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Crocs (CROX) Surges 66.1% in 3 Months: Is More Upside Left?

Crocs, Inc. CROX has been gaining from solid consumer demand, as well as strength in the Crocs and HEYDUDE brands. A solid online show bodes well. This led to a top and bottom-line beat for the 10th straight quarter in the third quarter of 2022.

Sales and earnings improved year over year. Adjusted earnings of $2.97 per share advanced 20.2% from $2.47 in the year-ago period. Revenues advanced 57.4% (or 63% on a constant-currency basis) year over year to $985.1 million, driven by growth across all regions and channels.

The company is on track with the expansion of digital and omnichannel capabilities. We note that digital sales advanced 22% year over year on a cc basis in the third quarter, representing 37.4% of sales. This was mainly driven by growth across all regions and customer acquisitions. Increased focus on the Crocs mobile app and global social platforms aided digital sales. Gains from strategic collaborations, influencer campaigns, and digital and social marketing efforts were upsides.

Crocs has been gaining from its acquisition of HEYDUDE, which sells lightweight, casual shoes and sandals for men, women and children. Notably, the HEYDUDE brand’s revenues surged 87% year over year to $269.4 million in the third quarter. Management is optimistic about the HEYDUDE brand. For 2022, revenues related to the HEYDUDE buyout are likely to be $850-$890 million. The brand is expected to attain $1 billion in revenues in 2023.

Management outlined its long-term strategy and key initiatives to deliver sustainable growth. It expects to generate revenues of more than $5 billion by 2026, representing compounded annual growth rate (CAGR) of more than 17% in the next five years. The company expects to attain the revenue target, driven by strong digital sales, improved market share for sandals, growth in Asia, and innovative product and marketing. Management expects four times revenue growth in sandals by 2026. The company sees long-term opportunities in Asia, primarily in China, which is the second-largest footwear market in the world.

Crocs expects revenue growth to see a CAGR of 25% and represent 24% of the total revenues in 2026. The company anticipates at least 50% of total revenues to come from digital channels by the end of 2026. Driven by strong revenue growth, it expects improved profitability and cash flows through 2026. It anticipates the adjusted operating margin to be more than 26% and annual free cash flow in excess of $1 billion by the end of 2026.

Driven by these factors, management recently raised its guidance for 2022. It anticipates 2022 revenues to reach $3.55 billion compared with the $3.46-$3.52 billion mentioned earlier. The revised view indicates an increase of 53% from that reported in 2021 versus the prior mentioned 49-52% rise. For the fourth quarter, the company expects year-over-year revenue growth of 60%. It expects an adjusted operating margin of 27% for 2022.

The company outlined its initial guidance for 2023, wherein it anticipates year-over-year revenue growth of 10-13%. This indicates revenues of $3.9-$4 billion for the said year.

Adjusted earnings are envisioned to be $9.95-$10.30, up from the earlier stated $9.50-$10.30. Adjusted operating income is predicted to be $920-$950 million. The adjusted operating margin is anticipated to be 27% compared with the aforementioned 26-27%.

Consequently, shares of this Zacks Rank #3 (Hold) surged 66.1% in the past three months, outperforming the industry’s growth of 19.8%.


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However, Crocs is reeling under inflation, higher air freight and logistics costs, which dented margins in the third quarter. The adjusted gross margin contracted 910 basis points (bps) to 55.1%, while the adjusted operating margin contracted 490 bps to 27.9% from the prior-year quarter’s 32.8%.


We believe that online strength, solid demand and well-chalked-out endeavors will help Crocs sustain its stellar show. Also, a long-term earnings growth rate of 15% and a VGM score of B reflect its inherent strength. Topping it, earnings estimates for the current financial year have increased 1.5% to $10.43 over the past seven days.

Stocks to Consider

Some better-ranked stocks from the Zacks Consumer Discretionary sector are World Wrestling Entertainment WWE, PVH Corp PVH and Oxford Industries OXM.

World Wrestling Entertainment currently sports a Zacks Rank #1 (Strong Buy). WWE delivered a four-quarter average earnings surprise of 25.19%. The company’s shares have plunged to 68.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for World Wrestling Entertainment’s 2023 sales and EPS indicates growth of 4.9% and 10.7%, respectively, compared with the 2022 estimates.

PVH Corp currently carries a Zacks Rank #2 (Buy). PVH has a trailing four-quarter earnings surprise of 22.9%, on average. PVH has a long-term earnings growth rate of 10.2%.

The Zacks Consensus Estimate for PVH Corp’s current financial-year sales and EPS indicates declines of 3.1% and 18.6%, respectively, from the year-ago period’s reported levels.

Oxford Industries currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 18.9%, on average.

The Zacks Consensus Estimate for Oxford Industries’ current financial-year sales and earnings suggests growth of 23.1% and 34.2% from the year-ago period’s reported numbers, respectively.

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