Crocs, Inc. CROX posted solid results for third-quarter 2024, wherein the bottom and top lines surpassed the Zacks Consensus Estimate and grew year over year.
Results gained from strength in the Crocs brand and outstanding international growth. With respect to the HEYDUDE brand, management has been making improvements to aid sustainable growth. In the quarter, CROX launched TikTok Shop and has been receiving a positive response. In addition, clogs, sandals and personalization rose during the quarter, driven by the Classic Clog.
Despite solid results in the third quarter, Crocs’ shares lost 19.2% in the trading hours yesterday. The company’s HEYDUDE brand didn’t perform well in the quarter. Moving forward, Crocs expects the consumer backdrop to be comparatively muted in the United States until the Black Friday/Cyber Monday holiday period. The company is seeing higher pullback within key Tier 1 cities such as Shanghai and Beijing. In light of the broader macro landscape in China, management is taking a more cautious approach for the balance of the year. Such limitations are likely to have hurt the consumers’ sentiments.
We note that shares of this Zacks Rank #2 (Buy) company have gained 19.4% year to date against the industry’s 16.9% decline.
An Insight Into CROX’s Q3 Performance
Crocs’ adjusted earnings of $3.60 per share beat the Zacks Consensus Estimate of $3.13 and rose 10.8% year over year. Consolidated revenues rose 1.6% year over year to $1,062.2 million and beat the consensus estimate of $1,051 million. On a constant-currency basis, revenues improved 2% year over year. The top line witnessed solid growth in the direct-to-consumer (DTC) channel. DTC revenues increased 4.4%, while wholesale revenues fell 1.4%. On a constant-currency basis, revenues jumped 4.6%, while wholesale revenues dipped 0.9%.
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The Crocs brand’s revenues grew 7.4% year over year to $858 million, including a 7.7% increase in DTC revenues and a 7.1% rise in wholesale revenues. DTC comparable sales for the Crocs brand rose 4.8%. The HEYDUDE brand’s revenues fell 17.4% year over year to $204 million. The decline was due to a 22.9% decline in wholesale revenues and a 9.3% decrease in DTC revenues. DTC comparable sales for the HEYDUDE brand fell 22.2%.
Crocs, Inc. Price, Consensus and EPS Surprise
Crocs, Inc. price-consensus-eps-surprise-chart | Crocs, Inc. Quote
Total revenues in North America were up 2.1% year over year to $491 million, while revenues in the International region climbed 15.5% to $367 million. CROX saw notable growth in Australia, China, France and Germany. The company’s China business rose more than 20%, with nearly two-thirds of this growth led by the mono-brand partner stores.
The adjusted gross profit rose 5.5% year over year to $633.3 million. The adjusted gross margin expanded 220 basis points (bps) to 59.6% on lower product costs and select international price rises. Adjusted selling, general and administrative (SG&A) expenses, as a percentage of revenues, increased 510 bps to 34.2%. Adjusted operating income tumbled 8.8% year over year to $270 million. The adjusted operating margin contracted 290 bps to 25.4% from the year-ago quarter.
Financial Details of CROX
The company ended the quarter with cash and cash equivalents of $167.7 million, long-term borrowings of $1.4 million and stockholders’ equity of $1.7 billion. It had $559 million of borrowing capacity on its revolver.
During the quarter, the company repaid $110 million of debt. CROX repurchased roughly 1.1 million shares for $151 million. It had $549 million of share repurchase authorization available for future repurchases at the end of the third quarter.
Capital expenditure was $51 million as of Sept. 30, 2024. The company anticipates capital expenditure to be in the range of $90-$100 million in 2024 related to the expansion of its distribution capabilities.
CROX’s Q4 Guidance
Management has issued guidance for the fourth quarter. The company expects revenues in the range of flat to up slightly year over year at currency rates as at the end of the reported quarter.
Crocs brand’s revenues are likely to grow 2% year over year, while HEYDUDE brand’s revenues are anticipated to fall in the band of 4-6%. For the fourth quarter, management expects the international growth rate to be below the year-to-date growth rate, owing to the ongoing regulatory pressures in India. This has been adversely affecting the company’s ability to cater to the demand. For North America, it projects a negative outlook, including expectations of a more choiceful consumer and timing of wholesale shipments between quarters. It anticipates Q4 DTC to be positive.
Adjusted gross margins are likely to grow for the enterprise, with Crocs brand’s slightly up and HEYDUDE brand’s slightly down year over year. CROX expects adjusted SG&A costs to be in the high-teen range for the quarter. Adjusted earnings are projected to be in the bracket of $2.20-$2.28 per share, with the adjusted operating margin likely to be 19.5%.
What to Expect From CROX Ahead?
For 2024, enterprise revenues are likely to grow about 3% year over year at currency rates at the end of the third quarter compared with the lower end of the earlier guided range of 3-5%. While revenues for the Crocs brand are expected to rise 8%, the metric for the HEYDUDE brand is anticipated to decline nearly 14.5% on weaker-than-expected sellouts across the wholesale and digital channels. Earlier, management had projected Crocs brand’s revenues to rise in the band of 7-9%, and HEYDUDE’s revenues to drop 8-10%.
Crocs still forecasts an adjusted operating margin of more than 25% for 2024. The combined GAAP tax rate is still expected to be 21%, while the adjusted tax rate is likely to be 16%. Adjusted earnings per share are envisioned to be in the range of $12.82-$12.90, up from $10.92 recorded last year and $12.45-$12.90 guided earlier. This view does not assume any impact of share repurchases ahead. Lower-than-anticipated annual tax rate and higher share repurchases in the reported quarter aided earnings view.
In 2025, management looks forward to invest in talent, marketing, digital and retail to boost sustainable growth, thereby putting higher pressure on EBIT margin. For Crocs, management projects revenue growth in 2025, backed by international strength. It expects stabilization of the HEYDUDE brand . Crocs anticipates the first quarter to be sequentially down from the fourth quarter with respect to the size of wholesale.
Other Key Picks
Other top-ranked companies are G-III Apparel Group GIII, Gildan Activewear GIL and lululemon athletica LULU.
G-III Apparel sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
GIII Apparel has a trailing four-quarter earnings surprise of 118.2%, on average. The Zacks Consensus Estimate for GIII’s fiscal 2024 sales indicates an increase of 3.3% from the year-ago period’s level.
Gildan Activewear carries a Zacks Rank of 2 at present. GIL has a trailing four-quarter earnings surprise of 5.5%, on average.
The consensus estimate for Gildan Activewear’s current financial-year sales and earnings per share (EPS) indicates growth of 1.5% and 14%, respectively, from the year-ago levels.
lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2 at present.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS indicates growth of 9.2% and 9.8%, respectively, from the year-ago figures. LULU has a trailing four-quarter earnings surprise of 7.9%, on average.
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Crocs, Inc. (CROX) : Free Stock Analysis Report
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