Q1 2020 Earnings Call
Thank you for called him at the name of the conference call joining today.
I would like to do for Crocs earnings call.
Okay.
And the correct spelling of your first and last name. Please.
First name David.
Last name Brown.
Your company name.
IRA.
And the spelling of your company name.
A I.E.R.A.
Okay M.L. Please have your telephone number beginning with the are you co first.
One two nice exuberant 3697.
Thank you and transferring an out of the cost of risk factor section of our annual report on form 10-K, Accordingly actual results could differ material from those described on the call. Please refer to <unk> annual report on form 10-K as all the other documents filed with the FTC for more information relating to these risk factors.
Adjusted gross margin income from operations operating margin and earnings per diluted common share. Our non-GAAP measures reconciliation of these amounts to their GAAP counterparts contained in the press release, we issued earlier this morning.
Joining us on the call today are Andrew Rees, President and Chief Executive Officer, and and Mehlman Executive Vice President and Chief Financial Officer.
On your prepared remarks, well open the call for your question at this time I'll turn the call over to Andrew.
Thank you Carl and good morning, everyone. Let me start by welcoming Alright, I knew VP of corporate finance and Investor Relations.
As you saw from a release issued this morning, a business from both the top and bottom line perspective held up well during the first quarter 2025.
By the worldwide challenges presented by cold, but 90.
Our performance in the midst of one of the most difficult situation. Many of US have faced in all lifetimes underscores the work we've done expanding the desirability relevance and consideration about Brian.
Duct offering globally.
I will review our financial results in more detail. Shortly the here are few highlights from the first quarter of 2020.
Our Americas business delivered record first quarter revenue increasing 14%.
Retail comparable sales were up 23% prior to the impact to covert 19 and subsequent store closures.
Ecommerce revenue globally increased by 16% on top of 20% constant currency growth last year with strong performance across all regions.
Adjusted gross margins of 48% were up approximately 110 basis points over 29 team.
We back you're going to additional approximately $5 million back in the business.
Marketing programs to further strengthen our brand equity.
The cross brand was ranked the highest it has ever been imply for soundless spring taking stock would teens.
Let's start by reviewing the impact of Cobot, 19, which remains top of mind for all of us.
Thoughts are with all of those would be indirectly impacted as well as the many heroes on the frontline Bubbling This pandemic.
And as we have shed a top priority throughout there had been ensuring the wellbeing of our employees, how consumers and our partners.
We are focused on positioning our business about short and long term success.
We quickly established both the defensive and offensive playbook that we began to implement in early March.
With the actions taken to date and all future plans, we feel crops is well positioned wasn't the crisis and emerging strong vibrant Brad.
Despite our optimism for the future.
Near term impact our business is being profound.
Many retail locations across the globe, including a wholesale customers our own stores and apartments stores.
Closed at some point during Q1.
Many remained close today.
In the Americas in Western Europe, Our company operated stores have been closed since mid March.
In Russia, I suppose closed in early April.
Many but not all of a wholesale customers stores in these regions have also been close.
In Asia, we've seen a second wave of the virus, Japan, India, Russia, South East Asia have been impacted with many stores now closed as of early April.
In China all stores on the approximately 350 partner stores that will close from January through March I know reopened.
We're seeing a slow and steady recovery, we all week improvements in traffic on sales becomes a down materially.
We're optimistic about our business in Korea was thoughts of doping closed for sustained period, but the social listening guidelines of course traffic to be significantly down through February and March.
Encouragingly, we started to see week over week improvements in traffic on sales.
Thank you all countries, where stores I close stores remain close until if it's appropriate to open in line with local guidelines regulations.
Recognizing none of us can predict the future we've estimated that stores will begin to reopen in stages over the coming months.
Importantly, well brick and mortar stores have been close.
Crooks Dot Com and all third party digital commerce platforms remain open.
We're fortunate to have been able to keep our distribution centers operational with heightened cleaning and socially distancing protocols.
We are grateful to our employees, who are being working hard to deliver our products worldwide.
Oh strong digital commerce performance benefited for brand momentum coming in 2020.
Our ability to drive brand relevance in an authentic way was evident in a launch about donation program.
Free path for health care.
We wanted to provide support to those in the during the crisis.
In frontline healthcare workers, Chad to cross was a perfect shoe for them. They provided older comfort easy on at all and easy to clean.
In response to their outreach, we stood up the U.S. donation program in a matter of days and since March 25th we have donated over 450000 peasant shoes.
Primarily in the U.S., but also in Asia and Europe.
So extended philanthropic initiative in a financially sustainable way, we recently launched a consumer is 40 program in the UK.
One for you one for a hero, we will monitor the consumer uptake before hopefully deploying this program globally.
In a time with very few bright spots everyone at crops feel proud to meaningfully contribute in ways that is consistent with up on philosophy.
We've also been heartened by the outpouring of support received.
From both the health care community and our consumers at Lodge.
Encourage you to take a look at some of their responses, which we've included in our first quarter earnings presentation.
I hope euros touched as I was.
Now, let's turn to the future.
As I mentioned, all leadership team laid out both a defensive and offensive playbook that we're executing against.
The defensive playbook consist of all the measures you might expect us to take in an environment such as this is.
Including dramatically cutting expenses, reducing inventory, it's already discretionary capital expenditures and maximizing liquidity.
