Crocs Slashes Guidance Amid Sales Decline

By Markets Fool.com

Image source: Crocs.

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Footwear company Crocs (NASDAQ: CROX) reported its second-quarter results before the market opened on Aug. 3. The company fell well short of its own guidance, selling far less than it had previously expected, leading adjusted profits to tumble. A difficult retail environment prompted it to slash its guidance for the full year, raising questions about Crocs' ongoing turnaround. Here's what investors need to know about the second-quarter results.

Crocs results: The raw numbers

Metric

Q2 2016

Q2 2015

Growth (YOY)

Revenue

$323.8 million

$345.7 million

(6.3%)

GAAP EPS

$0.13

$0.11

18.2%

Non-GAAP net income

$12.0 million

$27.3 million

(56%)

YOY = year over year. Data source: Crocs Q2 2016 earnings report.

What happened with Crocs this quarter?

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Crocs badly missed its own guidance for revenue, prompting the company to slash its outlook for the full year.

  • Crocs had previously expected second-quarter revenue in a range of $340 million to $350 million.
  • Wholesale revenue tumbled 12.4% year over year, with strength in Europe more than offset by weakness in the Americas and the Asia-Pacific region.
  • Retail sales slumped 4.8%, with sales falling in all regions. Comparable-store sales on a constant-currency basis declined by 3.4%, with only Europe showing growth.
  • E-commerce sales rose 19.5% year over year to $45.1 million, too small to offset weakness elsewhere.
  • Gross margin fell 250 basis points year over year to 52.4%.

Crocs no longer expects to grow revenue this year.

  • Third-quarter revenue is expected to be between $245 million and $255 million, down from $274.1 million during the third quarter of 2015.
  • Full-year revenue is expected to decline by a low single-digit percentage. Previous guidance called for mid-single-digit revenue growth.

What management had to say

CEO Gregg Ribatt remained confident in the company's turnaround efforts despite a weak second quarter:

Despite a decline in our revenue,I am encouraged by our strategic progress which has enabled us to help mitigate the top-line pressure on profitability by delivering better than expected gross margins and managing expenses while reducing inventories. The global retail environment became more challenging as the second quarter progressed. This impacted our wholesale reorder opportunities and contributed to our sales shortfall relative to expectations. These headwinds were partially offset by a 2.9% increase in global direct-to-consumer comparable store sales, which is a positive indication that consumers are responding favorably to our new product line and enhanced marketing efforts. We remain confident that we have successfully repositioned the business and built the platform to provide sustained growth and profitability over the long-term.

Looking forward

Crocs' second quarter was about as bad as they come. Revenue came in well short of expectations, and the momentum that the company displayed during the first quarter seemed to evaporate. Previous guidance calling for a revenue increase this year turned out to be overly optimistic, forcing the company to slash its outlook.

The turnaround at Crocs was never going to be easy. It faces the challenge of turning itself around in a difficult retail environment, a combination that's guaranteed to produce choppy and volatile results. Shares of Crocs tumbled following its earnings announcement, and the company will need to prove that its turnaround is still on track to win back investors.

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Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Crocs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.