CROX - Earnings call transcript Q3 2017

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Operator

Welcome to the Third Quarter 2017 Crocs Incorporated Earnings Conference Call. My name is Ellen 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. [Operator Instructions] Please note that this conference is being recorded. the Relations. to turn Director Jacobs, now Investor of will call Marisa over Senior I Ms. may you Jacobs, begin.

Marisa Jacobs

earnings Report pipeline. risks other SEC relating actual these uncertainties Form and events. differ of impact as not morning, everyone information would company’s statements the provided accordingly, crocs.com. described joining are a is risk reflect of section remind Harbor on results future can call to SG&A update subject the XXXX to that of forward-looking as obligated the be us morning, future and to or from like everyone today Earlier Good statements federal and those Report the with and the our these for filed Crocs thank a Please copy to results found some third press statements our expenses and margin this is Crocs to our statements information Crocs’ are XX-K the third is Form of Accordingly, on announced the subject call. Annual materially on on These refer We well described could of our include, product for in to we forward-looking Safe Risk the XX-K. more that provisions you of forward-looking Factors regarding for laws. not the We gross call. quarter this securities revenues, this documents release but on you quarter Annual at factors. caution to number website limited to

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

over questions. open Andrew. the remarks, to turn prepared call At the we your their Following I time, will this for call will

Andrew Rees

financial drive on and initiatives our the three I then the will are quarter focusing quarter the fourth some you, for expectations about greater strategic discuss Thank business results good XXXX. we comments in and channels, then you on the the through third will Carrie results, our morning our results will of to third for everyone. with update introductory begin of financial I quarter and Marisa distribution our take you detail

strong increases of quarter third initiatives. both again the this performance us we another we exceeded was against strategic with of quarter have in year, for our The each and terms same made of half rise first Consistent of met our progress our our year. financial latest possession or financial metrics and results brand compared to consideration in the to double-digit relevance with QX. in our continued annual from the Furthermore, desirability, showing survey brand last brand period

and point $XXX.X basis Our quarter million improvement year. which gross margin last we revenues third represented over a XX.X% were of QX XXX achieved

loss last compared income year’s $X.X operations to Our was million $X.X from million. of

$X.XX share end Our year. $XXX.X last with $XX.X compared loss quarter the to the third last We than diluted million per of million inventory, XX.X% loss less year’s the or quarter $X.XX. was third of ended in

of moving key margins. results as generating our in strategic million demonstrate These and an We by XXXX to operations XXXX. on to plan SG&A SG&A million focusing we million eliminate on closer continue and $XX to our and performance to to in financial $XX million remain to EBIT reduction to we continued that from deliver compared target our between double-digit improving of our $XX against are $XX annually expenses income and execute objectives, incremental objective

social we product, fleet. and growing our our channels rationalizing been digital our sandals, focus and the while e-commerce past on and slides reach to are where specifically store on speaking distribution through and several about quarters, focus our Over marketing where you amplifying we wholesale, we and clogs, flips have are focused impact

margin focus each the our and Starting positive discussing of to segment to sales growth. on sales. this categories along Let have with with clogs, beginning more clogs, enhanced They substantial on makes the since we Based slides. XXXX our me respect the product, been Crocs’ embrace up DNA. silhouettes the to drive brand. summer on well know we seeing give of the largest spring positive we our you working represent for that we response these where attention our also response of we results, can focus and this a sandals, areas. – grow year-to-date seeing are With detail the are bit to fully year, category These line, and narrowed little flips is

for in quarter, best-selling third continued in second growth our plug in styles. and Globally, sales, flips a XX% our expansion The slides styles, embellishments quarter. focus. third including of graphics, of area competitive the these last clogs driving classic During and us consumers environment. and images colors to high relevancy remain are new our and with It’s and be the XX.X% the given represented a Sandals, year’s fragmented large brand natural and Crocband up resonating our from growing licensed category. represented category and sandals

a XX.X% and from saddled XX.X% Sandro include women’s Sloane for During year Swiftwater this short our last for for and year’s sales, third last kids in up time. women This quarter. and quarter, been Key Isabella made of that women. and sandals kids, has year’s progress very represented significant franchises in men, illustrates third

