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Crocs' (CROX) HEYDUDE Acquisition to Boost Top & Bottom Lines

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Shares of Crocs Inc. CROX rose 1% in the after-hours session on Feb 17, as the company completed its previously announced acquisition of HEYDUDE. The privately-owned HEYDUDE sells lightweight, casual shoes and sandals for men, women and children. With the acquisition, Crocs looks to add value to its fast-growing footwear business.

This is the second high-growth, highly profitable brand added to the Crocs portfolio. Crocs believes that HEYDUDE’s consumer-insight-driven casual, comfortable and lightweight products perfectly fit its existing portfolio. The acquisition is likely to diversify Crocs’ brand portfolio and add to its digital penetration, as HEYDUDE already has a strong online presence.

The acquisition is expected to be immediately accretive to Crocs’ revenues, operating margins and earnings. The company expects HEYDUDE to generate revenues of $700-$750 million, including the period prior to the closing of the acquisition. It expects HEYDUDE to deliver revenues of $620-$670 million on a reported basis, beginning Feb 17, 2022.

HEYDUDE will operate as a stand-alone division. HEYDUDE’s founder and chief executive will continue to overlook the innovative product development of the brand designated as the strategic advisor and creative director.

Crocs paid for the deal through $2.05 billion in cash and issued 2,852,280 shares to HEYDUDE’s founder and chief executive, Alessandro Rosano. Simultaneously, the company entered a $2-billion Term Loan B Facility, maturing in 2029. It raised its senior revolving credit facility commitments by $100 million to $600 million. It also borrowed $50 million under its existing senior revolving credit facility to fund the remaining consideration.

What’s More?

The Zacks Rank #1 (Strong Buy) company has been gaining from the increasing popularity of casual footwear as consumers switched from formal wear to more comfortable footwear.

The company reported impressive performance in fourth-quarter 2021. Both top and bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. Solid consumer demand, as well as broad-based growth across all markets, channels and categories, contributed to the quarterly results. Clogs, sandals and Jibbitz remained the key growth drivers.

However, factory closures in Vietnam last year, along with continued extended transit times, are likely to have adverse impacts on supply and product introductions in the first half of 2022. As a result, Crocs’ shares declined 0.2% in the past year, although it fared better than the industry’s decline of 8.4%.

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Nonetheless, management issued the guidance for the first quarter and 2022. The company expects revenue growth (excluding HEYDUDE) of more than 20% for 2022. This compares unfavorably with the prior year’s revenue growth of nearly 67%. Adjusted earnings are envisioned to be $9.7-$10.25. The adjusted operating margin is anticipated to be 26%. However, air freight costs of $75 million are likely to hurt gross margins in the first half of 2022.

For first-quarter 2022, revenues are projected to grow 31-37% to $605-$630 million. In the prior-year quarter, it reported revenue growth of 64% to $460.1 million. Excluding the HEYDUDE acquisition, revenues are likely to be $520-$535 million, which reflects organic growth of 13-16%. The adjusted operating margin is estimated to be 22%, including air freight expenses of $30 million.

Other Stocks to Consider

Some other top-ranked stocks from the Consumer Discretionary sector are Delta Apparel DLA, Columbia Sportswear COLM and Ralph Lauren RL.

Delta Apparel currently flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 21.3% on average. The DLA stock has gained 16.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Delta Apparel's current financial year’s sales and earnings per share suggests growth of 12.3% and 19.1%, respectively, from the year-ago period's reported numbers.

Columbia Sportswear presently sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 203.3%, on average. Shares of COLM have declined 6.2% in a year.

The Zacks Consensus Estimate for Columbia Sportswear’s current financial-year sales and earnings suggests growth of 17.7% and 8.1% from the year-ago period’s reported numbers, respectively. COLM has a long-term earnings growth rate of 9%.

Ralph Lauren currently flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 94.1%, on average. Shares of RL have gained 11.7% in the past year.

The Zacks Consensus Estimate for Ralph Lauren’s current financial year’s sales and earnings suggests growth of 40% and 381.2%, respectively, from the year-ago period's reported numbers. RL has a long-term earnings growth rate of 15%.


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Ralph Lauren Corporation (RL) : Free Stock Analysis Report

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