Technically speaking, summer in the United States doesn't begin until June 21. But even here in May, plastic-sandals specialist Crocs (CROX 1.47%) already looks blazing hot.

In its just-reported earnings, Crocs boasted of tremendous growth in the first quarter of 2022 with sales surging 44% year over year to $660.1 million and adjusted earnings up 38% at $2.05 per share. Business is going so well, in fact, that after crushing analyst predictions for both sales and profits in the quarter, Crocs proceeded to raise its guidance for the rest of this year as well.  

Management now expects to make $3.5 billion in sales over the course of 2022 and earn adjusted profits of between $10.05 and $10.65 per share. Not all of Crocs' news was good, however.

A row of six brightly colored plastic shoes.

Image source: Getty Images.

Sales soar, but profits look poor

Despite crushing analyst forecasts, Crocs stock has since dropped some 10%. Part of the reason was doubtless because the whole stock market was tumbling. The Nasdaq was down nearly 5% this past Thursday. But another big part of Crocs' stock price weakness, I suspect, was the fact that while its sales were soaring, the company made a lot less profit per pair of shoes sold.

Granted, judging from the numbers up above, this may not be obvious but is nonetheless true. While adjusted earnings rose 38%, Crocs' profit -- as calculated according to generally accepted accounting principles (GAAP) -- actually declined 19% year over year to just $1.19 per share. This was due to a combination of higher input costs and increased air-freight expenses.

Gross profit margins at Crocs plummeted 580 basis points in the quarter to 49.2%. Selling, general, and administrative expenses headed in the other direction, rising 330 basis points. As a result, operating profit margins at the shoemaker came crashing down by a staggering 910 basis points to just 18%.

With each incremental sale of a pair of shoes bringing so much less profit, it's no surprise that profits fell despite the rise in sales.

What's next for Crocs?

Can Crocs reverse this trend as the year progresses and turn its stock price around? It's not at all that clear.

In giving guidance for the rest of 2022, Crocs accentuated the positive, predicting sales will continue to skyrocket 52% to 55% over 2021 levels. Management's guidance on earnings, however, took the form of adjusted numbers. As we've seen above, Crocs' adjusted earnings aren't the problem -- it's Crocs' actual GAAP numbers that are suffering.

Crocs also said that it expects to incur higher costs for air freight through at least the first half of this year. And it's predicting slightly lower (26% to 27%) adjusted operating margins over the next three quarters than it enjoyed in Q1 alone. So unless I miss my guess, this all implies that real GAAP earnings for the year could significantly underperform Crocs' promise of $10-plus in adjusted profits.