Crocs to Cut Jobs, Shutter Stores after Q2 Earnings Fall

crocsNiwot, CO—Crocs unveiled late Monday a strategic plan aimed at bringing long-term growth to the footwear company in wake of second quarter profits that slumped 34%.

For the quarter ended June 30, Crocs reported a net income of $19.5 million, or 19 cents per share, on revenue of $376.92 million. In the same three months in 2013, Crocs reported income of $35.36 million, or 40 cents per share, on revenue of $363.83 million. Excluding certain items, adjusted earnings were 36 cents a share which actually beat analysts’ estimate for 31 cents a share.

‘Innovative Casual Footwear’

Net revenue rose 4% to $376.9 million from $363.8 million, ahead of analysts’ projection for $372.9 million in sales.

While facing what seems an uphill battle to keep the Crocs brand relevant, the company set out a new strategic plan.

Crocs President Andrew Rees said the latest sales results “demonstrate the underlying potential of our global brand and business.”

The four key initiatives in the company’s revamp involve a streamlining of its product and marketing portfolio; a stronger focus on key international markets, accompanied by reduced investment in smaller ones; the creation of a more efficient structure; and the closure or conversion of 75 to 100 Crocs stores globally.

A total of 183 global job cuts, most of them enacted immediately as part of the third strand of the strategy, should save Crocs $4 million in 2014 and $10 million in 2015, the company said.

It is also planning to open a new Global Commercial Center to house key merchandising, marketing and retail functions in the Boston area in late 2014.

Under the plan, Crocs will focus on its core molded footwear product range alongside “innovative casual footwear platforms,” increasing working marketing spend by 50%.

Some 18 stores had already been closed or converted by the end of the second quarter, with the total store closures cutting revenue by $35 million to 50 million and saving $17 million to 25 million in selling, general and administrative expenses, Crocs said.

“This is an exciting time of transition for Crocs,” Rees said. “Our near-term focus is controlling costs and re-organizing for better operating margins, which will prepare us for future revenue growth from our core products and markets. The actions that we are announcing today are expected to result in the return to industry leading operating margins of more than 12% over time. We expect that 2015 revenue will be impacted by store closures before revenue growth resumes in 2016 and beyond.”

Crocs Chairman Thomas Smach said the search for a new CEO “continues to progress.”

Gross profit increased 0.8% to $202.6 million, or 53.7% as a percentage of sales, compared with $200.9 million, or 55.2% as a percentage of sales in the prior year period, primarily due to “increased shipping costs globally offset by a decrease in promotional and clearance activity.”

Selling, general and administrative expenses were $160.7 million compared with $150.4 million a year ago. This increase is primarily attributable to restructuring costs, retail store impairments and the company’s enterprise resource planning project.

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