卡洛馳 (CROX) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Crocs, Incorporated first quarter fiscal 2007 earnings conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. [OPERATOR INSTRUCTIONS.]

I would like to remind everyone that this conference call is being recorded. Before we begin I would also like to remind everyone of the Company's Safe Harbor language. Please note that some of the information provided in this call will be forward-looking statements, within the meaning of the Securities laws. These statements concern Crocs' plans, projections, expectations, and estimates objectives for future operations. The Company cautions you that a number of risks and uncertainties could cause Crocs' actual results to differ materially from those described on this call. Crocs has explained some of these risks and uncertainties in the Risk Factors section of its annual report on Form 10-K and its other documents filed with the SEC. And you are encouraged to read that section and all other disclosures appearing in our filings with the SEC. Crocs intends that all of its forward-looking statements in this call be protected by the Safe Harbor provisions of the Securities Exchange Act of 1934. Crocs is not obligated to update its forward-looking statements to reflect the impact of future events.

I would now like to turn the conference over to the President and Chief Executive Officer, Ron Snyder. Please go ahead, sir.

Good afternoon and thank you for joining us to discuss our first quarter results. With me on the call are Peter Case, our Chief Financial Officer, and John McCarvel, our Chief Operating Officer.

The first quarter represented another very strong quarter for our company, as we once again surpassed expectations. At the same time, we strengthened our operating platform, introduced new products, enhanced our brand awareness, and increased our global presence. First the financial highlights. Sales increased 217% to $142 million. Net income rose 289% to $24.9 million, and earnings per share were up 259% to $0.61.

Now for some of the other highlights in the quarter-- domestically we increased our door count to 10,500 and experienced strong sales through--over our entire Crocs footwear collection across the country. This included our most widely-distributed styles, such as the Beach, Cayman, Mary Jane and Athens, along with more recent introductions, including the Cleo, the Crocling and Capri. As we continue to increase our product collection and further diversify our line, we are scaling our global distribution infrastructure, including square footage, systems, personnel and automation.

Canada and Mexico are enhancing distribution capabilities to increase our direct-ship capacity, or reducing lead time. In Europe we are currently developing a state-of-the-art distribution center to increase our shipping capacity in the region. In January '07 we brought on-line a new Crocs warehouse in Denver, eliminating the dependency for third-party support, and increasing our shipping capabilities and flexibility.

Our licensing programs are continuing to perform very well. The Disney by Crocs line now sells through our existing retailers, mainly department stores and independent specialty stores, as well as over 50 point-of-sale outlets in Disney theme parks. As you can imagine, Jibbitz are selling very well through this channel.

Beginning in our second quarter, and throughout the rest of the year, we'll be shipping new characters to complement the current Mickey Mouse product line, including special [makeup] products in conjunction with Disney and Pixar major motion picture releases, the first of which will be the third installment of THE PIRATES OF THE CARIBBEAN in mid-May.

We're also coming off a successful basketball season, and now have added 100 schools to our collegiate licensing program since its inception last fall. Looking ahead, we'll be introducing our Athens flip-flops into this market during the second quarter, and expect to have a few more colleges and universities in the fold by the start of the football season.

With regard to other licensing agreements, NHL products are currently on the shelf in Canada for the playoffs and will be available throughout the U.S. next fall, while our pro football line of branded Crocs will be in stores beginning in the third quarter, prior to the NFL season opener. We also plan to ship our Dora the Explorer, SpongeBob SquarePants, and DC Comic Super Heroes footwear and Jibbitz next quarter.

I will quickly touch on our medical division, which continues to grow nicely. Three medical models of Crocs RX are approved by the American Podiatric Medical Association, and are now dispensed by over 2,000 doctors in the U.S. In addition, another 1,100 doctors are referring their patients to our medical website for direct sales. Sales are also progressing well in Canada and Latin America. Our plan is to gradually expand distribution of this line, both domestically and overseas throughout 2007, and into next year, as we look to increase the contribution from this strategic business.

Another small, but emerging, segment of our business is apparel and accessories. Over the past six to nine months we have added a highly-talented design team, as we believe there are significant opportunities for our brand in these categories. We are offering a limited apparel selection for mens and kids for holiday '07. The collection will communicate a relaxed fit, comfortable hand, attention to detail and trims, and a pop of color that is distinctly Crocs. Some of the pieces will also include Croslite blended fabric. We are also launching a line of bags for back-to-school, and we are encouraged by the early feedback from retailers about this product.

