Earnings Call Transcript
Crocs, Inc. (CROX)
Earnings Call Transcript - CROX Q1 2020
Operator, Operator
Ladies and gentlemen, thank you for standing by. And welcome to the Crocs, Inc. First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. And after the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like to hand the call over to your speaker today, Cori Lin, VP of Corporate Finance. Please go ahead.
Cori Lin, VP of Corporate Finance
Good morning, everyone and thank you for joining us today for the Crocs first quarter 2020 earnings call. Earlier this morning, we announced our latest quarterly results, and a copy of the press release may be found on our website at crocs.com. We would like to remind you that some of the information provided on this call is forward-looking and accordingly is subject to the Safe Harbor provisions of the Federal Securities Laws. These statements include, but are not limited to statements regarding potential impacts to our business related to the COVID-19 pandemic. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events. We caution you that our forward-looking statements are subject to risks and uncertainties described in the Risk Factors section of our Annual Report on Form 10-K. Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs' Annual Report on Form 10-K, as well as other documents filed with the SEC for more information relating to these risk factors. Adjusted gross margin, income from operations, operating margin and earnings per diluted common share are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is 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 Anne Mehlman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. At this time, I'll turn the call over to Andrew.
Andrew Rees, CEO
Thank you, Cori, and good morning, everyone. Let me start by welcoming Cori as our new VP of Corporate Finance and Investor Relations. As you saw from our release issued this morning, our business from both the top and bottom line perspective held up well during the first quarter of 2020 despite the worldwide challenges presented by COVID-19. Our performance in the midst of one of the most difficult situations many of us have faced in our lifetimes underscores the work we've done expanding the desirability, relevance, and consideration of our brand and product offering globally. Anne will review our financial results in more detail shortly. But here are a 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 of COVID-19 and subsequent store closures. E-commerce 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 2019. We invested an additional approximately $5 million back in the business by our marketing programs to further strengthen our brand equity, and the Crocs brand was ranked the highest it has ever been in Piper Sandler's Spring Taking Stock with Teens Survey. Let's start by reviewing the impact of COVID-19 which remains top of mind for all of us. Our thoughts are with all of those who have been directly impacted, as well as the many heroes on the front line battling this pandemic. And as we have shared, our top priority throughout this has been ensuring the well-being of our employees, our consumers, and our partners. We are focused on positioning our business for both short and long-term success. We quickly established both a defensive and offensive playbook that we've begun to implement in early March. With the actions taken to date and our future plans, we feel Crocs is well positioned to weather the crisis and emerge as a strong, vibrant brand. Despite our optimism for the future, the near-term impact on our business has been profound. Many retail locations across the globe, including our wholesale customers, our own stores, and our partner stores were closed at some point during Q1 and many remain closed today. In the Americas and Western Europe, our company-operated stores have been closed since mid-March, and in Russia, our stores closed in early April. Many, but not all, of our wholesale customer stores in these regions have also been closed. In Asia, we've seen a second wave of the virus. Japan, India, and much of Southeast Asia have been impacted, with many stores now closed as of early April. In China, our stores and the approximately 350 partner stores that were closed from January through March are now reopened. We are seeing a slow and steady recovery with week-on-week improvements in traffic and sales, but comps are down materially. We are optimistic about our business in Korea where stores have not been closed for a sustained period, but the social distancing guidelines have caused traffic to be significantly down through February and March. Encouragingly, we're starting to see week-on-week improvements in traffic and sales. In geographies where stores are closed, stores will remain closed until it is appropriate to open in line with local guidelines and 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, while brick-and-mortar stores have been closed, crocs.com and our 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 have been working hard to deliver our products worldwide. Our strong digital commerce performance benefited from brand momentum coming into 2020. Our ability to drive brand relevance in an authentic way was evident in our launch of our donation program of Free Pair for Healthcare. We wanted to provide support to those in need during the crisis. Frontline healthcare workers shared that Crocs was the perfect shoe for them; they provided all-day comfort, easy on and off, and easy to clean. In response to their outreach, we stood up the US Donation Program in a matter of days, and since March 25th, we have donated over 450,000 pairs of shoes, primarily in the US, but also in Asia and Europe. To extend this philanthropic initiative in a financially sustainable way, we recently launched a Consumer Supported 