What happened
Shares of shoe company Crocs (CROX -1.12%) jumped to 52-week highs on Thursday after the company reported financial results for the fourth quarter of 2022. As of 10 a.m. ET today, Crocs stock was up 9% after rising about 14% earlier in the trading session.
So what
For 2022, Crocs' revenue increased 54% year over year to $3.6 billion. Not all of this growth was organic. The company acquired the Heydude footwear brand early in the year, and it contributed almost $900 million to the top line from the time the acquisition was complete. However, the Crocs brand still had organic growth of almost 15%, which is strong.
The Heydude acquisition did lower Crocs' gross profit margin and operating profit margin. Gross margin dropped from 61.4% in 2021 to 52.3% in 2022; operating margin dropped from 29.5% to 23.9%. And investors don't like to see margins go down.
That said, Crocs delivered diluted earnings per share of $8.71 for the year, which was up 23.5% from the prior year. And this was more than what Wall Street was expecting, a big reason the stock hit a 52-week high today.
Now what
There's twofold good news for Crocs' shareholders when looking forward. First, it was expected that Heydude would initially lower Crocs' overall profitability. But part of the investment thesis is the expectation that management can bring Heydude's margins up to Crocs' level within the next few years. If this eventually happens, Heydude's profits will go from a headwind to a tailwind.
Second, Heydude is already overdelivering on Crocs' expectations. Prior to its acquisition, management hoped Heydude would reach $1 billion in annual revenue by 2024. But with $986 million in revenue in 2022, Heydude almost hit the target two years early.
Trading at 15 times its trailing earnings, Crocs stock isn't the bargain it was in early 2022, when it traded at just 4 times earnings. However, things are going very right for the company right now, and the market seems to be recognizing that today.
