卡洛馳 (CROX) 2016 Q1 法說會逐字稿

Welcome to the first quarter 2016 Crocs, Inc.

earnings conference call.

My name is Jason, and I will be your operator for today's call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session, and please note that this conference is being recorded.

I will now turn the call over to Brendon Frey.

Mr. Frey, you may begin.

Thank you.

Thank you everyone for joining us today for the Crocs first quarter 2016 earnings conference call.

This morning we announced our first quarter 2016 financial results.

A copy of the press release can be found on our website at Crocs.com.

We would like to remind everyone that some information provided in this call will be forward-looking, and accordingly are subject to Safe Harbor Provisions for the Federal Securities laws.

These statements include but are limited to, statements regarding future revenue and earnings, prospects, and the product pipeline.

We caution you that these events are subject to a number of risks and uncertainties described in the Risk Factors section on the Company's 2015 report, on Form 10-K filed on February 29th, 2016, with the Securities and Exchange Commission.

Accordingly, all 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 discussions of these Risk Factors.

Crocs is not obligated to update these forward-looking statements to reflect the impact of future events.

The Company may refer to certain non-GAAP metrics on this call.

Explanation of these metrics and a reconciliation to the nearest GAAP metrics can be found on the earnings release filed earlier today, and on our investor website once again at Crocs.com.

Joining me on the call today are Gregg Ribatt, Chief Executive Officer, Andrew Rees, President, and Carrie Teffner, Executive Vice President and Chief Financial Officer.

Following their prepared remarks, we will open the call up to your questions.

I'll now turn the call over to Gregg.

Thank you Brendon, and good morning everyone.

Today we announced our first quarter 2016 financial results.

Revenues were $279.1 million, above our guidance of $260 million to $270 million.

And net income available to common shareholders was $6.4 million.

Revenue was up 6.5% on a reported basis, and up 9.2% on a constant currency basis versus the first quarter of 2015.

Overall, we delivered a strong first quarter, which demonstrates the meaningful progress that we've made in repositioning the Crocs brand and business over the past 21 months.

This morning I will touch on a few highlights of the quarter, and then Andrew will dive deeper on some of the key actions that we are taking, and finally Carrie will walk you through the detailed financials and discuss our outlook.

In the first quarter we saw five key indicators of our progress.

First, importantly, the Americas grew 19.5% on a constant currency basis.

We experienced growth across all Americas distribution channels, had significant wholesale and eCommerce growth was coupled with modest retail growth.

As our biggest region and the one closest to home, we believe this growth is indicative of the progress that we have made.

Second, we saw direct consumer or DTC comp sales increases in each region.

Strong double-digit eCommerce growth in every region was backed up by positive retail comps, with North America retail comp store sales turning positive for the first time in 10 quarters.

Third, we sustained and leveraged a lower operating cost structure, as adjusted SG&A as a percentage of revenue was down over 400 basis points.

While $1.3 million of this was timing of marketing activities shifting from Q1 to Q2, we continue to see the benefits from the restructuring initiatives executed over the past 21 months.

Fourth, I am happy to communicate that our supply chain execution and on time delivery performance has substantially improved.

Our Q1 delivery performance was our best shipping trend in many years, resulting in earlier deliveries as compared to last year.

And I'm pleased to say that second quarter delivery performance is continuing at these significantly improved levels.

And finally, fifth, we've made significant improvements in our inventory management processes.

Inventory was up only $1.4 million, or less than 1%, compared with sales growth of 6.5%.

Over the past 21 months, we've built a strong team, we've simplified and strengthened core processes, elevated our product line, and enhanced our go to market approach around the globe.

As we proceed in 2016 we believe our financial performance will increasingly reflect the benefits of these significant improvements.

Despite having more work to do, we're off to a good start as evidenced by a solid Q1 performance.

And we remain confident that we're on track to further transform the Crocs brand and business and achieve both our full year and future sales and profit objectives.

And now Andrew will highlight some of the key details of the quarter.

Thank you Gregg.

Today I want to update on four key topics, one, global DTC performance, two, our turnaround in China, three, current product line performance, and four, the sale of South Africa.

Firstly global DTC performance, global direct to consumer revenues were up 5.9% on an as-reported basis, supported by strong DTC comp sales, which were up 9.9%.

This is our fourth quarter in a row of delivering positive DTC comp growth.

Our eCommerce business was strong across all regions, led by the US and Asia.

Overall global eCommerce revenue growth accelerated by 31.9% on an as-reported basis, and 34.3% on a constant currency basis.

Our eCommerce business continues to benefit from our new product line and better channel execution, including enhanced digital marketing efforts, and a commitment to better in stock positions on core products.