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 Crocs feels proud to meaningfully contribute in a way that is consistent with our brand philosophy. We've also been heartened by the outpouring of support we received from both the healthcare community and our consumers at large. I encourage you to take a look at some of their responses, which we have included in our first quarter earnings presentation. I hope you're as touched as I was. Now, let's turn to the future. As I mentioned, our leadership team laid out both a defensive and offensive playbook that we're executing against. The defensive playbook consists of all the measures you might expect us to take in an environment such as this, including dramatically cutting expenses, reducing inventory, deferring discretionary capital expenditures, and maximizing our liquidity. The following is the recap of the most important steps we have 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, we've temporarily furloughed employees and reduced hours for store management in North America; all these employees continue to receive benefits. In other parts of the world, employees are receiving full or reduced pay in accordance with local regulations. We've kept our distribution centers operational as they qualify as essential businesses. In addition to the fact, they have been used to distribute and supply companies with the essential products for healthcare workers during this pandemic. To help ensure the well-being of our associates, we've enhanced safety protocols and heightened cleaning of the facility in accordance with state and CDC guidelines. We have some employees reduce their work hours, we've 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 employees with separation payments and assistance to transition to their next employment opportunity. Across the company for 2020, we've reduced hiring, suspended the annual increases, market adjustments, and promotions that were scheduled to go into effect in 2020. As a result of these activities, we have significantly reduced SG&A for 2020. It is now expected to be between $440 million and $460 million, which is approximately $30 million to $50 million lower than the prior year, and $100 million lower than was planned for 2020. These savings are primarily comprised of reduced salaries and wages, increased marketing investments, and fewer discretionary expenses. In terms of working capital, we are carefully managing inventories by reducing and canceling future factory orders, re-balancing existing inventory, and consolidating future seasonal collections. We're also working closely with both our customers and vendors to manage receivables and payables. Capital expenditures are now expected to be approximately $30 million, as we cut back and deferred investment. This compares to prior guidance of approximately $50 million to $60 million for 2020. As previously announced, we increased our revolving credit facility to $500 million, modified our 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 and are planning for a global recession while the consumer is focused on value, and the retail landscape is highly promotional. For our offensive playbook, we plan to continue to focus on our four key product pillars; clogs, sandals, visible comfort technology, and personalization through Jibbitz. In addition, we plan to significantly expand our Crocs at Work focus. We will invest in proven winners with high margins, leveraging commercially oriented products that can deliver strong consumer value and high product margin in a promotional marketplace. We'll continue to leverage Jibbitz as a way to offer newness and inspiration at a compelling price point. We believe personalization and optimistic storytelling will be even more critical post COVID-19 and that Jibbitz will provide an important halo for the entire Crocs brand. We will continue to execute upon the successful marketing strategies that supported our incredible brand momentum during 2018 and 2019. Even as we reduced our marketing spend, we'll execute impactful programs and campaigns to further strengthen consumer affinity for the Crocs brand around the world. Our Come As You Are campaign, now in its fourth year, will be amplified and adjusted to be part of the cultural conversation and remain relevant in the new environment. New exciting collaborations such as KFC and KIKS will enhance brand relevance. We are confident that Crocs is well positioned to win, even with COVID-19 and a potential recession as a backdrop. Our brand entered this crisis with incredible momentum and that momentum has not abated. Recent evidence is that the Crocs brand was ranked the highest it has ever been in Piper Sandler's Taking Stock With Teens Spring Survey, which was fielded in the midst of the crisis. Google search interest for Crocs 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 in. We believe Crocs is one of those brands, delivering iconic products at compelling price points with comfort and style. Despite the challenges presented by COVID-19, we remain very optimistic. No one knows when conditions will return to normal; what we do know is that we are confident that Crocs 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 are well positioned to restore momentum in 2021 and continue a positive growth trajectory. Before I turn the call over to Anne, I want to express my gratitude to the entire Crocs organization for the hard work and commitment to delivering strong results in the face of such adversity. I also want to especially thank those in our distribution centers; without you, it would not be possible to serve our consumers and perhaps more importantly, our frontline healthcare community. These are challenging times for us all and we look forward to healthier times ahead for everyone. With that, Anne will now review our financial results in more detail.
