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Crocs (CROX) Up 9.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Crocs (CROX). Shares have added about 9.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Crocs due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Crocs Surpasses Q1 Earnings and Revenue Estimates

Crocs reported better-than-expected first-quarter 2021 results, wherein both top and bottom lines increased year over year. Despite a tough retail environment due to the COVID-19 pandemic, solid demand for its products along with growth across all regions and all channels contributed to quarterly growth. Encouragingly, management lifted its 2021 view and also issued guidance for the second quarter of 2021.

Q1 Highlights

Crocs’ adjusted earnings came in at $1.49 per share during first-quarter 2021, surpassing the Zacks Consensus Estimate of 88 cents. Moreover, the figure surged significantly from 22 cents in the year-ago quarter.

Revenues increased 63.6% (60.5% at constant currency) to $460.1 million in the reported quarter and exceeded the Zacks Consensus Estimate of $415 million. Wholesale and retail revenues improved 50.1% and 93.3% year over year, respectively.

Solid performance in all regions along with healthy demand in its key products, including Clogs, Sandals and Jibbitz, drove the top line. Apart from these, e-commerce grew 75.3% year over year in the quarter under review, marking the 16th successive quarter of double-digit growth.

The company’s adjusted gross profit advanced 88.2% to $254.2 million. Moreover, adjusted gross margin expanded 720 basis points (bps) to 55.2% on the back of a favorable product mix and supply-chain efficiencies along with fewer promotional activities and discounts. However, currency headwinds of roughly 100 bps hurt the gross margin.

Also, adjusted SG&A expenses grew 18.2% to $128.5 million in the first quarter. Meanwhile, adjusted SG&A, as a percentage of sales, contracted 1,080 bps to 27.9%.

Adjusted operating income came in at $125.7 million, up from $26.4 million in the last-year quarter. Moreover, adjusted operating margin expanded to 27.3% from the prior-year quarter’s 9.4%. The uptick can be attributable to lower SG&A costs, robust sales and improved gross margins.

Segments at a Glance

Total revenues in the Americas region were up 87.1% (87.5% at constant currency) to $276.4 million in the first quarter. Also, revenues in the EMEA region came in at $101.1 million, increasing 48.8% (41% at constant currency) year over year. The Asia-Pacific region witnessed revenue growth of 26.2% (20.1% at constant currency) to $82.6 million.

Financial Details

Crocs ended the quarter with a cash balance of $255.9 million. The company generated $30.2 million in cash from operating activities. Further, it incurred capital expenditures of $8 million and the metric is expected to be $100-$130 million in 2021.

Further, it repurchased 0.6 million shares worth $50 million under its $1-billion share repurchase plan. As of Mar 31, 2021, management has $287.8 million remaining under its existing share repurchase program.

The company issued $350.0 million of 4.250% senior notes due 2029. Part of these proceeds were utilized to repay the balance of its senior revolving credit facility. This brings the liquidity level to $499.7 million, which is likely to help the company stay afloat amid this pandemic.

Outlook

Driven by solid first-quarter results, management raised its 2021 guidance. It now expects revenue growth of 40-50%, up from the earlier guided view of 20-25% growth. Moreover, the adjusted operating margin is now anticipated to be 22-24%, which suggests an improvement from the prior view of 18-19%. Also, $12-$15 million of distribution center investments are likely to affect the gross margin.

For second-quarter 2021, revenues are expected to grow 60-70%, which is significantly higher than the estimated growth of 40.4%, suggested by the Zacks Consensus Estimate. Further, gross margin is likely to be negatively impacted by a $3-million investment related to distribution centers. Also, the adjusted operating margin is projected to be 21-23%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 34.31% due to these changes.

VGM Scores

At this time, Crocs has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Crocs has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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