8. Crocs, Inc. (NASDAQ:CROX)
No. of Hedge Funds as of Q2 2024: 40
Crocs (NASDAQ:CROX) specializes in designing, developing, marketing, distributing, and selling casual lifestyle footwear and accessories for women, men, and children. It operates under the Crocs Brand and the HEYDUDE Brand segments. The Crocs Brand segment offers a collection of Croslite material, a molded footwear technology formulated to create odor-resistant, comfortable, soft, lightweight, and non-marketing footwear. The HEYDUDE Brand, in contrast, operates in more than 80 countries, and offers a collection with a versatile silhouette.
It functions through two distribution channels: direct-to-consumer and wholesale. The direct-to-consumer channel includes company-operated e-commerce sites, retail stores, and third-party marketplaces. The wholesale channels cover international and domestic mon-branded partner stores, multi-branded retailers, distributors, and e-tailers.
Crocs (NASDAQ:CROX) is running on solid fundamentals. It reported revenue of more than $1.1 billion in Q2 2024, making it the highest quarterly achievement in the company’s history. Its strong performance resulted in a record free cash flow, allowing the company to pay down $200 million in debt. It also repurchased $175 worth of its common stock, highlighting a solid profitability model for the company.
The company is undertaking enterprise initiatives to continue this growth trajectory, focusing on three primary levers to support long-term and durable growth. These include igniting icons across its brands to boost awareness and global relevance for new and existing customers, undertaking strategic investment behind talent to drive market share gains across its Tier 1 markets, and methodically diversifying its product range and usage occasions to attract new customers to its brands.
Crocs (NASDAQ:CROX) recorded broad-based strength across different geographies through initiatives led in the Tier 1 markets. North America outperformed expectations in the quarter, gaining market gain with a revenue growth of 3% as compared to last year in a relatively flat market. This growth was primarily driven by solid DTC channel growth and improved advanced demand from retail partners. International revenue also grew by 22% compared to last year, boosted by significant growth in China and Australia. China grew approximately 70% on top of last year’s triple-digital growth. While Chinese customers appear to become cautious in spending in other segments, the opposite is happening for Crocs (NASDAQ:CROX), giving the company a strong competitive advantage through its accessible and personalized brand position.
Choice Equities Capital Management stated the following regarding Crocs, Inc. (NASDAQ:CROX) in its first quarter 2024 investor letter:
“Shares of Crocs, Inc. (NASDAQ:CROX) and Shake Shack, Inc. (SHAK) appreciated meaningfully as recent earnings results were positively viewed and some bear point debates began to move into the rearview mirror. CROX – In the case of Croc’s, the stock continues to trade at an attractive high-single-digit multiple of earnings. Importantly, the company is making significant progress in turning the tide for HeyDude after sales of the brand hit an air pocket due to higher-than-wanted inventories in the wholesale channel last year. Inventory levels have improved, enabling average selling prices to move higher, while the new HeyDude distribution center in Las Vegas has also now become operational. Along with an expansion of HeyDude-specific outlet stores, which are very high margin and drive nearly a third of Crocs’ brand North American sales, it looks like the Croc’s playbook is nearly fully in place. And just last week, the company announced Terence Reilly would return to the company as president of the brand. Bringing Reilly back into the fold seems a very promising move. He deserves a great deal of credit for Croc’s resurgence, which he described as taking it “from meme to dream” when he was previously with the company as head of marketing from 2013 to 2020. He clearly seems to have a knack for creating buzz around a brand, given his recent success at Stanley, where he was CEO after driving sales of the famed “Stanley Cup” up ten-fold to $700M in just four years. (An insightful interview with him on his approach to marketing and management – and the back story on how Stanley went viral by giving away a car to a car collision survivor – can be found here.) It seems prospective marketing success can often be as hard to predict as it is important to a brand’s vitality. But here, it looks like Reilly is a proven winner. Might he again be able to create a sensation around a brand like HeyDude, one that has high affinity amongst existing customers yet still low-brand awareness more broadly? Given recent operational improvements, the brand seems well positioned to again focus on playing offense and improved brand performance may be right around the corner”.