Now to Jibbitz. While we will not break out Jibbitz' specific contribution, I can tell you that the business is outperforming our expectations. There are currently over 1,100 SKU's available, up from 900 at year end, and we have increased the distribution to more than 7,000 doors, from 4,000 approximately two months ago.

Since our acquisition of Ocean Minded at the beginning of February, we have launched the brand through our Crocs domestic sales force, and we have been very encouraged with the initial response from retailers. Ocean Minded occupies a cult status in the core surf and skate channels, particularly on the coasts, through largely through the brand's authenticity and its commitment to social responsibility. For example, Ocean Minded is a leader in the fight to protect our beaches and oceans, through its support of the Surfrider Foundation and involvement in other environmental efforts. In speaking with accounts in the Midwest and Canada, we are discovering that retailers are embracing the brand message and love the product. And, as a result, we expect to add over 1,000 doors in North America this year. The next phase will be to launch the brand into Europe and Asia, followed by Australia, South America, and other southern hemisphere countries.

On the international front, sales outpaced our expectations, increasing 36% quarter-over-quarter to $59.5 million, representing 42% of our overall sales, compared to 39% in the fourth quarter. We ended the first quarter in over 13,500 doors outside the U.S., up from 11,000 when we reported year-end results in mid-February. Europe is now our strongest international market. More importantly, consumers are embracing Crocs as a lifestyle brand. We have recently added several major retailers in the U.K., Germany, Austria, Benelux, Italy, and France, to name a few. We now have a staff of over 50 employees, and growing, dedicated to this region, as we look to further build our brand awareness and maximize our opportunities across the Continent.

Looking at Asia, Japan has become the strongest market. In fact, robust sell-through over the past several weeks has indicated that this market might have some additional upside during the summer season. Therefore, we are increasing our shipments and we believe we are well positioned to meet this growing demand. Elsewhere, in India and China, we continue to make important investments to build a sound infrastructure and heighten our brand awareness as we prepare for a more comprehensive launch of Crocs footwear in both countries next year.

Finally, we are set to begin selling Crocs in Brazil later this quarter, and we are very excited about our prospects for growth, as we believe Brazil represents an ideal market for our brand of products. Furthermore, we are in the later stages of bringing up a Company-owned production facility and expect to be manufacturing in Brazil toward the end of Q2.

On the subject of manufacturing, we currently have three Company-owned facilities, not including Brazil, located in Canada, Mexico, and Italy, and five third-party manufacturers around the world, with capacity of approximately 4.75 million pairs of shoes per month.

For those of you who weren't aware, the Crocs AVP Professional Volleyball Tour kicked off April 13th in Miami, and we are very excited to be back as the title sponsor. This year we will have a much larger presence at each Tour stop, including a broader selection of Crocs footwear, in addition to Jibbitz and Ocean Minded products. Once again, we are expecting to garner tremendous media exposure as a result of this association and, in fact, we estimate that, between our sponsorship of the AVP and our involvement in other sporting events, including NASCAR, golf, and snowboarding, we will run approximately 450 TV commercials throughout 2007.

Additionally, we are continuing our grass roots initiative here in the U.S. through our Crocs RV Tour, with four vehicles crisscrossing the U.S., hitting major events, like the Super Bowl, NCAA Championship games, and NASCAR events, to name a few, while overseas we have taken a similar approach, sponsoring local events, along with strategic advertising in markets around the world. We are also investing marketing dollars in our store fixturing and display presence in retailers, both in the U.S. and abroad.

We were also successful in generating significant interest in the Crocs brand and business through our PR efforts, securing coverage on OPRAH, THE VIEW and exposure in O magazine, IN STYLE, LUCK, THE WALL STREET JOURNAL, and many periodicals around the world.

Peter will now review the financials and then I'll come back for some more--for some closing comments.

Thank you, Ron. Sales for the first quarter were $142 million, compared to sales of $44.8 million the first quarter of 2006, an increase of 217%. For the quarter, domestic sales rose over 144% to $82.5 million, and international sales increased 441% to $59.5 million from $11 million a year ago.

