Why you should consider investing in Crocs $CROX after its impressive earnings

Q1 2023 Earnings Report

Crocs, Inc., reported a strong performance in the first quarter of 2023.

Here are some key highlights from their press release:

• Consolidated revenues of $884.2 million increased 33.9%, or 36.2% on a constant currency basis, as compared to 2022.

• Crocs Brand revenues of $648.8 million increased 19.0%, or 21.6% on a constant currency basis, as compared to 2022.

• HEYDUDE Brand revenues were $235.4 million, up 104.8% compared to the partial period beginning on February 17, 2022, the date of acquisition, through March 31, 2022.

• Operating margin was 26.6% and adjusted operating margin was 27.9%.

• Diluted earnings per share of $2.39 increased 100.8% as compared to the same period last year. Adjusted diluted earnings per share increased 27.3% to $2.61.

The company attributed its exceptional results to the strength of its brands and the strong consumer response to its new clog and sandal introductions.

The company also raised its full year revenue guidance to now be 11% to 14%, resulting in revenues of approximately $4.0 billion.

Crocs, Inc. is confident in its ability to continue to gain market share, deliver best-in-class profitability, and generate strong cash flow.

Growth Drivers

In Q1 2023, Crocs Brand international revenues grew 31.8%, or 37.7% on a constant currency basis.

The future prospects of sandals appear to be quite promising:

HeyDude:

The HEYDUDE brand is gaining momentum and experienced outstanding DTC growth. - Andrew Rees, Chief Executive Officer.

Insights from Q1 2023 Earnings Call

• International was again the largest growth driver for the Crocs brand in Q1.

• International represented 46% of Crocs brand revenues in the quarter. Crocs brand revenues in Asia grew 54.8% to $140 million during the first quarter.

• We expect the highest growth internationally driven by robust consumer demand.

• In summary, 2023 is off to an excellent start, and we look forward to another record-setting year.

• For HEYDUDE, we are maintaining our full year outlook of mid-20% revenue growth on a reported basis.

• As we look forward, we're incredibly confident in the strengths of the Crocs and HEYDUDE brands and our ability to drive market share gains and sustainable profitable growth. Our focus remains squarely on navigating current uncertainties and creating long-term shareholder value.

• I'm incredibly pleased with the strength of our brands, our first quarter results and our outlook for 2023. The Crocs and HEYDUDE brands continue to be in high demand, which led to strong double-digit revenue growth. Our teams globally are focused on driving brand health, market share gains and sustainable profitable growth.

Paying Down Debt and Possible Restart of Share Repurchases

Track Record

Successfully executed a tremendous turnaround since appointing Andrew Rees as President in 2014, and CEO in 2017:

Eye-watering 5-year annualized total shareholder return:

Attractive Free Cash Flow Yield relative to Enterprise Value

Enterprise Value: 9.55B

Free Cash Flow Yields using the Free Cash Flow estimates:

• LTM: 6.17%

• FY2023E: 6.77%

• FY2024E: 7.47%

• FY2025E: 8.37%

• FY2026E: 10.92%

• FY2027E: 12.39%

Discount from 5-year average P/E (NTM)

5 year average P/E (NTM) is 16.3x.

Currently, it is trading at 9.9x which is a 39% discount from the 5 year average.

In the second installment of this post, I will conduct an in-depth analysis of $CROX, encompassing its business model, competitive advantages, and other relevant factors. Additionally, I will provide a detailed examination of its valuation, specifying the share prices that I consider to be indicative of a Reasonable Buy, Good Buy, and Strong Buy.

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