Crocs Inc

Previous wording

•We entered 2024 operating in an environment where consumers are feeling the effects of elevated interest rates and inflation, and as a result, they are spending more cautiously. In addition, geopolitical tensions remain across the globe. We remain focused on making the right decisions for the health of our brands, maintaining tight inventory control, and investing in strategic initiatives to support durable long-term growth.

Current wording

•We continue to operate in an environment where consumers are feeling the effects of elevated interest rates and inflation, and as a result, they are spending more cautiously. In addition, geopolitical tensions remain across the globe. We remain focused on making the right decisions for the health of our brands, maintaining tight inventory control, and investing in strategic initiatives to support durable long-term growth.

Previous wording

•We continue to invest in our strategic pillars, including marketing globally for both brands, China and sandal market penetration for the Crocs Brand, product innovation, and various initiatives supporting our global digital business.

Current wording

•We continue to invest in our strategic pillars, including marketing globally for both brands, China and sandal market penetration for the Crocs Brand, product innovation, and various initiatives supporting our global digital business. Specific to the HEYDUDE Brand, we remain focused on our strategy of investing in marketing, including expected acceleration in our investment in the second half of 2024, maintaining price integrity, and improving channel inventories.

Previous wording

•Our liquidity position remains strong with approximately $159.3 million in cash and cash equivalents and $498.7 million in available borrowing capacity as of March 31, 2024. Our total borrowings were $1.73 billion as of March 31, 2024. Enabled by our strong liquidity position, we expect to pay down debt and make share repurchases throughout the remainder of the year.

Current wording

•Our liquidity position remains strong with approximately $167.7 million in cash and cash equivalents and $573.7 million in available borrowing capacity as of June 30, 2024. Our total borrowings were $1.53 billion as of June 30, 2024. We resumed our share repurchase program in May 2024, repurchasing $175.0 million of our common stock during the quarter.

Previous wording

First Quarter 2024 Financial and Operational Highlights

Current wording

Second Quarter 2024 Financial and Operational Highlights

Previous wording

Revenues were $938.6 million for the first quarter of 2024, a 6.2% increase compared to the first quarter of 2023. The increase was due to the net effects of: (i) higher average selling price on a constant currency basis (“ASP”), which increased revenues by $90.7 million, or 10.3%; (ii) lower unit sales volume in the HEYDUDE Brand, partially offset by higher unit sales volume in the Crocs Brand, which resulted in a net decrease in revenues of $29.7 million, or 3.4%; and (iii) net unfavorable changes in exchange rates, which decreased revenues by $6.6 million, or 0.7%.

Current wording

Revenues were $1,111.5 million for the second quarter of 2024, a 3.6% increase compared to the second quarter of 2023. The increase was due to the net effects of: (i) higher average selling price on a constant currency basis (“ASP”), which increased revenues by $59.5 million, or 5.5%; (ii) lower unit sales volume in the HEYDUDE Brand, partially offset by higher unit sales volume in the Crocs Brand, which resulted in a net decrease in revenues of $7.5 million, or 0.7%; and (iii) net unfavorable changes in exchange rates, which decreased revenues by $12.8 million, or 1.2%.

Previous wording

•We grew revenues in the Crocs Brand by 14.6% compared to the same period in 2023.

Current wording

•We grew revenues in the Crocs Brand by 9.7% compared to the same period in 2023.

Previous wording

•Gross margin was 55.6%, an increase of 170 basis points from last year’s first quarter. This was primarily due to lower freight and product costs.

Current wording

•Gross margin was 61.4%, an increase of 350 basis points from last year’s second quarter. This was primarily due to lower product and freight costs, as well as favorable brand mix.

Previous wording

•Selling, general and administrative expenses (“SG&A”) were $295.6 million compared to $241.4 million in the first quarter of 2023, as a result of various impairment charges in the current year, as discussed below, and an increased investment in talent. As a percent of revenues, SG&A increased to 31.5% of revenues compared to 27.3% of revenues in the first quarter of 2023.

