CROX

Crocs, Inc. (CROX)

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Crocs, Inc. (CROX)

Q2 2010 Earnings Call Transcript

August 5, 2010 5:00 pm ET

Executives

John McCarvel – CEO and President

Russ Hammer – CFO, SVP of Finance and Treasurer

Analysts

Reed Anderson – D.A. Davidson

Jeff Klinefelter – Piper Jaffray

Jim Duffy – Stifel Nicolaus

Kevin Ken – Robert W. Baird

Jim Chartier – Monness, Crespi & Hardt

Steven Martin – Slater Capital Management

Presentation

Operator

Thank you for standing by, everyone. Welcome to the Crocs, Incorporated fiscal 2010 second quarter 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. I would like to remind everyone that this conference is being recorded.

Earlier this afternoon, Crocs announced its second quarter 2010 financial results. A copy of the press release can be found on the company's website at www.crocs.com. 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 Factors section of the company's 2009 Annual Report on Form 10-K, filed on February 25th, 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, operator. Good afternoon and thank you for joining our second quarter earnings call. On the call with me today is Russ Hammer, our Chief Financial Officer.

We are very pleased to announce better-than-expected operating results for the second quarter of 2010. We are clearly seeing the financial benefits of executing our strategic plan, which we have shared with you during the past few earnings calls. We are striving to develop a global brand with a balanced business model.

Let me summarize some of the highlights of the quarter. First, our revenue growth was broad bases, all markets and all sales channels reflecting the renewed strength of the brand globally.

Second, the performance of our customer direct channel reflects solid growth in both – both through expansion and same store comp sales. As an example, same store comp sales for Q2 in the U.S. market was 8%. Third, our operating margins in all regions reflect the efforts of our very talented global operations team to evolve our business model while continuing to develop our unique in-season auto replenishment system.

And fourth, our SG&A cost aligned to our business model. We increased our marketing spend in the quarter by $7 million to $15.5 million to drive brand awareness, new product introductions and channel sales with our key wholesale customers globally. We are striving to develop a balanced business globally and are working to minimize the seasonality of our product portfolio.

Revenue increased by 31% to $228 million over an adjusted revenue of $174 million recorded in the second quarter of 2009, which excludes $23.7 million in previously impaired product sales reported last year at this time. Our international sales accounted for 61% of total revenue and we continue to believe this is a key strategic strength for Crocs. We are encouraged with the development of the BRIC and Middle East markets.

We are very pleased with the resurgence of our wholesale business channel. We have invested significant management time and efforts to methodically rebuild our wholesale business, especially in the U.S. market. Sales of Crocs products with our major retails partners and department stores, family channels, sporting goods, and with our independents are all up consistently through Q2 and into early Q3. We hear customers are returning to retailers actively looking for the brand.

Over the past two years, we have seen significant diversification of our product portfolio and collection, all building on our core design fundamentals of comfort, casual fun and colorful. Today, we have over 250 models of shoes across a diverse range of sales channels. While our core products are still up 21% of our overall sales, we continue to bring relevant and exciting new products to market.

New products introduced in spring-summer of 2010 accounted for 31% of our first half sales. As with most of our brands, we are currently pre-lining our spring-summer ’11 products with key customers and are excited about the response and indication we are receiving. We continue to invest and develop our direct channel business, which has performed exceptionally well. Russ will expand on our financial performance of our direct channel later in the presentation.

We believe the direct channel is key to connecting with new consumers and exhibiting the expanded Crocs product line. We opened 30 new stores, Shop n Shops and outlet stores in Q2 mainly in the U.S. and Asia.

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