After posting a monster sales gain of 66.9% in 2021, it seemed like nothing could get in the way of Crocs (CROX 0.45%), the famous maker of trendy foam clogs. High inflation, rising interest rates, and recessionary fears still couldn't stop the business, which saw revenue jump another 53.7% in 2022, continuing its strong momentum.
This stellar performance has catapulted Crocs shares 58% over the past six months. However, they are still down 34% from their all-time high, which was set in November 2021. This means that now might be a good time to buy this popular footwear stock on weakness. Here's what you should know about Crocs.
Crocs is a strong brand
Crocs' key competitive advantage is the presence of a powerful brand. The business sells its shoes in more than 85 countries worldwide, and the flagship foam clog is widely recognizable. Bolstering the brand is the company's effective marketing strategy. Crocs leans heavily on various partnerships to gain broader appeal.
For example, special clogs were made in collaboration with superstar artists like Justin Bieber and Bad Bunny, as well as with luxury fashion house Balenciaga. Being associated with other popular brands can help lift Crocs' status to new heights.
In the world of fashion, having a strong brand is table stakes to find success in a highly competitive industry, one where people have a great number of choices in front of them. But the challenge doesn't end there. Companies must be able to remain relevant over longer periods of time.
I point out this concern of brand image because it wasn't too long ago that Crocs was dealing with some issues of its own. After overextending itself, the business was on the verge of bankruptcy during the Great Recession, when sales tanked, and net losses mounted. And later in 2013, Crocs received a $200 million investment from Blackstone to shore up its liquidity position.
The current CEO, Andrew Rees, took the lead role in 2017 and has since righted the ship by focusing on Crocs' core competencies, while making it a priority to better manage inventory. Crocs' $3.6 billion in 2022 revenue, which was up a whopping 53.7% year over year, demonstrates that the business is firing on all cylinders right now.
The main Crocs brand registered a 14.9% sales gain, so most of the credit actually goes to the important strategic acquisition of HeyDude in December 2021. HeyDude is another casual footwear company that has helped to diversify the parent company's revenue sources. Benefiting from Crocs' distribution and marketing capabilities, HeyDude generated $866 million in revenue in 2022, up 54% year over year.
According to Piper Sandler's Fall 2022 Taking Stock With Teens survey, Crocs and HeyDude were voted as the fifth and seventh most popular footwear brands, respectively. Both rankings were an improvement from the previous report. This is clearly a good sign for the company going forward.
Besides its outstanding growth, Crocs is also a wonderfully profitable company, with an operating margin of 23.9% in 2022. This metric is better than other prominent businesses in the industry like Nike and Under Armour. Even more impressive is Crocs' gross margin of 52.3%, which again showcases how well the brand is resonating with consumers.
Management is optimistic
Crocs' recent success is remarkable, but the management team has high hopes for the shoe brand as we look ahead. The overarching goal is for the company to generate revenue of $6 billion by 2026. This would represent healthy double-digit annual gains between 2022 and then. Crocs plans to increase its sales of sandals to represent a larger part of the business.
Further penetrating Asia is another objective. To be more specific, management wants China to account for 10% of overall revenue by 2026.
Wall Street analysts are tempering their expectations, though. Consensus estimates call for sales to total $5.6 billion in 2026, below the leadership team's outlook. But they do predict that earnings per share will rise at a compound annual rate of 19.2% between 2022 and 2026, a solid trend no doubt.
Given that Crocs' shares are down 34% from their peak, they are currently trading hands at a ridiculously cheap price-to-earnings ratio of 14. When you consider the company's outsized growth, as well as its sizable profitability, it's hard for investors to pass up this kind of rare opportunity.
