Innovative casual footwear manufacturer Crocs, Inc. (CROX) reported outstanding third-quarter financials, including record revenue of $985.10 million and an industry-leading adjusted operating margin of 28%, which are a testament to the strength of the Crocs and HEYDUDE brands.

Andrew Rees, CROX’s CEO, said, “We are raising 2022 guidance following our strong back-to-school performance and 20% constant currency revenue growth in the Crocs Brand. We are confident in our ability to continue to gain significant market share, deliver best-in-class profitability, and generate strong cash flow.”

For the full-year 2022, the company expects consolidated revenues to be approximately $3.46 to $3.52 billion, representing year-over-year growth between 49% and 52%. CROX’s adjusted operating income is now expected to be $920-$950 million, and its adjusted operating margin is expected to be nearly 27%. In addition, the company now expects its adjusted EPS to be between $9.95 and $10.30.

Despite CROX’s strong financial performance and promising full-year guidance, the stock continues to face a challenging consumer environment. Inflationary pressures, the Fed’s aggressive rate hikes, and ongoing supply chain issues will likely keep the stock under pressure in the near term.

Shares of CROX have declined 9.8% over the past year to close the last trading session at $113.43. Furthermore, Wall Street analysts expect the stock to hit $105.60 in the next 12 months, representing a 6.9% downside.

Here is what I think could influence CROX’s performance in the upcoming months:

Solid Financials

In the fiscal third quarter ended September 30, 2022, CROX’s revenues increased 57.4% year-over-year to $985.09 million, while its non-GAAP gross profit grew 35% from the year-ago value to $542.58 million. Its non-GAAP income from operations came in at $274.47 million, up 33.8% year-over-year.

Furthermore, the company’s non-GAAP net income and non-GAAP net income per share came in at $185.37 million and $2.97, registering increases of 18.4% and 20.2% from the prior-year period, respectively.

Mixed Analyst Estimates

Analysts expect CROX’s EPS for the fiscal 2022 fourth quarter (ended December 31, 2022) to come in at $2.04, representing a decline of 4.9% year-over-year. However, the consensus revenue estimate of $902.10 million for the to-be-reported quarter indicates a 53.8% year-over-year increase. Moreover, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

In addition, the company’s EPS and revenue for the next fiscal year (ending December 2023) are expected to rise 3.4% and 11.7% from the previous year to $10.66 and $3.92 billion, respectively.

Mixed Valuation

In terms of forward non-GAAP P/E, CROX is currently trading at 11.01x, 19.1% lower than the industry average of 13.61x. The stock’s forward EV/EBIT multiple of 10.36 is 20.5% lower than the industry average of 13.03.

However, CROX’s forward EV/Sales of 2.78x is 139.3% higher than the industry average of 1.16x. Also, the stock’s forward Price/Sales of 2.00x is 125.1% higher than the industry average of 0.89x.

POWR Ratings Reflect Bleak Prospects

CROX has an overall rating of D, translating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CROX has a D grade for Stability, in sync with its two-year beta of 1.71. In addition, it has a C grade for Value, consistent with its mixed valuation.

CROX is ranked #60 out of 67 stocks in the Fashion & Luxury industry.

Beyond what I have stated above, we have also given CROX grades for Sentiment, Momentum, Quality, and Growth. Get all CROX ratings here.

Bottom Line

CROX delivered exceptional third-quarter results, including record revenue and industry-leading operating margin. Moreover, the company raised its full-year 2022 guidance and seemed confident in its ability to gain significant market share and deliver high profitability.

However, the company’s near-term prospects look bleak, with analysts expecting its EPS to decline for at least the next two quarters. Consumer-facing businesses, including CROX, continue to suffer from overall economic uncertainty and supply chain instability. Given CROX’s weak growth prospects and enhanced volatility, we think it could be wise to avoid the stock now.

How Does Crocs, Inc. (CROX) Stack up Against Its Peers?

CROX has an overall POWR Rating of D. One could also check out these other stocks within the Fashion & Luxury industry: Hugo Boss AG (BOSSY) with an A (Strong Buy) rating, and Chico’s FAS, Inc. (CHS) and J. Jill, Inc. (JILL) with a B (Buy) rating.

CROX shares fell $0.24 (-0.21%) in premarket trading Tuesday. Year-to-date, CROX has gained 4.39%, versus a 1.32% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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