Analysts Still Confident In Crocs After Investor Day Stock Dip

Despite Wednesday’s share price tumble, which followed an announcement of a lowered Q3 outlook, analysts continue to see potential in management’s turnaround efforts for Crocs Inc.

In addition to the casual footwear maker’s “impressive management,” CL King & Associates analyst Steven Marotta said several factors support his confidence in Crocs’ growth potential.

“The bulk of the restructuring is in the rear-view mirror; the line of sight on high-single-digit wholesale growth in [the first half] and the reiteration of prior EBIT expectations [are encouraging]; and global merchandise offerings are fully aligned with supporting marketing campaigns,” Marotta wrote in a note Thursday.

The Niwot, Colo.-based firm’s share price dropped more than 9 percent after it lowered its guidance for revenues in the third quarter to $270 million to $280 million, from the prior range of $280 million to $290 million. But Marotta and Sterne Agee CRT analyst Sam Poser maintain a buy rating on the stock, reminding investors that the adjustment was due to FX headwinds, not internal factors.

“We are defending [Crocs] primarily based on the progress made to date, on the turnaround, combined with the fact the current issues dinging the company are more macro-based than self-inflicted,” Marotta wrote.

Poser predicts the firm will hit the bulk of its 2018 objectives by 2017. Those goals include 8 percent revenue growth — largely driven by wholesale and digital growth but partially offset by store closures in 2015.

“Wholesale growth is expected to accelerate, as the result of increased penetration in top 10 wholesale partners such as Famous Footwear, Shoe Carnival, Amazon, and Kohl’s,” Poser wrote in a Sept. 30 note. “… Crocs’ digital business currently makes up 9 percent of total sales, but garners above average margins and has a growth rate in the high-single-digits to low-single-digits range.”

Marotta and Poser also acknowledged the brand’s struggles in China but, again, maintain that negative macroeconomic trends should not hinder investor sentiment about the company.

In outlining its strategy to counter external headwinds, Crocs had said it would withhold approximately $6 million in shipments in China.

“We believe the decision to not ship $6 million in orders to China is prudent, as Crocs shifts to distributors with the necessary liquidity and brand building expertise,” Poser wrote.

Crocs also noted an increased emphasis on improving supply chain logistics over the next three years.

“Historically, Crocs has struggled with reliability of on-time deliveries to its customers,” Poser wrote. “If Crocs can prove to deliver on time, we believe the wholesale orders will accelerate and allow Crocs to achieve double-digit EBIT [margins] in 2017.”

Both analysts also lowered their 2015 earnings-per-share forecasts to reflect management’s amended outlook, with Poser also adjusting down his 2016 revenue growth rate from 8.4 percent to 5 percent.

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