Crocs' stock gains 4% as earnings beat offsets softness for Heydude brand

By Ciara Linnane

Analysts remain bullish on the stock amid strength in the core Crocs segment

Crocs Inc.'s stock rose 4% Tuesday, after the casual-footwear company's stronger-than-expected first-quarter earnings offset weak demand for its Heydude brand, which is expected to see sales fall this year.

Crocs (CROX) acquired the Italian brand Heydude in 2022 for $2.5 billion in cash and stock, adding a line of lightweight, casual slip-on shoes for men, women and children to its line-up. The brand accounted for about 25% of Crocs' revenue in 2023.

The company posted net income of $152.5 million, or $2.50 a share, for the quarter, up from $149.5 million, or $2.39 a share, in the year-earlier period.

Adjusted for one-time items, EPS came to $3.02, well ahead of the $2.25 FactSet analyst consensus.

Revenue rose to $938.6 million from $884.2 million a year ago, ahead of the $884 million FactSet consensus.

Chief Executive Andrew Rees said earnings were bolstered by robust demand for the core Crocs brand in North America and international markets.

However, "as we continue to prioritize brand health in the North American market for Heydude, and considering what we are seeing quarter-to-date, we are reducing our revenue expectations for the brand for the balance of the year," he added.

Crocs brand revenue rose 14.6% year over year to $744 million in the quarter, while Heydude revenue fell 17.2% to $195 million.

Crocs is now expecting its second-quarter revenue to rise 1% to 3%, and for the Crocs brand to grow 7% to 9%. It expects Heydude to contract by 17% to 19%. Adjusted EPS is expected to range from $3.40 to $3.55, while FactSet is expecting $3.48.

For the full year, the company expects revenue to grow 3% to 5%, and for the Crocs brand to grow 7% to 9%. Heydude revenue is expected to fall 8% to 10%. Adjusted EPS is expected to range from $12.25 to $12.73, while FactSet is expecting $12.47.

Wedbush analyst Tom Nikic said he remains bullish on the stock after a "solid beat-and-raise" quarter, given the strength of the Crocs brand and the opportunity to turn Heydude around.

Management identified a softening of trends starting in April that was exacerbated by the shift of the Easter holiday and a lack of promotional activity, which hurt both direct-to-consumer and wholesale sales, Nikic wrote in a note to clients.

He added that the Crocs team is excited about the recent appointment of brand president Terence Reilly, who previously worked at the company for seven years, most recently as chief marketing officer.

Reilly left in 2020 to serve as president of the Stanley water-cup brand, "overseeing that brand's phenomenal rise in recent years," Nikic said.

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CFRA was also bullish, reiterating a strong buy opinion on the stock. Analyst Zachary Warring raised his price target by $11 to $156, or about 17% above its current price.

"We expect CROX to maintain its focus on deleveraging, which we believe will drive EPS significantly higher over the next 12 to 24 months," Warring wrote in a note to clients. "We continue to believe that the company's multiple has room for expansion as well and believe CROX is a top pick within the footwear sub-industry."

The stock has gained 42% in the year to date, while the S&P 500 has gained 8.6%.

-Ciara Linnane

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05-07-24 1449ET

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