Anne Mehlman, CFO
Thank you, Andrew, and good morning everyone. I'll begin with a short recap of our first quarter results. For a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, 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 COVID-19 driven weakness in Asia and EMEA, resulting in softer than expected top and bottom line results versus the first quarter of 2019. First quarter revenues came in at $281.2 million compared to $295.9 million in the first quarter of 2019, a 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%. The Q1 softness was primarily driven by our Asia business with 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 COVID-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 e-commerce sales growth of 16.8% on top of 16.5% growth last year. This represents our 12th consecutive quarter of double-digit e-commerce growth. Digital revenue as a percentage of total revenue, which includes Crocs.com and marketplaces reported as e-commerce, and our retail revenue included in our wholesale channel was 30.1% in the first quarter as compared with 25.4% in 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% to $147.7 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 e-commerce, building upon the strong brand heat and momentum in 2019, 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 direct result of 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 year's first quarter. Strong e-commerce growth of 18.3% was offset by a 26.7% decline in retail as a result of store closures and declines in traffic. As Andrew mentioned, we are encouraged by week-on-week improvements in China and Korea sales. EMEA revenues declined 10.3% over last year's first quarter to $67.9 million. Our EMEA business is benefiting from growing brand heat and our continued focus on digital commerce. EMEA e-commerce was our fastest growing channel in Q1 at 23.7% growth, while this growth did not outweigh the COVID-19 impact on our wholesale and retail channels. Prior to COVID-19, EMEA had been delivering mid-single digit comp growth with the wholesale order book 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 products, and lower levels of promotions and discounts in the Americas, somewhat offset by a 50 basis points of currency impact. One-time items mostly related to our US and European distribution centers impacted reported gross margin by 30 basis points. Our adjusted SG&A increased to 38.7% of revenues versus 35.3% in last year's first quarter. The increase in adjusted SG&A as a result of our continued investment in marketing to drive the robust growth we've initially planned for 2020. As Andrew mentioned, we took immediate action to reduce SG&A in anticipation of lower revenue as the pandemic worsened. Non-recurring charges were $4.6 million compared to $700,000 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 COVID-19, and $1.7 million is for product donations. At this point, we have committed to donating up to $11 million in shoes, with the majority of expenses expected in Q2. Our operating margin declined to 7.4% or to 9.4% on an adjusted basis as marketing investments in SG&A offset the positive leverage in gross margin. For Q1, we recorded a higher tax rate than planned. This is primarily a result of two factors. The first is that we have losses in jurisdictions where we cannot benefit from the losses for tax purposes. The second is that the forecasted decline in profits for 2020 resulting from COVID-19 is resulting in a higher tax rate based on our current structure. First quarter adjusted diluted earnings per share excluding non-GAAP adjustments were $0.22 compared to non-GAAP earnings per diluted share of $0.36 a year ago. During Q1, we repurchased approximately 1.6 million shares of our common stock on 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 in outstanding borrowings. As previously shared, out of no abundance of caution, we upsized our revolving credit facility from $450 million to $500 million and amended our covenants to provide a bit more flexibility in the second and third quarter of 2020. Inventory at March 31, 2020 was $195.8 million versus $172 million at the end of 2019. 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 Coronavirus. As Andrew touched on earlier, our thoughts and focus are on the well-being of our colleagues and partners throughout the world during this very difficult situation. We all continue to lack visibility to when 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 Andrew referenced in his update on COVID-19. I would like to share a few more details on our outlook for areas where we have more control and therefore visibility, specifically SG&A and liquidity. As Andrew mentioned, we expect SG&A to be between $440 million 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 are 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, as we defer investments to support growth and focus on maximizing liquidity and flexibility. With regards 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 the year. We do expect to reduce working capital and generate positive free cash flow throughout the remainder of the year. On liquidity, we have no concerns. Under our current projections, we expect to remain in compliance with our covenants with plenty of availability on our revolver. As we think about the shape of the year, we anticipate the sharpest decline in Q2 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 e-commerce to continue to outperform in all regions as we are seeing strong results in April. In summary, although we are experiencing near term challenges with the global disruption of COVID-19, the Crocs 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 thoughts.
Andrew Rees, CEO
Thank you, Anne. As our 2019 performance indicated, we had great momentum in our business and our brand has never been stronger. While 2020 is not playing out as we initially anticipated, our company has adapted quickly. We have further enhanced the relevance of our brand even in the depths of this COVID-19 crisis. I want to reiterate that in the near term we have no liquidity concerns and are taking quick action to ensure we will be cash flow positive for the remainder of the year. Additionally, we believe the Crocs brand is very well positioned in the post-COVID world, with iconic products at moderate price points, great storytelling, and global distribution. Operator, please open the call for questions.
Operator, Operator
Our first question comes from Jonathan Komp with Baird. Please go ahead; your line is open.
Jonathan Komp, Analyst
Yes, hi. Thank you. Wanted to maybe start on the inventory. I don't know if there is more color you can give just on the current complexion can have either during the first quarter or in the 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 or sales going forward?
Anne Mehlman, CFO
Yes, hi Jonathan.
Andrew Rees, CEO
Yes, Anne why don't you start?
Anne Mehlman, CFO
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 receipts and get ahead of it. And we've been cutting receipts starting for June forward. We still, even with that expect to generate positive free cash flow in Q2. I would say, overall our inventory balance is really made up, much of it is core. So, we're not worried about our ability to sell it or that we need to liquidate it because so much of it is core; following last year core made up 60% of our revenue. So, our approach allows us to take the inventory we have and spread it over the remainder of the year. Andrew, anything you want to add?
Andrew Rees, CEO
Yes, I think the only other thing I'd add is, it's very current, right, there is very little what we might think of as aged inventory, so the quality of the inventory is very high. It's obviously higher given the lack of sales in the last month of Q1 that we had anticipated. But I think we've been very successful in cutting future receipts with a great cooperation from our manufacturing partners and we feel like this is under control.
