Despite recent challenges, such as the underwhelming performance of recently acquired HEYDUDE, Crocs (CROX) continues to walk the walk and show strong market demand, beating top-and-bottom-line expectations for Q2. This strength is linked to the brand’s broad appeal, extending across different market segments, including international markets where sales growth is outpacing domestic returns. Shares are up 54% year-to-date, while the valuation remains attractive, suggesting further growth potential.
The stock is a compelling option for value-oriented investors interested in exposure to a global apparel brand.
Crocs Still Digesting HEYDUDE Acquisition
Crocs designs, manufactures, markets, and sells casual lifestyle footwear and accessories under the Crocs and HEYDUDE brands, catering to men, women, and children. Its product range consists of a variety of footwear, from clogs and sandals to socks, boots, and flip-flops. Distribution channels for its products include wholesalers, retail stores, e-commerce sites, third-party marketplaces, and kiosks/store-in-store locations.
The company acquired the privately owned casual footwear brand HEYDUDE for $2.5 billion in 2022; so far, results have been less than stellar. Last year, while sales for the Crocs brand increased by 10%, HEYDUDE saw a decline of 18.5%. So far this year, that pattern has repeated. In April, the company replaced executive leadership of the brand with former Crocs alum and recent President of Stanley, Terence Reilly, in hopes he can help steer a correction within the subsidiary.
Early results are promising, including the recently announced long-term agreement with actress Sydney Sweeney. Sweeney will serve as an international spokesperson for a new global brand campaign to promote comfort and self-confidence.
Crocs’ Recent Financial Results & Outlook
The company recently reported financial results for Q2 2024. Revenue of $1.12 billion marked a 4.7% year-over-year increase while beating analysts’ expectations by $20 million. Sales for the Crocs brand rose 10% to $732M, and HEYDUDE sales dipped 18.5% to $228M. Also, gross margin improved to 61.4% from 57.9%, as income from operations experienced a slight boost, increasing 2.3% to $326 million. Earnings per share (EPS) of $4.01 exceeded consensus estimates by $0.44.
The company finished the quarter with cash and cash equivalents slightly rising to $168 million, while the company’s total borrowings amounted to $1,530 million, a significant decrease from $2,027 million. Crocs repaid $200 million of debt, repurchased 1.2 million shares for $175 million, and retained $700 million for future share repurchases.
Following second-quarter results, CROX management has offered guidance for Q3 and 2024. Revenues are expected to fluctuate between a decrease of 1.5% and an increase of 0.5% compared to the same period in 2023. The Crocs Brand is projected to grow 3% to 5%, while the HEYDUDE brand could see a decline of 14% to 16%. The adjusted operating margin is estimated at around 24.5%, with adjusted diluted earnings per share between $2.95 and $3.10. For 2024, year-over-year revenue growth of 3% to 5% is expected.
In addition, Crocs’ brand growth is anticipated to be approximately 7% to 9%, while the HEYDUDE brand is projected to decrease by roughly 8% to 10%. The adjusted operating margin is projected to exceed 25%, and capital expenditures are expected to be between $100 million and $110 million. Adjusted diluted earnings per share are expected to range from $12.45 to $12.90.
What Is the Price Target for CROX Stock?
The stock has been on a multi-year climb, gaining over 519% in the past five years. It trades toward the upper end of its 52-week price range of $74.00 – $165.32 while demonstrating positive price momentum by trading above the 20-day (135.89) and 50-day (136.88) moving averages. The stock trades at a significant discount, with a P/E ratio of 10.88x, sitting well below the Footwear & Accessories industry average of 28.69x.
Analysts following the company have been bullish on the stock. For instance, Williams Trading analyst Sam Poser, a five-star analyst according to Tipranks’ ratings, recently upgraded the stock to a Buy with a price target of $163 (up from $135), noting Sidney Sweeney’s engagement as HEYDUDE’s brand ambassador should attract young consumers to the brand. In addition, Crocs’ new sneakers will likely perform well in the athletic specialty channel.
Crocs is rated a Strong Buy overall, based on the recommendations and price targets issued by 12 analysts. The average price target for CROX is $164.36, representing a potential 13.59% upside from current levels.
Closing Thoughts on Crocs
Despite the underperformance of the recently acquired HEYDUDE brand, Crocs remains an attractive option in the global apparel market. Despite the mixed projections for the third quarter and 2024, the company’s financial health is robust, demonstrated by its effective debt management and allocation for future share repurchases. The strong demand for the brand, combined with an attractive valuation and positive share price momentum, frame CROX as a compelling investment opportunity with promising growth potential.
