Shares in Crocs took a hit yesterday, closing down by nearly 2.7 percent, or $3.65, to $130.81 after the company issued Q3 guidance below analysts’ expectations. CEO Andrew Rees cited the company’s exceptional H1 results and market share gains but also asserted the group’s guarded outlook on H2 due to what it sees as “the US consumer behaving cautiously” and some caution in China. The company forecasts 3 to 5 percent Crocs’ brand growth in Q3 and a 14 to 16 percent year-over-year decline for its Heydude label. For the FY, Crocs’ brand revenues are pegged to expand by 7 to 9 percent whileHeydude’s annual sales are seen as falling between 8 and 10 percent.
In Q2, Crocs’ net income rose 7.8 percent to $228.9 million from $212.4 million on 3.6 percent revenue growth to $1.11 billion. Total Crocs’ brand sales increased by 9.7 percent to $914 million; Heydude brand sales, meanwhile, tumbled by 17.5 percent to $197.5 million. Ebit was 6.9 percent higher year-over-year at $296.4 million, and operating income came in 2.3 percent higher at $325.7 million versus $318.5 million. Adjusted gross margin improved by 330 basis points to 61.4 percent from 57.9 percent.
International markets were the clear sales drivers for the Crocs brand during the period ended June 30, rising by nearly 19 percent to $425.3 million on a reported basis. China sales were up more than 70 percent and Australia was said to have exceptional growth during the period. European direct markets registered double-digit sales growth in Q2, led by the UK and Germany.
Meanwhile, Crocs’ North American sales rose by 3 percent to $488.7 million, including a 7.2 percent increase in DTC revenues to $314.7 million. From a product perspective, brand sales were driven by the iconic Classic Clog and strengthening sandal business, including new franchises in the Getaway and Miami.
As for the Heydude segment, wholesale revenues sunk by 23.5 percent to $113.8 million and fell by 7.6 percent in the DTC channel to $83.7 million. However, the group said it made progress in improving the brand’s underlying North American business, gross margins, average selling price, and inventories (turned more than four times). Nonetheless, Heydude’s challenging wholesale business will likely continue through H2 despite its strategy to ramp up marketing investment in the brand under its new EVP and CEO Terence Reilly. From an international perspective, Crocs says it has “planted flags” for the Heydude brand in the UK and Germany and is also doing so in Australia. Additionally, the group has signed new distribution agreements for several markets that will commence with initial shipments in Q4.