Jonathan Komp, Analyst
Okay. And maybe just as a follow-up, any thoughts on how we should directionally think about gross margin? I mean, in the first quarter look solid obviously, there'll be a lot of seasonal goods that may not be sold as intended, so just thoughts on your plans where you're going to be on the marketplace and how you might need to react from a gross margin standpoint?
Andrew Rees, CEO
Yes, I mean, look, it's incredibly hard to tell Jonathan. I think as we've said in our prepared remarks, we are anticipating as we come out of this that this will be a difficult marketplace. We think the consumer will be in a recession and we think that will be a global recession; we think many brands will have excess product on hand, retailers a lot of excess product on hand. It's going to be a difficult marketplace. So, that's really one of the factors that makes it really, really hard to predict. As we highlighted in our answer to your question around inventory, I think we have some ammunition that's a little bit different from other brands. We do not have a lot of very seasonal goods that we have to sell in the spring season and we have a lot of colors like black, white, gray classic, which can be sold over an extended period of time by the margin. So, I think we have some strength that allows us to be more careful, but we believe it's going to be a very promotional marketplace.
Jonathan Komp, Analyst
Okay, great. And if I could just clarify then, the last one on the SG&A guidance; is that a GAAP or a non-GAAP number and then any of the cuts that you're making, do you think will they limit your ability to recover once the environment improves?
Anne Mehlman, CFO
Yes, so as you know, and Andrew just went through our script, we are taking decisive action around that. That's a non-GAAP SG&A number and adjusted SG&A number that we're reducing. And we feel pretty good about what we've gotten our ability to manage that we can scale our SG&A structure appropriately over the last couple of years even during growth times. So we certainly feel like we can do that without impacting our ability to recover, as things start to come back.
Jonathan Komp, Analyst
Okay, thank you. Best of luck.
Andrew Rees, CEO
Thanks, Jonathan.
Operator, Operator
Your next question comes from the line of Erinn Murphy with Piper Sandler. Go ahead please. Your line is open.
Erinn Murphy, Analyst
Great, thank you. Good morning and I hope you're all well. I guess the first question Andrew for you is, if you could share a little bit more about what you are seeing in the month of April in China stores have reopened? And maybe more, what you're learning about how the new normal looks there in terms of how consumers are shopping?
Andrew Rees, CEO
Yes. I'm happy to do that. So I think as we look at Asia, we can definitely take some important learnings away from Asia. Number one, China, and I like to put Korea into that bucket as well. The retail environment, our stores, our partner stores, our wholesale customer stores are open and we are seeing traffic and sales returning, right. So week on week, we can see progress. We can see week on week progress in terms of increase in traffic and increase in sales, but we did start from a base that was materially down on last year. So we're getting better, but still down on last year. I think the other thing that is important to take away from Asia more broadly is what we've seen in Southeast Asia, Singapore, et cetera where they really had the virus under very tight control in January and February, and then they saw a wave two that was much more significant than wave one and have re-closed. So, I think Singapore announced yesterday they are now going to go into lockdown for another six weeks. So, we're definitely seeing some progress and some returning traffic business in Korea and China, but we're kind of seeing the opposite in other parts of Asia.
Erinn Murphy, Analyst
Okay, that's helpful. And then maybe just on your offensive strategy that you kind of laid out. The one area as you checked on is how you think about or how you plan to lead into the Crocs at Work initiative and maybe what you've learned bigger picture about the total addressable market if you guys have been on the front line donating to healthcare workers?
Andrew Rees, CEO
Yes so, Crocs at 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 depths of the crisis and through the donation program, just some very key attributes of the product of our products and our brand really stood out to healthcare consumers, healthcare workers; easy on and off, easy to clean and comfortable as they're on their feet all day. So, I think the donation program has really ignited that consumer base for us. We definitely, I don't know if you follow social media, you see a lot of comments other brands doing this, there's definitely a tremendous resonance that's created. So we're really excited about that and I think that's a great opportunity for us to lean into that customer base with Crocs at Work. I think there is another opportunity which is to ignite our foodservice customer base in the same way as they come back to work here shortly in the US and in Europe.
Erinn Murphy, Analyst
Okay. And then last question really is for Anne, I think in the script you guys talked about just confidence in profitability despite kind of a wide range of revenue scenarios. Can you just expound upon some of the downside scenarios that you tested in the model? Thank you.
