Crocs, Inc. (CROX 0.22%) provided an update on third quarter revenue guidance on Sep. 11 that was higher than consensus estimates of $276.3 million. Crocs now projects its revenue for the current third quarter to increase 10%, or $344 million vs. the $312.8 million in the third quarter of 2019. The shoe company, known for its comfortable and trendy clogs, cited "exceptional consumer demand and strong sell through."
Here are three reasons why Crocs' business has momentum.
Benefiting from consumer trends
An increased interest in comfort dressing seems to be benefiting Crocs' business, as the company is known for its comfortable, casual shoes. Because of increased time spent at home and a shift to remote work, consumers have been spending more on casual and comfortable clothing. Athleisure sales have seen a boom, as well as sales of basic casual items like sweatshirts. According to research group Ipsos, "people are five times more likely to say they are wearing sweatpants or athleisure more during the day, and four times more likely to be wearing pajamas during the day more often than before the outbreak."
Crocs CEO Andrew Rees commented on the trend toward value-oriented casual wear on the second quarter earnings call: "They're looking for comfort. They're looking for value. They're looking for great storytelling. They're looking for personalization and inspiration. And I think as a brand, perhaps, uniquely among the footwear space, we provide a lot of those aspects."
Collaboration with influencers
Crocs continues to launch popular collaborations with major designers and well-known influencers. Many of the limited editions sell out quickly and create excitement around the brand, boosting sales.
The consumer discretionary company recently released a shoe line with Kentucky Fried Chicken, channeling the "essence of 11 secret herbs and spices and looks like golden brown perfection." The Fried Chicken clog also comes with three Jibbitz charms that smell like fried chicken. Crocs offered the KFC clogs in July, and the shoes sold out the same day. Now they are available on the resale market at higher price points.
Some of the company's past collaborations ranged from partnerships with respected artists to higher-end brands. Artist Takashi Murakami has brought his bright, colorful illustrations to Crocs shoes. Fans of the shoes could also choose from an elegant collection of Crocs' brand collaboration with designer department store Liberty London.
Higher e-commerce sales and increased adoption by healthcare workers
During the second quarter, the company donated 860,000 pairs of Crocs to frontline healthcare workers as a part of its "A Free Pair for Healthcare" program to assist in the fight against COVID-19. The program's been a success, resulting in over 29 million new visits to crocs.com. This is on top of the momentum of an already strong digital business for the company, potentially boosting future digital revenue.
Ecommerce revenue in the second quarter increased by 52.4% year over year, partly due to brick and mortar closures. Ecommerce in the Americas region had triple digit growth. Crocs' CEO Anne Mehlman said on the second quarter earnings call that "The pandemic accelerated digital penetration."
The company is continuing its investments in distribution centers, like the one in Ohio that opened in 2019, to ensure a smooth expansion in digital sales. It provides additional capacity to prevent any delays during peak shopping periods. In 2019, the shoe company had delays through Cyber Monday, an important period for revenue.
Crocs' business is currently buoyed by consumer trends that favor its comfortable, casual, and value-oriented shoes. The company appears to be executing well to take advantage of this momentum. Investors may want to consider investing in shares of this consumer discretionary company.