Our reflecting occasions lightweight the style they At broad-based appeal comfortable, time, consumers offerings are different key brand white preferences. and trend same wearing satisfy attributes. and our multiple with to

season modern for marketing also and innovative and to collection our demonstrating and fall brand marketing by well sandals. offered that with create brand an the making gains. holiday recently weather styling, and We We reducing we innovation QX demand Spring/Summer fresh in the fall are keeping the have styles highly are ahead perspective, Spring/Summer and the building holiday so our selling lightweight, to achieved shelves our us even consumers. while spoken newness, From offering new brand I and about new to de-risk you proprietary Crocs the annual consideration being did styling. to brand ends. the LiteRide extend that product. technology LiteRide. results elevate and product terrific. season brand. to cushioned XXXX, a material introducing are Looking simple measurable were bringing product great footbed, XXXX line and in new premium uses collection summer into relevance resonating The on completed survey. new incorporating to double-digit successfully demonstrating our a gains our am intent after new collection previously clogs LiteRide number the We cold clogs by a helps and season a particularly about sandals initiatives By brand desirability, I The of excited addition extremely Spring/Summer introduction of is This

In year. of digital terms marketing, brand Since grassroots four encompassed You campaign designer of Come and kickoff, media ambassadors, our and this the has campaign key launched in social As social Are activations. its April officially components: collaborations content,

the brand of of Crocs are in Our raising front us and new getting profile ambassadors audiences.

and our existing a Social and more amplifying targeted way. spend consumers potential and digital marketing are by reaching in impactful marketing

these components Right Balenciaga activations like Crocs invaluable and Kane social Together, four brand our PR for Rock engagement and of are and grassroots excitement. Christopher and campaign Crocs are Socks to driving collaborations generating sales. generating fun coverage led Our and

three channels. our to now turn distribution me Let

business ongoing expansion. the reflect leading wholesale model changes, to the by business SKU the time, and with same Asia. strong continue pleased are to to of particularly impact Our door performance margins. in experiencing At sell-throughs is at accounts they good highlighted continues be This

geographic line sold with being good are Summer sandals year’s and quarter fall last stores XX store with year. delivered stores than in closing longer Furthermore, we clogs in of rationalizing regions. the e-commerce, or a We addition, this quarter the expectations. double-digit openings transferring In XX season third made period Always our In the performed in during all into Retail progress in our quarter. across the growth net we operated fleet fewer same initiative. three

translating strategy. under As the And into organized time, ongoing in is channel a of leader. progress we adoption associates the made direction thank globe being year. the gains. of terms service global and and revenue stock support improved hard to customer the closing, brand practices throughout and their want you our of of more that promotional best In since may price work the is new across in Particular for recall enthusiasm, effective this levels, spring, I

She meaningful in made progress we confident financially strategically, present have operationally future. the our let results Carrie. and our review quarter and me We guidance. third so time, will we are call do to latest and continue over this to turn the financial At will

Carrie Teffner

Andrew. you, Thank

as performance. drive our we Andrew the As third key continue of quarter strength with and we pleased results our financial just improved to execute against mentioned, priorities are

was our from X.X% or top quarter were These $XXX revenues $X.X exceeded of ago. million $XXX.X which revenues million. end the down million, year Third a guidance,

Absent in our the results profitability. revenues would due The quality revenues business and the decline improving in been and business. million second with our higher last Foreign retail this have and to currency by revenues sale revenues modest Taiwan on e-commerce business East Middle specifically model sales increased These the relatively closures relates and sale our year. changes, are rationalization changes, last offsets compared quarter business from year’s year’s year’s fleet. store our to store decline primarily translation QX third quarter of fourth essentially driving growth focus flat year-over-year consistent model of $X.X quarter of to last our

quarter the In performance terms will model third is but channels, our just the wholesale changes due discuss revenues business I overall of X.X%. mentioned. decline shortly, regional to I declined primarily

DTC store the stores. X.X% Overall, with we third illustrating declined compared quarter the up X.X% our to end improvement comp sales third store of XX rationalization year’s Consistent count. declining last retail, underlying X.X%. quarter quarter ended positive our XXX the our Our was reflecting the plans, comp and with retail operated a At continued was stores business. fewer in

region. last Our from of X.X% as prior double-digit as to its and of our footwear grew quarter, year. by with We year’s a in XX.X% price third over comps product down it e-commerce $XX.XX, each The quarter XX.X business shoes the rapid X% was pairs change. in mix increase channel million continues average the our continued sold expansion selling

