and was way beyond the estimate of $0.15 per share. Thus, the company has been able to manage its costs well.
Plans for the future
Crocs has restructuring plans for the future, which should help in growing its business. It plans to narrow its product portfolio, thereby remaining focused on its original molded shoe. It has also discontinued its Gold line of products and made Crocs Ocean Minded its main line. Furthermore, it has made a number of layoffs and store closures to improve its performance. These initiatives should help the company witness a better future.
However, it faces stiff competition from companies such as and Skechers USA (SKX, Financial), which reported a blockbuster quarter recently. Skechers' revenue surged 31% as it registered growth across all its segments. Its bottom line too was way ahead of the Street's expectations.
Wrapping it up
Thus, Crocs' biggest problem at this point is stiff competition from its peers. Also, lack of innovation is another hindrance in business. Nonetheless, the company is being able to perform decently owing to its efforts to restructure its business and focus on the more profitable areas. Given the two sides of the coin, investors should stay on the sidelines and keep a watch on this company.
