Wall Street Experiences Shock at Crocs' Impressive Performance
Investing in Crocs (CROX -1.28%) feels like slipping into a familiar pair of shoes nowadays: There might still be some lingering holes in the business model, but comfort is outshining polarizing fashion aesthetics, with Crocs' shares soaring at Thursday's opening, following the company's better-than-expected results.
At first glance, the numbers may not appear appealing. Revenue rose just 3%, or 4% in currency-adjusted terms, for the holiday quarter. Adjusted net income dipped by 2%. Predictably, Wall Street was less-than-optimistic, anticipating a 12% reduction in adjusted earnings, alongside stagnant top-line results.
Though not a reason to celebrate, these results represent a decent beat for both income statement components. Crocs' outlook for the coming fiscal year also looks promising, considering the stock is currently trading at a single-digit earnings multiple - a rare achievement for a shoe stock.
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Crocs' volatility during earnings season is nothing new. Optics were grim in the previous financial update, with shares plummeting 19%. Despite conquering the earnings report this time, the company's guidance revealed some problematic areas, such as forecasted negative growth for the Heydude brand. But this time around, Crocs managed to nail its performance on both the past and future fronts.
A fascinating statistic about Crocs is that its shares plummeted by 19% just prior to Thursdays opening, mirroring its fall after the previous earnings report. However, the "fun stat" isn't the decrease itself, but the fact that Crocs has posted double-digit percentage earnings beats in each of the last four quarters. Despite these solid performances, the stock has struggled to mount a prolonged rally in an overall favorable market environment.
shoe stock trading at a single-digit earnings multiple.
This brings up the question of why a consumer-focused brand with a well-known name is trading at such a low multiple. One obvious explanation is that the footwear industry is highly competitive, although Crocs somehow manages to buck the trend in terms of debt levels. As of now, Crocs has paid off a considerable $323 million of debt and finishes the year with a reasonable debt-to-EBITDA ratio of 1.4.
Like Nike, Crocs has endured a challenging fiscal year, but the market seems less willing to reward its growth relative to Nike, whose price-to-earnings ratio is three times higher. It's worth noting that Nike has seen a year-over-year dip in revenue for the past three quarters but still commands a higher valuation. Investors seem to favor Nike for reasons that remain to be seen, but some argue that Crocs is underappreciated, given its strong financials and growth potential.
tumbled 19% in its previous financial update. The company may have delivered another bottom-line beat in October's third quarter, but its forecast was problematic. However, Crocs was able to nail the look back and look ahead this time around.
Intriguingly, analysts remain skeptical of Crocs, with some revising their estimates and price targets downward. Baird, for instance, recently reduced its price target from $180 to $150. While the new price target still surpasses Crocs' current stock price, some other analysts share a more cautious outlook on the company.
Two other firms have lowered their price targets on Crocs this year, and a fourth - Williams Trading - downgraded the shares last month, citing weakening trends and a lack of reassurances regarding the Heydude brand.
Reality, however, has other plans. Crocs reported 4% revenue growth for its namesake brand for the final quarter, and its international sales helped offset a few challenges at the wholesale level. For the new year, Crocs is projecting 2% to 2.5% top-line growth, which might not be a stellar improvement, but it's noteworthy considering the company's historically robust growth.
Crocs' resilience and ability to adapt to market challenges are proven by its consistent earnings beats and strategic adjustments. Wall Street's bearish outlook may continue, but events such as Thursday's impressive earnings report prove that Crocs possesses impressive growth potential and might even surprise its critics. Overlooking its strong brand momentum and potential for growth might be a costly mistake for some investors.
Despite the company's revenue and income growth being less than expected, investors found a reason to invest in Crocs due to its decent earnings beat and promising outlook. The stock is currently trading at a single-digit earnings multiple, which is unusual for a shoe stock.
Wall Street's initial reaction to Crocs' earnings report was less enthusiastic, predicting a 12% reduction in adjusted earnings. However, the stock's performance on Thursday's opening suggested that investors had a different perspective.
The company's guidance for the coming fiscal year looks promising, with Crocs' shares showing signs of resilience, even in a challenging market environment. Crocs' ability to consistently deliver solid earnings beats and adapt to market challenges has proved its growth potential.
Crocs' volatility during earnings season is not uncommon, as the company's stock tumbled by 19% before Thursday's opening, reflecting the market's skepticism. However, Crocs' strong brand momentum and potential for growth have the potential to surprise its critics and reward patient investors.