Retail comps were up 3.1% in the quarter, with all regions reporting positive comps.

Importantly, comps in North America were positive for the first time in 10 quarters.

These results reflect positive consumer response to our new product line, strong end of season sales in January, and our continuing efforts to improve retail processes and systems.

Specifically, we enhanced assortment strategy, brand story telling, improved replenishment and in stock positions, and elevated consumer experience.

Having completed the bulk of our store closings, we continue to fine tune or retail portfolio, eliminating underperforming stores, while selectively opening new stores.

In the quarter we closed 15 stores and opened six.

Five of which were in Asia.

Bringing our Q1 global store count to 550.

The net change in store count did not have a meaningful impact on our consolidated financial performance during the quarter.

Secondly, turnaround in China, as we discussed on our last call, we have been in active discussions with our challenged distributors.

I'm pleased to share we have reached agreements with several of these distributors.

Over the next few months we'll be replacing certain retail locations currently managed by some of our challenged distributors, with new company-owned retail operations, as well as shifting certain territories from troubled distributors to stronger existing distributors.

We are tracking to have our issues with these challenged distributors resolved by the end of Q2, which will allow us to focus on driving sustainable growth in this key market.

This progress gives us confidence that we'll return to growth in our China business in the back half of 2016.

Thirdly, current product line performance.

As you know, our spring/summer 2016 product was the first developed by Michelle Paul and her team.

While earlier in the season, this product has been well received with replenishment orders up approximately 20% in Q1 versus the first quarter of 2015, and retailer feedback remains extremely positive.

Our purist view of the performance of 2016 today comes from our own DTC business, where we can see some very positive signs across a number of initiatives.

By rationalizing our core clog assortment, we have driven approximately 20% growth into our go forward anchor styles, including classic and Croc brand.

This allows us to consolidate volume across fewer SKUs, maximizing margins, and simplifying our supply chain execution.

In addition, a Made for Her Clog style, led by free sale, and our Made for Him, due at Max, have seen strong overall performance.

Swiftwater, a key collection is currently focused on men's and kids, have seen exceptional growth over last year, with greater than 600% revenue growth, driven by expansion of the collection and strong sell throughs.

In 2017 we'll expand Swiftwater to womens, and continue to build this franchise across men, women, and kids.

Sanrah, a collection of embellished sandals has seen strong early season performance, especially with the mini white silhouette.

Our licensed product continues to perform well across Star Wars, Frozen, and Real Tree.

More broadly, among the areas that are working best are new molded silhouettes, season and trend right colors, and enhanced graphics.

Our new product generated over 40% of global revenues in Q1, with two of our new introductions, the Duet Max Clog and Santa Cruz Lux, making it into our Top 10 selling styles globally.

Fourthly, the sale of South Africa.

As we discussed last quarter, we completed negotiations to sell our South Africa subsidiary to a licensee.

The transaction closed on April 15th.

Our new licensee will continue to operate the wholesale business, retail stores, and eCommerce.

South Africa revenues in our Q1 results was $1.7 million.

As we noted on our last earnings call, while this licensed model will result in lower reported revenue, it will provide greater profitability and lower risk from this market, as we leverage our licensee's infrastructure and market knowledge.

This change is consistent with our overall security plan of focusing our direct business model on our largest markets, and using Best-in-Class partners in the rest of the world.

Now I'll turn it over to Carrie to go over the details of our Q1 performance.

Thank you Andrew.

Now turning to our financials, revenue in the first quarter was $279.1 million, compared to our prior guidance of $260 million to $270 million.

Revenue was up 6.5% compared to the first quarter of 2015 on an as-reported basis, and up 9.2% on a constant currency basis.

Compared to the first quarter of 2015, currency impact from the stronger US dollar with $7.1 million, and we are lapping the Port strike from last year that impacted revenue by $5 million to $10 million.

There were no other factors materially affecting the year-over-year comparability of our revenues this quarter.

Q1 revenue outperformed our prior guidance in large part due to our wholesale channel, where improved supply chain execution and delivery performance reduced the number of unfulfilled orders at quarter end relative to prior year.

We believe these improvements resulted in increased revenue of approximately $9 million for the period.

Relative to prior guidance, we also benefited from $1.7 million of South Africa sales in Q1, due to the later than expected closing of the sale, as well as stronger DTC performance across the business.

The timing of wholesale shipments will result in a lighter Q2, but keeps us on track from a half one perspective.

All of the revenue results which follow are quoted in constant currency change versus prior year.

In the Americas revenue was $124.1 million for the quarter, up 19.5%.

Wholesale revenue was up 24.7%, of which approximately two-thirds was due to the aforementioned delivery improvements, and prior year shipping delays, including challenges resulting from the Port strike.