Anne Mehlman, CFO
Yes, what we're really excited about is our ability to generate free cash flow in a wide range of scenarios. I think that's number one and the most important thing right now. So we've looked at a number of different scenarios as I think most companies are doing right now, it's really important to have several scenarios but in our scenarios we've looked at stores being closed for an extended period of time. We do think e-com in most scenarios continues to outperform as we're seeing that pretty strongly through the beginning of April. And then, also with that, we look at different scenarios around wholesale and what that looks like for our wholesale partners reopening. So again, I think overall, we have the ability to generate free cash just through managing net working capital. And as Andrew mentioned earlier, we've been really quick to act on inventory, which is the key.
Erinn Murphy, Analyst
Great, thank you. I'll let someone else hop in.
Andrew Rees, CEO
Thanks, Erinn.
Operator, Operator
Our next question comes from the line of Mitch Kummetz with Pivotal Research. Go ahead please. Your line is open.
Mitch Kummetz, Analyst
Yes, thanks for taking my questions. Maybe just to kind of follow-on what Erinn was asking. Anne, I think you said that e-comm was trending 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 Q2. Maybe starting with e-comm, has it accelerated from 15.8 that you guys posted in Q1 and is there anything you can say around wholesale maybe really kind of sort of splitting your comments between kind of selling into e-tailers versus your more traditional brick and mortar accounts?
Andrew Rees, CEO
Let me provide some details on that topic since there are definitely positive aspects to highlight. First, 30% of our overall business is digital, comprised of our e-commerce and e-tail operations. E-tail accounts for about 25% of our wholesale business. In terms of growth trends, we have observed a notable increase in our e-commerce growth rates, primarily due to natural consumer traffic that isn't available in stores as well as a search for entertainment. Additionally, our healthcare donation program has significantly contributed to this growth, engaging not only healthcare workers but also a wider range of consumers who value the initiative and are visiting our website for products. We are experiencing strong digital growth overall, particularly in the Americas and Europe, though it's robust globally. Our e-tailers are also seeing substantial growth, despite some sporadic fulfillment issues as they manage the demand for essential goods. They have quickly recognized the necessity of our products for their consumers, resulting in strong performance in e-tail as well. Conversely, the rest of the business remains challenging since many wholesale customers are closed, leading to minimal or no re-orders. While they are trying their best with e-commerce, it's only a small fraction of their total business.
Mitch Kummetz, Analyst
And then, there's a point of clarification. When you guys got the 30% digital that does not include the e-com businesses for your traditional brick and mortar retailers. Is that correct? And then, I have another question.
Andrew Rees, CEO
That does not include the e-commerce operations of our traditional brick and mortar stores. It only incorporates pure play e-tailers. We made this decision because those companies are unable to provide detailed, accurate information in a timely manner that would allow for precise reporting, so we don't consider it a meaningful figure to present externally. I can anticipate that it would be higher, but I won't speculate on how much higher it could be.
Mitch Kummetz, Analyst
Got it. And then on the donation program, maybe Anne, could you talk about how that's hitting the P&L? I mean, are we talking like on average is it like for every pair of shoes you're donating, is it like a $10 hit to the COGS line on the P&L, or maybe you could give us some color on that? And then could you say, I think you guys had 450,000 pairs roughly or a little over that today, can you say how much of that came in the first quarter and what the P&L impact to the first quarter was and then kind of how are you thinking? So I think you said you're capping it to $11 million. So again, just kind of help us out on the P&L with that.
Anne Mehlman, CFO
Yes, so it hits in SG&A and we will target out so that you can understand what that looks like. So it will sit in SG&A; a very small amount within Q1 so the majority of that will be in Q2 and it will be $11 million globally in the way that is recognized as you have to gross it up to fair market value, and then you'll see a small offset below the line. But we've capped it at 11 and it will sit in total SG&A and we've carved that out from the adjusted SG&A so that you'll have insight into that. And when we release the 10-Q and I think that's even carved out in the press release in our non-GAAP bridges, Mitch for you.
Mitch Kummetz, Analyst
Okay. And is there any way to quantify the goodwill that you guys are generating from this? I know that's not the reason that you doing it, but I mean have you seen any purchases maybe tied to the goodwill that you're generating from this program?
Andrew Rees, CEO
Yes, I would say, 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, what the activity we see on our websites, and what we hear from our wholesale customers who are also benefiting from this both e-tailers on regular wholesale customers. I would say the goodwill is very substantial.
Mitch Kummetz, Analyst
Got it. All right, thanks guys.
Andrew Rees, CEO
Thank you.
Operator, Operator
Your next question comes from the line of Sam Poser with Susquehanna. Go ahead please. Your line is open.
Sam Poser, Analyst
Thank you very much. I'm following up on the previous questions. Could you provide us with specific information about your e-commerce trends so far this quarter? What kind of increase are you experiencing? We understand this may not be sustainable, but could you clarify what the current situation is with e-commerce?
Andrew Rees, CEO
Yes, I would say look at substantial. We particularly in the US and EMEA, which obviously our biggest businesses were up triple digits.
