Crocs, Inc.
Q4 2013 Earnings Call Transcript

Published: 20 Feb 2014

[Operator:]

Welcome to the Crocs Fourth Quarter and Year End 2013 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded. It is my pleasure to turn the conference over to William Kent, Senior Director of Investor Relations. Mr. Kent, please go ahead.

[William Kent:]

Thank you, and thank you, all, for joining us today for our fourth quarter and year end 2013 earnings conference call. Earlier this morning, we announced our fourth quarter and year end 2013 financial results. A copy of the press release can be found on our website at crocs.com. We would like to remind everyone that some information provided in this call will be forward-looking, and accordingly, are subject to the Safe Harbor provisions of the federal securities law. These statements include, but are not limited to, statements regarding future revenue and earnings, backlog and future orders, prospects and product pipeline. We caution you that these statements are subject to a number of risks and uncertainties described in the Risk Factors section of the company’s 2012 report on Form 10-K filed on February 26, 2013, with the Securities and Exchange Commission. Accordingly, all actual results could differ materially from those described on this call. Those listening to the call are advised to refer to Crocs' Annual Report on Form 10-K, as well as other documents filed with the SEC for additional discussion of these risk factors. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events. The company may refer to certain non-GAAP metrics on this call, including gross profit, SG&A, tax expense and net income. Explanation of these metrics can be found on the earnings release filed earlier today. I will now turn the call over to John McCarvel.

[John P. McCarvel:]

Thanks, Will. Thank you for joining us this morning on the fourth quarter earnings call. With me today on the call is Jeff Lasher, Crocs' Chief Financial Officer. I'll begin the call today with commentary on the fourth quarter and the full year, followed by Jeff, who will review the financial results in more detail. Earlier today, we announced our fourth quarter and full year financial results. As stated in the press release, 2014 will be a significant transitionary period for the company. While the CEO search for my successor is going on, the work at the company has not subsided. I'm still fully engaged with the business and Blackstone is actively involved already, adding significant value in many aspects of our business. Together, we are working with the reconstituted board to refine our short-term and long-term strategic plans, which has started by undertaking a full strategic and operational review in order to maximize our long-term shareholder value. Our aim will be a sharper focus on earnings growth with less emphasis on top line growth. Looking forward, we will focus on improving financial performance, particularly in the Americas and in the Japan regions, as well as enhancing our global retail execution. As we increasingly focus on profitable growth and retail excellence, we have moderated the pace of our investments in new retail stores, as well as consolidating some of our existing locations. While the company will remain focused on creating long-term value for our shareholders, given the transition that the company will be going through, we will not be providing earnings guidance in 2014, and we will not have a Q&A session as we believe our press release and prepared statements will be sufficient. I would now like to share with you at a high-level overview our results for the fourth quarter and full year for 2013. Despite ongoing macroeconomic changes around the globe and challenges that we face in certain segments, we delivered record revenues and footwear unit sales. Our full year revenues increased to a record $1,196,000,000, a 9% increase on a constant currency basis, and footwear unit sales in 2013 increased 9% over 2012 to a record 54.3 million pairs sold. Our Q4 revenue increased on a constant currency basis by 4% compared with the fourth quarter in 2012. Our global retail comp store sales were down 4% in the fourth quarter and down 3% for the full year. All of our comp store sales results are reported in constant currency. Our Internet sales in the quarter were up 10% and wholesale revenues for the quarter were up 4%. I'll now turn the call over to Jeff to go through financial information in more detail.

[Jeffrey J. Lasher:]

Thank you, John. Several nonrecurring, unusual or infrequent items were included in our results. Excluding these items, our fourth quarter loss was $0.20 per share, in line with our expectations. As John mentioned, our revenue was up 4% on a constant currency basis and 9% for the full year. Gross margin decreased year-over-year by 180 basis points to 52.3%. The decline in gross margin is primarily driven by rising product costs, the evolution of our changing product assortment and the continual impact of unfavorable currency trends. In the full year of 2013, selling, general and administrative expenses increased $89 million, or 19%, to $549 million compared with the full year 2012. As we will detail later, about $20 million of this increase was associated with the nonrecurring, unusual or infrequent items in Q4. Excluding these items, SG&A increased 16% in 2013. Our global retail presence has increased our full year SG&A expenses by $40 million. We had increased marketing spend of $7 million and $3 million of additional spend in product development efforts globally. In addition to these ongoing items, we also had expenses such as the $6 million resolution of the statutory audit in Brazil and operating expenses related to our ERP implementation of $9 million. Excluding nonrecurring, unusual or infrequent items, our non-GAAP gross profit for the year was up $15 million. Non-GAAP SG&A expenses were $72 million higher and our non-GAAP tax expense was $3 million lower than 2012 levels. As a result, non-GAAP net income decreased $56 million in 2013 compared to 2012. A total of about $20 million of nonrecurring, unusual or infrequent SG&A expenses and asset impairment charges were recorded in the quarter including

[John P. McCarvel:]

Thank you, Jeff. As you know, I've announced my plans to retire and step down from the Crocs board as of the end of April. Since its inception in 2002, Crocs has sold more than 300 million pairs of shoes in more than 90 countries. Our brand is a global leader in casual, lifestyle footwear dedicated to bringing color, comfort, fun and innovation to the world's feet. Our product line today is broader and deeper than ever before, and consumer demand continues to grow around the world as our most recent results have shown. I believe our best days are ahead, and I'm proud to have been part of the team responsible for building such a powerful, enduring brand and business in such a short period of time. I am proud of this global management team and all of our global Crocs colleagues that have created this global omni-channel business and have turned this company around in the past 4 years. I'd also like to take this opportunity to say thank you to all of our valued wholesale partners and our many trusted long-term suppliers. I also wanted to thank our loyal shareholders for their ongoing support. It's been an honor to work with all of you, and I look forward to watching Crocs continue to grow, evolve and prosper in the years to come. With that, operator, I'll turn the call back to you.

[Operator:]

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.