Retail sales in the Americas increased 3.6% for the quarter, reflecting positive comps of 2.9% and better productivity in the stores open during the past year.

eCommerce in the Americas grew 43.5%, and total America DTC comps were up 12.2%.

In Asia revenues $104.5 million for the quarter, up 7.9%.

Wholesale revenues were up 9.2%, primarily due to timing of shipments between Q1 and Q2.

Retail revenues were up 0.6%, reflecting positive comps of 2.0%.

eCommerce sales in Asia increased 27.3%, and total Asia DTC comps were up 5.8%.

In Europe, revenue was $50.3 million for the quarter, down 7.9%.

Retail comps were up 7.5%, but retail revenue declined 4% compared to Q1 2015, as we had 12 fewer stores as compared to last year.

eCommerce sales in Europe increased 15.1%, while DTC comps were up 9.7%.

Wholesale revenue declined 10.3%, driven by a planned change in the shipping window to better align our product delivery across regions, which shifted some wholesale orders from Q1 to Q2 as compared to last year.

We sold 16.3 million pairs in the quarter, a 9.9% increase over last year.

The average selling price of our footwear in the first quarter was $16.85, a 3.4% reduction from the prior year, mainly the result of 240 basis points of currency.

Adjusted gross margin for the quarter was 46.1%, down 247 basis points from the prior year, primarily due to a negative currency impact of 106 basis points.

Our successful year end sale period in January, and higher distribution costs.

We expect to see sequential gross margin improvement from Q1 to Q2 of approximately 450 basis points, reflecting higher demand for in-season products, partially offset by the impact of currency.

As we get to the back half of the year, we expect meaningful improvement in gross margins on a year-over-year basis.

Adjusted selling, general and administrative expenses were $114.4 million, down $4.6 million from the prior year.

Adjusted SG&A at 41% of sales for the quarter is down 441 basis points, reflecting higher revenue, combined with savings from our reorganization efforts, timing of marketing expenses, and currency.

We realized minimal nonrecurring and special charges in the first quarter of 2016, income from operations was $14.2 million, compared to a loss of $2.4 million in the first quarter of 2015.

Turning to the balance sheet, at the end of the quarter, we ended the quarter with $89.1 million in cash, and $8.5 million in outstanding borrowings on our credit facility.

As a reminder, Q1 is our peak working capital quarter.

The Company did not repurchase any shares during the quarter, and we ended the quarter with 73.3 million shares outstanding.

Inventory at the end of the quarter was $186.1 million, up $1.4 million, or less than 1% from Q1 2015 ending inventory of $184.7 million.

Two final notes on the financials.

First, adjusted net income, attributable to common shareholders was $6.4 million for the quarter, after preferred share dividends and equivalents of $3.8 million.

After adjusting for Class A participation rights of $1 million associated with our preferred shares, the weighted average share count used to calculate diluted EPS was 74.0 million shares.

Given our ability to deliver more of our spring/summer 2016 orders in Q1, we expect second quarter revenue to be between $340 million and $350 million compared to $345.7 million last year.

This results in our projected first half revenues on a constant currency basis, excluding the impact of the loss of the South Africa revenue in Q2, to be up mid single digits.

We continue to expect full year 2016 revenue to grow in the mid single-digit range, and EBIT margins at mid single-digits.

Now I'll turn it back to Gregg for closing thoughts.

Thanks Carrie.

As I discussed earlier, our performance in the first quarter is a strong indication that the strategic change we've been implementing over the last 21 months is beginning to take hold, and having a positive impact on the business.

While we're pleased with these results, we still have more work to do.

Despite challenges from a strong US dollar, and an overall choppy macroeconomic environment, I continue to be confident in the direction which we are headed, and our ability to successfully execute against our plans, and achieve our goal of sustained profitable growth.

A special thanks to the Crocs team around the globe for all of their hard work, their passion and commitment to unlock the full potential of the Crocs brand, and create one of the leading global casual lifestyle footwear companies in the industry.

Now Operator, we'll open the call up for questions.

Thank you.

(Operator Instructions)..

And our first question comes from Scott Krasik from Buckingham Research Group.

Yes, hi everyone, thanks, and good quarter.

Thanks.

Hi, Scott.

Hi.

So, a couple of questions here.

I guess the first, you talked about a $9 million improvement in sales because of being able to deliver on time, you talked about timing shifts helping 1Q, wholesale sales in Asia-Pacific.

I think Europe was hurt by a shift in the shipping window for delivery, so can you just help us understand actually how much moved around between 1Q and 2Q, and how you sort of view the underlying season?

Yes, thanks, Scott.

