Crocs, Inc. (



Q4 2010 Earnings Call

February 24, 2011 5:00 pm ET


John McCarvel - CEO

Jeff Lasher - CAO and Interim Principal Financial Officer


Jim Duffy - Stifel Nicolaus

Jeff Klinefelteri - Piper Jaffray

Jim Chartier - Monness, Crespi, Hardt

Sam Poser - Sterne Agee

Steven Martin - Slater Capital



Welcome to the Crocs, Incorporated fiscal 2010 fourth quarter earnings conference call. (Operator Instructions)

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Earlier this afternoon, Crocs announced its fourth quarter 2010 financial results. A copy of the press release can be found on the company's website at Reconciliations of the non-GAAP measures mentioned on the call today can be found on the Investor Relations section of the Crocs website.

The company would like to remind everyone that some of the information provided in this call will be forward-looking and accordingly are subject to the Safe Harbor provisions of federal security laws.

The statement concern plans, beliefs, forecasts, guidance, projections, expectations, and estimates for future operations. Crocs cautions you that these statements are subject to a number of risks and uncertainties described in the Risk Factor section of the company's 2009 Annual Report on Form 10-K, filed on February 25, 2010 with the Securities and Exchange Commission.

Accordingly, 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 intends that all of its forward-looking statements in this call will be protected by the Safe Harbor provisions of the Securities and Exchange Act of 1934. Crocs is not obligated to update its forward-looking statements to reflect the impact of future events.

Now at this time, I would like to turn the call over to Mr. John McCarvel, Chief Executive Officer of Crocs. Please go ahead, sir.

John McCarvel

Thank you for joining us on today's call. With me is Jeff Lasher, our Chief Accounting Officer and Interim Principal Financial Officer.

I'll begin with a brief review of our fourth quarter operating performance, then Jeff will walk you through the financials and our outlook, then I'll recap the strategic highlights from 2010 and outline the key points of our 2011 growth strategy.

As you saw from our press release issued earlier today, our fourth quarter sales increased 32% from a year ago to $179 million, which was meaningfully better than what we had projected. Our topline performance was once again driven primarily by global demand for our new products with several recent style introductions outperforming expectation.

Response to our fall and holiday collections is very encouraging and speaks to the initial success we are having at evolving Crocs into an off season brand. Our fourth quarter profitability improved significantly over a year ago and was also above plan. The earnings upside was the result of strong sales growth and meaningful expense leverage, partially offset by gross margins that were lower than anticipated due primarily from seasonal factors, but up more than 390 basis points from the fourth quarter of 2009.

Our wholesale business, particularly in Asia, proved to be much stronger in this fourth quarter versus internal projections. At the same time, our direct-to-consumer channel did experience some softness in December, after a strong start to the holidays. Our overall performance in the fourth quarter demonstrates the progress we have made, generating yearend excitements and demand for the brand, while also improving our operating platform.

In one of our seasonally slowest periods, we drove double-digit sales gains in all channels across all regions, while returning the company to fourth quarter profitability for the first time in three years. This was a rewarding way to close our productive year for the company, and set this up nicely with solid momentum as we transition into 2011.

Jeff will now review our fourth quarter and 2010 financial results, and our outlook for the first quarter of 2011 in more detail.

Jeff Lasher

Thank you, John. Hello, everyone, and thanks for joining us. Today we'll be discussing both Q4 and full year results for 2010. Revenue for the quarter increased by $43 million or 32%, to $179 million, which exceeded our guidance of $165 million. Full year 2010 revenue increased 22% over 2009 to $790 million.

We saw sales increase of over 25% in all three of our channels during the fourth quarter. In wholesale, revenue increased 27% to $98 million as we saw broad acceptance of key new styles and collections. Our yearend pre-book of $258 million are strong and represent 57% increase over the prior yearend. Average selling prices in our backlog appeared strong and they are in line with our expectation at over $16.50 per unit. For the full year, wholesale sales increased 19% to $482 million.

Retail sales for Q4 increased 36% to $60 million. We ended the year with 378 company owned retail locations globally, which is up from 317 at the end of 2009. Broken down into store type, we had 138 full-price stores, 88 store-in-stores, 76 factory direct stores or outlets and 76 kiosks as of December 31, 2010. As expected, this represents a decrease in kiosks from last year and an increase for all other store types.

For the year, retail sales increased 29% to $233 million. We expect to increase retail stores in 2011, with plans to add 25 to 35 stores in Americas, 40 to 30 stores in both Europe and Asia.

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