The following its a recap of the most important steps we've taken over the past few weeks to manage our expenses and maximize our liquidity.
Compensation for our board of directors and senior leadership team have been significantly reduced for the foreseeable future.
In our retail business Weve temporally furloughed employees and reduced hours for store management in North America.
Always employers continue to receive benefits.
In other parts of the world employs over seeding full or reduce pay in accordance with local regulations.
We've kept our distribution centers operational as they qualify as a central businesses.
In addition to the fact, they have been used to distribute and supply companies with a central products for healthcare workers during the pandemic.
To help ensure the wellbeing of our associates women hogs safety protocols and heightened cleaning up the facility in accordance with state and CDC guidelines.
We also employees to reduce their work house, we placed some on temporary unpaid leave and we eliminated some roles as we adjusted our organizational structure for the future.
We've supported the impacted employs a separation payments and assistances transition to their next employment opportunity.
Across the company for 2020, we reduced hiring suspended the annual increases market adjustments on promotions that was scheduled to go into effect in 2020.
As a result of these activities.
We have significantly reduce as you know what twentytwenty.
It is now expected to between 440 and $460 million.
Which is approximately $30 million to $50 million lower than prior yet.
On $100 million lower than was climbed to 2020.
These savings are primarily compromised over to salaries and wages decreased marketing investments and fewer discretionary expenses.
In terms of working capital, we're carefully managing inventories by reducing and canceling future factory orders.
Rebalancing existing inventory and consolidating future seasonal collections.
We're also working closely with both our customers and vendors to managed receivables and payables.
Capital expenditures are now expected to be approximately $30 million as we cut back into for an investment.
This compares to prior guidance of approximately $50 million to $60 million for Twentytwenty.
As previously announced we increased our revolving credit facility to 500 million.
Modified all leverage ratios and suspended share purchases.
In addition to these defensive measures we've started to develop our offensive playbook.
We anticipate a slow recovery on a planning for a global recession or.
For the consumer is focused on value and the retail landscape is highly promotional.
For offensive playbook, we plan to continue to focus on four key product fillers.
Alex sandals visible comfort technology and personalization through Travis.
In addition, we plan to significantly expand the crux it will focus.
We will invest in proven winners with high margins leveraging commercially oriented products that can deliver strong consumer value and high product margin and promotional marketplace.
We'll continue to leverage tibbets as the way too often units and inspiration at a compelling price point.
We believe personalization and optimistic storytelling will be even more critical post cobot 19.
And the Giblets will provide an important halo for the entire cross brand.
We will continue to execute upon the successful marketing strategies that supported our incredible brand momentum during 2018 and 20 uniting.
Even as we reduce our marketing spend will execute impactful programs and campaigns to further strengthen consumer affinity for the cross brand around the world.
I've come as you all campaign now in its fourth tier will be amplified and adjusted to be part of the cultural conversation I remain relevant and then you environment.
New exciting collaborations such as KFC and pizza will enhance brand relevance.
We are confident the crops is well positioned to win even with cobot 19, and a potential recession as a backdrop.
Brand answered this crisis was incredible momentum and that momentum has not abated.
Recent evidence is that the cross brand was ranked the highest ever been and pipe to soundless, taking start with teens Spring survey, which was fielded in the mix of the crisis.
Google search interests are crops is at the highest we've seen in the past 15 years.
Furthermore, in times of change consumers tend to fall back on brands, They trust and believe it.
We believe crocs is one of those brands delivering iconic products, a compelling price points would complete and style.
Despite the challenges presented by Cobot 19, we remain very optimistic.
No one knows what conditions will return to normal what we do know is that we're confident the crops is well positioned.
In the near term, we have no liquidity concerns and we have the ability to be profitable under a wide range of revenue scenarios.
Perhaps even more importantly for the long term, we're well positioned to restore momentum in 2021 and continue a positive growth trajectory.
Before I turn the call over that I want to express my gratitude to the entire crooks organization for their hard work and commitment to delivering strong results in the face such adversity.
I also want to especially thanks I was in our distribution centers.
Without you would not be possible to serve I can see him as on perhaps and more importantly, our frontline healthcare community.
These are challenging times Russell and we look forward to healthy at times ahead for everyone.
With that and will now review our financial results in more detail.
Thank you Andrew and good morning, everyone.
I'll begin with a short recap of our first quarter results for a reconciliation of non-GAAP amounts mentioned to their equivalent GAAP announce please refer to our press release.
As you've already heard we had a record setting first quarter for the Americas, even as we closed our retail stores in the region Midway through March.
Growth in Americas was offset by Cobot 19, driven weakness in Asia in EMEA, resulting in softer than expected top and bottom line results versus the first quarter 2018.
First quarter revenues came in at $281.2 million compared to $295.9 million in the first quarter 2018.
5% decrease or 3.3% on a constant currency basis.
Currency negatively impacted our revenues by approximately $5.2 million.
First quarter wholesale channel revenues fell 5.6% following last year's reported growth of 5.2%.
Q1 softness was primarily driven by our Asia business, it's the largest declines in China, South Korea, and our southeast Asia distributors, we began to see additional softness outside of Asia in mid March when some of our large wholesale partners started to shut stores and defer or cancel orders.
First quarter retail sales fell 15% globally, driven by Kobe 19 closures in all regions retail comp store growth was 7.5% on top of an 8.7% comp prior year, excluding store closures of more than three days.