When we look at Q1 and take a step back, we feel we're making meaningful progress and beginning to see the positive results of our turnaround efforts.

First there is increasing structural stability in the business, of things like store closings and exiting lines of business are essentially behind us.

Currency impact has moderated, and should continue to do so if current rates hold.

Deliveries are performing well, which is part of what you're referring to.

And the management team is in place around the globe, and are beginning to make a real impact on the business.

So we definitely did have some tailwind in the business in the first quarter.

The $9 million you referenced, which is a combination of improved deliveries and comping the Port strike challenges from a year ago, but the fundamentals in the business are strong, so if you take a step back and look at the core business, eCommerce continues to grow at a high rate, we saw positive retail comps in every region, and then when you look at wholesale, which was up in a very real way, the timing of first quarter wholesale orders was favorable in the US, but unfavorable in Europe which you referenced.

And so we think net/net, overall it was a very solid Q1.

And as we look at Q2, we do see some moderation of growth as Q1 timing reverses, but we're solidly on track to achieve our objectives and receive mid single-digit growth for the full year, and our Q1 results gives us confidence in terms of the direction which we're heading.

Okay.

And I guess just a follow-up then, you referenced 2Q.

The comps obviously are indicative of brand strength, but we are seeing in some of the POS data that we look at that covers family footwear, DSW, some of your key retailers, extreme weakness in 1Q.

How do the sell-throughs that we're seeing in data sets like that, relate to your still guiding 2Q revs to flat even with some of these timing shifts?

How do we reconciliation that?

Sure.

When we look at our Q1 sell through, we actually feel very positive about the results, and they're certainly within our expectations, and while it's early in the season, direct feedback from our retailers, and the data that we receive from other external sources, shows that our sell-throughs were up in the first quarter, and Scott, it is clearly different picture than the Sport Scan data that you're referencing.

So it's clear to us that there's a disconnect with the Sport Scan data accurately reflecting the breadth of our customer base, and when we go back and look at our Q1 performance, we feel very good about both our sell in and our sell through at retail.

And Scott, just to elaborate a little bit on that, we're seeing some key programs performing well at retail.

I'd probably call out number one, Swiftwater, we mentioned it in the script, but it's a key franchise both in men's and kids, is performing extremely well.

We're expanding that and it's performing well at our own retail, plus also at wholesale.

The core clog business is performing well, somewhat driven by improved deliveries and in stocks, but we're seeing nice increases both again at wholesale and in our own retail.

And probably most recently just delivering in the last few weeks is our Isabella program, which is really a high summer sandal program, not quite seen the weather for that yet, but it's performing well despite that.

If I could just squeeze one last one in, Carrie, your SG&A was down a few percent on a dollar basis year-over-year.

Should we expect a similar magnitude in Q2, or are there opportunities to see even more significant decline in SG&A dollars year-over-year in 2Q?

Yes, so with respect to Q2, we actually have some puts and takes in the quarter, so we're picking up some additional expense relative to variable comp and those types of things, but that's being offset by some lower bad debt expense, so we actually expect Q2 SG&A to be relatively in line with last year, and then kind of to reiterate, when we were on the call at the end of the fourth quarter, our full year SG&A is expected to be around $510 million.

Okay.

That's great.

Thanks very much.

Good luck.

Sure.

Thank you.

Thanks, Scott.

Thank you.

And our next question comes from Sam Poser from CRT Capital.

Good morning everybody.

Thanks for taking my question.

I just want to follow up on your gross margin commentary.

Last year you had gross margin of about 55% in Q2.

You said you expected 450 basis points improvement on a sequential basis, or I mean, which means that your gross margin will still be down I mean, 500 basis points, 400 basis points?

In the quarter?

Yes.

That is exactly right with respect to sequential improvement from Q1 to Q2, which does mean we'll be down year-over-year from a gross margin standpoint, relative to Q1 we expect the margin improvement to come primarily from better more in-season sale of products, and that will be partially offset by the continued challenge that we have from an FX standpoint, that should mitigate as we get into the back half of the year.

And then, we talked in the prepared comments around the back half margin really showing meaningful improvement in the back half, driven by less FX headwind, as well as less EOL product, specifically as we look at Q4, and then lapping some of those delivery issues that we had last year.

So, I mean, can you give us some idea of how you're looking at gross margin on a full year basis, on a year-over-year, on a full year?

Absolutely.

Consistent with the where we communicated at the end of Q4, we really right at this point still expect full year gross margins to be in line with Consensus.

Well, can you give us an idea of what percent gross margin you're looking at, or the kind of increase you're having from last year or non-increase?

Yes, so the gross margin on a full year basis last year was 47.3% adjusted gross margin.

