Crocs has reported a net loss of $4,527,000 for the first quarter ended March 31, compared with net profit of $24,945,000 in the same period of the previous year, and an operating loss of $6,404,000 compared with an operating profit of $37,158,000. The company said it would have posted a net profit of $7.6 million without charges related to the shutdown of its Canadian manufacturing operations.
Total revenues increased by 40 percent to $198,540,000 despite lower than expected U.S. revenues. European sales soared by 109 percent to $55.3 million and Asia/Pacific revenues jumped by 93 percent to $37.0 million while U.S. sales climbed by just 12 percent to $92.6 million. However, gross margins during the quarter plummeted by to 42.9 percent from 59.5 percent in the year-ago period. Inventories went up by 7 percent as sales fell below forecasts.
The quarterly sales slide was blamed on poor weather in both Europe and the USA. The company said Jibbitz’ sales were growing faster in Europe than in the USA, implying that the Crocs craze has dimmed in the USA with young teenagers. But Crocs is hoping to re-spark the interest with new ideas involving lights, watches and compasses. Crocs added that it was beginning to build up its licensed business in South America by signing the Sao Paulo football team and intends to sign more such deals in the coming months.
Crocs has also announced the nomination of Adam Baker to the new post of vice president for merchandising. The official worked previously for Nike and acted lately as vice president for product management at Under Armour. The appointment can be related to Crocs' plans to set up new stores everywhere. Three of them opened in France over the past few days while Crocs organized a fashion show in Paris to show the variety of styles now marketed under the brand.
A sales increase of only 10-15 percent is expected for the second quarter. By reducing its costs, the company hopes to achieve a gross margin of 54-56 percent over the full year. Crocs plans to bring down its inventories and its capital expenditures It is making some 1,000 layoffs across company-owned facilities, support personnel dealing with contract manufacturers and employees in distribution centers, other operations and administration, reducing the total workforce dramatically from 4,300 earlier this year. However, the company plans to hold onto its advertising expenditures, which now equal 5-6 percent of sales and may even rise to 7-8 percent later this year if business improves.
The bottom line at Crocs will be aided this year by the verdict of a federal court in Las Vegas, which ordered two Chinese shoe factories – JinJiang Huakai Shoes & Garments Co. and Xiamen Unibest Import & Export Co. – and three individuals associated with them to pay around $56 million in damages to Jibbitz, a subsidiary of Crocs. The defendants were found to be infringing the copyrights and trademark of some of Jibbitz’ shoe charms, selling them over the internet. They have been instructed to remove and/or recall all infringing merchandise and advertising related to the sales of these products.