Sam Poser, Analyst
Thanks. And then secondly, do you expect SG&A in Q2 to be the biggest cut or is that going to be spread? How should we think about that given that you've reduced your number by a $100 million versus your plan?
Anne Mehlman, CFO
I think, Sam we haven't broken that out to try to give us flexibility as we understand how things come back on line, but we have tried to take it out through Q2 on. I do expect Q2 to have a sharp cut just in the nature of that. Right now, we don't have a lot of our retail stores operating. And so, and especially in the US. As we've mentioned in our prepared remarks, we've siloed a lot of our employees that are still in place so that automatically takes SG&A lower.
Sam Poser, Analyst
Perfect. Could you provide details on the pay reductions for the senior team, especially for those individuals rather than just the material or substantial ones mentioned in the press release? Also, I was surprised by the early release of earnings this quarter, which is typically done later. Can you explain why you chose to release them earlier than usual? Thanks.
Andrew Rees, CEO
But let me take those in reverse order, Sam. So I would say the second question in terms of why we decided to release earlier, we deliberately not gone down the road of putting out press releases every week explaining different activities that we've taken on to either control inventory or control our SG&A. We weren't really want to package everything and put it together and might have the vehicle here in story and allow yourselves and the investment community to understand the full picture, so we pulled this forward so we had the opportunity to do that in a comprehensive way; so that was really the reason for releasing earlier. And in terms of the SG&A savings or the salary reductions or compensation reductions for the employees and the Board of Directors, I would just say they're substantial; there are reductions in pay, there are reductions in performance comp, and also long-term comp. So, I would say they are very substantial and graduated from the top down.
Sam Poser, Analyst
Will that information be included in the 10-K or another document detailing how substantial it is? Other companies have different interpretations of what substantial means, with some eliminating CEO salaries entirely while others have implemented 20% cuts and considered that substantial. That's why I am asking this question, as I recognize we are using the term substantial.
Andrew Rees, CEO
Yes, I mean, I think we're comfortable with how we've articulated and obviously once proxy statements come out etc., subsequently people will be able to understand that fully.
Sam Poser, Analyst
And when do you expect those to come out?
Andrew Rees, CEO
Proxy of last year will be out shortly. But the one for this year obviously will be next year.
Sam Poser, Analyst
Okay, thank you and good luck.
Andrew Rees, CEO
Thank you, Sam.
Operator, Operator
And our next question is from Laura Champine from Loop Capital. Please go ahead, your line is open.
Laura Champine, Analyst
Hi, thank you for taking my question. I have a follow-up regarding your qualitative discussion on revenues, which I appreciate. While I typically wouldn't ask for three weeks of sales data, could you share how total sales are tracking for April to date?
Andrew Rees, CEO
Yes, I mean, it's obviously.
Anne Mehlman, CFO
Yes, hi.
Andrew Rees, CEO
Go ahead, Anne.
Anne Mehlman, CFO
Yes, I was just going to say, as Andrew mentioned, e-commerce is obviously outperforming with triple-digit increases in the US and EMEA. I would say most of our stores are closed around the world. We have about 30% operating and there are smaller stores in Asia. So obviously, retail is down dramatically. And then also, many of our large wholesalers and distributors have their stores closed. So, we've large wholesale declines into the quarter as well.
Laura Champine, Analyst
Okay. Can you give us a sense of what percent of your accounts receivable you view at risk at this point as of the end of the quarter?
Anne Mehlman, CFO
Yes, we report accounts receivable on a net basis, so we don't believe any of it is at risk. We have a bad debt reserve of approximately $80 million, which we increased in the first quarter for two specific distributors in Asia who were significantly affected by the COVID virus. Aside from that, we are quite optimistic about our accounts receivable. We will make reserves as necessary, but overall, we feel confident that our accounts receivable are in good condition aside from our reserves.
Laura Champine, Analyst
All right, thank you.
Andrew Rees, CEO
Thank you.
Operator, Operator
And your next question comes from the line of Jim Duffy with Stifel. Go ahead please. Your line is open.
Jim Duffy, Analyst
Thank you. Good morning, thanks for all the perspective and thanks for Crocs for supporting our healthcare 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 with risk management? And in that context, what's the role you expect promotion to play in the inventory management strategies?
Andrew Rees, CEO
Yes, great question, Jim. So, there are a few things to discuss. If we look at the spring season today, we've carefully examined our most seasonal products, including some potential new sandal introductions. We will ensure these are delivered only to markets where we can successfully sell them. The majority of our cancellations have occurred for later in Q2 and early Q3, which removes a significant amount of inventory from the market. Most of what we've canceled relates to core, replenishment orders, which we have set aside. Our goal is to extend the season for our core products and we believe this is quite feasible while safeguarding new offerings for the full holiday season and back-to-school period. Last year, online products proved crucial in key markets, and we aimed to protect the newness linked to those. Therefore, we are focused on extending our spring-summer offerings while scaling back on replenishment orders to maintain the novelty for the holiday season. Additionally, there will be certain items we intended to launch significantly in spring 2020 that we will bring back for spring 2021.
