Crocs (CROX) is a Colorado-based footwear company that was founded in 2002 and has two well-known brands, Crocs and HEYDUDE. Analyst projections are conservative. But Crocs could do a lot better. If it does, the stock could be off to the races, shares Tyler Laundon, editor of Cabot Small-Cap Confidential.

The HEYDUDE brand hasn’t been around as long as the Crocs brand. HEYDUDE was founded in 2008 in Italy and acquired in 2022 by Crocs to the tune of $2.5 billion in cash and stock. Its best-known models are the “Wendy” and “Wally”.

CROX stock fell by more than 50% in the months after the deal was announced. It has since come back. But taking 12 months to get back to “even” after a major acquisition isn’t exactly what CROX shareholders were looking for.

Granted, 2022 was a terrible year for many growth stocks and not all of it is Crocs’ management’s fault. But some pain was surely self-inflicted. The stock likely suffered because of a variety of sales, marketing, and distribution challenges when the HEYDUDE brand was rolled out. Profit margins took a serious hit as wholesale accounts were flooded with inventory.

There are still some HEYDUDE shoes for sale on Amazon (AMZN) – put there by liquidators – selling for about half of what they sell for on Not great, but also a known issue that management said is in the final innings of being corrected. That’s (mostly) in the past (hopefully).

Looking forward, it bears noting that Crocs is the fourth-largest footwear brand in North America. While the company has debuted a variety of models over the years, the classic clog still drives around 80% of brand sales, and the Crocs brand drives just over 75% of company sales (i.e. HEYDUDE drives about 25%).

There’s a lot of potential to grow in China (100% growth in Q2 and 90% in Q3) where social media is helping to move the needle. There are also a variety of marketing collaborations putting the brand front and center among various buyer groups.

There is, of course, some risk that operational issues could persist, or that retailers and consumers just won’t gravitate toward the HEYDUDE brand. That’s why this is a potential recovery play. Looking forward, it’s likely total company revenue growth in 2023 will be about 10% ($3.93 billion) while EPS growth will be about 7% ($11.67).

In 2024, estimates are conservative (remember, recovery story). Analysts are looking for revenue growth of 4.5% ($4.1 billion) and EPS of $12.17 (+4.3%).

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