Quarter-on-Quarter Info

SUMMARY:

Q1 2012:

• Revenue growth Q-o-Q was 20% and 36% in Q1 2012 and Q1 2011 respectively.

• Gross profit rose 22% compared with 38% in the same period last year.

• Gross margin is stable above 50%.

• Operating profit increased 35% compared to 225% int the same period last year.

• Operating Margin was 15% compared to 13% in Q1 2011.

Although growth in Q1 2012 is a bit lower than in Q1 2011, we're still talking about solid double-digit growth in revenues, gross and operating profit. Not to mention the growing operating margins reflecting the decrease of selling expenses' weight in revenues.

• Number of pairs sold increased 8% to 13.65 million compared to the 29.1% increase in Q1 2011.

• Averave unit selling price increased above $19 or 11% compared to the 6% increase in Q1 2011.

In this last quarter, revenues seem to have been driven mostly from price increase. On the other hand, maybe the price increase is to blame for the relative slowdown in units sold. Still, 8% growth in units sold with an increase in average selling price of 11% is not something to overlook.

• Wholesale revenues increased $26 and $44 million (or 16% and 37%) in Q1 2012 and Q1 2011, respectively.

• Retail revenues have been growing at 33% Q-o-Q.

• Internet revenues account for 8% of total revenues and have increased about $4 million Q-o-Q (or 23% and 35% in 2011 and 2010 respectively)

Once again, solid double digit growth in all areas of business. There is a certain trend to increase Retail and Internet's share in revenues over wholesale's share. This strategy allows for an increase in margins.

In its report Crocs claims the increase in wholesale business is due to strong demand in Asia, retail sales originate from the current expansion of company-operated retail stores and Internet revenues are a consequence of increased brand awareness.

• Operating Margin in Americas is flat around 16%, as revenues increased 17% and 35% (Q-o-Q in 2012 an 2011, respectively) and operating profit increased 14% and 43%  (Q-o-Q in 2012 an 2011, respectively).

• Asia's Operating Margin has been growing fast and is over 30% as revenues have increased more than 40% Q-o-Q (33% in Q1 2011) and operating profit 66% Q-o-Q (54% Q1 2011).

• Europe's Operating Margin is high, around 27% but has actually decreased from 33% in Q1 2011. Revenues and Operating profit decreased 3% and 19%, respectively. (43% and 87% in Q1 2011).

Revenues and Operating profits are growing at double-digit rates in Americas and Asia. Neverthless, Americas is showing a slowdown compared to laste year's first quarter. Europe has pulled back a little in Q1 2012 after a huge jump last year. Still, in these last quarters Europe's revenues and profit has grown at an average rate of  18% and 23% Q-o-Q.

In terms of volume vs pricing, we can see increase in volume is more significant in Americas and Asia, while the increase in average price partially offset the drop in units sold in Europe. Also, notice that there was a significant increase in selling expenses in Asia and Europe as the company is investing more in these regions to expand the retail business. 

• As we saw, there's not a significant increase in Selling, General & Administrative expenses (SG&A) in Americas, as the company is not investing in expanding their retail presence in this region. 

• In the last twelve months ended March, 2012 Crocs has opened 55 new stores in Asia. 13 of them just in the last quarter. It has now 211 stores in Asia compared to 190 and 38 in Americas and Europe.

• In the last 7 quarters the company opened an average of 8 stores per quarter in Asia. 

• In the last twelve months ended March, 2012 Crocs has opened 12 new stores in Europe. 3 of them just in the last quarter. It opened an average of 3 stores per quarter in Europe.

It's important to understand that revenues are increasing due to different region growth rates, but also the different locations of investments in order to forecast growth. It is also extremely important to know how the same stores are performing over time, which means how would revenues behave if there were no investment in new stores. In this case we see that on average the same stores performed above 10% on a monthly basis. 

• In the last twelve months ended March, 2012 Crocs has opened 63 new retail stores. 18 of them just in the last quarter. It has now 198 retail stores compared to 145 and 96 Kiosks/Store-in Store and Outlet stores respectively.

• It opened an average of 13 new retail stores and 4 new outlet stores per quarter in the last 7 quarters. On the other hand it has closed an average of 6 kioks per quarter. 

No news about this. Company continues its strategy of increasing retail and outlet stores where it can better merchandise the full breadth and depth of its product line.

GENERAL

It's easy to understand the seasonality of the business. Despite the company's efforts to diversify its line of products beyond the traditional clogs, Crocs brand is still associated to warm weather footwear. Quarter-on-Quarter, growth in revenues has been quite impressive with an average rate of 25%.

• Gross Margin is stable between 50% and 60%.

• Quarter-on-Quarter Operating Margin grew in the last five quarters with exception of Q4 2011 (-14% or 0.4 p.p compared to 2010).

• As in 2009 Operating profit was mainly negative (except in Q3), 2010 operating profit growth rate is not comparable. Still, 2011 averaged 56% growth Q-o-Q. 

• Since 2009, Q-o-Q EPS has been growing at double digit rate (2010 is not comparable with negative EPS in 2009).

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