$XXX.X let increasing given amounts are quarter. to as impact In revenue Americas, had reflecting was region. channel up inventory. currency at the We end-of-life The revenue our grew limited strength on higher each with X.X%. regions, our revenues that me quality revenue Turning following brand excess as first profitability we saw in improved focused across the of note the million, X.X% reported. limited Wholesale by growth and the and

social by and E-commerce marketing commerce increased sales capabilities Our comp XX.X%, compared retail retail our our sales third this was to area. digital of less DTC growth X.X% third enhanced XX increased driving our despite increased comp quarter. the X.X%, in is stores quarter having up year’s Americas X.X% build-out last and of use

store In the did sale region business model in Asia, in million, versus prior revenues terms Wholesale declined reflects not our down last e-commerce business of This changes year. year. Taiwan offset and overall QX closures. XX% the in the were results the business Robust revenues of XX%. $XX

are headwind model transitioning continue accounts process will line to we quality year. will drive wholesale Japan in closing an revenues necessitates profitability phase. multi-brand pursue with transition our expansion of to us is addition, norms In where that continuing model. be those stores. well in single while have is the we which business across are more operated multi-brand improve model This country And business Asia. single the branded business global wholesale In to to a through and advanced, a our Japan, This next the changes for brands higher stores, for branded bring earlier

conversion DTC mix gains The was units and price quarter full X.X%. offset average third X.X% per prices not and comp lower as outlet retail to comp the Asia selling stores. transaction Our increased due did of declined

through to increased lower increased full-priced we declined Retail promotions sales XX.X% compute better retail third compared the comp XX.X% year. delivered reduction store for to year, outlets X.X% activity primarily improved and to revenues negatively million, X our sales drive a as by by E-commerce and closures, and we of XX year’s last fewer kiosks to with heightened we management As improved increased reflecting XX count. the solid were revenues rates and stores. but by continue QX results a over X.X% while compared of net operated by Europe, prior lower stores Russia. only Internet in results in Wholesale quarter $XX.X store consumer while by due not Wholesale up channels last third the terrorist FX impacted engagement. quarter. Europe of the grew,

quarter Our European third X.X%. comp DTC was

aftermath negative business the impact of in due comp to the retail the on by Our our declined Russia terrorist X.X% attacks.

third with drove Excluding site E-commerce sales retail held comp retail with operating Russia, the XX.X% conversion up last year’s year’s sales XX of was our to than as retail X.X%. traffic in third fewer by more and stores result X.X% comp as steady successfully Total rates declined quarter. increased a we and last the quarter.

margin Turning our of to our P&L, other margin of was year’s and gross guidance items XX.X%, last up gross basis on points our XXX XX.X%.

expenses were our prior guidance. year the than these loss from million charges operations line to charge million from $X.X net and the million, year’s attributable bit QX in SG&A related and million gross some $X.X of was $X.X decline million. SG&A with preferred we and movement in to million to had share to reduction SG&A offset are the a stockholders The Our revenues. common $X.X amount. margins plan included this in due of loss more This of guided of $XXX.X down last operating higher than dividends charges million. was Income of equivalents $X.X Improved $X.X after between QX. was and modest compared lower

Our common QX. count share loss loss was used was EPS to to of year’s XX.X last share shares compared per average million $X.XX. weighted $X.XX for The diluted calculate diluted

XX.X% million quarter. $XXX increase we outstanding were to the our I to the the million stock XXXX. $XX Year-to-date, compared quarter Inventory million from and during last third year’s year’s facility. the third September end of terms. quarter $XX than our our no third agreement million, balance that $XXX.X million credit of the ended to below want of XX more favorable the we last credit We $XX.X with end after million of of the sheet, million $XX.X operating generated during $XXX.X $XX.X third first at of the repurchased there at months the to cash we to million in the quarter Turning facility ended million borrowings cash common the note size compared was of quarter. do with on cash to at quarter of activities, from increase more nine generated $XXX.X an amended

turn guidance. now me Let our to

not want note of I quarter expect the year’s XXXX the out reported of I call as $XXX.X and meaningful fourth today. our to our guidance XXXX, between be foreign also incorporates any guidance business currency, to reflect East our on sale of want million quarter our to second compared that in basis. currencies to an $XXX is the $XXX million does Regarding quarter. we fourth and This million revenues changes With in compared Middle that impact of to XXXX. guidance to in to the the fourth last business of quarter respect Taiwan

