Leisure shoe brand Crocs plans to reduce orders in the second half of this year, as its CEO expressed concerns about the current consumer environment.
According to a report by CNBC on Friday, Crocs CEO Andrew Rees stated during the company’s second-quarter earnings call this week, “We see U.S. consumers being more cautious in their discretionary spending. They are facing potential price increases now and in the future. We believe this could further dampen spending from already budget-conscious consumers. Additionally, our retail partners have become more conservative, cutting back on procurement budgets for future seasons.”
Rees added, “The environment in the second half of the year is concerning, as evidenced in retail orders. We firmly believe that now is the time to make decisive decisions for the future to maintain and drive a robust cash flow model.”
After releasing these pessimistic remarks and announcing lower-than-expected quarterly outlook, Crocs’ stock price plummeted nearly 30% on Thursday, marking the company’s worst performance since October 2011.
Most of Crocs’ products come from countries like Vietnam, China, Indonesia, and Cambodia, all of which are currently affected by Trump’s new tariffs.
Rees mentioned that the company is taking a series of measures to protect profitability, including reducing promotional activities with retailers, recycling some old inventory, especially that of the Hey Dude brand, in order to “realign merchandise with retail partners using new inventory.”
“This will further constrain sales growth in the coming quarters,” he stated during the earnings call.
In a financial statement, Rees mentioned that Crocs had implemented cost-cutting measures totaling $50 million earlier.
“While these measures will impact our revenue in the short-term, they will help us improve gross margin rate, enhance profitability, and continue to generate stable cash flow in the long run,” added Rees.
Crocs anticipates third-quarter revenue to be significantly lower than Wall Street estimates, decreasing by 9% to 11% annually; however, analysts from the London Stock Exchange Group (LSEG) forecast that third-quarter revenue should slightly surpass the same period last year.
The company predicts an adjusted operating profit margin of 18% to 19% in the third quarter, lower than last year’s 25.4%.
Crocs reported a net loss of $492.3 million in the second quarter, equivalent to a loss of $8.82 per share; whereas in the same period last year, they had a net profit of $228.9 million, or $3.77 per share, with the loss mainly attributed to a non-cash impairment charge of $737 million related to the Hey Dude brand.
According to LSEG data, excluding this impairment charge and other one-time items, the company’s adjusted earnings per share were $4.23, surpassing Wall Street’s expectation of $4.01.
In the second quarter, Crocs generated revenue of $1.15 billion, representing growth of 3.4% compared to the same period last year, consistent with LSEG’s estimated $1.14 billion.
(This article was referenced from CNBC’s report)