We continue to see strong double digit ecommerce sales growth at 15.8% on top of 16.5% growth last year.
This represents our 12 consecutive quarter of double digit ecommerce growth.
Digital revenue as a percentage of total revenue, which includes cross dotcom and marketplaces reported is E. Commerce and are you tell revenue included in our wholesale channel was 30.1% in the first quarter as compared with 25.4% and the same period last year.
Now, let's review our results by region.
As I mentioned earlier, the Americas had another strong quarter with revenues up 14.4% 247.7 million and minimal impact from currency.
Even more encouraging was the 23% increase in retail comps prior to the shutdown in March.
Growth was also robust in wholesale and ecommerce building upon the strong brinci and momentum in 2018, even as we started to see the wholesale declines in March related to delays and cancellations for many of our brick and mortar retailers.
Our performance in our home market is the directors old if our commitment to driving relevance with the consumer through great product and marketing.
In Asia, Q1 revenues were $65.5 million down 28.1% from last years first quarter.
Strong E commerce growth of 18.3% was offset by a 26.7% decline in retail as the result of store closures and declines in traffic.
As Andrew mentioned, we're encouraged by week over week improvement in China, and Korea sales.
And your revenues declined 10.3% over last year's first quarter $267.9 million R&D of business is benefiting from growing Brinci and our continued focus on digital commerce.
And the E Commerce was our fastest growing channel in Q1 at 23.7% Grads, though this growth did not outweigh the Kobe 19 impact on our wholesale and retail channels prior to covert 19, and the I had been delivering mid single digit comp growth, but the wholesale order bucks trending towards double digit growth.
Our first quarter adjusted gross margin was 48% well above last year's 46.9% driven by higher product mix higher prices on certain product and lower levels of promotions and discounts in the Americas somewhat offset by 50 basis points of currency impact onetime items, mostly related to our U.S. and European.
Distribution centers impacted reported gross margin by 30 basis points.
Our adjusted EPS DNA increased to 38.7% of revenues versus 35.3% in last year's first quarter. The increase in adjusted EPS. DNA is the result of our continued investment in marketing to drive think robust growth. We initially planned for 2020 as Andrew mentioned, we took immediate action to reduce SGN a.
In anticipation of lower revenue as the pandemic worsened nonrecurring charges were $4.6 million compared to 700000 in last year's first quarter $2.8 million relates to an increase in bad debt reserves for certain Asia customers. As a result of cobot 19, and 1.7 million is for product donation.
At this point, we've committed to doing a to $11 million and choose with the majority of expenses expected in Q2.
Our operating margin declined to 7.4%, 49.4% on an adjusted basis is marketing investment in SGN, a offset the positive leverage and gross margin for Q1, we recorded a higher tax rate than planned. This is primarily a result as two factors. The first is that we have losses in jurisdictions, where we cannot benefit from the.
At this for tax purposes.
The second is that the forecasted decline in profits for 2020, resulting from Covidien 18.
Is resulting in a higher tax rate based on her current structure.
First quarter adjusted diluted earnings per share, excluding non-GAAP adjustments for 22 cents compared to non-GAAP earnings per diluted share of 36 cents a year ago.
During Q1, we repurchased approximately 1.6 million shares of our common stock in the open market for $39 million at an average price of $25.13, we suspended our share repurchases as the pandemic worsened.
Our balance sheet continues to be very strong we ended the quarter with $107 million in cash and $350 million an outstanding borrowings. Its previously shared I didn't know abundance of caution we upsized our revolving credit facility from 450 million to $500 million, an amended our covenants to provide a bit more flexibility and.
Second and third quarter of 2020.
Inventory at March 31st 2020 was 195.8 million versus 172 million at the end of 2018. The increase was driven by our plan for growth for the year first quarter build ahead of the spring summer selling season, and lower first quarter revenues due to the current a virus.
Andrew touched on earlier, our thoughts and focus on the well being of our colleagues and partners throughout the world. During this very difficult situation.
We all can do you need a lack of visibility to wind conditions will improve and when stores will reopen.
As a result, we will not be providing second quarter or full year 2020 guidance beyond what you Andrew referenced in his update uncovered 19.
I would like to share a few more details on our outlook for areas, where we have more control and there for visibility specifically as Ginny and liquidity as Andrew mentioned, we expect as do you need to be between 440, and $460 million, which is approximately $30 million to $50 million lower than last year and $100 million.
Lower than what we had planned.
We have taken decisive action and our deliberately being conservative given near term uncertainty and the likely medium term recessionary environment.
We expect capital expenditures to be approximately $30 million, which is about half of our prior guidance of approximately $50 million to $60 million.
This reflects the movement of certain expenditures into 2021 is we defer investments to support growth and focus on maximizing liquidity and flexibility.
With regard to net working capital as you know Q1 is usually our peak working capital quarter as we bring in inventory before our peak season, we now expect inventory to peak in Q2, as we adjust our purchases for the remainder of year, we do expect to reduce working capital and generate positive free cash flow throughout the remainder of the year.
Liquidity, we have no concerns under current projections, we expect to remain in compliance with our covenant with plenty of availability on our revolver.
As we think about the shape of the year, we anticipate the sharpest declining QQ as we expect retail to be materially closed for most of the quarter, including our own stores and many of our partner stores. We also expect ecommerce to continue to outperform in all regions is we're seeing strong result in April in summary, although we are experiencing near term.
