Company History
Crocs, the polarizing foam clogs, were born from an unconventional vision. Founded in 2002 by three friends with no footwear experience—Scott Seamans, Lyndon Hanson, and George Boedecker Jr.—the company began with a prototype from a Canadian firm, Foam Creations. The key was Croslite™, a lightweight, comfortable, and slip-resistant resin. Their first 200 pairs sold out at a boat show, and the shoes quickly gained a following in professions where comfort was paramount, like nursing, hospitality, and gardening.
By 2004, Crocs had sold over 600,000 pairs, and with a new CEO, Ron Snyder, they acquired Foam Creations to control their core material. The company exploded, going from six hundred thousand pairs sold to over six million in a single year. In 2006, Crocs had the largest footwear IPO ever. However, this dramatic rise was followed by an equally dramatic fall. The 2008 financial crisis, combined with overexpansion and excess inventory, led to a massive $185 million loss and a stock price plummeting from $67 to just over $1.
The Second Act: Refocus and Rebound
For nearly a decade, Crocs remained a niche, utility-focused brand. The turning point came in 2013 when private equity firm Blackstone invested and installed Andrew Rees as CEO. The new strategy was to cut unprofitable product lines, close stores, and focus on the core clog. The brand’s revival began unexpectedly in 2016, when designer Christopher Kane featured Crocs in his London Fashion Week collection. This sparked a new wave of cultural relevance, followed by high-profile collaborations with celebrities and luxury brands.
Crocs’ business model relies on its core product, with sales still heavily dependent on the Classic Clog. However, it has cleverly diversified through Jibbitz, small charms that allow for customization. This appeals to the desire for uniqueness in fashion and has been a successful strategy for international expansion, with China becoming the company's second-largest market.
In 2022, Crocs acquired HEYDUDE, a popular slip-on shoe brand, for $2.5 billion. The goal was to diversify beyond a single-brand company. However, the integration has been difficult, with supply chain issues and declining revenue for the HEYDUDE brand.
A Look at the Numbers and Future Outlook
Crocs' financial performance is impressive, with strong margins and returns on capital that rival industry giants like Lululemon and Nike. The company is highly efficient, with a cash conversion cycle that has trended downward, indicating disciplined inventory management. Management has also focused on debt reduction and significant share buybacks, with a recent billion-dollar buyback program representing almost 29% of the company's market cap.
Despite these strengths, the company's recent performance has raised questions about its sustainability. Crocs' Q3 guidance was concerning, with expected double-digit revenue and margin declines. CEO Andrew Rees admitted that the brand is losing shelf space to athletic competitors. While the core Crocs brand is performing better than HEYDUDE, the overall headwinds suggest that the brand may be facing a new challenge. It remains to be seen whether Crocs can escape the fashion cycle's inevitable "fall" and maintain its mainstream appeal for the long term.
Despite these challenges, shares appear oversold technically and are cheap fundamentally at just 7.5 times forward PE. Company maintains a decent ROE of 15% and strong operating margins of 24%.
To your success,
Thomas Moore
Disclosure: The author has no plans on being long Croc at this time. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.