What happened
Shares of Crocs (CROX 2.15%), the comfort footwear specialist, were falling last month after a strong earnings report wasn't enough to buck the broader fears about an economic slowdown, and the ongoing reopening weighing on stocks that rose during the pandemic like Crocs. Best known for its foam slip-on shoes, Crocs was one of the rare apparel companies that did well during the pandemic as comfort clothing sold briskly.
The company also handily beat estimates in its first-quarter earnings report and raised its guidance, but that wasn't enough to counter the massive broad-market sell-off that took place at the same time. According to data from S&P Global Market Intelligence, the stock finished May down 16%.
Image source: Crocs.
As the chart below shows, the stock fell sharply after the earnings report came out and didn't recover those losses, either.
So what
Crocs delivered strong results in its first quarter with revenue up 44% to $660.1 million, helped by $114.9 million in new revenue from its February acquisition of HEYDUDE. The new top-line result easily beat estimates of $621.9 million.
On the bottom line, adjusted earnings per share improved from $1.49 to $2.05, which was also ahead of expectations of $1.55.
For the full year, the company forecast revenue growth of 52% to 55%, or about $3.5 billion, with 20% of that growth coming from the Crocs brand, in line with its performance in the first quarter. It also sees earnings per share of $10.05 to $10.65.
Crocs stock was actually up in pre-market trading on May 5, the day the earnings report came out, but it quickly fell once regular trading began; the broad market crashed after the Federal Reserve raised interest rates by a half a point the day before and signaled it could follow that with more half-point raises.
Crocs fell 9% that day and shed 25% over a three-day span as the broad market continued to plunge on fears of rising interest rates and a potential recession.
Though the S&P 500 actually rallied at the end of the month to finish flat, Crocs still finished May down significantly.
Now what
There's no good explanation for Crocs' slide last month, and, in fact, the stock looks dirt cheap, trading at a price-to-earnings ratio of less than 6 based on this year's expected earnings.
The best explanation may be that fashion tastes can be fickle, especially with a line of footwear like Crocs. While the company has boomed during the work-from-home era, as more Americans return to the office and a regular travel schedule, Crocs could take a hit. The company's guidance doesn't indicate any of those headwinds, but that may be what investors are fearing.