guidance This using at store will count changes the net impact down of range those low of our at plan QX, We will guidance, XXX in XXX revenues XX of impact the and stores close Excluding of a the XX our which transfers. be bring This the closures year. from single-digits. beginning stores another midpoint of XXXX. to the up in would reflects and store also end to fewer net result the total total of

to gross XX% quarter fourth XXX points rate. or expect year’s approximately basis margins of last XX% We be

year’s quarter Our SG&A SG&A approximately million is million. to lower of This guidance, our $X our program. are costs million provided quarter approximately year is inclusive than Based for guidance. fourth reiterating be XXXX the $XXX reduction the associated on SG&A expected last of approximately of with million full previously $XXX.X fourth $X we

prior Specifically, compared expect to low year. to to we single-digits down revenues the continue be

$XXX associated full the to with be Our approximately results. summary, expected of the be SG&A is implementation I our pleased between quarter am which In XX%. the year $XXX plan. reduction million includes SG&A and with million expected $XX third million, of to gross approximately margin is our for strength

the I capabilities driving continued will Our to double-digit time, reinforces operational our and thoughts. our this over progress for back turn call quality final SG&A to our his back ability revenue, in EBIT At my reducing confidence margins. Andrew get improving to

Andrew Rees

you, Thank Carrie.

against initiatives. our strategic quarter strong both our us, and for progress in third was another have terms we financial made The the quarter performance of

strong as delivering remain Are improvements Come We our collection are Ongoing improvements We a of marketing campaign. will SG&A year to ‘XX greater have cost continue to we reduction shareholder operational excited significant two our You efficiencies in on committed focus As the about Spring/Summer lead and in plan. years. value to coming

of Before closing, work company. hard again express essential team to me enthusiasm, success dedication Their to of once my the thanks associates. and let sincere our global our is

Now operator, the for I open will questions. call

Operator

Thank you.

from We first question-and-answer session. Our Murphy [Operator will Jaffray. Erinn now Instructions] is begin Piper with question the

Erinn Murphy

kind for guess could overall, you quarter just the you the on about I are there on to morning. three then I the in there? and guys little in first when growth had talked focus maybe I just and start a you us understand that Thanks. guys. are Korea I region on broadly trying then business bit seeing detail South more China, particular, questions and what a of Carrie help of we provide you third Good should dynamic just what Asia thought if revisit transition Japan Great. the wanted you to to in accomplish think

Andrew Rees

Great, Erinn.

that. take me Let

business Asia broadly, sufficient quarter, model So, Asia was e-commerce if where down growth for changes. strong we reminder at the XX% as sort it in a to look of offset wasn’t the

strategic our we in future to is those, those Asia relative most also impacted our significantly guidance what by shifts changes, incorporated guidance. plan that’s there lie our region but all historic major we our are relative of and have and

with significant know in store But closures, Asia, our this big closures reminder, the to to have of question. transition, that, majority non-strategic closures, your end, Japan, Taiwan think there a Japan. lastly, the overall are we was revenue improving of business, that been where specific in the the transition majority and high-quality decline. to business transition the I three is year we business East, kind branded strategy arena. we focused is and multi-brand is have markets there focusing that the store digital in growth of the e-commerce on consistent markets of our of that As about majority single the are a of undergoing a on part the e-commerce far profitability Middle of elements focusing successful before more you a I and and of of Japan To the a Relative a business been from store on that’s the on we decline, are driving on in commerce, non-strategic and Japan, efforts if run that and transition undergoing growth XX% that in our there we the get to wholesale. sold transition long

in We are branded and distribution on growing our single stores also multi-brand points distribution closing reliance we to single and stores are wholesale. reduce our partner of gaining branded company-owned sale and

be So, ABC-MART, accounts like great [indiscernible], would examples.

are in and repositioning and We progress single I downsizing our business growing terms Japan. branded think going the making two business e-commerce on well. great And one in is elements of

As this executing going really it’s really This to brands to pretty it’s in we XXXX take achieve how as we good we progress. marketplace are wholesale, with and is through it. us it’s operate we expected expect, – the making look would consistent multi-branded at other but growth the

Erinn Murphy

some the trending I categories? XX%, Okay, quick of can about the a inventory the That’s that one core you give categories, And just of helpful. Carrie, your just of non-core end quarter, just then that’s the think for great. at down on is in how talk me a lot

Carrie Teffner

Yes.