Jim Duffy, Analyst
Okay, thank you. And you made some comments earlier about our strategy to position for value and what you expect is going to be a very promotional environment. Can you talk a little bit more about how you see that represented in assortments and pricing?
Andrew Rees, CEO
Yes, I can. So I think, as you're all aware, we have a substitute outlook business, it's the majority of our bricks and mortar retail business at this stage. We have valued wines that we use built for outlet that we use in the outlet business that are derivatives of our mainline; so a derivative of the cost, second derivative of another kind of key item. We also have promotional items that we use with the lower tier channels, whether that be closer channels or that be 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 our promotional activity and not be promoting our flagship products.
Jim Duffy, Analyst
Very helpful. I'll leave it at that. Thank you.
Andrew Rees, CEO
Thank you.
Operator, Operator
And our next question comes from the line of Mitch Kummetz with Pivotal Research. Go ahead please. Your line is open.
Mitch Kummetz, Analyst
I have a couple of quick follow-up questions. Can you provide the exact number of stores that are currently open? I understand that most are closed, but I'd like to know which ones are open and their locations. Additionally, could you discuss your decision-making process regarding the potential reopening of stores? What factors will guide your decisions? I know that some governors are considering relaxing stay-at-home orders, so I am trying to understand if you will align with that and what your approach will be to ensure staff have PPE and to communicate to customers that the stores are safe to shop in.
Anne Mehlman, CFO
Yes, I'll take the store opening question, and then I'll leave it to Andrew to talk about the philosophy behind reopening. So, as I mentioned earlier, about 30% of our locations are open globally, which are mostly in Asia. So, we have 110 opened in Asia, but again, those are mostly smaller stores. All of our stores in the Americas are closed and we have three that just recently opened in EMEA. So three out of 56 opened in EMEA.
Andrew Rees, CEO
Yes. In EMEA, there are several stores set to open next week. We are making decisions based on local guidelines and will not open any stores that go against stay-at-home orders. Once those orders are lifted and malls reopen, we will consider opening our stores. We prefer to wait until most stores in a mall are operational, as opening one or two stores could lead to high costs with minimal customer traffic. We have conducted virtual walkthroughs and are testing procedures in the EMEA stores that have opened, which include wearing masks, cleaning surfaces, managing try-on regulations, limiting the number of people in the store, and ensuring proper distancing and waiting lines. Clear guidelines from both Asia and EMEA are emerging on how to run our smaller store model effectively. We will closely follow these guidelines and require customers to wear masks upon entering the store, and this approach will also be applied in the US.
Mitch Kummetz, Analyst
Got it. And then, my very last question on Asia. When you guys reported Q4 a couple of months ago, you did provide some guidance on Asia. I think you were saying at that time you were expecting sales to be down $40 million to $60 million kind of in the first half of 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 China, Korea are maybe a little bit better. But then the rest of Asia, maybe a little bit worse than what you originally thinking. Are you still kind of thinking that Asia is within that sort of $40 million to $60 million range in terms of the drag?
Anne Mehlman, CFO
Yes. Q1 performance for Asia was generally in line with our expectations. The environment is changing rapidly, making it difficult to predict outcomes. When we discussed Q1 previously, China and Korea were closed, and now they are open; however, Japan and Singapore are experiencing a second wave, and Southeast Asia and India are now closed. This dynamic is a key reason for our guidance adjustments. Overall, Q1 for Asia met our expectations, and it may have slightly exceeded our forecasts for China and South Korea, but not significantly.
Mitch Kummetz, Analyst
Got it, all right. Thanks again.
Operator, Operator
Our next question comes from the line of Jim Chartier. Go ahead please. Your line is open.
Jim Chartier, Analyst
Good morning, thanks for taking my questions. Anne, can you talk about the flexibility you have with your store leases if stores don't reopen for an extended period of time or traffic is lower than expected to be reopened? What's the flexibility to close stores maybe that were marginal before? And then, any kind of rent concessions you're getting from landlords? And then finally, you talked about the tax rate for first quarter, but what's the expectation for the tax rate for the full year? Thanks.
