Crocs shows signs of a modest recovery in Q3

Footwear brand Crocs’ return to its signature molded product appears to have been paying off, with the brand swinging to a profit in the third quarter ended September 30. It may only have been a relatively small profit, but net income of $1.6 million was a vast improvement on the net loss in Q3 2016 of $1.5 million. Revenue edged down 1.6% to $243.3 million in the third quarter, but still topped analyst expectations.


Photo: Balenciaga

Clearly the picture is improving. According to the brand, profit growth for the quarter was driven by a renewed focus on the core molded product and on inventory management, while high profile collaborations with fashion powerhouses Balenciaga and Christopher Kane have also fuelled Crocs’ visibility of late.  

“The perception of the brand [has] continued to rise, with results from our latest annual brand survey showing double digit increases in brand desirability, relevance and consideration compared to last year,” President and CEO Andrew Rees said.

Having reported a loss in the financial year 2016 and announcing a string of store closures for 2018, the positive Q3 results indicate the beginnings of a welcome turnaround for the footwear brand best known for its ‘ugly’ sandals. The company is beginning to see the benefits of the overhaul in management strategy announced in March this year, which aimed to streamline stores and inventory and to cut operating costs.  That helped Q3 selling, general and administrative expenses (“SG&A”) to fall $2.8 million and operating income to rise by $3.9 million from a loss of $1.2 million in the same period last year.

Andrew Rees added: “[It] was another strong quarter for us, both in terms of our financial performance and the progress made against our strategic initiatives. Consistent with the first half of this year, we again met or exceeded our guidance metrics.”

Gross margin was 50.8%, up 100 basis points, which is good news. “Looking ahead, we are confident that further operational improvements and a disciplined approach to expense management will facilitate a return to double digit EBIT margins,” the brand said.

But surprisingly, the company was downbeat on its outlook, saying that it expects revenue between $180 million and $190 million in the current quarter ending in December. The news sent shares down 6% in pre-market trading on Tuesday and they travelled down further in morning trading to be down almost 10% by mid-day. However, with the shares up 40% so far this year, Tuesday's fall could be a reaction to over-optimistic expectations for a firm that is still working on its turnaround.
 

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