Gross profit for the first quarter of fiscal 2007 was $84.5 million, or 59.5% of sales, compared to $23.7 million, or 52.8% [sic - see Press Release] of sales in the first quarter of 2006. The increase in gross margin was primarily driven by limiting air freight during the quarter, as well as a greater mix of international sales, which carries a slightly higher margin.

SG&A for the first quarter was $47.3 million, or 33.3% of sales, compared to $13.7 million, or 30.5% [sic - see Press Release] of sales in the corresponding period last year. The increase was primarily related to our global increase in payroll-related costs, as we invested in headcount to insure our ability to execute and take advantage of the strong summer season we saw developing.

Income from operations for the quarter was $37.2 million, or 26.2% of sales, versus income from operations of $10 million, or 22.3% of sales last year. Net earnings were $24.9 million, compared to $6.4 million a year ago and diluted earnings per share were $0.61 versus $0.17 in the first quarter of 2006.

With regard to our balance sheet, as of March 31, 2007, we had cash and cash equivalents for short-term investments equal to $51.6 million. This compares to $67.9 million in cash and cash equivalents at December 31, 2006. Accounts receivable has increased, with $97.8 million at March 31, 2007, and $27.2 million this time a year ago, reflecting extremely strong sales during the second half of the quarter.

We ended the first quarter with inventories of $94.4 million, compared to inventories of $40.7 million at the same time a year ago. We increased our inventory in our most popular styles to meet potential upside demand as we move into our key selling season, which will free up manufacturing capacity for our new models, and allow us to provide better service to our customers. We are comfortable at these levels, given our demand, continued global expansion.

Now turning to guidance, for the second quarter ending June 30, 2007, we currently project total revenues to range between $180 and $190 million, net income per diluted common share of between $0.80 and $0.85. For the full year we are raising our guidance. We now expect total revenues to be between $670 million to $680 million, and net income per diluted common share to range from $2.90 to $2.95.

Lastly, as you see from our release, our Board of Directors has approved a two-for-one stock split. I should point out that our guidance for the second quarter and full year does not take into account the proposed split.

I will now turn the call back to Ron for some closing remarks.

Thanks, Peter. Obviously we are very pleased with our strong performance for the first quarter, which represents a great way to start the new fiscal year. More importantly, our momentum continues to build, evidenced by our enhanced outlook, not only for the second quarter, but for the full year. As we learn more about our business every day, particularly overseas, our goal is to continue to improve our forecasting.

Crocs is fast becoming a global lifestyle brand. This, coupled with our diversified operating model, and unique and compelling distribution strategy, provides us with substantial growth prospects across the board and well into the future. Our business remains very strong. Our products look great and continue to resonate well with a broad demographic. And our brand recognition continues to grow and evolve. We will remain focused on successfully executing our near-term objectives, while at the same time further investing in our brands and infrastructure, to support long-term, sustainable growth.

Operator, I'd now like to open it up for questions.

Thank you, sir. [OPERATOR INSTRUCTIONS.] And we'll go first to Mitch Kummetz of Robert Baird.

Yes, thank you, and congratulations on a great quarter.

Thank you.

Ron, could you tell us where the classic product now stands as a percentage of the total for the quarter? The Beach and Cayman, I know that's been through a trending down as a percentage. Where was it for the quarter?

Yes, it was-- there's about a third in the U.S. About a third was the classic products--

Mm hmm.

--and about 50% in international markets. And, of course, in the low 20's on the Internet.

Okay. And I would imagine as you continue to develop the international business and ship more of your newer product overseas, would you expect-- I would assume you would expect that to trend down as well?

Yes, that'll trend down. That will be very similar to the U.S. We consciously took our most popular classic models into some of the new foreign markets that we entered, to get the momentum going. The sales per square foot of that particular line is super high. Now the retailers are clamoring for some of the new products.

Okay.

We'll get it to them in mid-season.

And beyond the Beach and Cayman, could you just kind of run through what would be your next two or three biggest volume styles? I imagine the Athens would be up there, Mary Jane? Could you just kind of put those in order of magnitude?

Yes, it's-- the next two are the Athens and Mary Jane. Athens is really picking up fairly strong for the spring and summer seasons. Below that it's-- we've got some of our new products. The Cleo and the Capri are doing quite well for women, and the Crocling is doing very well for kids.