We're expecting 100-plus basis points improvement off of that.

And again, that will put us relatively in line with where the Consensus is.

Okay.

Thank you.

And then just to make sure, when we look at China, can we get a little more color, just you went through it pretty quickly, on the breakdown of what percent of the business there you are taking in house and doing yourself, versus the changing over to those larger, I guess, more powerful distributors?

Can you just give us some more color there, please?

Yes.

For sure, Sam.

Look, we made a lot of progress in the last three months in China.

We've reached agreement with the majority of the challenged distributors, we have a lot of work to do to continue to reshape the business in the future.

And as we transition from those challenged distributors, there are two pathways.

Some of those territories will transfer to existing distributors, who will operate the stores that had previously been operated by the challenged distributors, and some will transition to us.

As we looked, we did a comprehensive review of the marketplace city by city, province by province, to really understand where, in our primarily model is to continue to operate through partners, but there are certain cities where we believe it's very financially attractive for us to operate our own stores, where we condensed five stores that we already have today and enhance our portfolio, and in particular, we're looking to open a significant number of outlet stores in China.

And, Sam, we intend to share a lot more of that detail on our Q2 call, once we've had a chance to finalize a number of these deals, and are in a position to do that.

And then lastly, you talked a lot about South Africa.

So that hurts the second quarter, but will start helping from a revenue perspective, it will start helping the profitability on a go-forward basis.

And then you have other, I think it's Taiwan and Brazil where you already have established licensees or distributor agreements there.

Are you done with those, after you're finished with South Africa, is that the end of those kind of changes, or are there other regions where you're still looking to go to third-party?

Yes, I mean, as we've been clear about from the beginning, Sam, our strategy is to operate the business ourselves in our major markets where we have scale and it's financially attractive, and in some of the smaller markets to transition to distributors.

Yes, you are right, South Africa, the sale of South Africa to a licensee will take the revenue out of our go-forward revenues, but will be obviously add license fees as we go forward, and we think that will be a more profitable model in the future as the current, as the new licensee gets up to speed.

Brazil is a market we operate directly today.

Taiwan is kind of a combination market where we are the importer of record, and then we primarily do business through three distributors.

Will there be more regional changes?

There could potentially be more regional changes over time, but they will be carefully executed.

Okay.

And one, I'm sorry, one more last thing.

Over the long-term, Carrie, the gross margin, I mean, let's say over the next two or three years, I mean, are you seeing, do you see the gross margin with the mix and the improved execution, and sort of let's say the flattening out of currency, do you see that gross margin going back into the low 50s?

Is that sort of the kind of target that you have?

I am just wondering?

Yes, no, that's consistent with our guidance that we provided at Investor Day back in September, to get gross margins back into the low 50s, and it's driven by several of the things you mentioned.

In addition, specifically as Michelle and her team are actually designing to cost now, that's helping margins with each new line that we bring to market.

The improved on time deliveries, product life cycle management, and then the outlet expansion primarily in Asia, which gives us a more profitable channel to eliminate end of season product, which is something that hurt has our margins thus far.

I mean, and do you see that happening, I mean, do you even get there?

I mean, do you expect that to happen by next year, or that something that is another year away?

I mean, given especially the way the gross margin on a year-over-year basis is down a lot in the first half of this year, and on a two or three-year stack, the numbers are very low?

Yes, we really see that Sam over a couple year timeframe, and we definitely have a line of sight to that and are working on, and have confidence that we can get there.

But it's more of a 2018 timeframe.

Okay.

Thanks very much and good luck.

Thanks, Sam.

Thank you.

Thank you.

And our next question comes from Jim Duffy from Stifel.

Thank you.

Good morning.

Nice start to the year.

Thanks, Jim.

A couple questions for you.

First, with respect to the China distribution resolution, where you stand now, can you speak to the percentage of the previous China distribution footprint, for which you now feel you have a solution in place?

I'm trying to get my arms around what the expected contribution from resuming shipments to populate those retail stores with inventory could be?

Yes, just to stay at a high level, there's only so much we can share at this point, and as I mentioned, we do intend to share more detail at the end of the second quarter.

We are actively kind of in process, working through those deals, and obviously at that point we'll share the data then, Jim.

Okay.

But you do expect to begin shipments to those regions in the third quarter?

Yes.

So a number of those regions that we will ship in the third quarter, and then obviously the stores that we are opening will enhance our retail portfolio, too.

Okay.

So that gives us confidence that we'll see growth in the second half out of China.

Correct.

Yes.

Okay.

Thanks.

And then any updates on the retail door footprint objectives for the year, any change to the total number of doors expected?

I think you had previously thought you'd see it about flat year-on-year?

