Crocs stock leaps as strong sandals, international sales lead to big earnings beat

7:32 am ET February 17, 2023 (MarketWatch) Print

By Tomi Kilgore

Stock rallies to highest close in 13 months after casual footwear company beats Q4 earnings expectations, provides upbeat outlook

Shares of Crocs Inc. leapt to a 13-month high Thursday, after the casual footwear seller reported a big fourth-quarter profit beat, amid strong growth in sandals and international sales, and provided an upbeat revenue outlook for the current quarter.

Sandals sales grew 53% in the fourth quarter, but was still just 10% of total brand revenue. And Chief Executive Andrew Rees said on the post-earnings conference call, according to an AlphaSense transcript, that he expects sandals to be "the fastest-growing product category in 2023," with sales reaching $400 million.

For International, Rees said sales growth was "exceptional" at 47%, when taking out the impact of changes in currency exchange rates. That included 75% Crocs brand revenue growth in Asia and EMEALA (Europe, Middle East, Africa and Latin America), as well as 105% growth in the U.K.

"We have now seen eight consecutive quarters of strong double-digit growth outside of North America," Rees said. "We anticipate even greater growth as the Crocs brand has approximately one-third the penetration internationally that it has here in the U.S."

The stock (CROX) rallied 4.4% to $131.20 on Thursday, the highest close since Jan. 12, 2022. The stock has run up 14.3% amid a five-day win streak.

For the fourth quarter, net income fell to $137.7 million, or $2.20 a share, from $154.9 million, or $2.57 a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share rose 23.3% to $2.65, well above the FactSet consensus of $2.26.

Revenue grew 61.1% to $945.2 million, beating the FactSet consensus of $939.1 million. Direct-to-consumer (DTC) revenue, which includes retail and e-commerce, increased 61.2% and wholesale revenue rose 61.1%.

Meanwhile, cost of sales grew much more than sales, up 109% to $448.8 million, as gross margin contracted to 52.5% from 63.4%. The company said half the gross margin contraction related to the addition of the HEYDUDE brand, as that acquisition closed in January 2022.

"In summary, throughout 2022, we delivered strong revenue growth, profitability and cash flow," said Chief Financial Officer Anne Mehlman. That, along with "tight working capital management" enabled the repayment of $300 million of debt during the fourth quarter.

For the first quarter, the company expects adjusted EPS of $2.06 to $2.19 and revenue growth of 27% to 30%, while the FactSet consensus was for EPS of $2.08 and for revenue of $819 million, which implied 24% growth.

"Looking forward to 2023, we expect another year of robust revenue growth, top-tier margins and significant cash flow generation," CEO Rees said.

CFRA analyst Zachary Warring raised his price target on Crocs' stock by 20%, to $150 from $125, while reiterated the strong buy rating.

"We see upside to shares of [Crocs] as they continue healthy top-line [revenue] growth, while generating strong free cash flow, enabling them to pay down debt quickly," Warring wrote in a note to clients.

The stock has soared 33.5% over the past three months, while the S&P 500 index has gained 3.6%.

-Tomi Kilgore

(END) Dow Jones Newswires

February 17, 2023 07:32 ET (12:32 GMT)