Crocs Downgraded By Stifel On Balanced Risk-Reward; Footwear Maker Reports Strong European, Direct-To-Consumer Growth

Crocs, Inc. CROX lost a sell-side bull one day after reporting first-quarter earnings and sales beats.

The Analyst

Stifel’s Jim Duffy downgraded Crocs from Buy to Hold and raised the price target from $16 to $17.

The Thesis

Croc’s earnings beat is further proof the footwear maker can execute on margin improvement initiatives, said Duffy, who nevertheless downgraded the company to reflect a more balanced risk-reward profile. 

Low single-digit constant currency growth in Crocs' combined wholesale and e-commerce revenue was propelled by a strong response to its marketing campaigns and "more than offset" lost revenue from retail stores that were closed, the analyst said. 

Retail continues to weigh on Crocs sales; it saw a 6.4-percent decrease in the first quarter, but e-commerce sales were a bright spot, showing 19.1-percent year-over-year growth. 

Croc’s Q1 direct-to consumer comps were up 11.2 percent year-over-year.

In a recent note, bearish Susquehanna analyst Sam Poser said Crocs did not have the product breadth for a significant retail presence. 

Crocs saw nearly 20-percent revenue growth in Europe in the quarter. While considered by some as the most hated shoe in the United States, the Americas posted solid 5.2-percent growth.

“With gross margins in the low-50s, we believe CROX has structural capacity for double-digit EBIT margins," Duffy said.

"Behind commitment to SG&A reduction plans, including store closures to be complete by year-end 2019, we see 10-percent EBIT margin and 13-percent EBITDA margin as achievable in 2019. We see the stock adequately discounting this and will look for evidence of either revenue or margin drivers that can support incremental leverage as an indicator of further upside potential." 

Price Action

Crocs shares were down 3.33 percent at the time of publication Wednesday afternoon. 

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