Yes, I think as we indicated in Q1, we closed more stores than we opened.

And our intention is to continue to manage the portfolio prudently.

I think there are a couple of places where we'll see some door expansion, which is in China with the stores that we're going to be opening, and probably a slightly more assertive strategy relative to outlets in Asia, but we'll be up modestly on prior year-end store counts.

Okay.

Thanks.

And then Carrie, on the SG&A, I think you mentioned $510 million.

If I'm not mistaken, that's a slightly lower number that you had guided previously.

Are you finding additional opportunity for SG&A savings?

Actually, yes, we continue to look for opportunities to take out costs where we can so the $510 million, that approximate number is reflective of what we believe SG&A will be for the year.

Very good.

I'll leave it at that.

Thanks.

Thanks.

Thank you.

Thanks Jim.

Thank you.

And our next question comes from Mitch Kummetz from B. Riley.

Yes, that's.

Thanks from taking my questions and let me add my congratulations.

Gregg, obviously better execution in the quarter.

Is there any way, any metrics that you can quantify that?

I don't know if you could speak to fill rates this year versus last year, or maybe there is a better metric to use to, for us to get our arms around how much improvement you actually experienced?

Yes, thanks, Mitch.

We spent a lot of time, I think in that second half of the year, talking about a series of initiatives that we had put in place, kind of addressing deliveries.

As you know, deliveries historically was a challenge for Crocs, and the initiatives ranged from reducing our number of SKUs, to implementing a kind of global approach to our product life cycle management, gaining global alignment from our product range made a big impact.

But it also came down to evolving business processes, leveraging SAP, and just building, leveraging a stronger global operations team.

And I think what we communicated to our customers was the objective of delivering what we call industry standards.

And while we don't kind of share a specific metric, we also said that it might take us a little bit of time to get there.

And what we're proud about, what we're excited about is that, we certainly in the first quarter and feel we are in a place to continue doing this, we are at or above industry standards at this point, and delivering kind of high levels of service, and feel we're in a really good place with both our approach to this area, and our execution at this point.

And then how do you think about consumer demand for your product based on better execution?

I would think that from one standpoint, better opportunity for replenishment orders throughout the season, but then I'm also curious if you think there's some sort of pull-forward in demand?

There obviously was some pull-forward in terms of wholesale deliveries, but I'm wondering how you think about demand going into the second quarter given you've got more product out early?

Yes, so there's a couple of things there, Mitch.

One is, look, we were able to deliver earlier as you can see in our wholesale numbers, which we think was a positive and that was probably more in line where the retailers wanted it versus where we delivered it last year, so we weren't forcing it earlier.

As we look at sell throughs on that merchandise, we have higher levels of merchandise at retail in our wholesale channel.

It's selling through the higher rates than it did last year.

And we monitor that.

So that's positive.

We talked about in Q1 about at once being up 20%, and we anticipate at once being continuing to grow as we get through the season, and it's probably the purest view of brand health, if you like is DTC, where obviously the assortment is 100% Crocs, and I think positive comps across the globe gives us real confidence in the product line.

Okay.

And then, Carrie, can you give us an update on the impact of FX on the year?

If I recall correctly, I think off of the last earnings call, you talked about FX being, I think a 3% drag on revenues, and I think 100 basis points of the headwind on operating margin.

Are those targets still kind of in play, or has that changed at all?

Yes, so maybe it's better if I take a step back and take us back to the guidance we provided back in September was, is for revenue growth in the mid single-digit range, and EBIT margins in the mid single-digit range.

So the thing to think about is based on our Q1 results and the recent changes we've seen in foreign exchange, we're still projecting to be in line with that initial guidance range for 2016.

The rates today are essentially the same as when we originally guided last September.

We've seen some movement, obviously in Q1 it moved against us, we've seen it come back, but we continue to hold that overall guidance.

And based on where --

In currency.

Based on where FX rates are today, when do you think that gross margin could actually inflect to where FX is no longer a drag on gross margin, and might actually be able to help gross margin?

Yes, the currency impact we're seeing is mostly in the front half of this year, and we will start to be able to benefit more from that leveling off in the back half, so that's when we start to expect to see some of that improvement.

Okay.

All right.

Thanks.

Good luck.

Thank you.

Thanks, Mitch.

Thank you and our question comes from Taposh Bari from Goldman Sachs.

Good morning, it's Chad on for Taposh.

Congratulations on a nice quarter.

Thank you.

I just wanted to drill down a little bit into the comp performance.

Can you provide any color on the comp breakdown by channel, outlets versus mall locations, et cetera?