are up with cleaning the numbers, and think the and pleased overall about year-on-year is inventory. of So, obsolete as excess decline inventory really we bulk the certainly, we the decline

and primarily us the inventory is quarter inline line leading now the for what’s in in product core base setting up now what’s or XXXX. then So, into fourth

the are this in So, improving on just we of the focused business that. is a overall inventory turns and result

inventory that flow prior and you lower in all it’s long think year of what matter So, than the our levels seen channels. us coming consistently improving all to just I of year of is a with you inventory have

Erinn Murphy

time, puts sounded still I I Thank last we the Okay. you this end about know that some are double-digit mean, are takes but you on the at just you of not it’s pretty And a question, ‘XX? for you fiscal start just can you. year, guys confident of us can EBIT assuming then just, planning quite think those over and you as help early

Carrie Teffner

Yes.

double-digit bit are guidance looking So, how let will talk talk and about to at mid-term I about come then a margins. our me EBIT little back ‘XX we and with respect

not of time, that it’s look how we have overview at develop. guidance we are top of kind think to expecting detailed ahead we an important are As but this at I XXXX, line to giving

store well that will impact partway So, as the the rationalization continuation of biggest be have the and XXXX. really year planned that’s our effort the we stores impact in close closed as of that have to through XXXX the this stores

million those expect we closures. store with So, revenue of associated line our in $XX headwind the approximately

We expect growth growth by that, that wholesale. revenue in decline will in as be well as e-commerce offset

the about effort changes, we would if think kind So, model and of compared of lapping this year. store adjust if the to single-digits up be mid of we business essentially as XXXX the we for some rationalization

confident EBIT few continue in get So, we be a when think in times our ahead XXXX, to said to have expect to that the mid-term. to that margins, ability achieve to don’t we we we but obviously double-digit in

Erinn Murphy

you, Okay, guys. Thank great.

Operator

Komp is with next Our question from Baird. Jonathan

Jonathan Komp

you. Thank hi. Yes,

and revenue. wanted flat of think today and the basis clarify you Carrie, to roughly you the the last on I said an First, midpoint I I quarter third now the know on revenue you results what said underlying quarter high-end were just are I just the about think guidance, above flat

quarter? the there other So wanted going on or that’s clarify any I just to if apples-to-apples changes if are during

Carrie Teffner

Yes.

the in just you essentially had been would changes model if store now, prior year. factored have it closures, So, over adjusting business it’s for up

Jonathan Komp

little into the summer there you I more when hoping usual. the And you. are more think on QX, was quarter low and I you Okay, give great. a growth to single-digit in than what you implied product third then especially clarity bridge seeing spring at look selling you could since Thank just maybe

to just takes? walk the is of wondering that into fourth to the am some I quarter So, going trying through continue or puts and

Andrew Rees

look Yes. have and more drop we I things quarter, product focused referenced, the and period. I are think of fourth have we a couple the at we that flips are important and line in factors. perspective, there more on quarter, sandals, you off as is From our fourth but clogs significant slides XX% flips that think slides, in obviously and clogs traction mean,

We have assortments. our de-risked

less far We and less products seasonal in have far assortments assortment. the and boots

So, I think we are confident we have the right product mix.

As it’s we larger of a getting perspective, both think on guidance in a from have that our provided. and e-commerce basis, we confident and DTC become feel about the it we business channel e-commerce our a trajectory obviously, our the given traction quarter more the share we and of are global retail recent a on business

Carrie Teffner

you business that up business, Middle low number. Yes. the few take single-digit related be are the to kind being you the again, To $XXX that – Taiwan to if back to stores single-digits, that midpoint the dollars take you low transfer outlined we East mid the and million there gets million, have will China which of

Jonathan Komp

two in quarters then the Americas looking revenue the broader while. just row Americas I for color but level at a time brand closures, know up And brand you completed, year-over-year now curious on and anymore in for question a on the a think growth the even store if the had and survey with first you high really I wholesale has details great. shared X% specifically, positioning there would for been for be just the I some Okay, you Americas

know there looking there? can identify So, of helping perspective is other you sort the there and anything of any that’s broader that, anymore the just you outlined marketing some business I than initiatives, product for trends is

Andrew Rees

Yes.

