Crocs reported earnings on Thursday 7/27/23. Investor Presentation: https://s22.q4cdn.com/133460125/files/doc_financials/2023/q2/2023-Q2-Earnings-Presentation.pdf
Here's the good:
Revenues grew 12.0% YOY on a CC basis (this post will be CC) to 1.072B with Crocs growing 14.9% to 833m with a 38.9% operating margin.
Consolidated adjusted Operating margin was 30.3%
$299.1 million of debt was paid down reducing total debt to $2B.
Due to gross leverage now being 1.8x, Crocs is now able to resume share repurchases. As a result, Crocs bought 400,000 shares for $50 million at an average cost of $117
In addition, full year guidance is now being raised to $4B-$4.06B with an adjusted operating margin of 27.5%, representing 12.5%-14.5% revenue growth and an operating margin expansion of 50 to 150 bp.
This compares favorably to a prior guidance of 11%-14% revenue growth and adjusted operating margin of 26%.
Here's the bad:
Q3 guidance was very disappointing, only showing 3-5% revenue growth YoY in consolidated revenue. Adjusted operating margin remains high at 27.0%.
Furthermore, HEYDUDE is showing lackluster growth for 2023. Sales grew just 3% YoY to 239m in 2Q2023. As a result, Crocs issued a guidance cut for HEYDUDE: 14-18% revenue growth vs previous mid-20% growth. This was explained in the earnings call: HEYDUDE does not have a long track history, resulting in wholesalers not agreeing to sell them. However, the CEO believes this is just a short term impasse and will be insignificant for the long term growth of HEYDUDE.
In addition, HEYDUDE has been unable to show margin expansion with gross margins growing 0 bp and operating margins decreasing 500 bp YoY.
Takeaway:
Crocs is telling shareholders HEYDUDE is dragging down Crocs as a whole. While their core revenue segment crocs is a cash cow, with an operating margin of 38.4%, HEYDUDE is very meager at just 27.6% for 2Q2023. That being said, Crocs is picking up the slack with increased revenue growth and improved profitablity, allowing Crocs to lift their full year guidance and profitability metrics.
At just a 10 P/E and a 6.5B market cap, you are paying just 1.5X 2023 sales. I continue to believe Crocs is massively undervalued by at least 100%, and believe Crocs will turn HEYDUDE around and become a 20B company within the next 5 years with CEO Andrew Rees leading the way.
Reasoning for undervaluation: 4.0B sales in 2023 * 27.5% operating margin * 13 P/E = 14B market cap
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