It's been a good time to walk a mile in Crocs' (CROX -1.65%) shoes. The maker of distinctive, fashionably polarizing, yet ridiculously comfortable footwear has been on a tear. The stock has more than doubled over the past year, no small feat in a largely meandering market for growth investors.
Crocs has delivered a 54% annualized return for shareholders over the past five years through the end of 2022, a performance that would have beaten 499 of the 500 S&P 500 stocks if it were actually in the index. The shares are up another 39% so far in 2023, clearing the path for another market-thumping year.
Here's where the resin meets the road: Crocs will discuss its first-quarter results on Thursday morning. With the stock's big gains over the past year (and even recent months), it will need to deliver a strong report to build on its earlier upticks. There's little margin for error for a stock that hit a fresh 52-week high on Monday. Unlike its signature clogs, its fresh financials can't have any holes.
Going the distance
A big reason for the stock's success over the past year is that it was largely written off by naysayers after announcing the $2.5 billion acquisition of HeyDude in late 2021. Many figured that buying the smaller but faster-growing footwear maker was a sign that Crocs was seeing weakness for its organic sales. Reality left a different footprint.
HeyDude turned out to be a great purchase. On a pro forma basis, sales of HeyDude soared 70% to $986 million in 2022, comfortably ahead of the $700 million to $750 million that Crocs was initially modeling in announcing the deal.
Its own Crocs brand came through with a respectable 15% increase in sales in a climate where many major footwear brands were marching in place. The 15% top-line growth translates to a heartier 19% increase on a constant-currency basis.
A lot of unprofitable growth stocks fell out of favor last year, but Crocs isn't losing money. It's trading for just 17 times trailing earnings, pretty impressive for a stock that is up 118% over the past 365 days.
Crocs stock is fetching just 13 times this year's projected profit, and it's OK to believe that those analyst targets are low. It beat Wall Street earnings estimates by a double-digit percentage in each and every quarter last year.
Image source: Crocs.
What is the market expecting come Thursday? Wall Street pros see a profit of $2.17 a share -- up modestly from $2.05 a year earlier -- on a 30% rise in revenue for the first quarter.
The forecasts might seem problematic at first. Analysts are perched on the high end of Crocs' earlier guidance. In mid-February, it was projecting a profit per share between $2.06 and $2.19 on a top-line increase of 27% to 30%. But it has been able to coast through its more recent outlooks with ease. Wall Street doesn't want to get caught napping again.
Guidance will be as important as the look back at the last three months. Its February outlook calls for growth to slow dramatically for the balance of 2023, something that makes sense when you consider that the HeyDude deal closed on Feb. 17 last year. It's all organic growth from here on out. A beat-and-raise performance is almost necessary at this point to deliver new 52-week highs later this week.
Crocs isn't resting on its comfy laurels. It's investing in marketing, experiencing strong international momentum to offset a stateside slowdown, and sees sandals as a key sales driver for its namesake brand in 2023.
It's taking big steps among shoe stocks that historically take small strides. The stock is still a bargain if it can continue to deliver double-digit growth for the balance of 2023. It can't afford a misstep now.
