Crocs beats profit expectations, sets Q4 outlook above street view

[rubber shoes]
Svetlana Dyachkova

Thanks to disciplined spending and solid international demand for its footwear, Crocs (CROX [https://seekingalpha.com/symbol/CROX]) earned a third quarter [https://seekingalpha.com/news/4511193-crocs-non-gaap-eps-of-2_92-beats-by-0_56-revenue-of-996_3m-beats-by-34_83m] profit that was significantly better than feared, leading the company to set its fourth quarter profit guidance 7% above expectations at the midpoint.

This helped offset a 6% drop in revenue and elevated shares in premarket trading.

“Our third-quarter performance was driven by disciplined execution against our brand strategies, as well as greater product and go-to-market innovation. The strength of our profitability and cash flow enabled us to repurchase 2.4 million of our outstanding shares and pay down $63 million of debt during the quarter, both fundamental levers of our value creation model. While our results came in ahead of expectations, we believe both of our brands have greater potential, and are working to re-gain momentum in the marketplace," said Andrew Rees, Crocs CEO.

The parent company of Crocs and HEYDUDE earned an adjusted profit of $2.92 per share, down 19% from a year earlier but $0.56 better than expected. And despite the drop in profits, the company’s profit margin remained at an attractive 58.5%.

By brand, HEYDUDE continues to struggle as revenue was down another 21.6% in Q3 quarter as DTC sales were down 0.5% and wholesale sales were down 38.6%.

Crocs sales were down 2.5% to $836M, as a 2.0% gain in DTC revenue helped offset an 8% drop in wholesale sales.

Regionally, international sales increased 5.8% while North American revenues fell 8.8%.

For Q4, total sales are expected to be down ~8% year-over-year with Crocs down 3% and HEY DUDE down mid-20%. This puts the company’s profit expectation at $1.82 to $1.92 per share versus $1.75 estimates.

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