Crocs: A High-Quality Shoe Brand with Undervalued Stock
Crocs, Inc. (CROX), the Colorado-based footwear company, has been making waves in the investment world due to its high-quality core shoe business and attractive valuation. Despite some challenges faced in the wake of the HEYDUDE acquisition, the company’s impressive operating and financial metrics make it an attractive investment with significant potential outperformance prospects.
Core Crocs Business: Respectable Growth and Strong Financials
The Crocs brand, known for its iconic clog designs, has been consistently delivering strong financial results. In the most recent quarter, the company reported a 21.2% year-over-year increase in net sales for its Crocs brand, driven by both retail and wholesale channels. This growth can be attributed to the brand’s appeal to a diverse customer base and its expansion into new markets.
Crocs’ financials are equally impressive. The company’s operating income for the same quarter increased by 55.5% year-over-year, reaching $112.4 million. This growth was driven by increased sales and improved gross margins. Furthermore, the company’s free cash flow for the first nine months of 2021 was $138.5 million, up from $61.3 million in the same period in 2020.
HEYDUDE Acquisition: A Bump in the Road
In 2020, Crocs acquired the intellectual property and certain assets of the HEYDUDE brand from Deckers Outdoor Corporation for $50 million. The acquisition was intended to expand Crocs’ offerings beyond its core clogs into the sandal and flip-flop market. However, the integration of HEYDUDE has been challenging, with the brand underperforming expectations.
The HEYDUDE acquisition has had a negative impact on Crocs’ earnings, with the brand reporting a loss of $10.7 million in the most recent quarter. This loss can be attributed to the costs associated with the acquisition and the underperformance of the brand. However, Crocs remains optimistic about the long-term potential of the HEYDUDE brand and continues to invest in its growth.
Impact on Consumers and the World
For consumers, the continued growth and success of Crocs’ core shoe business mean that they will continue to have access to high-quality, comfortable shoes at reasonable prices. The expansion of the brand’s offerings through the HEYDUDE acquisition may also provide new options for consumers looking for alternative footwear styles.
At a broader level, Crocs’ success and attractive valuation may influence the footwear industry as a whole. Other footwear companies may look to Crocs as a model for how to successfully grow a brand while maintaining high-quality products and financial performance.
Investment Opportunities
For investors, the undervalued stock of Crocs presents an attractive opportunity. The company’s core brand is delivering strong financial results and generating significant free cash flow. Furthermore, the company’s share buyback plans, announced in October 2021, indicate a commitment to returning value to shareholders.
- Strong financial performance: Crocs’ core brand reported a 21.2% year-over-year increase in net sales in the most recent quarter.
- Expansion opportunities: Crocs’ acquisition of the HEYDUDE brand presents opportunities for growth in new markets.
- Free cash flow: Crocs’ free cash flow for the first nine months of 2021 was $138.5 million.
- Share buyback plans: The company announced a $150 million share buyback program in October 2021.
Conclusion
Despite some challenges in the wake of the HEYDUDE acquisition, Crocs remains a high-quality shoe brand with impressive operating and financial metrics. The company’s strong financial performance and attractive valuation make it an attractive investment opportunity for those looking for significant potential outperformance. Furthermore, the continued success of the Crocs brand and its expansion into new markets will provide consumers with high-quality, comfortable shoes at reasonable prices. The footwear industry as a whole may also be influenced by Crocs’ success, leading to new innovations and growth opportunities.
Investors and consumers alike can look forward to a bright future for Crocs, Inc. as the company continues to grow and innovate in the footwear industry.