Anne Mehlman, CFO
Yes, that's a great question. Regarding the store aspect, let's discuss it by region. In Asia, particularly Korea, many of our stores operate on percentage rent, which simplifies things. In Australia, the situation is more traditional. Over the past couple of years, we've put significant effort into evaluating our store base, and we have a high threshold for stores to remain open, with most exceeding that threshold. We will assess if there are permanent declines in traffic and decide whether to exit or stay in stores, while continuing our regular business operations. However, there's limited flexibility in most leases to make changes, but we'll evaluate the financial implications and determine if negotiation makes sense. On the topic of concessions, we're actively collaborating with our landlords globally. We had some success in Asia during the first quarter in negotiating concessions and are continuing those discussions worldwide regarding closed stores or those with reduced traffic. Finally, concerning the tax rate, the recent developments occurred rapidly, and we couldn't adjust our tax strategy in time. We believe the tax rate from the first quarter doesn't accurately reflect the full year. Many factors are currently in play related to COVID across different regions where we operate, affecting future tax rates. Therefore, it's challenging to provide complete visibility, but we anticipate our tax rate to be below 40% for the rest of the year. The first quarter tax rate is not indicative of the full year.
Jim Chartier, Analyst
Thank you. Best of luck.
Anne Mehlman, CFO
Thank you.
Andrew Rees, CEO
Thanks, Jim.
Operator, Operator
And your next question comes from the line of Sam Poser with Susquehanna. Go ahead please. Your line is open.
Sam Poser, Analyst
I have one question, actually two questions. First, regarding the EMA and Europe’s first quarter wholesale business, could you provide insights on why that was down? Second, with the current low oil prices, will this positively impact us moving forward on a material basis?
Anne Mehlman, CFO
On the EMEA side for wholesale, our stores closed midway through March, which occurred a little earlier than in the US. This led to longer deferrals in the US for wholesale, as many of our wholesalers were closed and did not require products. This situation affected both our wholesalers and distributor partners. Regarding oil prices, while labor remains the largest part of our cost of goods sold, there are notable impacts from currency and labor, along with freight costs. A decrease in freight costs could provide us with some benefits.
Sam Poser, Analyst
What about the reduction in the oil that goes into the production of the product of the material?
Andrew Rees, CEO
Yes, Sam, to some extent. Natural gas has been separated from oil to a degree in recent years. Natural gas is the primary raw material used in producing our products, so there may be some advantages there, but I don't expect them to be significant. Additionally, transportation costs associated with oil play a role, and the supply-demand dynamics are influenced by the underlying fuel costs in those situations. Therefore, there isn't a substantial benefit to the cost of goods.
Sam Poser, Analyst
Thank you very much.
Operator, Operator
Okay. And our next question comes from the line of Erinn Murphy with Piper Sandler. Go ahead please. Your line is open.
Erinn Murphy, Analyst
Thanks for taking my follow-up. Just a couple, Andrew for you, can you just talk about your collaboration pipeline as it sits now and just how you pivoted the strategy? I think coming into this year, you were expecting over 20 different collaborations. And then, housekeeping and sorry if I missed this, could you just say what pricing in units were in Q1 and then what are you thinking for marketing spend this year? Thank you.
Andrew Rees, CEO
So, from a collaboration perspective, we've actually done six collaborations already this year. So, we've done Liberty of London, KFC, KIKS, I think everybody has seen those in this marketplace, but also more recently BEAMS in Japan, wear market in Korea also made well. So, we've definitely continued with our collaboration strategy. I think those have all been working well. We have pushed some of the bigger ones out of kind of the Q2 time period towards the back end of the year and we will also push some from 2020 into '21. So, we are definitely trying to move them out of this current period, the bigger ones that require more investment, and obviously have a bigger impact, but our intent is to continue with our 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 designs and those relationships are kind of appropriate to the new environment. So, we still think it's important; we still be continuing.
Anne Mehlman, CFO
Yes, and then on the ASP and unit. So, our units were down 8% and our ASPs were up 2.6%.
Erinn Murphy, Analyst
Got it. And then marketing, just how are you thinking about that for the year now, just given some of the pushing out of?
Anne Mehlman, CFO
Yes, we didn't guide marketing. Yes, it's encompassed into our SG&A and the reason we did this is because we want some flexibility there. We also have a sense of our marketing that's variable associated with e-comm. Marketing is one of the areas as we talked about that we did cut. But we are trying to preserve as much of our marketing as we can especially just so that we can continue to connect with our consumers.
Erinn Murphy, Analyst
Great, thank you, both.
Andrew Rees, CEO
Thank you, Erinn.
Operator, Operator
And there are no further questions at this time, I'd like to turn the call back over to Andrew Rees for some closing remarks.
Andrew Rees, CEO
Yes, thank you everybody. Appreciate your interest in the company at this time and I just like to close by saying while this is a very difficult time for individuals and consumers, very difficult time for our company, we are very confident in our ability to weather this storm and also to be stronger and grow in the future. So, we feel good about where we are. So, we thank you for your interest.
Operator, Operator
Thank you. And this does conclude today's conference call. You may now disconnect.