And challenges with the global disruption of Kobe 19, the cross brand and our fundamentals are strong and we believe this disruption to be temporary at this time I'll turn the call back over to Andrew for his final thought.
Thank you and as a 29 team performance indicated we had great momentum in our business on a brand has never been stronger.
While 2020, not playing out as we initially anticipated our company has adapted quickly we have further enhance the relevance of our brand even in the depth of this cobot 19 crisis.
I want to worry at all right, but in the near term we have no liquidity concerns and I've taken quick action to ensure we will be cash flow positive for the remainder of the yet.
Additionally, we believe the crux Brown is very well positioned in the post co goodwill, we'd like chronic products moderate price points, great storytelling and global distribution.
Operator, please open the call for questions.
At this time I'd like to remind everyone in order to ask your question. Please press star followed by the number one on your telephone keypad and we'll pause for just a minute well, we compile the Q and a roster.
[laughter].
Our first question comes from the line of Jonathan Komp with Baird Go ahead. Please your line is open.
Yeah, Hi, Thank you wanted to maybe start on the inventory I don't know Theres more color you can give just on the current can fluctuate have either during the first quarter or our second quarter here and then just any thoughts on how you're managing any pockets of excess globally and how quickly.
You can address the inbound receipts going forward.
Yeah, Hi.
Yeah.
Thanks.
So from an inventory perspective as you know Q1 is usually our peak inventory and at this point, we do expect inventory to peak in Q2, we have been working really hard to cut risky thing get ahead of it and we've been cutting receipts I'm starting for June forward.
We still even without expects to generate free cash flow positive free cash flow in Q2, I would say overall, our inventory balance is really made up much of it as core so we're not worried about our ability to sell it or that we need to liquidate it because so much of it as core following last year core clock made up 60% of our revenue.
So our approach allows us to take the inventory, we have and spread it over the remainder of here.
I didn't hear anything you want to add.
The only other thing I'd add is.
It's very current right there was very little what we what you might think gulbis aged in your inventories are the quality inventory is very high it's obviously higher given the lack of sales in the last months of Q1 that we had anticipated, but I think we've been very successful in cutting future receipts with a great cooperation from.
On manufacturing partners and we feel like this is a under under control.
Okay, and maybe just as a follow up any any thoughts on how we should.
Directionally you think about gross margin I mean first quarter would look solid obviously they'll be a lot of seasonal goods that.
May not be sold as as intended to just thoughts on your plans or you're going to view on the marketplace and how you might need to react from a from a gross margin standpoint.
Yeah, I mean look it's incredibly hard to tell Jonathan I think as we said enough prepared remarks, we're anticipating as we come out of this that.
This will be a difficult marketplace. We think the consumer will be in a recession, we think that will be a global recession. We think many brands will have excess excess product on hand retailers will have access product and that is gonna be difficult marketplace. So thats really wanted to factors that makes it really really hard to predict you know as we highlighted in Argentina.
Question around inventory I think we have some ammunition that a little bit different the other brands. We do not have a lot of very seasonal goods that we have to sell in the spring season, we have a lot of core black white.
Gray classic, which can be solved over an extended period of time better margin. So I think we have some strength that allows us to be to be more castle on but we believe it's going to be very promotional marketplace.
Okay, great and if I could just clarify them at the last one on the U.S. June age items that I got a gap or a non-GAAP number and then any of the cuts that you are making do you think will they.
Limit your ability to recover once the environment improves.
Yeah. So as you know and as we just got their script, we are taking decisive action around that that that non-GAAP as DNA number and adjusted EPS you need number that we're reducing.
And we feel pretty good about what we've gotten our ability to manage that we can scale or SGN a structure appropriately over the last couple of years, even during gross kind.
So we certainly feel like we can do that's without impacting our ability to recover as things start to come back.
Okay. Thank you best of luck.
Thanks.
Your next question comes from the line of Erinn Murphy with Piper Sandler Go ahead. Please your line is open.
Great. Thank you good morning, and I hope you're all while I guess the first question Andrew for you if you could share a little bit more about what youre seeing in in the month of April in China, It's stores have reopened and maybe more what you're learning about how the new normal look there in terms of how consumers are shopping.
Yes, Thanks, I'm happy to do that so I think as we look at Asia. We can definitely take I think important learnings away from Asia, No, who won China and I might put career into that bucket as well.
The retail environments, all stores partner stores, a wholesale customers stores are open and we are seeing traffic and sales were Tony right. So we can week you can see progress you can see we complete progress in terms of increasing traffic an increase in sales, but you did start from a base that was materially down.
And on last year, so you're getting better, but you still down on last year.
The other thing that is important to take away from Asia and more broadly.
And what you've seen in southeast Asia.
Singapore et cetera, where they really had the virus and very tight control in January and February and then they sort of ways to that was much more significant than way won and have re close right. So I think Singapore announced yesterday. They are now going to go into lock down for another six weeks.
So you definitely seeing some.
Seeing some progress and some returning traffic and business and in Korea, and China that you kind of seeing the opposite not at Las Vegas.
Okay. That's helpful. And then maybe just on your offensive strategy that you kind of laid out the one area in particular and shake down as you know how you think about or how you plan to lead into the crop that work initiative and maybe what you've learned you know bigger picture about that cannot do you guys have thing on the front line donating to healthcare workers.
