Crocs soars to record highs this week on strong earnings

UBS footwear analyst, Jay Sole, joined Yahoo FInance's Reggie Wade on Yahoo Finance Live to break down the latest news on Crocs.

Video Transcript

SEANA SMITH: Record earnings from Crocs pushing shares to an all-time high earlier this week. Some people calling Crocs the shoe of the pandemic. So we want to talk a little bit more about this. And for that, we want to bring in Jay Sole. He's UBS's footwear analyst. And we're also joined by Yahoo Finance reporter Reggie Wade. So, Jay, very, very strong results that we got from Crocs earlier this week. I know you raised your price target on the stock to $115. But you maintained your neutral rating. Why aren't you more bullish on this name following that blowout quarter?

JAY SOLE: I think the big reason is that Crocs has had a tremendous run over the last two years. They've had really great success, making the brand more relevant with consumers. They've also benefited from fashion trends. And really, the whole stay at home phenomenon during the pandemic has probably helped sales as well. We're just not sure what sales look like in 2021, if they'll be able to be strong enough to make the stock continue to go higher from here. And that's the basic reason our rating is neutral.

REGGIE WADE: Jay, I think it's safe to say that Crocs are one of the more polarizing footwear options out there. So many people either love them or hate them. But with the recent success, do you think that comes at the expense of the athleisure boom?

JAY SOLE: Reggie, I don't think so. I think it's part of it. I think people want to dress more comfortably. They want to dress more casually. I think that's something that's been affected by the pandemic in a positive way. It's increased that trend. And crocs is a great shoe if you want to be more comfortable or casual around the house or just out and about with your friends. So I think Crocs has been helped by that trend.

REGGIE WADE: I wanted to ask you about the global footwear industry. Do you think it has more room to grow? And what role do you think stylings like Crocs will play in it?

JAY SOLE: Reggie, I absolutely think there's a lot more room for the footwear industry to grow. We predict 5% global growth for footwear going forward. And we think that the athletic and casual side of the footwear industry as opposed to, say, the dress footwear side of the industry is going to have above average growth. And we think Crocs can participate in that. Because it is a comfortable shoe. It's fun. It's cool. And it's not expensive. You know, you only have to pay $49 or $54 for a pair of Crocs. That works in this environment where consumers still want great value.

JARED BLIKRE: Well, I want to ask you about those higher price points because I walk around Wall Street, and I see a lot of people kind of back in their formal attire, but most people aren't. And do you expect these trends ever to revert or this more of a permanent-- more of a permanent norm that we have here, a new norm?

JAY SOLE: Well, really, the trend toward casual dress isn't just a one-year phenomenon that's been a result of the pandemic. It's been going on for decades, really about four decades. And we've seen it really only move in one direction over that time. So as much as you're seeing some people on Wall Street put their wingtips back on, you know, we're really probably going to see more people wearing Crocs, believe it or not, and other sneakers like Nike sneakers or Sketcher sneakers than we've seen in the past. Because I think that's just the trend in fashion that's playing out.

SEANA SMITH: And Jay, speaking of that, that 5% global growth that you're expecting going forward, yes, Crocs is going to benefit from that. But what are some of the other names that you think are best positioned when you talk about athletic footwear there leading the way?

JAY SOLE: Well, some of the names, like I mentioned Skechers-- Skechers is a stock we have a buy rating on. Skechers is the third largest footwear company in the world. They have delivered double digit top line growth for over 20 years. We think that will continue. We really like Deckers. Deckers is the owner of the Ugg brand and another brand called Hoka One One. We think that has tremendous growth potential. So Skechers and Deckers, along with Nike, of course, are three of the companies that we think will benefit from the trend, as well as Crocs.

REGGIE WADE: Jay, I have to ask you. A lot of people have been reporting about the Roger Federer-backed tennis shoe offering on AG. What kind of noise do you think they can make in the space, especially coming out with an IPO later this year?

JAY SOLE: Well, I'll just say this. You know, a new brand, like On Running, has-- what we've seen in the run specialty channels, a lot of new brands have emerged. Hoka is one of those brands. And they've really taken the place of brands like Asics, which has traditionally been a strong running shoe brand. But, you know, there's a lot of interest in performance running in general right now, where Brooks and even a New Balance and a Hoka, all of these shoes and these brands have been benefiting because consumers want to get out, and they want to exercise.

Another trend that's been amplified by the pandemic is the trend toward health and wellness, which is something that people want to live more healthy lives. And to do that, part of that is exercise. And so they need running shoes to do that. So a lot of these running shoe brands have really benefited over the last 12 months.

REGGIE WADE: Jay, before we let you go, I wanted to talk a little bit about the Chinese shoe market. We have brands like Anta and Li Ning. What do you expect from them? They've had strong growth. Do you think they can continue that?

JAY SOLE: Well, you know, Reggie, one of the benefits of having such a strong tailwind behind the industry and having, you know, mid single digit type of growth potential and bigger growth potential, really, in Asia is that some of these brands like Anta and Li Ning are going to continue to benefit from the trend as well. You know, the market is big enough that a lot of brands can participate in the growth. So we can talk about Nike. We talk about Skechers having great growth. But also at the same time, there's plenty of room for the Chinese brands to grow strongly as well.

SEANA SMITH: Jay Sole, great to have you, UBS's senior analyst. And of course, our thanks to Reggie Wade for hopping on here as well.