Crocs is a ‘brand management story, not a fad’ + more reasons analysts are defending the label
Crocs Inc. isn’t just riding the pandemic exit wave, it’s thriving.
Like many of its peers, FN’s 2020 Brand of the Year has seen renewed activity thanks to recent reopenings, fiscal stimulus and an accelerating trend towards casualization. But, after a massive beating in earnings and a positive outlook, analysts suggest its outstanding performance is not just short-term.
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At market close, CROX stock was up 15.3% to nearly $98. Shares jumped shortly after the release of its first-quarter financial report and conference call, where CEO Andrew Rees announced “record” sales and earnings – and suggested that management was “incredibly optimistic about in the balance sheet for 2021”.
Since the first quarter of fiscal 2019, according to UBS analyst Jay Sole, Crocs has exceeded sales forecasts by an average of 7.5%. This morning, the clog maker reported a 63.6% improvement in Q1 2021 revenue to $460.1 million, versus consensus bets of $415.3 million.
“Our recent conversations with investors indicated that many were expecting a beat, but we believe today’s uptick in FY21 guidance exceeds lofty market expectations,” he wrote. in a release note.
Sole added that another better-than-expected figure was the brand’s gross margin, which improved by 55.2%. “This suggests that CROX’s initiative to raise prices is working much better than many thought,” he explained. “The beating in gross margin also has potentially large and positive implications for earnings over the year if the gains are sustainable, and it likely has a good effect on the stock’s price-earnings ratio.”
For the three months ended March 31, Crocs reported adjusted earnings of $1.49 per share, compared with earnings of 16 cents per share a year earlier. Wall Street had predicted a profit of 89 cents per share.
Following the conference call, Williams Trading analyst Sam Poser raised his price target for the brand from $111 to $160. In a note, he touted the strength of the Broomfield, Colorado-based company’s product, marketing, and collaborations.
By category, clogs and sandals jumped 87% and 17% year-over-year, respectively, accounting for 76% and 17% of total footwear revenue. Jibbitz sales, on the other hand, more than doubled for the quarter compared to the year-ago period.
“Crocs is and continues to be a story of brand management, not a fad,” Poser wrote, citing strong messaging, vibrant collaborations, booming digital sales, product innovation and more.
While sales in the Asia-Pacific region increased 20.1% to $82.6 million, Crocs outperformed in all geographies: Europe-Middle East-Africa grew 41% to 101.1 million, and its Americas division recorded the largest increase of 87.5% to $276.4 million.
For fiscal 2021, the company expected revenue growth of between 40% and 50% from 2020 revenue of $1.39 billion. In the next quarter, sales are expected to climb between 60% and 70% over the prior year period sales of $331.5 million.
“If there was a low point in the first quarter, we missed it,” said Steven Marotta, managing director of research at CL King & Associates. “If there was a weak point in the orientation, we missed it.”
He added: “The brand – and, by extension, the company – is catching a tailwind that would make El Niño blush, capitalizing on investments made in digital capabilities, top-notch marketing talent, streamlining the organization regional and sharp strategic execution.”