Yes, so crux of work has always been sort of.
In the background as an important product line, but I think it never reached its true potential what we saw in the in the depth of the crisis and through the donation program is just some very key attributes of the products of our product in our brand really stood out to help protect consumers.
Healthcare workers.
You know easy on and off easy clean.
And you know uncomfortable there on the fetal day. So I think the donation program has really ignited that consumer base for us would definitely and I know you follow social media you see a lot of comments that other brands on doing that there's definitely a.
You know tremendous.
Residence of that's created so we're really excited about that and that's a great opportunity for us to lean into that customer base with crops. It look I think there was another opportunity.
Which is to ignite our foodservice customer base in the same way as they come back to work here shortly in the U.S. and in Europe.
Okay, and then last question really it for and I think in his script you guys talked about just confidence in profitability profitability. Despite kind of a wide range of revenue scenarios can you just expound upon some of the downside scenarios that you stress tested in the model. Thank you.
Yeah, Yeah, what we're really excited about is our ability to generate free cash flow in a wide range. Its areas I think that's number one in the most important thing right now so we've looked at a number of different scenarios I think most companies are doing right now it's really important to have you know on several scenarios.
[music].
In our scenarios, we've looked at you know stores being closed for an extended period of time. We do you think you know E com in most scenarios continues to outperform.
As we're seeing that pretty strongly through the beginning of April.
And then you know also with that we look at different scenarios around wholesale and what that looks like for wholesale partners reopening. So again I think you know overall, we have the ability to generate free cash just through managing networking capital.
On and as Andrew mentioned earlier, we've been really quick to act on inventory, which is key.
Great. Thank you I'll, let someone else happen.
Thanks Aaron.
Our next question comes from the line of Mitch Kummetz with pivotal Research go ahead. Please your line is open.
Yes, thanks for taking my questions, maybe just to kind of follow on or would it what is it fair and was asking you said and I think you said that comp was.
Running well of late I'm, just hoping you guys could maybe speak to some of the trends that you're seeing through the first two or three weeks of two Q or maybe starting with income because it.
Accelerated from the 15 days that you guys posted in Q1 and it is there anything you can say around wholesale if you really kind of sort of splitting your comments between kind of filling in the trailers versus your more traditional brick and mortar accounts.
Yeah, I think let me give you a little bit of color on that because that's definitely there are some bright spots that so.
The first thing I'd highlight is 30% of a total business is is digital rights and that split between our own E commerce business and our retail business.
Detail represents about 25% about a quarter of our about wholesale business. So in terms of trends in trajectory, we've definitely seen a significant acceleration in our own E commerce growth rights.
So I think driven by natural natural consumer traffic count going to stores in the looking for entertainment I think it's also driven very strongly by.
By the healthcare dimension program that we've been doing we see not ignite both the that audience health care frontline workers, but but also.
Significant significantly broader consumer engagement from a broad very broad set of consumers and recognize that program as being important I wanted to.
Going to watch site to to look for products. It as a result, so we've seen strong acceleration in our digital business I'd say stronger in America is in Europe, but definitely strong across the globe and then Etailers absolutely. We continue to see I'm very strong growth rates in Etail business I would say fulfilling.
And of the stock has been a little sporadic as they've had to pause occasionally.
For.
To manage the inflow of essential goods, but they quickly recognize given demand that they see particularly from the healthcare community and that our product is essential in the mines that their consumers and so we've seen strong strong growth on a detailed as well so I.
I think those are two of the two of the bright spots I would say the remainder of the business definitely is is tough rights as the majority of wholesale customers at close or you're seeing.
Centrally minimal or no reorders on there, obviously not selling through any product that said I'm doing the best on their ecommerce environments, but that's a small part of their business.
No.
And then <unk> as a <unk> point of clarification. When you guys break out the 30% digital that does not include the E com business for your traditional brick and mortar retailers is that correct and then if I don't know if you could but if you were to include a double digit percentage go to like 35 or 40 do you think of that I have another question.
That does not include the E commerce business, although traditional brick and mortar. It only includes pure play etailers.
The reason we did that is that.
Those companies and not corrected the comp provide you the detailed accurate information on it in a timely fashion. The allows you to break that out actually so we just don't think that say a good number to report externally.
And I could really expect it would obviously be higher but I don't really speculate as to how much are okay got it and then on the other donation program, maybe and it could you talk about how that's hitting the piano I mean are we talking like on average is it like you know it forever repair shoes. Your donors are like a 10.
Dollar hit to the to the Cogs line on the piano or.
Maybe you could you give us some color on that and then it could you say I think you guys at 450000 carers.
Roughly or a little over that today can you say how much of that came in the first quarter and what's the piano impact.
The first quarter was and then kind of how are you thinking. So I think you said your topic of 11 million. So again, just kind of help us out of the piano without [noise].
Yeah, I, so it hits an S DNA and it will we will carve it out to that you can understand what that looks like so it'll it'll sitting next to you in a very small amount.
With in Q1 to the majority of that will be in Q2, and it'll be 11 million globally and in the way that it's recognized as you have to gross it up to fair market value and then you'll see a small off that below the line, but we've kept it at 11 and it will fit and total s. DNA and we've carved that out some adjusted EPS DNA, so that you'll have insight into that.
