Crocs, Inc. reported earnings tumbled 78.0 percent in the first quarter, to $6.4 million, or 6 cents a share, from $29.0 million, or 33 cents, a year ago. Revenues inched up 0.2 percent to $312.4 million as strong gains in the Asia-Pacific region helped offset an 8.2 percent decline in the Americas.
financial results for the first quarter ended March 31, 2014.
First Quarter Financial Highlights:
GAAP revenue increased 0.2 percent in the first quarter of 2014 to $312.4 million, which is in-line with previously provided guidance of $305 million to $315 million. On a constant currency basis, revenue increased 1.5 percent in the first quarter of 2014.The company reported net income of 6 cents per diluted common share on a GAAP basis in the first quarter of 2014. Excluding certain charges, the company reported a non-GAAP net income per common share of 14 cents a share..Crocs President and Chief Executive Officer John McCarvel said, "Revenues for our business globally in the quarter were in line with our expectations. From a segment perspective, our Asia segment continued to deliver solid quarterly revenue growth across all channels and our Europe segment remained on the positive trajectory, which started late last year. We saw continued momentum in our non-clog portfolio during the quarter, as new collections like our Stretch Sole, with its patent-pending Fit2U TechnologyTM, and our Busy Day collection helped us further expand our brand into a casual footwear leader."
Financial Review
First quarter operating results
In the first quarter of 2014, the company reported GAAP operating income of $16.8 million versus $37.7 million in the comparable quarter in the prior year.
The company had GAAP net income attributable to common shareholders of $6.4 million versus net income of $29.0 million in the comparable quarter in the prior year.
As outlined in the non-GAAP reconciliations set forth later in this press release, the company recorded $8.1 million in non-GAAP charges (of which $1.1 million were non-cash charges). The company also recorded $2.8 million of dividends and dividend equivalents on the preferred stock that was issued in the first quarter of 2014. Undistributed earnings related to preferred stock reduced net income for common shareholders by 13.5 percent (equal to the equity participation of the preferred investment). Excluding these items the company reported:
Non-GAAP operating income of $25.0 million versus $39.5 million in the comparable prior year period.
On a comparable basis, non-GAAP adjusted net income of $17.3 million in the quarter versus $30.8 million in the first quarter of 2013.
"Factors driving our first quarter 2014 performance included the impact of the shift of the Easter holiday from March into April, negative currency impacts in Japan and Russia, and the change in product mix," said Jeff Lasher, Crocs Chief Financial Officer. "Russia represents about 15 percent of our business in Europe and our results in the region were impacted by the sudden weakening of the ruble in mid-January. As we continue to diversify our product line with new footwear brands such as the Stretch Sole and Busy Day and carryover products such as the Huarache and A-Leigh wedge, we are experiencing a reduction in Clog sales as a percentage of revenues. During the three months ended March 31, 2014, Clog silhouettes represented approximately 42 percent of sales, as compared with 47 percent in the three months ended March 31, 2013.
"With the closing of the Blackstone investment in the quarter," Lasher added, "this is a time of transition for Crocs as we focus our strategy on enhancing returns for shareholders. We see opportunities to make significant improvements in our business model going forward in order to deliver on that goal."
Balance Sheet
Cash and cash equivalents at March 31, 2014, amounted to $411.8 million, which is an increase of 29.9 percent from December 31, 2013. This increase is primarily attributable to net proceeds of $182.2 million related to issuance of preferred stock to Blackstone on January 27, 2014. Inventories increased 18.5 percent during the first quarter of 2014 to $192.4 million, reflecting the normal seasonal build of product ahead of the company's core spring summer selling season and the impact of the Easter holiday shift.
Stock Repurchase
During the quarter the company repurchased approximately 870,000 shares of common stock for $13 million under its previously announced $350 million stock repurchase program. The company repurchased approximately another 310,000 shares of common stock in April and intends to be patient, methodical and opportunistic in the execution of this buyback plan.
Financial Outlook
The company expects GAAP revenue of approximately $370 to $375 million in the second quarter of 2014.
CEO Search
As previously announced, Mr. McCarvel will retire as President, Chief Executive Officer and board member, today, April 30, 2014. The board is in the process of a search for Mr. McCarvel's replacement and Mr. Thomas J. Smach, Chairman of the Board of Crocs, will serve as interim Chief Executive Officer until the Board appoints a permanent President and/or Chief Executive Officer. The company will make an announcement when the search is successfully concluded.
"It has been an honor to be part of the Crocs global team for the past decade and to lead it since 2010," Mr. McCarvel said. "We've made tremendous progress as a company over these past 10 years ?from a one-season, one-shoe, and one-country brand to a diversified, four-season global footwear leader that is on solid financial footing."
"John's contributions to this company are immeasurable," said Thomas J. Smach, Chairman of the Board of Crocs. "As our CEO, he led a turnaround of Crocs and established it as a profitable, diversified company with more than $1 billion in annual revenue, strong cash flows, and a very healthy balance sheet. Under his leadership, Crocs has grown into a global branded company that employs 4,500 people and sells more than 55 million shoes per year in more than 90 different countries. On behalf of the company's employees and directors, I would like to extend our appreciation and gratitude to John and wish him and his family continued success as he pursues his personal endeavors."
