With inflation raging and consumers adjusting their spending to account for higher basic costs of living, one might expect a company like Crocs (CROX -1.97%) to be doing poorly. The foam clogs company is holding its own, though, continuing to grow sales while maintaining exceptional profit margins. 

Crocs  -- including its new brand, Hey Dude, which it acquired early this year -- also raised its outlook for full-year 2022. Nevertheless, even after a post-quarterly report stock pop, the shares are still down well over 50% from a year ago. Is now the time to buy Crocs stock? 

How Crocs beat inflation and the dollar

Crocs' total revenue increased 57% year over year in the third quarter to $985 million, easily sailing past its own expectations for sales to be as much as $955 million. This came in spite of ongoing inflationary pressures as well as a record run-up in the U.S. dollar (a side effect of the U.S. Federal Reserve's interest rate hikes).

A strengthening dollar reduces the value of international revenue. Though nearly two-thirds of Crocs sales are in North America, the dollar's record run still had a significant effect. Excluding the negative effect of currency exchange, revenue would have grown 63% year over year in the last quarter -- making that revenue beat all the more impressive.

How did Crocs pull it off? The primary driver is the Hey Dude brand, which was taken over in February. Hey Dude sales generated $269 million in revenue in Q3, in a segment that was non-existent in Crocs' financial report in 2021. If Hey Dude were still a stand-alone company, sales would have increased a sizzling 87% compared to the same period in 2021.  

The original Crocs brand was no slouch either. Total brand sales grew 14%, or 19% when excluding currency exchange rates. North America grew at a pedestrian 2% rate. However, as the company outlined at its investor day in September 2021, Crocs still hasn't made much headway internationally -- especially in Asia.

As management promised, investing in overseas marketing and increasing sales channels would be a priority. That's clearly starting to pay off already. Crocs revenue from the Asia Pacific region exploded 66% higher in Q3, or up 82% when backing out exchange rates.

Record profit margins in spite of inflation

Inflation and the dollar weren't just pesky headwinds for sales. Inflation and a strong dollar also have the ability to destroy profit margins if a company doesn't have the ability to raise prices. 

After years of expanding its capacity and realizing higher margins along the way, Crocs' best-in-class operating margins for the shoe industry started to deteriorate this year. High material costs and shipping were prime culprits as were expenses associated with integrating Hey Dude into the mix.

But as it begins realizing some benefit from investments into online sales and distribution centers, Crocs' margins are back on the rise again. The operating profit margin was 26.8%, up from 25.7% in the second quarter and just 18% in the first.

Chart showing overall rise in Crocs' quarterly operating margin since 2018.

Data by YCharts.

After the Q3 update, Crocs now trades for just 8.9 times trailing 12-month earnings. However, with management slightly raising revenue guidance by about $50 million for full-year 2022 and increasing its outlook for operating profit, this growth story remains intact. This looks like an incredibly cheap shoe stock to me, so I'll be adding to my position as we head into 2023.