Wednesday, April 13, 2022

A Small Cap Equity holding: Crocs Inc (CROX, $72.18): “Holes in the Shoe” By: Ryan Kreie, AIM Student at Marquette University

 Crocs Inc (CROX, $72.18): “Holes in the Shoe”

By: Ryan Kreie, AIM Student at Marquette University

Disclosure: The AIM Small-Cap Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.


  • Crocs, Inc. (NASDAQ:CROX) is a worldwide casual footwear manufacturer, distributor, and retailer for men, women, and children.
  • Their stock price has dropped nearly 50% since the acquisition of HEYDUDE in December 2021
  • The company has taken out significant amounts of debt the over past 3 years as we wait to see if management’s decisions will pay off.
  • Management has indicated that it will suspend its stock buyback program after making a huge mistake when it bought back stock at a price of $121
  • CROX could be heading in the wrong direction with the stock price down 60% since it was pitched in November 2021 at a price of $178.50

Key points:

The drivers for Crocs are certainly in play. Their Ecommerce growth has led to an 8% increase in gross profit from 52% of revenue in 2020 to 60% of revenue in 2021. The company has also had a strong net income for the second year in a row ($725.7 Million in 2021 and $312.9 Million in 2020) after barely breaking even before 2019. Their income statement looks promising, and Crocs are more popular than ever.

Collaborations and advertising are still strong. They have numerous partnerships to promote their products. This spending has led to strong revenue growth. However, now that the pandemic appears to be almost over. Will their strategy still hold up? People bought Crocs during the pandemic, but will they continue to buy them coming out of the pandemic? Crocs has also continued to expand globally with China and South Korea as current targets for expansion.

In December 2021, Management announced plans to acquire HEYDUDE which left investors concerned and resulted in a large sell-off of the stock. Investors question whether this was a good decision by management especially since the acquisition was funded by taking out debt.

Management has roughly $920 million in long-term debt on the balance sheet after only $326 million in 2020. With only $213 million of cash on hand at the end of 2021 management has a lot of work to do to pay all of this back. Their decisions are extremely risky with their LT debt to total asset ratio growing significantly to 0.60 in 2021 compared to 0.29 in 2020.

Management took a risk and bought back $1 billion in stock at a price of $121 per share. This appears to have been a huge mistake with the stock currently at $72.18 per share. Crocs has since suspended its buy-back program. Management has to find ways to generate revenues to pay off its huge amounts of debt they recently took out. Management has said it expects a 26% decrease in operating margin for 2022.

What has the stock done lately?

Since Crocs was pitched in November 2021 their stock is down ~60%. This is a significant amount and could be a serious concern to investors. Management’s decisions to acquire HEYDUDE, buy back stock at too high of a price, and take out huge amounts of debt have caused this collapse in price. A poor start to the year for Russell 2000 is also part of the cause.

Past Year Performance: AIG has only decreased ~12% in value over the past year, but they may be able to rebound and regain some value. Especially with so much debt outstanding, it seems like management has big plans. The question is will they pay off?

Source: FactSet

My Takeaway

It will be very difficult for the AIM program to get their money back on with Crocs. The stock has lost over $100 (in value per share since it was pitched in November. It will be interesting to see what how management’s plans pay off so we can cut our losses. With the market in a bad place right now, we should be able to regain some value before this stock is sold. The pitching of this stock was very poorly timed with it pitched very close to its 52-week high and a month before the news about the acquisition of HEYDUDE broke. Management’s decisions were not properly considered when Crocs was pitched, and their high debt levels should have led to a more conservative valuation. Things can only go up from here for Crocs as it must work with their high debt levels.

Source: FactSet