And when we released the 10-Q and I think even carved out in the press release in our non gap.
Bridges Mitch for you.
Okay and is there anyway to quantify the goodwill that you guys are generating from this I know that's not the reason that you're doing it but every have you seen.
Any any purchases maybe tied to the goodwill that you're generating from this program.
Yes, I wouldn't read into your answer that I guess get to give you that quick the actual number that we got the actual announced that sitting in our SGN. A for Q1 was 1.7 million and then I'll, let you have to the good luck on it.
Yeah, I didn't mention I don't think there's any way to precisely quantify it but I would say it is extremely evident to us based on what we hear from consumers will be activity, we see on our website.
And what we hear from a wholesale customers who are also benefiting from this both etailers on regular wholesale customers I would say the goodwill is very substantial.
Alright, thanks, guys. They said.
Thank you.
And your next question comes from the line of Sam Poser with Susquehanna. Please go ahead. Please your line is open.
I'm, saying, thank you very much I'm going to follow up on the follow ups here could you just give us specifics on what your E commerce trends our quarter to date.
You know what what's the increase that you're seeing.
You know so we'd have some give us. Some you know law you know like thing we recognize that may not be sustainable, but could you tell us what specifically you're right. After the call right now.
Yeah, I would say look at substantial Sam we particularly in the U.S. and EMEA, which obviously our biggest businesses were up triple digits.
Thanks, and then.
Secondly, do you expect SGN a in to Q to be the biggest or cut for is that going to be spread how how should we think about that Rick you know given given that you reduce your number but the 100 million versus your plan.
I think Dan we haven't broken that out to try to you know I'm, giving us flexibility as we understand how things come back on line, but we have tried to take it out through you know Q2 on I do expect Q2 to have a sharp <unk> just in the nature of that.
You know right now we don't have a lot of our retail stores operating and so on especially in the U.S. as we mentioned in our prepared remarks mr. load a lot of their employees store in place so that automatically take SGN anymore.
Perfect and then just real quick a couple of things number one can you give us details on the pay reductions for the senior team for the for the remaining people, especially on senior team rather than it was a material are substantial or whatever you put in the press release.
Second and then lastly, normally you released earnings a little bit leader and I've worked so surprised you released as early as you did.
In the quarter can you give us some color as to why you chose to release earlier than normal.
But let me let me take those in reverse order sound. So I would say the just the second question in terms of why we decided to really certainly a week, we deliberately not gone down the road putting out press releases every week explaining different activities that we've taken on two other control inventory.
Well control our US you know, we weren't really want to package everything and put it together and might have the vehicle adherence story and I don't allow yourselves on any investment community to understand the full picture. So that we pulled this forward. So we had the opportunity to do that in a in a comprehensive way. So that was really the reason for.
Really seen earlier and in terms of the SGN a savings on the salary reductions or compensation reductions for the these three employees and the board of directors I would just say there's a substantial they are reductions in base their reductions in ER in performance comp.
On on also long term comp so I would say that very substantial on graduated from the top down.
Okay will that be out in the 10-K or something with specifics on how substantial I mean, other company substantial and well other companies have said substantial.
And it's there.
The resumption of substantial and you know some have gone to zero salaries in the in the CEO position, others have gone to 20, or 20% or cut and sew and called that substantial. So that's why I'm asking the question too you know I actually I would use anywhere substantial but.
Yeah, I mean, I think where we're comfortable with with with how we've articulated and obviously.
Ones proxy statements come out et cetera, subsequently people will be able to understand that fully.
And when do you expect goes to come out.
The proxy the last year will be out shortly but the one for this year, obviously will be next year.
Okay. Thank you in the and good luck.
Thank you sense based.
And again as a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad and our next question is from the liner floor Shampine from loop capital go ahead. Please your line is open.
Hi, Thanks for taking my question and I'm just have to I guess this is a third derivative follow up question. So you've given us a lot of qualitative.
Discussion of what's going on with revenues I really appreciate that would normally never asked for three weeks of sales, but can you give us just how you're tracking total sales April to date.
Yeah, I mean, yeah, obviously.
Oh go ahead and thank you.
Yeah, just going to say as Andrew mentioned, you know ecommerce is is obviously outperforming you know with triple digit increases in U.S. and EMEA I would say you know most of our stores are close around the world We had.
About 30% operating and there are smaller stores in Asia. So you know obviously retail is down dramatically and then also you know many of our large wholesalers and distributors have their stores close. So you know, they're not taking product or you know differing products. So we were we are seeing large wholesale.
Declines into the quarter as well.
Okay can you give us a sense of what percent of your accounts receivable would you view at risk at this point as of the ended the quarter.
Yeah, I think we don't we report accounts receivable on a net basis. So we don't feel like any of that is at risk. We preserved we carry a bad debt reserve around $18 million.
And the increase that reserving Q1, or two specific distributors that were in Asia that were uniquely impacted by the co bed a virus, but other than that we feel pretty good about our accounts receivable and we'll reserve things as we see a debt, but I would say and we feel.
Confident that our accounts receivable are in good shape outside of our reserves.
Thank you.
Yeah.
And your next question comes from the line of Jim Duffy with Stifel.
Go ahead. Please your line is open.
Thank you good morning, Thanks for all the perspective, and thanks to crocs for sporty or health care professionals.