Okay. Just a couple of other questions. Where--you ran through your door counts for the quarter, and where do you see those going by year-end? I don't know if you can give us an update on that?

The U.S.--one of the things we're doing with doors now is I'm not giving you doors of Ocean Minded yet.

Mm hmm.

The Ocean Minded doors started at about 1,000 and I said we'd probably add 1,000. And, some of those would be common, obviously, to Crocs, and some wouldn't. So the Crocs stores would increase maybe 10 to 15%, potentially, this year. We've gotten a tremendous amount of activity from some of our larger retailers to put in large areas for our products, so we've increased floor space in many of our large retailers. Internationally we're still in a very fast door-growth expansion program, so we would expect that to go quite a bit higher this year.

Okay. And then, lastly, I've got a question for Peter. On the guidance for the full year and second quarter, if I'm doing my math correctly, we're looking at maybe sort of flattish operating margin in the second quarter, and then maybe a down-tick in the back half. Is that just you guys being conservative on the guidance, or is there something going on there in terms of spending? Or, maybe you wouldn't expect as much of a gross margin improvement over the balance of the year as you got in Q1? [That started me] thinking about the margins.

We always try to maintain some level of conservative approach here, but what I think you should look at is that we will continue to invest in some things that-- so we're investing in apparel. We're investing in our [inaudible] equipment line, Fury, and some other specialty products that we've got. We are continuing to still invest in China and India infrastructure. As we build those markets we expect them to be solid performers in 2008, 2009, and beyond that. So, I think it's just-- it should be relatively flat through the remainder of the year.

Okay. Great. Good luck.

Thanks.

Thank you. We'll go next to Jeff Klinefelter of Piper Jaffray.

Thank you. Congratulations everyone on another fantastic quarter.

Thanks, Jeff.

Q1 revenue? Can you give us, or do you want to give us, any sense for sort of what the dollar contribution was, a percent contribution from new spring styles? Ron, do you have any color on how we can think about that as contributing to incremental revenue this year?

You know, it's looking like they're running about 15%, but what's interesting-- the way we do things is--we've talked about our model, which is somewhat unique, in that we don't make just tons and tons of any new styles that we come out with. We see how the market's reacting to a particular product, or color even of a model, and then we build more. So now we're right in the middle of building more of quite a few of our products, of the new products.

Okay. Couple of other questions-- unit sales in the period? Can you give us that number and also, Peter, do you have stock-based comp?

Yes, unit sales were a little over 8.6 million, and stock-based comp was $3.6 million.

Okay. One other one for Peter-- in terms of receivables, there's a lot of focus in your sort of hyper-growth mode you're in now on receivables and some of the other cash flow considerations of the Company. As you expand more internationally, is there a difference in the terms with your retailers, so we should see any sort of change in pattern of the receivables?

No, not really. You should see about the same. This just came from the strong March, end-of-February sales, where we had a lot of receivables there at the end.

Okay. Very good. Ron, on the shop-in-shops with the retailers, can you give us a little bit more color on where you are currently with that rollout, and how many you plan to have for the year?

We're-- it's still early, Dave [sic], so we don't have any significant shop-in-shops in yet. We've been given--we've already been given quite a bit more floor space in some of our bigger retailers, but we would look to do in the neighborhood of 100 or so this year?

Okay. Just a last question, then, on Jibbitz. I know you don't want to get into breaking out the revenue contribution, but door counts expanding nicely, and SKU's. Can you give us an update on how to look at this in terms of [tie] rates with your product, maybe some examples of success stories where you've had the product helping to actually drive greater penetration of the Crocs themselves?

Yes, you know we're still hearing from our retailers. We've now been able to add Jibbitz into a number of retailers, as really as fast-- as quickly as we can. And, pretty much across the board they're reporting higher sales of Crocs and very good sales of Jibbitz.

Okay. Thank you very much. Good luck.

All right. Thanks, Jeff.

Thank you. We'll go next to Jim Duffy of Thomas Weisel.

Hi, this is actually Chris [inaudible]. Congratulations on a great quarter, guys.

Hi, [inaudible].

Actually wondering about--

We can't hear you very well.

Hold on. Is that a little better?

It is.

Wondering about the growth in Europe and-- I know the ASP is a little bit higher there. I'm wondering what the contribution to the gross margin improvement was there?

