Another Steep Sales Decline for Crocs

Image source: Crocs.

Footwear company Crocs (CROX -0.45%) reported its third-quarter results before the market opened on Nov. 9. Both revenue and adjusted earnings tumbled, driven down by a difficult consumer environment. Wholesale and retail revenue fell in every geographic area, with Europe in particular creating a headache for the company. Here's what investors need to know about Crocs' third-quarter results.

Crocs results: The raw numbers

Data source: Crocs Q3 2016 earnings report. YOY = year over year.

What happened with Crocs this quarter?

Crocs faced a challenging consumer environment, which led to a significant drop in revenue and earnings.

• On a constant-currency basis, revenue declined by 11.6% year over year.
• Wholesale revenue tumbled 17.9% year over year to $109.1 million, with declines in every geographic region. European wholesale revenue dropped 27.6%, while the Americas saw a 15.3% decline and the Asia Pacific region posted a 14.7% decline.
• Retail revenue fell 4.1% year over year to $107.1 million, with all geographic regions suffering declines.
• Total e-commerce revenue increased by 0.8% year over year to $29.7 million. Slight growth in the Americas and strong growth in the Asia Pacific region was mostly offset by an 18.4% decline in Europe.
• Inventory declined by 11.2% year over year, roughly at the same pace as revenue.
• Gross margin improved to 49.8%, up from 44.1% in the prior-year period.

Crocs expects another revenue decline during the fourth quarter.

• Fourth-quarter revenue is expected in the range of $185 million to $195 million, compared to $208.7 million in the prior-year period. The midpoint of that range represents a year-over-year revenue decline of 9.8%.
• Full-year revenue is expected in the range of $1.034 billion to $1.044 billion, down from $1.091 billion in 2015.

What management had to say

Crocs CEO Gregg Ribatt described the challenges facing the company, as well as some progress made during the third quarter:

We continue to manage our business tightly in what remains a challenging consumer environment. Revenues were in-line with our expectations while gross margin exceeded our guidance by approximately 200 basis points as we further limited off-price selling and promotional activities. At the same time, we reduced our inventories 11% compared with last year. Looking ahead, we continue to plan conservatively given the current top-line headwinds. We are working hard to drive quality growth through our product, marketing, and distribution strategies and we remain confident that the steps we've taken to build a better business model will result in increased profitability and greater shareholder value.

Looking forward

Crocs slashed its full-year guidance, which originally called for revenue growth this year, following its second-quarter report. The company continues to expect a challenging environment going forward, and a double-digit revenue decline during the third quarter offered stark evidence that the turnaround at the company isn't quite going as planned.

There were some nuggets of good news in Crocs' report. Gross margin increased, driven by limiting off-price selling and promotional activity, and inventory dropped in line with revenue, a sign that markdowns won't be necessary to clear inventory amid a difficult sales environment. But overall, it was a challenging quarter for the footwear company.