Andrew I was hoping that you could start by speaking about how you may be steering merchandise assortments for the balance of the year to balance newness was risk management.
And in that context, what's the role you expect promotion to play in the inventory management strategies.
Yes, yes, great Great question, Jim So.
A few things so we were and I'm, probably I would point to talk about it in phases right. So.
If we look at the spring season. So we look at today, we have looked very Hot Act.
You know the most seasonal products that we might have with maybe some new sample introductions et cetera, and we will likely make sure. Those it delivered only two environments that we think can sell those through the majority of the cancellation that we've been able to do a floor later in Q2 in early Q3.
So I think that takes a significant amount of inventory flow out of the market I would say that is mostly call mostly replenishment orders and so that's kind of pulled that out. So our intent is to extend the season for our core product for our coal clog, we think that's very very viable.
But protect newness for the full holiday back to school for holiday season.
Last year, you saw online product being very important in some key markets. We wanted to protect all the newness associated with that so we really try to extend what we have in the market for spring summer backed off on replenishment orders and protect the fall holiday newness.
I think there will be select items or select groups of items that we had intended to introducing a major way in spring 20, which we will recall on green back for spring 21.
Okay. Thank you and you made some comments earlier about a strategy to position for value and what you expect is going to be a very promotional environment you talk a little bit more about how you see that represented in assortments in pricing.
Yeah, Yeah, I can so I think as you're all aware, we we have a substantive outlet business. It is the majority of our bricks and motor resale business at this stage, we have values lines that we use built for outlet we use in the outlet business that odd derivatives of our although name line so derivatives.
Second derivative of another key item.
Also have promotional items that we use when at the lower tier.
Channels, whether that be close out channels or that the promotional channels.
So we have vehicles that we can use to drive promotional activity. So our intent will be to use those vehicles to drive a promotional activity and not be promoting off luxury products.
Very helpful I'll leave it at that thank you.
Thank you.
Your next question comes from the line of Mitch Kummetz with pivotal Research go ahead. Please your line is open.
Just a couple of quick follow ups.
Your stores can you say.
Exactly what that number of stores are currently open I know the majority are close but can you say what's open anywhere.
And then could you talk a little bit about.
Your decision, making process around potentially open stoping stores, what's going to inform your decision I know that.
Governors are the states are talking about you know relaxing or stay at home orders I'm, just trying to wonder if you're going to follow their direction and then kind of whats your process of opening stores in terms of providing yourself with PPG and communicating to consumers, that's the stores or state shop all of that.
Yeah, I'll take that store on opening question, then I'll leave it to enter just talked about the philosophy behind reopening so as I mentioned earlier about 30% of relocation to open globally.
Which are mostly in Asia. So we had 100 and can open.
In Asia, but again those are mostly smaller stores all of our stores are in Americas are closed and we have three that just recently opened in India. So 356 total in India.
Yeah, and then and I think if you look at them, yet you're going to see.
Or another roster stores. It is scheduled to open next week.
So in terms of the decision making that the the.
You know, obviously looking to follow a local country state guidelines right. So when we're not certainly client open any stores you know in a in contravention of any stay at home order. So so when stay at home orders are released when malls are opened we will consider the opening stores.
We are also looking to the majority of the stores in a mall being opened we don't want to be one or two stores opened otherwise you just have or caution on the and then.
Potentially very limited traffic.
In terms of we've done a virtual walk throughs and in some of the stores that have started to EMEA. We are testing a set of procedures associated with wearing masks cleaning services that.
Consumer would interact with.
Principally at point of purchase regulations or procedures for for try on and how that's manage the number of people in the stool distancing waiting in line I'm waiting in line to get into the store you know I think rapidly emerging from both Asia.
From EMEA are a very clear set of guidelines about how you kind of operators small footprint small volume store like AWS and I think we will follow we will not a thing we will follow us very closely.
To make sure and also requiring our customers who are in Boston they come in as well.
And I think that will play out in the U.S. as well thought it and then my very last question on 'em horns Asia. What do you guys reported Q4, a couple of months ago. You did provide some some some guidance on Asia, because you're saying, it's a time you to respect your sales to be down 40 to 60 40 to 60 million kind of in the first.
For the year with all of that related to Asia is Asia.
At this point, you're thinking any better or worse than that it sounds like maybe trying to Korea, or maybe a little bit better, but then the rest of Asia, maybe a little bit worse than we originally thinking are you still kind of securities us within that sort of 40 to 60 million dollar range in terms of the drag.
Yeah, I think Dan it's in line. It's certainly Q1 was in line with what we expected for Asia I mean, it's hard to it's obviously a changing environment.
As things have changed so much I think you know when you think about where wouldn't be where we where when we talked about Q1 in Asia right, We had China and kind of Korea closed and now we have China and Korea open that we had Japan, having a second wave we had Singapore, having a second wave.
Southeast Asia is now closed India's now close so I I mean, not that's one of the reasons. We you know why we pulled back on guidance. It's just because the situation has changed so much I would say, though Q1 for Asia was in line with with our expectation do you know there, maybe a little bit better in China, and South Korea, but not not materially.
Got it thanks again.
[noise] earn next question comes from the line of Jim short hair go ahead. Please your line is open.
Good morning, Thanks for taking my questions.
Could you talk about the flexibility you have with your store leases you know if if stores don't reopened for an extended period of time or traffic is lower than expected. When you riocan, what's the flexibility to to close stores, maybe that were marginal before.