There was definitely contributions from Europe, from Asia, as well as from Jibbitz to the gross margin improvement.

Okay, I'm wondering if you could talk a little bit about any new distribution in the U.S.?

Yes, you know we're right in the middle of rolling out Macy's. So that I think would be the most significant. We've got some nice new stores, mostly specialty stores in and around California. That's the market that we are the least penetrated in in the U.S. We've also added some additional smaller stores back on the East Coast, but nothing major other than Macy's.

And the last question, about Macy's, are you shipping them new styles as well as Beach and Cayman, or is it primarily Beach and Cayman?

We are shipping them some more things than Beach and Cayman, but not the full collection at this time.

Okay. Thanks a lot guys.

Thank you. We'll go next to Angelique Dab of Nollenberger Capital Partners.

Good afternoon. Quick question for you guys-- could you please give us the breakout between U.S., Canada and other international?

Yes, U.S. was $75.6 million, Canada was $20.7 mill-- or, excuse me, $9.1 million, Asia was $20.7 million, and Europe was $28.6 million.

And then, did you give us the average price per pair?

No, I didn't. That was a little bit down this quarter. It was $15.67 and that related primarily to more wholesale sales, rather than some of this direct sales that we have here in the Q4.

Great. Thank you.

Thank you. [OPERATOR INSTRUCTIONS.] We'll go next to David [Perth] of Providence Investment Counsel.

My question was answered, but next quarter, thank you.

Hi, David.

Thanks, David.

Thank you. We'll return to Jeff Klinefelter of Piper Jaffray.

Yes, Ron, in looking at the European or the international business overall, but maybe focusing on Europe, there is a lot of focus on revenue per door, because you have been giving us the door counts. Wondering how we should think about that from a modeling perspective, and what we should expect to see in terms of productivity per door. Any sort of guidelines, or is it too difficult to tell right now, given kind of the new, relatively new, trends in some of these retailers?

You know, Jeff, there's so many new doors in Europe and it's too difficult to tell. I will say that one of our main emphasis right now, either through our direct activities over there, or through our distributors, is we're in stores, we're helping with displays, we're making sure we've got the product out and being displayed in the proper manner. And wherever we do that we have significant up-tick. So that will be something that we're emphasizing and focusing on throughout the entire summer.

Okay. But, generally speaking, it's less about chain business and more about-- maybe more of a balance toward independent, smaller retailers than it would be in the U.S.?

Yes, certainly it is across the Continent. There would be more major retailers and chains in the U.K and some in Germany as well.

Okay. One other follow-up-- in terms of all the new licensed product, and clearly that's been successful, the Disney launch, and collegiate, and these others. When you think about it from a planning perspective, or as the retailers discuss it with you, are these new products going to be entirely accretive to the existing sort of Beach, Cayman business, or is this looking like, more and more, like sort of a substitution, in some cases, for that product?

You know, I wouldn't say that it would be entirely accretive. It is-- what we're hearing is it's mostly accretive. [Inaudible] we're getting complaints from parents that now their kids need Disney shoes, as well as kids' Cayman's. We're hearing that it's been mostly accretive.

Okay. Thank you.

[OPERATOR INSTRUCTIONS.] And we'll return to Mitch Kummetz or Robert Baird.

Yes, thanks. A question on the gross margins real quickly. I know they were up nicely in the quarter and, Peter, you had mentioned that was less air freight and a higher international mix. Could you also talk about the impact on gross margins from the contribution of Jibbitz and the licenses as well? Does that help the gross margin, those two pieces?

Yes, the Jibbitz helps the gross margin and the license marginally helps the gross margin. I think everything was kind of trending up, and then some of the things we've done also-- you know we've got a lot of development activities for new products, and for expanding operations, and expanding our warehouses, bringing up compounding lines around the world, so that might impact them negatively. So--

Okay.

As you can see, they've trended up a little bit.

Okay. That's all I had. Thanks

With no further questions, I'd like to turn the conference back over to Mr. Ron Snyder for any additional or closing remarks.

So Angelique, I just wanted to clarify-- when I said 75.6-- that's the wholesale United States. Total revenues for United States were $82.5 million.

All right. Well, thank you very much and if anybody has any additional questions, Peter and I will be available and look forward to talking with some of you soon.

Thank you for your participation. That does conclude today's conference. You may disconnect at this time.