Diluted EPS Increased 51% to $0.83
Operating Income Grew 18%
Record E-Commerce Revenue Growth of 68%
Crocs, Inc., a world leader in innovative casual footwear for men, women, and children, today announced its second-quarter 2020 financial results.
Andrew Rees, President, and Chief Executive Officer said, “Amidst unprecedented market conditions globally, we delivered exceptional performance in our Americas and e-commerce businesses and increased profit despite a very challenging environment. Our performance demonstrates the strength of the Crocs brand and underscores the work we’ve done expanding the desirability, relevance, and consideration of our brand and product offering globally.”
- Global revenues were $331.5 million, declining 7.6% from the second quarter of 2019, or 6.0% on a constant currency basis. Four out of five of our key geographies delivered revenue growth – United States, Korea, China, and Germany.
- Global e-commerce revenue increased by 67.7% with strong growth in all regions.
- The operating margin rose approximately 380 basis points to 17.1% and the adjusted operating margin increased approximately 800 basis points to 22.3%.
- Diluted earnings per share grew 50.9% to $0.83, or 71.2% to $1.01 on an adjusted basis.
- Cash flow from operations nearly doubled.
COVID-19 Update on Operations
As described during our first-quarter earnings conference call and subsequent updates, COVID-19 has impacted the Crocs business globally, including through store closures or reduced operating hours and decreased retail traffic. Most of our 360 company-operated stores were closed for some period during the second quarter, as well as many partner stores and wholesale customers’ doors. As of June 30, 2020, 98% of our company-operated stores were open. Additional detail by region on company-operated stores is below.
- Americas. Our company-operated stores closed in mid-March and started to reopen in mid-May. Currently, the majority of our stores in the United States are open.
- Asia. Outside of China and Korea, most of our company-operated stores were closed for the majority of the quarter.
- EMEA. Our company-operated stores in Western Europe closed in mid-April and reopened in mid-May, while stores in Russia closed in early April and reopened in early June.
While many brick-and-mortar stores were closed, Crocs.com and other digital commerce platforms remained open. We saw record quarterly sales in e-commerce as well as strong sell-through in e-tail and wholesale partner e-commerce sites, as consumers migrated to online shopping. These strong growth rates have recently started to temper as brick-and-mortar has started to reopen.
As outlined during our first-quarter earnings call, we focused on positioning the business for both short- and long-term success. Our leadership quickly established both a defensive and offensive playbook that we began to implement in early March. The defensive measures are now complete and our offensive playbook has started to show results, as evidenced by our second-quarter performance.
Second Quarter 2020 Operating Results:
- Revenues were $331.5 million, a decline of 7.6% from the second quarter of 2019, or 6.0% on a constant currency basis. E-commerce revenue grew 67.7%, while wholesale revenue declined 19.5% and retail revenue declined 41.8% due to COVID-19 related store closures. Retail comparable store sales on a constant currency basis grew 10.5% upon re-opening.
- Gross margin was 54.3%, an increase of 150 basis points from last year’s second quarter. The adjusted gross margin was 55.2%, which excludes $3.2 million or 100 basis points of non-recurring expenditures for COVID-19-related inventory charges in Asia and costs related to our U.S. distribution center. Adjusted gross margin rose 160 basis points compared to last year’s second quarter, benefiting from product mix, higher prices 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, gross profit, and gross margin reconciliation’ schedule below.
- Selling, general and administrative expenses (“SG&A”) were $123.3 million, down from $141.5 million in the second quarter of 2019, as we reduced expenses during the pandemic. SG&A included non-GAAP adjustments of $14.0 million compared to $0.2 million in last year’s second quarter. Most charges were a result of $8.2 million of frontline healthcare product donations. Our adjusted SG&A was or 33.0% of revenues versus 39.4%, in last year’s second quarter. 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 increased 18.3% to $56.6 million from $47.8 million in the second quarter of 2019, and the operating margin rose 380 basis points to 17.1%. Excluding non-GAAP gross margin and SG&A charges, adjusted income from operations rose 44.2% to $73.8 million, and adjusted operating margin was 22.3% compared to 14.3% in the second quarter of 2019, as detailed on the ‘Non-GAAP income from operations and operating margin reconciliation’ schedule below.
- Diluted earnings per share increased by 50.9% to $0.83, as compared with $0.55 in the second quarter of 2019. Excluding non-GAAP charges, adjusted diluted earnings per share were $1.01, or 71.2%, above the $0.59 in the second quarter of 2019, as detailed on the ‘Non-GAAP earnings per share reconciliation’ schedule below.
Balance Sheet and Cash Flow Highlights:
- Cash and cash equivalents were $151.4 million as of June 30, 2020, compared to $108.3 million as of December 31, 2019.
- Inventory decreased to $146.8 million as of June 30, 2020, compared to $172.0 million as of December 31, 2019.
- Capital expenditures during the six months ended June 30, 2020, were $24.3 million, compared to $18.7 million during the same period in 2019.
- At June 30, 2020, there were $275.0 million of borrowings outstanding on our credit facility after reducing borrowings by $75.0 million during the second quarter. We have ample liquidity, including $151.4 million in cash and cash equivalents and up to $224.4 million of available borrowings under our facility.
Share Repurchase Activity
As previously announced, we temporarily suspended share repurchases to preserve maximum liquidity and flexibility. During the second quarter of 2020, we did not repurchase any shares. As of June 30, 2020, approximately $469 million remained on our share repurchase authorization.
Investments to Support Long-Term Growth
During the second quarter of 2020, we opened our new global headquarters in Broomfield, Colorado, less than 20 miles outside of downtown Denver. The state-of-the-art facility will allow us to significantly expand our ability to attract talent. We also entered into a lease for a new distribution center adjacent to our existing facility in Dayton, Ohio. The new facility will be dedicated to e-commerce fulfillment and will significantly increase our distribution capacity in the Americas. Finally, we anticipate completing the relocation of our distribution center in the Netherlands in 2021.
Given the continued disruption and global uncertainty related to COVID-19, we previously withdrew the guidance provided on February 27, 2020. We are not providing third-quarter guidance. However, excluding the impact of any future shutdowns in major markets for full-year 2020, we expect:
- Revenue: Revenue for the remainder of 2020 to be approximately flat compared to the back-half of 2019
- Tax: A tax rate of 11% for 2020
- Inventory: Inventory to be constrained throughout the remainder of 2020 reflecting our decision to significantly reduce inventory purchases as a result of the pandemic
- Capital Expenditures: Approximately $50 million, which reflects investment to support future growth that we had previously deferred.