Crocs (CROX 1.43%), the iconic footwear brand known for its comfortable and distinctive clogs, made a bold move in late 2021 by acquiring HeyDude, a fast-growing competitor in the casual footwear market. The $2.5 billion purchase may have left investors wondering if this was a stroke of genius or a reckless splurge.

It helps to take a closer look at the strategic rationale behind this acquisition. Investors should evaluate its impact on Crocs' performance and whether this move aligns with the company's long-term vision and expectations for growth.

Continuing to develop a footwear powerhouse

Crocs outlined several compelling reasons for acquiring HeyDude. First, the acquisition aims to create a global leader in its space. Combining the brands more than quadrupled Crocs' market reach, according to the press release announcing the acquisition. This diversification from a single-brand company into a multi-brand powerhouse can provide resilience in a highly competitive market.

Comfortable and versatile footwear remains in high demand, and both Crocs and HeyDude cater to this trend effectively. Crocs had already achieved high digital penetration, and this acquisition further bolstered its online presence. Furthermore, Crocs saw the opportunity to fuel HeyDude's growth. Crocs initially set a lofty goal of building HeyDude into a billion-dollar brand by 2024.

Integration challenges and growing pains

While the strategic rationale behind the acquisition appears compelling, integrating two companies of this scale is no easy feat.

One of the key challenges lies in maintaining the innovative spirit and product development that made HeyDude successful in the first place. Alessandro Rosano, the founder of HeyDude, was brought into the combined team as a strategic advisor and creative director, reflecting Crocs' commitment to preserving HeyDude's unique identity and growth strategies.

Successfully managing a transition to new leadership while preserving the brand's essence remains a delicate balancing act. Building a separate leadership team for HeyDude while integrating it into Crocs' structure poses a considerable challenge. Effective communication and collaboration between these teams will likely prove essential for the acquisition's long-term success.

Strong performance to date

Despite the challenges of integration, Crocs' financial performance remains strong. In the second quarter, the company reported consolidated revenue of over $1 billion, with impressive growth of 12% compared to the prior-year period. This growth indicates success of both the Crocs and HeyDude brands, but HeyDude itself has not yet attained the lofty billion-dollar goal on its own.

Crocs Brand revenue increased by 13.8%, with significant growth seen in Asia, as well as in North American direct-to-consumer (DTC) sales. Meanwhile, HeyDude Brand's DTC revenue grew by an impressive 29.7%, indicating a positive response from consumers. Operating margin also improved, standing at 29.7%, showcasing the company's efficient management and ability to navigate challenges effectively.

The start of something big?

Integration challenges, such as preserving HeyDude's identity and building a separate leadership team, may impact the continued transition of the brand into Crocs' portfolio. There's always a risk associated with large acquisitions. The success of this undertaking will depend on Crocs' ability to maintain HeyDude's growth trajectory and capture the anticipated synergies effectively.

But Crocs' acquisition of HeyDude, while facing integration challenges, appears to align with the company's long-term vision and trends in consumer preferences for comfortable footwear. The financial performance of both footwear brands under Crocs' umbrella reflects the potential of this acquisition.

Investors should keep a close watch on the integration process and HeyDude's performance in the coming quarters. While some growing pains remain, the strategic rationale behind this acquisition suggests that it's not a regrettable splurge but rather a calculated move toward long-term growth.

Considering the potential growth opportunities and results to date, now might be an opportune time for investors to consider buying Crocs' stock.