Should We Leave Crox in the Swamp? - InvestingChannel

Should We Leave Crox in the Swamp?

Proprietary Data Insights

Financial Pros’ Top Footwear Stock Searches in the Last Month

#1‘Crocs Inc1036
#2‘Nike Inc108
#3‘Footlocker Inc65
#4‘Deckers Outdoor Corp26
#5‘Skechers U.S.A.11
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Should We Leave Crox in the Swamp?

Back in March, we lauded Foot Locker (FL). The company continued to defy expectations, posting strong growth quarter after quarter.

That all changed last week when shares plunged nearly 30% off some worrisome earnings.

Excess inventory and lower sales crimped margins. Yet, the shoe store chain forecast further same-store declines as 2023 rolls forward.

Since its earnings release, shares are down almost 40%.

So why, pray tell, are financial pros so interested in Crocs (CROX) all of a sudden?

Similar to FootLocker, shares of Crocs cratered on earnings last month. Fortunately, they’re only down roughly 25% since then.

Plus, Crocs’ management said they still expect sales growth of 11%-14% for all of 2023, including 10%-12% same-sore sales growth.

Does this make Crocs a potential outlier investment?

Crocs’ Business

Hailing from Broomfield, Colorado, Crocs, the globally recognized footwear giant, is best known for its uniquely comfortable and versatile foam clogs…even if they are ugly. 

Born in 2002, the company now proudly parades its products across 90 countries, employing a diverse range of channels, from traditional footwear retailers to online platforms.

Crocs’ footwear is hailed for more than just casual strolls; they’re a trusted companion at work, during sports, and everything in between. Yet, they didn’t stop at clogs. 

Their expansive portfolio now includes sandals, boots, shoes, clothing, accessories, and home goods. 

Sources of growth

Source: Crocs Investor Relations

Thanks to the acquisition of HEYDUDE in 2022, another casual footwear company, Crocs continues to deliver solid revenue growth despite declining consumer spending and increasing competition.

Crocs play in every category, instead focusing on more casual and lifestyle footwear.


Source: Crocs Investor Relations



Source: Stock Analysis

Crocs’ focus on profitable stores and e-commerce has paid off.

In the last five years, sales have tripled while net income sextupled. Although gross margins only improved by just a few points, operating and especially profit margins exploded largely thanks to SG&A costs going from 45% of revenues in 2017 to 26% last year.

The company did take on roughly $2.5 billion in debt during its acquisition of HEYDUDE.



Source: Seeking Alpha

Crocs is cheap across an almost any valuation metric. It trades at roughly 10x earnings, a third of Nike’s (NKE) valuation, and less than half of Decker Outdoors’ (DECK).

Plus, it trades at less than 10x cash, with only Sketchers (SKX) anywhere close at 13x cash.

FootLocker looks cheap, but we’ll soon see it suffers from a terrible growth outlook.



Source: Seeking Alpha

Analysts expect Crocs to see revenue growth of around 24% this year. Those same folks see negative growth for FootLocker.

In fact, Crocs has the best revenue growth outlook by nearly 2x any of its peers, not to mention a forecasted EBITDA growth of almost 20%.



Source: Seeking Alpha

We didn’t know until we wrote this newsletter just how profitable Crocs was.

Its +50% gross margins are impressive. And a free cash-flow margin of over 12% is tasty as well.


Our Opinion 9/10

Financial pros found a great play.

Crocs expects substantial revenue growth yet trades at a compelling valuation.

Investors pushed this stock down with the rest of retail. However, as long as management continues to deliver, this stock could be a huge winner on the other side of a recession.

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