Crocs Could Surprise On The Upside

By Ryan C. Fuhrmann | April 27, 2012 AAA

Casual footwear provider Crocs (NYSE:CROX) reported first quarter results on Thursday and provided another indication that its namesake shoes and related accessories are more than a passing fad. The stock is also reasonably valued on and earning basis, and leaves room for upside surprises going forward.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.
First Quarter Recap
Revenues increased 19.9% to $271.8 million. This was attributed to strong trends in Asia and the Americas regions. The only laggard was the European region, which reported a sales decline of 2.7%. Wholesale orders to outside retailers including Amazon (Nasdaq:AMZN), Dick's Sporting Goods (NYSE:DKS), DSW (NYSE:DSW), and Nordstrom (NYSE:JWN) grew 15.9% to account for 70.2% of total quarterly sales. Retail sales from the company's own retail, discount and online sources, jumped 33.2% to account for the rest of the top line.

The increase in sales costs lagged total sales growth and helped gross profits advance 21.5% to $144.8 million. SG&A cost controls helped push operating income up 34.6% to $36.1 million. Slightly faster income tax costs resulted in a net income increase of 31.8% to $28.3 million, or 31 cents per diluted share. Crocs did not provide cash flow details in the earnings press release.

SEE: Surprising Earnings Results

Outlook and Valuation
For all of 2012, analysts project total sales growth around 18% and total sales of nearly $1.2 million. The consensus earnings projection currently stands at about $1.45 per share and would represent annual profit growth of more than 15%. Combined with a current share price of about $20 per share equates to a forward P/E of 14.2.

The Bottom Line
Crocs hit a wall during the credit crisis and reported losses during both 2008 and 2009. But since then, sales have come back strongly. Its wholesale clients experienced similar trends and help explain the recovery in underlying demand. Crocs cash flow has also improved markedly and it generated approximately $1.12 in free cash flow last year.

The trailing free cash flow multiple of 18 is quite rich, but the forward P/E is much more reasonable. Crocs was once thought of as only a fad, but the past couple of years are suggesting that the brand has staying power as well as appeal on a global basis. It's not unreasonable to expect another few years of double-digit growth in sales and profits, as well as steady shareholder gains given the earnings multiple leaves room for share price upside.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Ryan Fuhrmann did not own shares in any of the companies mentioned in this article.

comments powered by Disqus
Related Analysis
  1. India Remains An Emerging Market Bright Spot
    Stock Analysis

    India Remains An Emerging Market Bright Spot

  2. Jeff Bezos Versus Elon Musk: The Space Race, Amazon.com, Inc. & More
    Stock Analysis

    Jeff Bezos Versus Elon Musk: The Space Race, Amazon.com, Inc. & More

  3. Still More Gains Ahead For Semiconductor Makers
    Stock Analysis

    Still More Gains Ahead For Semiconductor Makers

  4. The Days of BABA Are Upon Us - Ahead of Wall Street
    Stock Analysis

    The Days of BABA Are Upon Us - Ahead of Wall Street

  5. Big Week for Fed Prognosis - Ahead of Wall Street
    Stock Analysis

    Big Week for Fed Prognosis - Ahead of Wall Street

Trading Center