Analysts who believed in Crocs’ continued success through product and brand extensions, foreign development and acquisitions were disappointed by its latest sales and profit report.
The company, which has some of its products sold in many outdoor stores, had a net loss of $148 million in its third quarter, and it included $104.1 million in restructuring and inventory write-down charges. For the same period last year, it posted net income of $56.5 million.
Sales fell by 32 percent to $174.2 million in the latest quarter. The revenue figure includes $29.1 million in returns and allowances, way up from the $9.6 million in those negatives in the same period last year, and the immediate future doesn’t look rosy at all. Blaming the “extremely challenging” retail environment in the USA and Europe, the company expects sales in the fourth quarter to be between $100 million and $120 million, compared with $224.8 million in the same quarter last year.
Geographically, sales fell by similar amounts in Europe and the USA, dropping by 50 percent to $29.0 million and by 43 percent to $69.5 million, respectively. Asia was still growing, however, up by 14 percent to $61.4 million. The drop in Europe was attributed to bad weather, negative publicity and increasing competition from similar products, in addition to the generally deteriorating retail environment.
The activity in the various regions was also reflected in Crocs’ door count: In Europe and the USA the number of stores to which its products were delivered fell by about 10 percent, while Asia saw 1,000 new doors. The company’s own retail operations made up 28 percent of sales for this quarter compared with 19 percent in 2007, not including 180 partner stores. It had 120 stores, 121 kiosks and 21 outlet stores at the end of the period.
The gross profit margin plunged by 59.2 percentage points to just 1.4 percent in the third quarter. Selling, general and administrative expenses were significantly higher at $104.4 million, or 59.9 percent of sales, compared with $77.2 million, or 30.1 percent of revenues. Other losses include $14.6 million related to foreign currency rates.
Ron Snyder, president and chief executive of Crocs, says 2008 has been a year of transition. He says the company is going into 2009 with a “leaner” cost structure after consolidation of facilities, writing down inventory, reductions in headcount and shutting down its Canadian plant. Since its peak in 2007, it has cut 2,100 jobs and expects about $11 million in cost savings in personnel costs.
The company announced this time that in the fourth quarter it will close its factory in Brazil and outsource 85 percent of its manufacturing, as it will then have only one plant in Mexico and a small one in Italy. Crocs is carefully managing expenses and inventories, and plans to halve its capital spending in 2009.
Meanwile Crocs’ European division has established a subsidiary in Moscow, Crocs CIS, to cover Russia and other parts of the former Soviet Union. Meanwhile a shoe producer in Italy has been arrested and authorities seized about 25,000 pairs of counterfeit Crocs from China in his warehouse. The police said that the businessman, from Petrer in Alicante, had used the distribution network he built up for his own shoes to sell the fake sandals all over Valencia (more in SGI Europe).