of in and think kind is some firmness business that’s put about. product are strength the we we digital of reach other campaign social we by we marketing do that guess I driven growth driven are sandals impact. certainly and the being the the is by seeing in an excited place I strength the in consumers look that see a think teen some of well as sports largely that we product the that lot we or athletes wearing of post focus college what’s or see at is events. clearly see driving age, to strength the having in increasing is interest and Americas, We the the in pre the of student As clogs one use business at And brand received marketing to Americas. on and yes, an it the lot the we the marketplace, strategies trend We the and athletes of a age, the business the

of our was growth we we double-digit interest to be sure five seen thing think relevance, in I So, have it would our that’s of I additional you and to of with is and think frankly sure to the all – interest was across accentuate you I dollars. I advertising and that major survey relative trying that social certainly I were And we to where a trend we that the am we that consideration and our brand see saw the with our am focus interest media. that would markets, desirability highlight

believe efforts really that marketing campaign have the As we we this interest in Come and brand. that Are the So, year been the You renewed is undertaking driving

Jonathan Komp

Alright. you. That’s helpful. Thank

Operator

question Jim Stifel. next Duffy from is with The

Jim Duffy

your I that questions. quarter in you sort or for shipments the change to there to any is ‘XX relative positive any am then Spring/Summer this? to comments previous fourth the that, related curious you morning, hit quarter. might everyone. add Andrew, year? plan quantitative Couple line, qualitative comments And to response Good the the Nice had mentioned of in can Thanks. of spring to job

Andrew Rees

Yes.

information. seem to now sometime are that response – be for haven’t And the what seeing, it. are ‘XX can Spring/Summer don’t relative we reiterate we to pleased or we Customers is we are obviously, about So, released with the pre-order backlog excited certainly line. we getting I

a they a slightly I comfort, are are And resonate our new think LiteRide, too. where a tier at that’s we particularly hope resonating enhanced with to excited about it higher I remarks. assortment we prepared and new, customers with enhanced mentioned our styling It’s will in we a bringing points. consumers think price that

In the obviously we terms the would and consistent been of fourth a it’s warm doors of the was then ‘XX I historically, has in amount have in gets with year. quarter what Asia, it’s it opportunity fourth it but spring shipments of Southeast delivered with weather say consistent ‘XX, deliver Spring here spring pretty roughly last States in ‘XX for quarter, United to what good

Jim Duffy

the promotion third function the on Very good. normalized for a third is feel Carrie, margin the this point? during quarter Thanks. a at inventories tight, or do quarter of you question standpoint fairly very from you compare gross was that

Carrie Teffner

I margin normalized do pop at rate the rate had standpoint. a from is this big QX We year gross obviously point. margin Yes, think last in a gross fairly

So, at good – think a we I place landing right pretty now. good are

it’s of the having In a terms inventory. clean inventory, really just of matter

not really channel, been So, or around of result to by disciplined. it promotional internal is has operation open it’s disciplined highly our – region by very was been what been promotional a activity, very planning process has inventory

So, really just us it’s better. inventory managing our

Jim Duffy

to XXXX, make progress? view related forward And and you to opportunities Carrie, operational comment margin continue into to improvements that to can you expect good. Very be able do on gross the to

Carrie Teffner

believe XXs. we tracking that to do we as margin rate in margins XX% We this year. the So, in be guided mid-term the at gross are for we gross expect low our

overall in in margin gross made have ‘XX improvements our in ‘XX think rate. significant both we I some and

I gross step the forward improvement to as XXX be think incremental of have that with some change opposed we seen improvement rate year-over-year. basis points the the going will margin

Jim Duffy

leave will it I at good. that. Thank Very you.

Carrie Teffner

Okay.

Operator

from Group. is Mitch Pivotal Kummetz Research Our next question with

Mitch Kummetz

sales margin, but your broad taking strokes, to you sales strokes little talking $X of here, EBIT just back because of about based math, incremental reduction to puts operating business there do in and in pretty to the line, by am getting plan. line, EBIT And you just I kind of million a understand myself gap like year. bridge a on tackle $X of to guys Yes, is think I that the to be million long-term $XX the about I I little I flattish gap there reduction the sort am opportunity when me that guys income. is of If next have SG&A SG&A feel think thanks there me think about is on is margin it margin you kind bit? am for are in business how currently for opportunity that XXXX help wanted plan, to big it to just like you $XX billion questions. double-digit have a as that to double-digits. I I aren’t broad gross billion on at business the a trying ahead maybe expected additional my stores still to your of X% and where over maybe time, from Could go about sounds some as X%

