Stock Story -
Footwear company Crocs (NASDAQ:CROX) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 3.6% year on year to $1.11 billion. It made a non-GAAP profit of $4.01 per share, improving from its profit of $3.59 per share in the same quarter last year.
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Crocs (CROX) Q2 CY2024 Highlights:
- Revenue: $1.11 billion vs analyst estimates of $1.10 billion (small beat)
- EPS (non-GAAP): $4.01 vs analyst estimates of $3.57 (12.4% beat)
- EPS (non-GAAP) Guidance for Q3 CY2024 is $3.03 at the midpoint, below analyst estimates of $3.37
- EPS (non-GAAP) Guidance for the full year is $12.68 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 61.4%, up from 57.9% in the same quarter last year
- Free Cash Flow of $384.2 million is up from -$43.32 million in the previous quarter
- Constant Currency Revenue rose 4.8% year on year(compared to 12% in the same quarter last year)
- Market Capitalization: $8.16 billion
Founded in 2002, Crocs (NASDAQ:CROX) sells casual footwear and is known for its iconic clog shoe.
FootwearBefore the advent of the internet, styles changed, but consumers mainly bought shoes by visiting local brick-and-mortar shoe, department, and specialty stores. Today, not only do styles change more frequently as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some footwear companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, Crocs grew its sales at an exceptional 29.1% compounded annual growth rate. This is encouraging because it shows Crocs's offerings resonate with customers, a helpful starting point.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Crocs's annualized revenue growth of 19.6% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
We can dig further into the company's sales dynamics by analyzing its constant currency revenue, which exclude currency movements that are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 22.4% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Crocs.
This quarter, Crocs grew its revenue by 3.6% year on year, and its $1.11 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 4.6% over the next 12 months.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Crocs has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company's free cash flow margin averaged 20.5% over the last two years, quite impressive for a consumer discretionary business.
Crocs's free cash flow clocked in at $384.2 million in Q2, equivalent to a 34.6% margin. This quarter's result was good as its margin was 6.9 percentage points higher than in the same quarter last year. Its cash profitability was also above its two-year level, and we hope the company can build on this trend.
Over the next year, analysts predict Crocs's cash conversion will improve. Their consensus estimates imply its free cash flow margin of 21.6% for the last 12 months will increase to 27.3%, giving it more optionality.
Key Takeaways from Crocs's Q2 Results We enjoyed seeing Crocs exceed analysts' constant currency revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. On the other hand, its earnings forecast for next quarter missed, and this is likely weighing on shares. The stock traded down 3.7% to $129.50 immediately after reporting.
