Crocs Inc. CROX is a lucrative stock to gain exposure in the Consumer Discretionary sector, given its solid consumer demand, and strength in the Crocs and HEYDUDE brands.
The company boasts a robust surprise trend. Its top and bottom lines surpassed the Zacks Consensus Estimate for the 12th straight quarter in first-quarter 2023. Solid consumer demand in the new clog and sandal introductions, as well as continued momentum in the HEYDUDE brand and robust DTC growth, contributed to the quarterly results. The top line witnessed growth across all regions and channels.
The Zacks Consensus Estimate for the Zacks Rank #2 (Buy) company’s current financial year’s sales and earnings suggests growth of 13.2% and 5.7%, respectively, from the year-ago period’s reported number.
The stock has rallied 116.6% in the past year against the industry’s decline of 2%. The stock also compared favorably with the Consumer Discretionary sector’s and S&P 500’s growth of 2.8% and 10.3%, respectively.
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Factors Aiding Growth
Crocs has been benefitting from innovation. With regard to product innovation, the company has been focusing on diversifying the clog silhouette. Additionally, its innovation is evident from the Echo franchise, which was launched last year. This franchise is focused on a more male-centric street. The company has also innovated with height across many of its styles, such as the Mega Crush, and the classic platform flip and slide. Styles with height resonate particularly well in Asia and are aiding success in that region.
Crocs recently acquired HEYDUDE, which sells lightweight, casual shoes and sandals for men, women and children. With the acquisition, Crocs looks to add value to its fast-growing footwear business. This is the second high-growth, highly profitable brand added to the Crocs portfolio.
Crocs believes that HEYDUDE’s consumer-insight-driven casual, comfortable and lightweight products perfectly fit its existing portfolio. The acquisition is likely to diversify Crocs’ brand portfolio and add to its digital penetration, as HEYDUDE already has a strong online presence. HEYDUDE will operate as a stand-alone division. HEYDUDE’s founder and chief executive will continue to overlook the innovative product development of the brand designated as the strategic advisor and creative director.
The acquisition is expected to be immediately accretive to Crocs’ revenues, operating margins and earnings. The company expects HEYDUDE to generate revenues of $700-$750 million, including the period prior to the closing of the acquisition.
Notably, the HEYDUDE brand’s first-quarter revenues advanced 104.8% year over year to $235.4 million, exceeding our estimate of $2220.8 million. For 2023, revenues related to the HEYDUDE buyout are likely to grow in the mid-20% range on a reported basis. Management remains optimistic about the HEYDUDE brand. Notably, the HEYDUDE brand is nearing its target of $1 billion in revenues in 2023.
Management raised its guidance for 2023. For 2023, revenues are anticipated to grow 11-14%, up from the earlier mentioned 10-13% to $3.9-$4 billion. Adjusted earnings are envisioned to be $11.17-$11.73, up from the prior stated $11-$11.31. The adjusted operating margin is envisioned to be 26-27% compared with the previously communicated 26%. The GAAP tax rate is expected to be 23%, whereas the adjusted tax rate is likely to be 20%.
For second-quarter 2023, revenues are expected to grow 6-9% to $1,026-$1,049 million. Adjusted earnings are forecast to be $2.83-$2.98 and the adjusted operating margin is likely to be 26%.
Other Stocks Worth a Look
Some other top-ranked food stocks are GIII Apparel Group GIII, Skechers SKX and lululemon athletica LULU.
GIII Apparel has an expected EPS growth rate of 15% for three to five years. GIII has a trailing four-quarter negative earnings surprise of 47.4%, on average. Shares of GIII have declined 18.1% in the past year.
The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales suggests growth of 0.08% from the year-ago period’s reported figures. GIII currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Skechers currently sports a Zacks Rank #1. SKX has a trailing four-quarter earnings surprise of 18.8%, on average. Shares of SKX have rallied 36% in the past year.
The Zacks Consensus Estimate for Skechers’ current financial-year sales and earnings suggests growth of 7.8% and 31.9%, respectively, from the year-ago period’s reported figures.
lululemon has a trailing four-quarter earnings surprise of 9.9%, on average. It currently carries a Zacks Rank #2. Shares of LULU have gained 21.7% in the past year.
The Zacks Consensus Estimate for lululemon’s current financial-year sales and earnings suggests growth of 17% and 18.1%, respectively, from the year-ago period's reported figures. LULU has an expected EPS growth rate of 20% for three to five years.
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