Carrie Teffner

gross being about we at reduction margins, we we to if look feel are for rate, plan way relative your with can improvement to get Yes. down – SG&A think we that XXXX long the guiding talked there. low us going base. double-digit The slightly we this in – all have mid-term get start get we mid-term you our EBIT it, like don’t year, our take it’s with flat with us we XXXX to take the some And are point, relatively are in – margin as single-digits in we

about can X% extremely X%, in I your model, So, I XXXX would talk say think seems after but to me. conservative we

Andrew Rees

go XX%, got you for low you around you bit get XXs, Yes, the flow-through is the of math significant works. low out that’s but laid margins our definitely which Mitch. too revenue we at a and are we – And then detail, believe I and little reduction have growth ‘XX, can really have got have plans if and in think through more obviously XX% then cost margins we

Mitch Kummetz

right? your Okay. a And ‘XX in little might bit then secondly SKU mean spring I you you can that’s that about am and what of some orders. talk reference that that business? kind about door wholesale Is and talked expansion, to guessing, to

Andrew Rees

Yes.

of thing sense margins. it’s look And as what way their partners do stronger sell-throughs, there it, seen look seen for really us they business, better may And of where are share biggest at they like wholesale they about we as key the we It they we represented a for shelf feel right. we in door being result greater key accounts to expansion is and the we are we ‘XX where them have shelf makes share in have opportunities greater are gives focusing before. accounts really some that, and think have economic I receiving animals, representation. think not

would in little of with driven feel opportunity are a accounts. expansion, by the So, greater shelf to wholesale of actually faster bit through the existing good but about business majority and I the door share the say we of dollars sell grow

Mitch Kummetz

Carrie, it. just up on can kind end because the us impact some you housekeeping, store last one you it year, XXXX, of about is year, there on one maybe for does next $XX obviously closures XXXX? Got give million I was headwind mentioned being what it think number just then this And quick

Carrie Teffner

$XX it, check will store XXXX of in a I as compared me I it’s terms just closures. this year and think minute Yes. million confirm, but have double around I give in revenue to

Mitch Kummetz

it. Got

thanks. Okay,

Andrew Rees

Yes.

think it come that’s I we correct. that’s what will and you if not to back Mitch is,

Mitch Kummetz

great. Okay,

guys. Okay, luck good

Andrew Rees

Thank you.

Operator

next with Sam Our from question Poser is Susquehanna.

Sam Poser

morning. Thanks things. questions. for Good Couple of my taking

still weeks seems you color it what down year, some your down elevated. but well think are? give the as weeks optimum sort still bit down, XX the but you I what us that you what’s forward and far because running from Could supply forward well supply, optimum of XX are know inventory, of as with of there you your turn, weighed from forward is are or still is using which supply, last numbers, this XX, As weeks to a targets

Andrew Rees

Sam. Yes,

inventory. I around yes, we the I made progress So, we great mean, think feel frankly about have

of really enhanced of talked and supply. Carrie and this weeks earlier, around each on really planning planning processes, about our instituting turn the it As some beginning was from a planning channels based forward

we places – level go We can we XXX% some very further is of going see to going I we see with progress It’s opportunities certainly be do. is around like the to Absolutely, improvement we forward? we strong incremental have more at the feel opportunity. where here? a don’t think Do change can from incremental, you, make there that kind disagree been. No, we business. I of are but again in certain Are unlikely.

Sam Poser

turn what retail the Is as mean help e-commerce your there I and should it’s I assume is between turn, wholesale you – would versus direct your shutdown difference really inventory inventory? your more that stores

Andrew Rees

mean, and than retail wholesale businesses. business turns Yes, exactly. business faster faster I our DTC our turns e-commerce than our obviously our businesses

increase we highlighting future. turns you the all as making are in transitions of are So, will the

Sam Poser

of real I this And top we Mitch dollar do next line year. think expand all Okay, so how of thank asked, just trigger get secondly then when mean follow-up seeing, we to seeing that’s XXs I how we but this And start as we low think that the sort on, you. to to XXs be sort going or I growth $X growth that flattish of seeing sort business that’s – going other do where SG&A questions mentioned good start and here can do low to get start to base. what’s billion and from

improve? be looking As to at to going because out, what the get you look are trigger I to the really mean you that’s EPS

Andrew Rees

Yes.