Current wording

•Selling, general and administrative expenses (“SG&A”) were $356.2 million compared to $302.8 million in the second quarter of 2023, as a result of increased investment in talent and marketing. As a percent of revenues, SG&A increased to 32.0% of revenues compared to 28.2% of revenues in the second quarter of 2023.

Previous wording

•Income from operations decreased to $226.4 million from $234.9 million in last year’s first quarter. Net income was $152.5 million, or $2.50 per diluted share, compared to $149.5 million, or $2.39 per diluted share, in last year’s first quarter.

Current wording

•Income from operations increased to $325.7 million from $318.5 million in last year’s second quarter. Net income was $228.9 million, or $3.77 per diluted share, compared to $212.4 million, or $3.39 per diluted share, in last year’s second quarter.

Previous wording

Gross margin. Gross margin increased in the three months ended March 31, 2024 to 55.6% compared to 53.9% in the same period in 2023. This was primarily driven by lower freight and product costs of 160 basis points.

Current wording

Gross margin. Gross margin increased in the three months ended June 30, 2024 to 61.4% compared to 57.9% in the same period in 2023. This was primarily driven by lower product costs in both brands of approximately 90 basis points, lower freight costs for both brands of approximately 80 basis points, and favorable brand mix of 60 basis points.

Previous wording

Selling, general and administrative expenses. SG&A increased $54.2 million, or 22.5%, in the three months ended March 31, 2024 compared to the same period in 2023. This is due in part to an $18.2 million impairment charge for information technology systems related to the HEYDUDE integration and an increased investment of talent of $16.4 million. An increased investment in marketing of $8.5 million, impairment charges of $5.9 million related to our former warehouses in Las Vegas, Nevada and the Netherlands, higher facilities costs of $4.6 million, and net other costs of $0.6 million also contributed to the increase in SG&A.

Current wording

SG&A expenses increased $107.6 million, or 19.8%, during the six months ended June 30, 2024 compared to the same period in 2023, driven by increased investments in talent and marketing of $37.2 million and $26.5 million, respectively. This increase was also due to an $18.2 million impairment charge for information technology systems related to the HEYDUDE integration and impairment charges of $5.9 million related to our former warehouses in Las Vegas, Nevada and the Netherlands. Additionally, facilities costs increased $8.8 million and depreciation and amortization expense increased $6.7 million. Other net costs increased SG&A by $4.3 million.

Previous wording

Foreign currency losses, net. Foreign currency losses, net, consist of realized and unrealized foreign currency gains and losses from the remeasurement and settlement of monetary assets and liabilities denominated in non-functional currencies as well as realized and unrealized gains and losses on foreign currency derivative instruments. During the three months ended March 31, 2024, we recognized realized and unrealized net foreign currency losses of $2.3 million compared to losses of $0.4 million during the three months ended March 31, 2023.

Current wording

Foreign currency gains (losses), net. Foreign currency gains (losses), net, consist of realized and unrealized foreign currency gains and losses from the remeasurement and settlement of monetary assets and liabilities denominated in non-functional currencies as well as realized and unrealized gains and losses on foreign currency derivative instruments. During the three months ended June 30, 2024, we recognized realized and unrealized net foreign currency losses of $1.3 million compared to gains of $0.6 million during the three months ended June 30, 2023.

Previous wording

Interest expense. Interest expense during the three months ended March 31, 2024 decreased $12.1 million, or 28.3%, compared to the three months ended March 31, 2023 due to lower outstanding borrowings and lower weighted average interest rates on both the Term Loan B Facility and the Revolving Facility (each as defined herein) in the current year.

Current wording

Interest expense. Interest expense during the three months ended June 30, 2024 decreased $13.9 million, or 32.3%, compared to the three months ended June 30, 2023. Interest expense during the six months ended June 30, 2024 decreased $26.0 million, or 30.3%, compared to the six months ended June 30, 2023. The decrease in interest expense for both the three and six months ended June 30, 2024 was due to lower outstanding borrowings and lower weighted average interest rates on the Term Loan B Facility (as defined herein) in the current year.

