Crocs, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Amounts below are in U.S. dollars. Crocs reports two segments: Crocs Brand and HEYDUDE Brand.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Revenue | $938.6 million | $884.2 million | Up 6.2% reported; up 6.9% in constant currency |
| Gross profit / margin | $522.1 million / 55.6% | $476.4 million / 53.9% | Margin up 170 basis points, mainly from lower freight and product costs |
| SG&A | $295.6 million | $241.4 million | Up 22.5%; 31.5% of revenue versus 27.3% |
| Operating income / margin | $226.4 million / 24.1% | $234.9 million / 26.6% | Operating income down 3.6%; margin down 250 basis points |
| Net income | $152.5 million | $149.5 million | Up 1.9% |
| Diluted EPS | $2.50 | $2.39 | Up 4.6% |
| Operating cash flow | $(27.6) million | $9.9 million | Declined $37.5 million, largely reflecting working-capital changes, especially receivables |
| Capital expenditures | $15.8 million | $27.6 million | Cash used in investing activities |
Revenue and segment trends
- Crocs Brand: Revenue increased 14.6% to $743.8 million; segment operating income rose 21.2% to $264.1 million. Growth reflected higher average selling prices and higher unit volume. DTC comparable sales increased 14.7% in constant currency.
- HEYDUDE Brand: Revenue fell 17.2% to $194.8 million; segment operating income declined 47.6% to $40.1 million. Lower unit volume affected both channels, and DTC comparable sales decreased 18.4% in constant currency.
- Consolidated revenue growth was led by a $90.7 million benefit from higher average selling prices; lower volume reduced revenue by $29.7 million, and foreign exchange reduced it by $6.6 million.
Liquidity, debt and capital allocation
- At March 31, 2024, cash and cash equivalents were $159.3 million. Available borrowing capacity was $498.7 million, including $483.7 million under the revolving facility and $15.0 million under the Asia facility.
- Total borrowings had a face value of $1.775 billion; balance-sheet carrying value of long-term borrowings was $1.727 billion. The Term Loan B had $810.0 million outstanding and matures in 2029; the revolving facility had $265.0 million outstanding and matures in November 2027. The company reported compliance with its debt covenants.
- Cash, cash equivalents and restricted cash increased $9.9 million during the quarter, supported by $54.8 million of financing cash flow despite negative operating cash flow. The company refinanced its Term Loan B in February 2024.
- No common shares were repurchased during the quarter. Remaining repurchase authorization was $875.0 million, subject to debt-agreement restrictions.
- Management believes cash flows, cash on hand and available borrowing capacity will meet liquidity needs and capital expenditures for at least the next 12 months.
Material changes, outlook and risks
- SG&A included $24.1 million of asset impairments: an $18.2 million impairment related to information technology systems for the HEYDUDE integration and $5.9 million related to former warehouses. Higher talent and marketing investments also contributed to the expense increase.
- Management said the move to a new HEYDUDE distribution center weighed on the brand’s near-term gross margin and expects to realize margin benefits from the move going forward. Management also said it expects to pay down debt and make share repurchases during the remainder of 2024; the filing provides no specific amounts or earnings guidance.
- Management cited cautious consumer spending amid elevated interest rates and inflation, geopolitical tensions, and continuing foreign-exchange exposure. A 1% rise in rates on variable-rate borrowings would increase estimated interest expense by $10.8 million over the next 12 months, based on quarter-end balances.
- Unrecognized tax benefits were $549.5 million at March 31, 2024. The company is subject to tax-authority audits, including customs, import and other taxes; it reported no significant pending legal proceedings expected to materially affect results.
- Purchase commitments to third-party manufacturers totaled $270.6 million. Management reported no material off-balance-sheet arrangements other than purchase commitments.
- Management reported no material changes to the risk factors in its 2023 Form 10-K. It also said the Pillar Two global minimum tax is not expected to materially affect 2024 financial statements.
Important facts for investors to verify
- Whether the Crocs Brand’s growth and pricing strength can continue, and whether HEYDUDE volume and comparable sales stabilize.
- Whether the new HEYDUDE distribution center delivers the expected margin benefits and whether integration-related impairment or other costs recur.
- How quickly operating cash flow recovers from the quarter’s working-capital outflow, particularly the increase in accounts receivable.
- Debt repayment and buyback plans relative to leverage, covenant requirements and the company’s variable-rate exposure.
- Developments in tax audits and uncertain tax positions, including the substantial unrecognized tax benefits balance.