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CROCS (Nasdaq: CROX): Is This A Fashion Icon With A Long Investment Tailwind?

Should we get our foot in the door?

Most of us know of Crocs as an iconic type of footwear but far lesser people know about Crocs as a stock. However, there may be good reasons why investors shouldn’t be ignoring Crocs as a stock.

A quick glance at the stock price of Crocs (Nasdaq: CROX) has shown that it has risen by about 16 times over the past 5 years! At the start of 2017, Crocs were trading at about $7. As of 27 August 2021, its share price is at $146.

This impressive result got us thinking, is there still more room to grow upwards?

Understanding Crocs

Crocs Inc is a world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers know and love.

The company was founded in 1999, and is one of the leading footwear brands with a focus on comfort and style. Famous for its iconic clog material, its simple design and great comfort was a hit among consumers. If you are reading this article, we are hazarding a guess that you are probably already familiar with Croc’s footwear.

The vast majority of shoes within Croc’s collection contain Croslite™, which is their proprietary molded footwear technology, delivering extraordinary comfort with each step. Croslite™ is known for qualities such as being soft, comfortable, lightweight, non-marking and odour-resistant.

Under its portfolio, the key products are Clogs, Sandals, Jibbitz, and Visible Comfort technology. Crocs also operate in multiple geographic regions, namely the Americas, Asia Pacific, Europe, Middle East, and Africa (EMEA). With Americas consisting of approximately 62.3% of 2020 revenues and Asia Pacific at 20.1% of 2020 revenues, this makes these two markets extremely important to focus on.

Financial Highlights Of Crocs

A quick summary of the latest quarterly report of Crocs on July 22, 2021 shows the following.

Record revenues of $640.8 million increased 93.3%, or 88.4%, on a constant currency basis compared to 2020. Revenue growth was strong in all regions, with the Americas up 135.6%, Asia Pacific up 27.1% and Europe, Middle East, and Africa (“EMEA”) up 52.6% on a constant currency basis versus the prior year.

Digital sales grew 25.4% to represent 36.4% of revenue, compared to 56.1% and 32.6% of revenue in 2020 and 2019, respectively.

Direct-to-consumer (“DTC”) sales grew 78.6% compared to 2020 and 86.4% compared to 2019, to represent 52.0% of second quarter revenues.

Operating income more than tripled to $195.3 million as compared to 2020 and operating margins expanded to 30.5%.

From the above, it seems that Crocs has benefitted during this pandemic period, resulting in a significant gain in online momentum. As physical stores remained open for limited periods during the pandemic, Crocs was able to take advantage of the strong online demand and leverage its omni-channel capabilities to fulfil online orders and serve customers. The shift to comfort wear during this period has also led to spiked demand in its products.

Key Products Of Crocs

#1 Clogs

Looking around your neighbourhood, we believe that Crocs unique shape will stand out immediately for its design. Crocs has also become a fashion icon and statement where various celebrities such as Kendall Jenner and Ariana Grande have endorsed it by showing up and around whilst wearing it.

Justin Bieber and DJ and Producer Diplo have also worked closely with the brand to come out with a collaboration model for something that is unique in the market, and a collectable for fans of these artists.

Balenciaga, a luxury fashion powerhouse has also collaborated with Crocs for its Spring 2022 series resulting in stiletto clogs and knee-high clogs designed as a collectable. This shows the versatility of Crocs as a brand, where the brand equity could now stretch from the everyday person to high-end consumers.

You can find out more about the various collaboration partnerships that Crocs have here.

Crocs, originally designed as a boating shoe, has now seen a resurgence as a fashion statement. Beyond its functional utility such as being great for the rainy season as they are non-slippery, lightweight, and extremely comfortable, Crocs also stands out in a society where more people are gradually moving towards a direction where they are creating products that reflect their personalities and interests.

They have also stepped up on brand collaborations, by being more recognised on social media platforms and are now seen as more stylish and adding a fun touch in its brand collaborations.

#2 Jibbitz

For those who don’t know, Jibbitz™ charms are fun little images, letters, sayings, characters, and bits of pop culture mounted on a post to pop into the holes of your Crocs Classics. In every Classic Clogs and Slides, there are exactly 13 holes on the top. Other than to help with ventilation, and to let out moisture, they also allow Jibbitz™ to be inserted into the footwear, thus creating the user’s own unique combination.

Based on the latest earnings call transcript for Q2’21, CEO Andrew Rees has also stated that “Jibbitz sales were once again exceptional, more than tripling for the quarter versus last year. The global personalization megatrend continues.”

This is similar to the razor-blade business model, where it’s designed to encourage continuous consumption over time. The main product, in this case, the Clogs and Slide (the razor) is sold at the start, and the consumers – in a bid to customise its look and feel of their footwear – will purchase Jibbitz™ (the blade). This creates an ecosystem where there would be interchangeability, and it supports the sales of the Clogs, Sandals, and Jibbitz™ whilst driving the average selling price for consumers.

#3 Crocs Socks

Crocs Socks is a new product line that was officially debuted and launched in Q2’21,  where it is a first-of-its-kind collection of high quality socks, to level up the personal style by creating a fun, expressive addition to an iconic, everyday look.

For the longest time, many fans had already been wearing socks with their Crocs. Now that Crocs launched its own product, this allows for both cross-selling and up-selling, and similar to Jibbitz™, increases the wallet spend for consumers.

Net-Zero Company by 2030

Investors and ESG supporters would also be pleased to know that Crocs, long seen as a global leader in casual footwear, has also announced a strategic sustainability initiative with a commitment to become a net-zero company by 2030. This is a step in the right direction where sustainable ingredients, packaging, investments in resource use and innovative product afterlife solutions are sourced out.

CEO Andrew Rees said, “Taking action to reduce our environmental footprint by implementing more sustainable practices across our entire business is the right thing to do for Crocs.”

Should We Get A Foot In The Door?

From an investment standpoint, it seems that Crocs is moving in the right direction with strong growth numbers in sales and profits. The management has also refocused on an aggressive marketing strategy where it seems that they have found a niche through artiste and cross-branding collaboration.

However, as per most fashion items, trends often come and go (Crocs was a polarising product a couple of years back where most people would call it ugly). Therefore, as investors, we might want to touch the brick by going through the consumer cycle and to purchase the product for personal use and ascertaining the quality.

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