Previous wording

Income tax expense. During the three months ended March 31, 2024, income tax expense decreased $0.6 million compared to the same period in 2023. The effective tax rate for the three months ended March 31, 2024 was 21.4% compared to an effective tax rate of 22.0% for the same period in 2023, a 0.6% decrease. This decrease in the effective tax rate was primarily driven by a shift in the mix of the Company's domestic and foreign earnings. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate due to differences in income tax rates between U.S. and foreign jurisdictions.

Current wording

Income tax expense. During the three months ended June 30, 2024, income tax expense increased $2.7 million compared to the same period in 2023. The effective tax rate for the three months ended June 30, 2024 was 22.8% compared to an effective tax rate of 23.4% for the same period in 2023, a 0.6% decrease. This decrease in the effective tax rate was primarily driven by a shift in the mix of the Company's domestic and foreign earnings. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate due to differences in income tax rates between U.S. and foreign jurisdictions.

Previous wording

(2) Our business has continued to evolve in the period following the consummation of the HEYDUDE acquisition, as we have grown the brand and staffed and developed our leadership team at HEYDUDE. In the fourth quarter of 2023, to reflect changes in the way management evaluates performance, makes operating decisions, and allocates resources, we updated our reportable operating segments to be (i) Crocs Brand and (ii) HEYDUDE Brand. Our ‘North America,’ ‘Asia Pacific,’ and ‘EMEALA’ segments as well as revenues and expenses related to Crocs ‘Brand corporate’ have been consolidated to the ‘Crocs Brand.’ As a result of these changes, the previously reported amounts for revenues and income from operations for the three months ended March 31, 2023 have been recast to conform to current period presentation.

Current wording

(2) Our business has continued to evolve in the period following the consummation of the HEYDUDE acquisition, as we have grown the brand and staffed and developed our leadership team at HEYDUDE. In the fourth quarter of 2023, to reflect changes in the way management evaluates performance, makes operating decisions, and allocates resources, we updated our reportable operating segments to be (i) Crocs Brand and (ii) HEYDUDE Brand. Our ‘North America,’ ‘Asia Pacific,’ and ‘EMEALA’ segments as well as revenues and expenses related to Crocs ‘Brand corporate’ have been consolidated to the ‘Crocs Brand.’ As a result of these changes, the previously reported amounts for revenues and income from operations for the three and six months ended June 30, 2023 have been recast to conform to current period presentation.

Previous wording

Revenues. Crocs Brand revenues increased in the three months ended March 31, 2024 compared to the same period in 2023. This increase was due in part to higher ASP, primarily as a result of product mix, customer mix, select price increases in international markets, and less discounting than the prior year. Higher volume in both channels also drove the increase in revenues while net unfavorable foreign currency fluctuations partially offset the overall increase to revenues.

Current wording

Revenues. Crocs Brand revenues increased in the three months ended June 30, 2024 compared to the same period in 2023. This increase was due in part to higher ASP, primarily as a result of price increases in international markets, favorable channel mix and product mix, and less discounting than the prior year. Higher volume in both channels also drove the increase in revenues while net unfavorable foreign currency fluctuations partially offset the overall increase to revenues.

Previous wording

SG&A for our Crocs Brand segment increased $24.2 million, or 16.8%, during the three months ended March 31, 2024 compared to the same period in 2023. This increase was primarily due to higher marketing costs, higher variable expenses related to higher revenues in the DTC channel, and an increased investment in talent.

Current wording

SG&A for our Crocs Brand segment increased $33.1 million, or 16.8%, during the three months ended June 30, 2024 compared to the same period in 2023. This increase was primarily due to higher marketing costs and higher variable expenses related to higher revenues in the DTC channel.

