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Crocs CRUSHES Wall Street Estimates! But Is This Brand Hitting a Speed Bump?

 
  • user  Hadar.Goldberg
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    Hadar.Goldberg  Hadar.Goldberg
     
      
     
     
     

    Hadar Goldberg is a talented financial journalist with a strong passion for analyzing the stock market. She has a deep understanding of financial markets and is skilled at conducting research and analysis to uncover valuable insights for her readers. Hadar is known for her ability to explain complex financial concepts in a clear and concise manner.

     
 
 
 

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Summary

 
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Crocs delivered another stellar quarter, CRUSHING Wall Street's revenue and earnings forecasts
 
•  
The footwear maker's iconic clog brand remains red-hot, allowing it to raise full-year profit guidance
 
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But newly issued projections reveal HeyDude, acquired just last year, is faltering badly
 
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Crocs now expects HeyDude sales to PLUMMET by up to 19% in Q2 and DECLINE 8-10% for full year 2023
 

Crocs (CROX) kicked off 2023 with a bang, reporting Q1 results that handily exceeded expectations and allowing the footwear maker to boost its full-year profit outlook. But the company's sunny headline numbers masked underlying weakness in a key segment – the newly-acquired HeyDude BRAND.

 

For the quarter ended March 31, Crocs posted revenue of $939 million, up a healthy 6.2% from the prior year and comfortably ahead of analysts' consensus estimate of $884 million. Earnings per share of $3.02 crushed the $2.25 expected by Wall Street.

 

The beat was driven by continued momentum in Crocs' iconic clog line, whose funky, go-anywhere styling has proven a major hit with consumers. Gross margins expanded by 180 basis points to 56% as the company retained pricing power despite economic headwinds.

 

Buoyed by the strong start to the year, Crocs raised its full-year EPS guidance to a range of $12.25 to $12.73, up from its prior forecast of $12.05 to $12.50. At the midpoint, the new outlook exceeds the $12.47 analysts were projecting.

 

However, the cheery headline numbers were tempered by a severe profit warning for HeyDude, the casual footwear brand Crocs acquired in late 2022 for $2.5 billion. Crocs now expects HeyDude sales to decline by a staggering 8% to 10% for full-year 2023. For the current quarter, the company slashed its outlook from roughly flat to a jaw-dropping 19% plunge.

 

The dramatic downward revision caught analysts flatfooted and represents a stark about-face from just three months ago when Crocs projected HeyDude revenue would grow modestly in 2023. CEO Andrew Rees cited "lower-than-expected consumer demand" for the brand's laid-back, ultra-casual aesthetic.

 

While Crocs plans to "prioritize the health" of HeyDude with stepped-up marketing and new product launches, the dismal outlook calls into serious question the company's rationale for the acquisition. Crocs paid a rich 16x forward EBITDA multiple to bring HeyDude into the fold, betting the "premium casual" brand would unlock a major new growth vector.

 

For now, though, HeyDude appears stuck in the mud even as Crocs' signature line continues stealing market share from embattled incumbents like Nike and Adidas. Only time will tell if Crocs' nine-figure investment in HeyDude was money well spent or a case of overestimating long-term demand for the "ookiledi-dukers" that defined casual footwear in the early 2020s.

 

While Crocs overall results hardly spell disaster, the HeyDude fiasco is cause for concern and presents the first serious blemish on an otherwise stellar growth story. Investors would be wise to scrutinize forward guidance with a critical eye until HeyDude's trajectory stabilizes.

 
 

CROX Stock Analysis

 
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