And then any kind of rent concessions, you're getting from Lambeau works and then finally, you talked about the tax rate for first quarter, but what's your expectation for tax rate for the full year. Thanks.
Yes, great question until honest store piece on so let's just talk about it in region. So everything you know from an easier perspective, especially Korea, a lot of our stores that percentage rent. So that makes it a little a little cleaner to deal with you know and then there are jurisdictions, where it's a lot more traditional HP and in Australia.
As you know we've done a ton of work on our store base over the last couple of years and so most of you know all of our stores. You know we have a pretty high hurdle rate for stores to remain open. So you know the vast majority of our stores were hurdling that.
We will go back and look and see if you know we think that there is permanent traffic declines if it makes sense threats to exit stores are seeing and we'll definitely continue to do that just as normal normal business rental, but theres not a lot of flexibility and most of our leases to just exit.
You know that will.
Look at the economics and see if it makes sense for Ted Ted you know negotiate that and the second point on concessions. We are working with all of our landlord globally and we had some success in Asia. During Q1 on negotiating confessions and we're working with all that landlords around the world to figure out what that looks like when we have stores that are.
Mr traffic is down.
And then on the tax rate side.
You know this happened so quickly and we couldn't really respond from a tax perspective in order to kind of breach everything we do feel that that first quarter tax rate is not representative of the full year. There's a lot of things happening right now in relation to cobot, all around the world and all the different jurisdictions that would you business and.
In relation to go for tax rates and things that different countries are doing so it's really hard to give you a complete visibility, but I will say, we expect our tax rate to be below 40% for the remainder of here that's not the first quarter Tetra is not indicative simply are catching.
Great. Thank you best of luck.
Thank you thanks again.
Yeah.
Your next question comes from the line of Sam Poser with Susquehanna. Please go ahead. Please your line is open.
Well just have one one question actually two questions one the E.M.A. firstly, the your first quarter <unk> wholesale business I wondered sort of to grow some color on why that was down and to.
Given that the low oil prices now is is that going to be of any aid going forward on a materials basis.
On the EMEA aside for a wholesale as you know our store you know our stores closed a mid way through March in EMEA win and a little bit before the U.S. and so just similar to color that you're seeing you know just took longer than you have to how have you know deferrals.
On the wholesale side and you know a lot of our wholesalers what closely they weren't needing to take product and that would include our wholesalers and our distributor partners.
And then on the oil price you know as you know leveraged the biggest component of our Cogs, but you know it played <unk> and impact, we'll wait and see I mean, the biggest impact our currency and labor, but freight is another cost. So if it starts to come down we could see a benefit.
What about in production like in the oil that goes into the production of the product.
Of the material, yeah, yes, or no Sam it's really not as natural gas and obviously oil separated from natural gas to some extent over the last few years. So natural gas is the is the underlying raw material and that goes into the raw materials makeup product from so that might be some benefit there I don't think it's going to be significant.
Other component of oil is obviously your transportation costs and nothing supply demand is going to Trump the underlying cost of the fuel in those cases.
Well when document, but by the significant cost of goods benefits.
Thank you very much.
[laughter] fit our next question comes from the line of Erinn Murphy with Piper Salmon go ahead. Please your line is open.
Thanks for taking my call. It I'm just a couple Andrew for you can you just talk about your collaboration pipeline now and just how you pivoted that strategy I think coming into this year you were expecting over 20 different collapse, and then a housekeeping and sorry, if I missed that could you just say what pricing in units were in Q1, and then what are you thinking from marketing spend this year.
Thank you [noise].
So from a call loves perspective, we've actually done six call out already this year. So we've done limited London KFC Pizza I think everybody saw those in this marketplace, but also most more recently beams in Japan Ramachandran in Korea, and also made well on so we've definitely.
Continued without collaboration strategy I think those will be working well we have pushed some of the bigger ones out of kind of Q2 time period towards the back ended the year and we will also push some from 2020 into 20 month. So it would definitely trying to move them out of this current period.
The bigger ones that require more investment and a and obviously have a bigger impact, but our intent is going to continue with Oh collaboration strategy. We think it's an important way to engage with our consumers, but obviously, we're also going to make sure that all of those design and those relationships are kind of appropriate to that even environment.
So you still think it's important when she will be continuing.
Yeah, and then on the asking units so our units were down 8% and our Asps were up 2.6%.
Got it and then marketing and just how are you thinking about that pretty are now just given some of the heavy duty guy pushing out marketing its.
Yeah, I think come back into our S. DNA and the reason we didn't make because we want from flexibility. There. We also have attentive our marketing that's variable associated with E. Com marketing is one of the areas as we talked about that we did kite.
But we are trying to preserve as much of our marketing as we can.
Especially you know just sit out we can continue to connect with our consumer.
Great. Thank you best.
Thank you and.
And there are no further questions at this time I'd like to turn the call back over treasuries for some closing remarks.
Yeah. Thank you everybody appreciate your interest in the company at this time and I'd like to close by saying you know while this is a very difficult time for for individuals with consumers very difficult time for our.
Our company, we are very confident in our content in our ability to weather the storm and also to be stronger and more.
And grow in the future. So we feel good about why we ought to be thank you for your interest.
Yeah.
Thank you and this does conclude today's conference call you may now disconnect.
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