Previous wording

Income from Operations. Income from operations for our Crocs Brand segment was $264.1 million for the three months ended March 31, 2024, an increase of $46.1 million, or 21.2%, compared to the same period in 2023. Gross margin was 58.1%, an increase of 230 basis points compared to prior year, primarily due to favorable customer mix, which was largely driven by the termination of our relationship with a significant distributor in the second quarter of 2023 following evidence that it was selling goods outside of its approved territories, price increases in international markets, and lower freight costs. The overall increase in gross margin was partially offset by higher royalty expense.

Current wording

During the six months ended June 30, 2024, income from operations for our Crocs Brand was $619.7 million, an increase of $84.0 million, or 15.7%, compared to the same period in 2023. Gross margin was 61.4%, an increase of 220 basis points, primarily due to favorable customer mix, which was largely driven by the termination of our relationship with a significant distributor in the second quarter of 2023 following evidence that it was selling goods outside of its approved territories, price increases in international markets, and lower freight costs. The overall increase in gross margin was partially offset by higher royalty expense as we continue to expand into licensed product.

Previous wording

Revenues. For the three months ended March 31, 2024, revenues decreased compared to 2023. This decrease was primarily due to lower volume in both channels. Higher ASP, primarily due to favorable channel and product mix, partially offset the overall decrease to revenues.

Current wording

Revenues. For the three months ended June 30, 2024, revenues decreased compared to 2023. This decrease was primarily due to lower volume in both channels. Higher ASP, primarily due to increased pricing, favorable channel mix as we grow our retail business, and less discounting, partially offset the overall decrease to revenues.

Previous wording

Income from Operations. Income from operations for the HEYDUDE segment was $40.1 million for the three months ended March 31, 2024, a decrease of $36.5 million, or 47.6%, compared to 2023. Gross margin was 46.2%, a decrease of 340 basis points, primarily due to transition costs and infrastructure investments associated with the move to our new HEYDUDE distribution center in Las Vegas, Nevada in the current year. The overall decrease was partially offset by lower freight costs.

Current wording

Income from Operations. Income from operations for the HEYDUDE segment was $42.4 million for the three months ended June 30, 2024, a decrease of $23.1 million, or 35.3%, compared to 2023. Gross margin was 49.1%, an increase of 200 basis points, primarily due to lower freight costs, favorable channel mix, and increased pricing. This was offset in part by transition costs and infrastructure investments associated with the move to our new HEYDUDE distribution center in Las Vegas, Nevada in the current year, as well as unfavorable product mix.

Previous wording

SG&A for the HEYDUDE Brand segment increased $9.8 million, or 24.4%, during the three months ended March 31, 2024 compared to the same period in 2023. This increase was primarily due to impairment costs of the right-of-use assets for our former HEYDUDE Brand warehouses in Las Vegas, Nevada in the current year and higher compensation costs as we continue to invest in talent while we grow the HEYDUDE Brand.

Current wording

SG&A for the HEYDUDE Brand segment increased $17.2 million, or 19.7%, during the six months ended June 30, 2024 compared to the same period in 2023. This is primarily due to an increased in investment talent and impairment costs of the right-of-use assets for our former HEYDUDE Brand warehouses in Las Vegas, Nevada in the current year.

Previous wording

During the three months ended March 31, 2024, total net costs within ‘Enterprise corporate’ increased $18.1 million, or 30.4%, compared to the same period in 2023. This increase was primarily due to an impairment charge for information technology systems related to the HEYDUDE integration and an increased investment in talent.

Current wording

During the six months ended June 30, 2024, total net costs within ‘Enterprise corporate’ increased $25.6 million, or 20.6%, compared to the same period in 2023. This was primarily due to an impairment charge for information technology systems related to the HEYDUDE integration and an increased investment in talent.