Sam Poser

through your project? get Once other you

Andrew Rees

absolutely, Sam. Yes,

doing been moving. our hard progress, and mean, obviously and very we think to I need the on but get that’s work and program tangible we So reduction focused a lot we ultimately, significant cost yielding of very have line top

key marketing. close is Those drivers. product I that think to the and going what’s are

continue we it forward would and see as future. you quarter confidence our look forward gain tell and look thing Americas future. it’s we one the The We will customers to we see continue the at sandals. As around did on product, at will more that marketing and I working. growth point from our we clogs this the into We think more consumers if working, in see both get play our us that to play Europe, We into see think that feedback focus initiatives out working we and we I and right. well build and think

So, two in grew regions out three absolute of terms. our

Erinn’s and Now, little in currency, answer to question, Europe went we strategic overseas, this quarter. growth got X% we X.X% the in because are Americas we lot have some of earlier the by as because in changes backwards, are a but aided that of growth And largely Asia making. highlighted a I in

get for So can drive through line – that build in we think continue overall as we company. the the can top those growth the the we and revenue and start to changes, we brand

Carrie Teffner

of we said sales been always what the the situation, margin quality just That’s that’s of that to profitable. business out not building channel and think base be cleanup are the so to add we is this grow off I And will key element selling what to a better Andrew discount and is low sure a right getting place revenue the from. making

through And That so part headwind part the to do of is terms getting that that. we said, that for that challenge profitability essentially most while continue cleanup. improve from we XXXX faced of in we

Sam Poser

then double-digit on you saying in you two mid-term, the the follow-up I double-digit – going ‘XX you this for extended EBIT things, what’s – said are or are the hitting in quick just that the in is that to the next that, said a ‘XX, but Just get EBIT is want? near in the you actual target beyond

Carrie Teffner

Yes.

we EBIT in giving on not not definitely guidance so point, So guidance on are what the that believe are but reinforcing even specific achievable. mid-term margin ‘XX, we we at we is are ‘XX, this double-digit is giving do

Sam Poser

you. Thank

Andrew Rees

Thanks, Sam.

Operator

next C.L. & Steve The question Associates. is with Marotta from King

Steve Marotta

quarter in would Good what store not range, the internal everybody. the number morning, and the of the you be businesses, of impact mentioned up single-digit sales include low if excluding sales the in that Carrie, closures fourth otherwise? will that the does be

Carrie Teffner

Yes.

around and the the is, business that That’s it and is closures. in it midpoint. from the does So, essentially overall is there decline store and change out model those The how taking of Middle is happening for that revenue retail that. compensating Taiwan not what’s we but quarter essentially the have called much that’s things and store wholesale East, include in terms closures the meaningful not e-com

Steve Marotta

actions other million is there quantify I still that And as you a retail, Okay. are the some said think pertaining you going internal there in to was total? question residual XXXX, that pertains it is to occurring. $XX ask Can headwind to I that

Carrie Teffner

Yes.

of that, closures. store So, actually bulk impact for is of the that’s of the bulk $XX the million it, headwind terms in

but in essentially the the have Middle the that of store we stores actually did completed lapping we a in is transaction we – retail have and So, do embedded because little we bit spring, Taiwan. East closures, sold

So, get pretty terms XXXX and being it’s in when to store we just primarily clean closures. of it

Steve Marotta

And – Japan, would include okay. understand that about okay, what I

Carrie Teffner

Yes.

Andrew Rees

Yes.

of of loss yes, store is the in that the impact. of revenue the majority So Japan, captures ‘XX the in closures really majority so

Steve Marotta

Great. One last little shares? is housekeeping when repurchased the question, you time last

Carrie Teffner

So, we shares repurchased QX. in we QX shares and repurchased in

have did back cost X.X million $XX.X share and and $X.XX million average So for a year-to-date, we X.X bought shares. we repurchased shares of million QX,

XX think about – a at I share little got buybacks And been back in to you average been it million $X.XX. have we have prior cost and before XXXX So the year-to-date over had that, – market. was $XX to the in

Steve Marotta

very Thank much. you

Operator

closing turn the call no back at further questions have remarks. Rees for We I would to time. to like Andrew this

Andrew Rees

Yes. Thanks, everybody.

our you and for call company. your today thank joining it. interest continued So, in We appreciate the

Operator

you. and you for today’s participating. conference. this Thank Ladies concludes Thank gentlemen,

now disconnect. You may

Crocs (CROX) 7 Nov 172017 Q3 Earnings call transcript