Yes, Chad, we don't provide that information, and so what we try to do is kind of share kind of an overall kind of view of the market where we feel, where we feel really positive about our first quarter results.

But clearly we do break out eComm versus retail, and as you see eComm performance was very strong.

Retail was strong relative, but obviously that drives a weight average of the comps that is more towards eComm.

Understood.

And then just drilling down on eComm a little bit as well, it's pretty much the best 1Q in eCommerce on a dollar basis you guys have ever had.

Is that largely on the success of the January promotion, or are there other factors that are influencing that?

Yes, the eComm performance has been very strong for a number of quarters now.

We've had strong double-digit growth cross our eComm channel for a number of quarters.

I think the January promotion was strong and effective in terms of clearing our year end inventory, and it was clearly the right thing to do.

But I think it's a longer term trend that we're seeing.

Great.

Thank you.

Thank you.

Thank you.

And our next question comes from Erinn Murphy from Piper Jaffrey.

Hey, good morning.

This is Chris [Sudfish] for Erinn Murphy.

I was wondering, how confident are you guys in the long-term revenue plan, given what we're hearing from retailers about the open to buy dollars in the space?

Especially as inventories manage to get tighter, how are you guys expecting, or how are you guys navigating the landscape?

Yes, certainly, it's a challenging macroeconomic environment out there.

Having said that, we continue to feel confident in our plan.

We feel the first quarter basically is a strong start to the year, a good indicator in terms of the strategic direction that we're heading.

We are seeing retailers being more conservative with their open to buy dollars, given the challenging environment, but we think a combination of our strong deliveries, and the solid early performance both on our classic core product and our new product introductions sets us well up for 2016 and beyond.

Okay.

Great.

Thanks.

And then just a second question in terms of kind of new product.

Can you maybe compare and contrast any type of consumer response you guys have gotten, in terms of being in a wholesale channel or a retail channel, if there's any differences there?

Thanks.

Yes, I mean, I think there are a few things we're seeing on new product Chris.

As we look at Q1, 40% of our sales were on NPI products.

About 60% of our spring/summer 2016 line is new.

So it's significant renovation on the line that's been delivering during the Q, and we've generated about 40% of our sales on that new product.

Obviously and as we monitor sell-throughs, both in our own stores and in wholesale, we are seeing as we have talked about a couple of times, we're seeing some very focused areas, checking well, number one and most importantly, from a sales and margin perspective is our core clog range, both the classic and the Croc brand, which our Evergreen styles, as well as made for her, Freestyle made for him, Duet Max, those have been performing really well.

Swiftwater we have talked about is doing extremely well at DTC and wholesale, and Isabella is the new sandal product that is delivering now.

Okay.

Great.

Thank you very much.

Thank you.

Thank you.

And our next question comes from Jonathan Komp from Robert W. Baird.

Yes, hi, thank you.

I want to ask first about the Americas comps.

First maybe just on the retail side, I'm wondering if you saw any less pressure from some of the tourist markets, and then also looking ahead, any thoughts on the expectations for the year just directionally?

It looks like the store comps get a little less easy of a compare, and certainly the Internet comps get more difficult starting in the second quarter, so any thoughts directionally if you expect kind of the growth rates to moderate or not?

So a number of things in there.

Firstly, the tourist markets, we continue to see significant pressure in the tourist markets where traffic is down considerably, and as a reminder, those are Orlando, Hawaii, and parts of the West Coast, where you've got tourists from a variety of regions coming in, and we've clearly seen the tourist counts down.

Secondly, I think if you look at overall traffic, frankly, overall traffic at retail has been down, and our traffic has been down.

We monitor that on a daily basis.

But our comps have been despite that, they've been driven by conversion and units per transaction.

As you indicate, look the comparators change a little bit primarily for eComm as we go through the year, but to date in Americas in particular, lapping some strong performance from eComm, we're continuing to see, healthy comps relative to strong performance our way.

Okay.

Great.

And then maybe a couple of questions on the outlook.

First, just on the revenue side, I think previously maybe directionally you talked about a little higher revenue growth in the second half of the year.

Now it sounds like maybe kind of mid single-digit growth, both the first half and the second half to get to the full year guide.

Any thoughts on kind of directionally any changes first half versus second half, and then as you look into second half, how much of the growth is driven by the improvement in China, versus any moderation in other places of the business?

I think if you look at the full year guidance, you're right, in the single digits, in the first half as compared fought second half, I would just say it's nuance a bit, but the second half does grow a little bit faster than the first half.

And then what's driving that growth certainly we're lapping a challenging back, an easier back half last year primarily because of the delivery issues that we had in the back half.

