Stock Crocs: The shoes are plastic, but the price is gold (NASDAQ: CROX)


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The premise

The company was founded by Lyndon Hanson, Scott Seamans and George Boedecker in 2002 primarily to create boat shoes. fangs (NASDAQ:CROX) made a major breakthrough when people started seeing these shoes on the feet of celebrities like Al Pacino and Matt Damon. From then on, counterfeits began to circulate at much more affordable prices. With the 2008 crisis, the company lost $185 million and began to run into debt: layoffs and warehouses full of unsold goods were the norm. As a result, a period of economic crisis began for the company, ending in 2014 with a 44% drop in profits, leading to a real collapse. Since 2018, the company has undergone a commercial recovery: it invests in online advertising and has initiated numerous collaborations with famous personalities and brands. In 2021, Crocs acquires the Italian company HeyDude.

The new trade policy

A relatively clear picture can be drawn by reconstructing the marketing choices of recent years made by Crocs. In 2018, Crocs collaborated for the first time with one of the most influential brands in the world, Balenciaga. This first collaboration was followed by others, including famous faces from the world of music, such as the collaboration with singer Post Malone in 2019, the collaboration with South American singer Bad Bunny in 2020, and the second collaboration in 2021 with Justin Bieber.

But the most effective marketing choice in recent years has been the one made during the pandemic. In 2020, Crocs donated more than 860,000 pairs of shoes globally – worth $40 million – to healthcare workers. This gave the company unprecedented national exposure. In addition, the values ​​attributed to the product have also changed in consumer perception: the value of cleanliness and safety has been added to comfort.

To sum up the company’s brand policy, it is helpful to read the words of Crocs CEO Andrew Rees: “Our goal is not to endear the brand to detractors; it’s to exploit it extrinsic stress because it creates opportunities, it creates public relations, it creates media, it creates interest. It creates a lot of things that would cost you a fortune if you bought them otherwise.”

Jibbitz™ Customization

Jibbitz charms can be added to the shoes to personalize the product. These charms range from $5 to $20 for more complex sets and drive high levels of engagement and purchase frequency as they allow the shoe to be transformed according to the contexts and moods of the buyer. Crocs enjoys licensed partnerships with Disney (Marvel and Lucasfilm) Warner Bros, Nintendo and Nickelodeon.

Acquired HeyDude

The most significant event that marked Crocs’ 2021 was the announcement of the decision to acquire the Italian company HeyDude (the acquisition was then finalized on February 22, 2022). HeyDude produces shoes that look like contemporary, modern shoes while providing the comfort of slippers. Thus, the comfort of the shoes is also a feature of the famous Crocs clogs.

The acquisition was funded by a $2.0 billion Term Loan B maturing in 2029 and bearing interest at SOFR (with a SOFR floor of 0.50%) plus 3.50%. In addition, Crocs increased its commitments under its $100.0 million revolving credit facility to a total of $600.0 million. They drew $50.0 million on the senior revolving credit facility to fund the balance of the cash consideration for the acquisition. HeyDude is expected to achieve revenues of approximately $700-750 million, including the period prior to the closing of the acquisition, and $620-670 million on a consolidated basis as of February 17, 2022.

The acquisition of HeyDude was viewed very negatively by the market, and since the announcement, Crocs stock has fallen over 65%. Investors are concerned about the huge debt incurred by the company to finance the acquisition. A period of rising interest rates represents a significant risk to the strength of the balance sheet. However, this acquisition solves an important problem for Crocs: poor diversification.

The shoe market

The global footwear market is difficult to frame: firstly, it must be divided into sports shoes, leather shoes, sneakers and textile shoes and others. Often, companies operating in this sector focus on just one or two of these markets. Crocs, in particular, wants to be the leader in the sandals market, which to date sees no company clearly excelling over the others.

Crocs - revenue by segment

Turnover by segment (statista)

Footwear market revenue is $381.90 billion in 2022 and analysts forecast annual growth of 5.88% (CAGR 2022-2027). Most revenue is generated in the United States ($85.84 billion in 2022), which is also Crocs’ main market. Crocs had $727 million in revenue in the Americas, compared with $184 million in Asia (where the top markets are Japan, South Korea and China) and $262 million in EMEA. Market penetration by Crocs is therefore very low and there is plenty of room to grow, especially in North America and Asia, where the brand is highly regarded.

income from crocs

Income (10k Crocs)

An uncertain economic environment

The last six months have been very problematic for the economy. Rising energy costs have had a negative impact on transportation, and the price of plastic, one of the main components of Croslite, the technology behind the clogs, has also increased.

Supply chain issues

One of the significant issues Crocs has faced in recent months has been the closure of its factories in Vietnam and China due to the coronavirus. In China, where the population is less vaccinated and more susceptible to coronavirus infections, fall and winter could further disrupt the supply chain. The company responded to this problem by opening new factories in Indonesia and Bosnia. Another major difficulty is rising fuel prices. Earlier this year, the company told shareholders that to avoid slowdowns in cargo delivery, it would increase air shipments at the expense of sea shipments and mitigate the impact of rising shipping container prices. This choice, however, should be reconsidered now that fuel prices are skyrocketing.

Rise in inflation

Tuesday’s inflation data is not a dream for investors, especially for companies that sell discretionary assets like Crocs. The FED’s hike in interest rates will also contribute to contracting demand, partly explaining the pessimism of investors towards this stock and the entire fashion sector. However, unlike other companies in the fashion industry, Crocs’ products, with their very competitive prices (a pair of clogs sells for around $55), may be less affected by price increases and the removal special offers.

Crocs Stock Valuation

Crocs, at this time, seem particularly undervalued. Its stock price has fallen by 70% since November 2021, leading to a considerable drop in multiples. Right now, the company has a PS of 1.3 and a PE of 4.8, shallow values ​​even compared to the rest of the industry. However, the valuation again looks attractive considering the company’s free cash flow yield. Investors fear that the company may find itself in a value trap and that its profits will decline in the coming years due to high inflation and a drop in demand, as has already happened in 2008. Additionally, the $2 billion in debt the company has on its balance sheet for the acquisition of HeyDude makes it less attractive in times of high inflation rates. However, unlike then, brand perception among shoppers has improved dramatically (as evidenced by the last three years of fantastic growth) and the acquisition of HeyDude has allowed Crocs to diversify its products. That’s why analysts expect significant revenue growth in the coming years, with a CAGR of 14% through 2026.


Crocs is not without risk: inflation, the supply chain and interest rates are the worst enemies of this investment. On the other side, however, there is a company that has achieved extraordinary results in recent years, increasing the value of its assets almost 10 times in just four years. Moreover, the management has already proven its ability on several occasions by revitalizing a brand that seemed dead and making a significant acquisition for the future growth of the company.


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