Crocs Returned to Growth and Raised Its Outlook
Second-quarter revenue reached a record $1.179 billion as direct-to-consumer sales offset continued wholesale weakness.
Crocs Inc. (CROX), the casual-footwear maker, returned to year-over-year revenue growth in the second quarter and raised its full-year outlook as its namesake brand crossed a quarterly milestone.
The result marked a turn after two consecutive contractions. Revenue rose 2.6%, reversing declines of 1.7% in the first quarter and 3.2% in the fourth quarter, while direct-to-consumer growth held near 12% and the wholesale decline moderated to 7.2%.
Adjusted diluted earnings rose 7.6% to $4.55 a share, even as adjusted operating income fell 4.5% to $296 million. Revenue had totaled $921 million in the first quarter and $958 million in the fourth quarter. A reduction in the diluted share count to about 49.6 million from 56.1 million supported the earnings increase.
Crocs Brand revenue exceeded $1 billion for the first time, rising 4.3% after growing 0.8% in the prior quarter. Its direct-to-consumer revenue increased 12.9%, while international revenue gained 7.8%, including 23.7% growth through international direct-to-consumer channels. North American revenue edged up 0.4% after declining 6.1% in the first quarter.
HEYDUDE revenue fell 5.7%, a narrower decline than the first quarter's 12.3% drop and the company's earlier projection for a 12% to 14% contraction. Direct-to-consumer sales grew 7.2%, while wholesale revenue declined 17.2%. The brand's adjusted gross margin fell 650 basis points to 43.7%, accounting for disproportionate pressure on consolidated profitability.
Adjusted gross margin recovered sequentially to 60.0% from 56.9% in the first quarter, though it remained 170 basis points below a year earlier. Adjusted operating margin similarly improved to 25.1% from 22.3%, while free cash flow increased 23% to $331.0 million. Distributor-takeback and distribution-center transition costs contributed $6.8 million of gross-profit adjustments during the quarter.
Crocs now expects full-year revenue to grow 1% to 2%, compared with its previous range of a 1% decline to 1% growth. It raised adjusted earnings guidance to $13.70 to $14.00 a share from $13.20 to $13.75 and expects adjusted operating margin to expand modestly from 22.3%. For the third quarter, the company forecasts approximately flat revenue and an adjusted operating margin of about 21.5%, below the second quarter's level.
The company expanded its share-repurchase authorization by $1.5 billion to about $2.0 billion after buying back 2.3 million shares for $251 million during the quarter. The larger authorization left repurchases positioned to remain a significant support for earnings as operating margins continued to face brand and channel pressure.