Previous wording

As of March 31, 2024, we had 349 company-operated retail locations for the Crocs Brand, inclusive of 170 retail locations in North America and 179 retail locations internationally. As of March 31, 2024, we had 19 company-operated retail locations for the HEYDUDE Brand, inclusive of 8 temporary clearance stores. As of March 31, 2023, we had 339 company-operated retail locations for the Crocs Brand, inclusive of 172 retail locations in North America and 167 retail locations internationally. As of March 31, 2023, we had 8 company-operated retail locations for the HEYDUDE Brand, all of which were temporary clearance stores.

Current wording

As of June 30, 2024, we had 363 company-operated retail locations for the Crocs Brand, inclusive of 172 retail locations in North America and 191 retail locations internationally. As of June 30, 2024, we had 32 company-operated retail locations for the HEYDUDE Brand, inclusive of 9 temporary clearance stores. As of June 30, 2023, we had 346 company-operated retail locations for the Crocs Brand, inclusive of 175 retail locations in North America and 171 retail locations internationally. As of June 30, 2023, we had 9 company-operated retail locations for the HEYDUDE Brand, all of which were temporary clearance stores.

Previous wording

As of March 31, 2024, we had $159.3 million in cash and cash equivalents and up to $498.7 million of available borrowings, including $483.7 million of remaining borrowing availability under the Revolving Facility (as defined below) and $15.0 million of remaining borrowing availability under the Citibank Facility (as defined below). As of March 31, 2024, the Term Loan B Facility (as defined below) was fully drawn and there was no available borrowing capacity. We believe that cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our Revolving Facility will be sufficient to meet our ongoing liquidity needs and capital expenditure requirements for at least the next twelve months.

Current wording

As of June 30, 2024, we had $167.7 million in cash and cash equivalents and up to $573.7 million of available borrowings, including $558.7 million of remaining borrowing availability under the Revolving Facility (as defined below) and $15.0 million of remaining borrowing availability under the Citibank Facility (as defined below). As of June 30, 2024, the Term Loan B Facility (as defined below) was fully drawn and there was no available borrowing capacity. We believe that cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our Revolving Facility will be sufficient to meet our ongoing liquidity needs and capital expenditure requirements for at least the next twelve months. In May 2024, we resumed our share repurchase program.

Previous wording

All of the cash held outside of the U.S. could be repatriated to the U.S. as of March 31, 2024 without incurring additional U.S. federal income taxes. In some countries, repatriation of certain foreign balances is restricted by local laws. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and could adversely affect our liquidity. As of March 31, 2024, we held $118.7 million of our total $159.3 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in the locations in which the cash is held. Of the $118.7 million, $2.7 million could potentially be restricted by local laws.

Current wording

All of the cash held outside of the U.S. could be repatriated to the U.S. as of June 30, 2024 without incurring additional U.S. federal income taxes. In some countries, repatriation of certain foreign balances is restricted by local laws. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and could adversely affect our liquidity. As of June 30, 2024, we held $112.6 million of our total $167.7 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in the locations in which the cash is held. Of the $112.6 million, $2.8 million could potentially be restricted by local laws.

Previous wording

The Credit Agreement requires or required, as applicable, us to maintain a minimum interest coverage ratio of 3.00 to 1.00, and a maximum leverage ratio of (i) 4.00 to 1.00 from the quarter ended March 31, 2022 through, and including, the quarter ended December 31, 2023, (ii) 3.75 to 1.00 for the quarter ended March 31, 2024, (iii) 3.50 to 1.00 for the quarter ending June 30, 2024, and (iv) 3.25 to 1.00 for the quarter ending September 30, 2024 and thereafter (subject to adjustment in certain circumstances). The Credit Agreement permits, among other things, (i) stock repurchases subject to certain restrictions, including after giving effect to such stock repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit Agreement of at least $40.0 million. As of March 31, 2024, we were in compliance with all financial covenants under the Credit Agreement.

