Crocs, Inc. (CROX - Get Rating) is widely known for its iconic rubber clogs, which can be worn both indoors and outdoors. Founded just over two decades ago, Crocs has carved out a unique niche in the fashion world with its innovative designs and versatile footwear options. Their ability to stay relevant and popular, despite the fast-paced nature of fashion trends, speaks volumes about their product quality and market appeal.

For those of us in the millennial and Gen Z brackets, Crocs holds a special place, even if it’s often reserved for lounging at home. Despite my inclination to stick with one trusty pair, I can’t overlook how Crocs has continued to captivate its audience with exciting new designs and trendy collaborations.

In a climate where consumer spending is closely tied to economic health, CROX has shown remarkable resilience. The recent easing of inflation in the U.S. and Europe is expected to bolster consumer confidence and discretionary spending, which bodes well for the company’s performance. Since a significant portion of CROX’s revenue comes from North America and Europe, this is a promising development for the brand.

Thanks to a strong demand for its products, the company delivered an exceptional first quarter, beating consensus revenue and EPS estimates. For the first quarter, CROX’s earnings per share was $3.02, well above the consensus estimate of $2.25, and its revenue was higher than the analysts’ estimates by $53.96 million.

Over the past nine months, CROX has gained 58.1% and 42.9% year-to-date. However, the stock is down 16.3% over the past month to close its last trading session at $133.50.

Here are the factors that could affect CROX’s performance in the near term:

Strong Financial Performance

For the fiscal first quarter that ended March 31, 2024, CROX’s revenues increased 6.2% year-over-year to $938.63 million. Its gross profit rose 9.6% from the year-ago value to $522.08 million, while its non-GAAP income from operations stood at $254.78 million, up 3.1% year-over-year.  

In addition, the company’s non-GAAP net income and non-GAAP net income per common share grew 12.7% and 15.7% from the prior year’s period to $184.09 million and $3.02, respectively. As of March 31, 2024, its cash and cash equivalents increased to $159.29 million from $149.29 million recorded on December 31, 2023.

Mixed Analyst Expectations

Analysts expect CROX’s revenue for the second quarter (ended June 2024) to increase 2.7% year-over-year to $1.10 billion. However, the consensus EPS estimate of $3.54 for the same period indicates a 1.5% year-over-year decline.

For the fiscal year ending December 2024, Street expects CROX’s revenue and EPS to grow 4.6% and 5% from the prior year to $4.14 billion and $12.63, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 5.7% and 9.7% year-over-year to $4.38 billion and $13.86, respectively.

Mixed Valuation

In terms of forward non-GAAP P/E, CROX is trading at 10.57x, which is 30.7% lower than the industry average of 15.25x. Also, its 9.52x forward EV/EBIT ratio stands 32.8% below the 14.16x industry average.

On the other hand, its forward EV/Sales multiple of 2.41 is 103.1% higher than the industry average of 1.19x. Likewise, its forward Price/Book ratio of 3.96x exceeds the industry norm by 58.7%, and its 1.96x forward Price/Sales is 116.6% higher than the industry average of 0.90x.

High Profitability

CROX’s trailing-12-month gross profit margin of 56.16% is 52.5% higher than the industry average of 36.83%. Its trailing-12-month EBITDA margin of 27.87% is 146.9% higher than the 11.28% industry average. Also, the stock’s net income margin of 19.80% compares to the 4.95% industry average.

Additionally, CROX’s trailing-12-month ROCE and ROTA of 62.01% and 16.59% favorably compares to their respective industry averages of 11.85% and 4.24%. Furthermore, the company’s trailing-12-month levered FCF margin of 15.36% is 180.9% higher than the industry average of 5.47%.

POWR Ratings Don’t Indicate Enough Upside

CROX’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which equates to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CROX has earned a B grade for Quality, which is justified by its high profit margins.  

However, it has a C for Value, which is in sync with its mixed valuation. Also, the stock is trading below its 50-day moving average of $146.84 but above the 200-day moving average of $117.40, justifying its C grade for Momentum.

CROX is ranked #38 out of 59 stocks in the A-rated Fashion & Luxury industry. Click here to see the additional ratings for CROX (Growth, Stability, and Sentiment).

Bottom Line

While CROX benefits from a strong brand and innovative designs, it faces significant challenges from inflationary pressures and rising raw material costs. The company’s ability to pass these costs onto consumers could be compromised if its brand image declines or consumer preferences shift.

Fashion is ever-evolving, and Crocs must continuously adapt to maintain its appeal. Though popular now, the future appeal of its products is uncertain. Moreover, as Crocs’ popularity grows, so does the threat of counterfeit products, which could undermine sales. The industry is already plagued by billions in losses due to counterfeiting, and CROX is no exception.

On the upside, the company has raised its financial guidance, hinting at potential growth if it meets or exceeds expectations. The upcoming Q2 earnings report on August 1 is expected to show modest revenue growth but a potential decline in EPS.

Given the mixed financial outlook and current valuation, it might be wise to wait for a better entry point in the stock.

How Does Crocs, Inc. (CROX) Stack Up Against its Peers?

While CROX has an overall POWR Rating of C, one might consider looking at these A (Strong Buy) rated stocks within the Fashion & Luxury industry: H & M Hennes & Mauritz AB (publ) (HNNMY - Get Rating), Weyco Group, Inc. (WEYS - Get Rating), and Hugo Boss AG (BOSSY - Get Rating). To explore more A and B-rated fashion and luxury stocks, click here.

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CROX shares were trading at $132.13 per share on Monday afternoon, down $1.37 (-1.03%). Year-to-date, CROX has gained 41.45%, versus a 17.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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