That combined with new product coming to market, combined with the easing of FX pressures, are what give us confidence, and then we've assumed all along, with respect to our overall guidance, that we would return China to growth in the back half, so that's not a change in terms of our assumptions.

Great.

Then maybe one more, just similar type of question but on the gross margin.

A lot of year-over-year noise, so maybe looking sequentially, second half compared to the first half gross margin, it looks like historically the second half gross margin is maybe 400 basis points below the first half, if I look kind of longer term average, this year it sounds like the gross margin in the second half, maybe only slightly below the first half on a sequential basis, so any change in that normal cadence second half versus the first half gross margin, or any perspective there?

Yes, I think, that's a fair assessment, what you outlined.

As we look at why that would be in the second half, again go back to less FX headwind factored into our cost of goods sold in the back half, less EOL product that we are lapping the sales of last year specifically in Q4, and then going back to the fundamental things that we've done from a process different than in the past, is the design to cost, and the product life cycle management activities that we're performing, so as Gregg mentioned earlier, the increased overlap in terms of products globally, the reduction of SKUs across the line, as we move to the more overlap across regions.

Those are the things that are going to help overall from a gross margin standpoint in the back half.

And as we've said, with each season we get to make a larger and larger impact on the business, and you start to see some of those benefits coming to light in the second half of the year.

Okay.

Great.

Thanks for the perspective.

Thank you.

Sure.

Thank you.

And our next question comes from Jim Chartier from Monness, Crespi, Hardt.

Congratulations on a nice quarter.

In the past you guys have talked about constant currency gross margin metric, I don't know if I missed it this morning, but can you just tell us how the gross margin performed in constant currency first quarter?

Yes, so currency had a 106 basis point impact on gross margins for Q1.

Okay.

And then the 20% increase in replenishment orders, how is that relative kind of to your expectations?

Did any of those ship in first quarter, or is there more shipping in second, third quarter?

So the 20% increase in at once business was in Q1, so that was our Q1 performance.

I would say that was probably at or slightly above our expectations.

Obviously Q2 is a bigger at once quarter.

The balance of the business shipped more towards at once.

But we feel good about where we are year-to-date.

Great.

And then can you give us an idea of how much of a drag China is going to be on the first half of 2016, and what kind of benefit you are embedding in your guidance for the second half of 2016?

Yes.

So, we're not calling out the overall impact from China specifically.

That impact is baked into our overall guidance for Q2.

It's $340 million to $350 million, and again, it's in the back half, it's returning that country to growth.

Okay.

And then finally, it seems like the availability of some of the new products at your wholesale customers earlier in the season is kind of hard to find.

Other than the Isabella, anything else kind of shipping later, or hitting your kind of wholesale accounts later than retail, and how do you feel about kind of the wholesalers response to the new product?

Yes, thanks.

A lot of that shipping did happen at the very end of the quarter, so that gets released through late April into early May.

And the retail response continues to be really positive, and the feedback is, has been strong, and Andrew called out a few examples of that from updated core clogs to Swiftwater to Isabella, we feel really good about the new product introductions we've made this year, and directionally what they're telling us, in terms of the broader strategic objectives for the brand, and for the Company going forward.

Great.

Thanks.

Best of luck.

Thank you.

Thanks.

Thanks.

Thank you.

And we have Scott Krasik with an additional question.

Thanks.

So three quick follow-ups.

Just number one, can you give us some clarity on how the comp trends are performing in 2Q quarter to date?

Are they supportive of the outlook?

Number two, roughly what percentage of your sales in 1Q are at once versus 2Q, and then three, you didn't buy back any stock, you've obviously bought back stock at much higher levels.

I assume most of your cash is probably overseas at this point.

Is that because you don't want to take on debt to do it, or what's the thought process around buy backs?

Thanks.

Let me start and then I'll handled it over to Carrie.

So in terms of in season comps, we don't disclose those, as you know.

We feel great about our Q1 performance but we don't disclose in-season comp, or in quarter comps.

In terms of percentage of business that is Q2 is a much bigger, is much bigger at once business here in the US but also in Asia, and we're tracking closely to what we've embedded in our guidance in terms of at once shipments.

Great.

And then, Scott, you're absolutely right, Q1 is our peak working capital quarter, and the majority of your cash is in international locations.

As we've called out in the prepared remarks, we were in our credit facility in the quarter, and we chose to be conservative relative to US liquidity, and not buy back stock at this time.

That said, we continue to be confident in the performance and the direction that we're heading, and we'll continue to maintain a methodical approach and disciplined approach to share repurchases going forward.

Okay.

Thanks.

Thank you.

And this concludes the question-and-answer session.

I will now turn the call over to Mr. Ribatt for closing comments.

Thanks everyone, and have a great day.

Thank you ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.