Current wording

The Credit Agreement requires or required, as applicable, us to maintain a minimum interest coverage ratio of 3.00 to 1.00, and a maximum leverage ratio of (i) 4.00 to 1.00 from the quarter ended March 31, 2022 through, and including, the quarter ended December 31, 2023, (ii) 3.75 to 1.00 for the quarter ended March 31, 2024, (iii) 3.50 to 1.00 for the quarter ended June 30, 2024, and (iv) 3.25 to 1.00 for the quarter ending September 30, 2024 and thereafter (subject to adjustment in certain circumstances). The Credit Agreement permits, among other things, (i) stock repurchases subject to certain restrictions, including after giving effect to such stock repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit Agreement of at least $40.0 million. As of June 30, 2024, we were in compliance with all financial covenants under the Credit Agreement.

Previous wording

As of March 31, 2024, the total commitments available from the lenders under the Revolving Facility were $750.0 million. At March 31, 2024, we had $265.0 million in outstanding borrowings and $1.3 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As of March 31, 2024 and December 31, 2023, we had $483.7 million and $558.7 million, respectively, of available borrowing capacity under the Revolving Facility, which matures November 2027.

Current wording

As of June 30, 2024, the total commitments available from the lenders under the Revolving Facility were $750.0 million. At June 30, 2024, we had $190.0 million in outstanding borrowings and $1.3 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As of June 30, 2024 and December 31, 2023, we had $558.7 million of available borrowing capacity under the Revolving Facility, which matures in November 2027.

Previous wording

As of March 31, 2024, the Term Loan B Facility was fully drawn with no remaining borrowing capacity, and we had $810.0 million in outstanding principal on the Term Loan B Facility, which matures on February 17, 2029.

Current wording

As of June 30, 2024, the Term Loan B Facility was fully drawn with no remaining borrowing capacity, and we had $685.0 million in outstanding principal on the Term Loan B Facility, which matures on February 17, 2029.

Previous wording

During the three months ended March 31, 2024, we had one revolving credit facility in Asia with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”), which, as amended, provides up to an equivalent of $15.0 million.

Current wording

During the six months ended June 30, 2024, we had one revolving credit facility in Asia with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”), which, as amended, provides up to an equivalent of $15.0 million.

Previous wording

Operating Activities. Cash provided by operating activities consists of net income adjusted for noncash items and changes in working capital. Cash provided by operating activities decreased $37.5 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, driven by decreases in operating assets and liabilities of $81.2 million, primarily due to the change in accounts receivable, net of allowances, partially offset by higher net income, adjusted for non-cash items, of $43.7 million.

Current wording

Operating Activities. Cash provided by operating activities consists of net income adjusted for noncash items and changes in working capital. Cash provided by operating activities increased $43.0 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, driven by higher net income, adjusted for non-cash items, of $75.1 million, partially offset by decreases in operating assets and liabilities of $32.1 million, primarily due to the change in accounts payable, accrued expenses and other liabilities.

Previous wording

Investing Activities. There was a $11.8 million decrease in cash used in investing activities for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This was due to a decrease in purchases of property, equipment, and software.

Current wording

Investing Activities. There was a $18.8 million decrease in cash used in investing activities for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. This was due to a decrease in purchases of property, equipment, and software.

Previous wording

Financing Activities. Cash used in financing activities decreased by $107.1 million in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease in cash used in financing activities was primarily due to a decrease in repayments on borrowings of $239.6 million, a decrease of $4.5 million in repurchases of common stock for tax withholding, and an increase in cash provided by other financing activities of $0.1 million. The overall decrease in cash used in financing activities was partially offset by a decrease in proceeds from borrowings of $136.5 million and an increase of $0.6 million in deferred debt issuance costs.

Current wording

Financing Activities. Cash used in financing activities increased by $8.9 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase in cash used in financing activities was primarily due to a decrease in proceeds from borrowings of $136.5 million and an increase of $175.0 million in repurchases of common stock. The overall decrease in cash used in financing activities was partially offset by a decrease in repayments of borrowings of $297.3 million and a decrease of $5.7 million in repurchases of common stock for tax withholding.