3 reasons why Crocs’ ambitious growth projections might be real

Here’s a sentence I never thought I’d write: Crocs (NASDAQ: CROX) is the world leader in clogs, and clogs are growing.

Whatever your take on polarized shoes, comfortable foam shoes have seen an amazing run in recent years. With the increase in casual wear, the company believes its market leadership will result in huge sales growth over the next five years. Specifically, on the company’s Investor Day, Crocs management said they believe sales will reach $ 5 billion by 2026, representing an average annual growth of 17% based on the midpoint of its revenue outlook for 2021 (set at $ 2.25 billion).

Maybe you don’t care that clogs reach such epic proportions. But some may have felt the same long ago that sneakers were becoming an everyday footwear option outside of sporting events. Could Crocs’ ambitious projections come true? Here are three reasons why they might do so, along with some considerations for whether or not you should board the Crocs train.

Image source: Getty Images.

1. Comfortable and relaxed first

Crocs organizes its shoes into three basic categories: clogs, sandals, and custom shoes (charms called Jibbitz can be attached to Crocs, and design collaborations with celebrities and influencers are on the rise). Digital sales and direct consumer relations through its own channels are areas of focus (more on this in a moment), but convenience is ultimately the name of the game here.

The casual style movement is certainly working in favor of the company. Athleisure – athletic wear for all occasions – has become mainstream over the past decade, but the pandemic has shifted everyday clothing to an even more casual and comfortable extreme, creating a type of “fashion at home “which defends utilitarianism and comfort above all else. And that’s where Crocs shines. 12-month sales have climbed more than 50% since the start of 2020, and as the economy recovers, Crocs is finding a growing audience who want to wear clogs for fun. Momentum is on the side of this shoe company.

2. Crocs wins with the right audience

Let’s talk about digital sales. Crocs’ online business is already a strength with some 37% of its total revenue coming from digital channels. But by the end of the next five years, management intends to generate no less than 50% of total revenue from an online format.

A younger customer base will certainly help this digital expansion, but direct online relationships with fans will help drive growth in other areas as well. Sandals are only a small part of the company’s business, but Crocs hopes its sandals business will be at least four times larger in five years than it is today. Direct marketing through its online store and social media will be essential in bringing this category to an already loyal fan base. And with some $ 30 billion in annual sandal sales up for grabs, just a small slice of that pie would represent significant growth for Crocs.

3. Significant expansion available from Asia

Crocs has a significant global presence with sales operations in 80 countries. But Asia – China in particular – is mostly virgin territory for business. While many of its footwear industry counterparts derive around 20% of their income from China, Crocs derives less than 5% of their sales from the world’s most populous country.

Management will look at what it already does best – comfortable footwear and custom looks to allow for personal expression, all delivered in an online format – to accelerate its expansion in this region. While this strategy isn’t unique (what consumer goods company isn’t trying to grab China’s attention?), I think the Crocs product might have a particular appeal in China, Southeast Asia. and in India. Lifestyles are particularly busy in these countries, and practical shoes and sandals are already a staple for everyday needs. With its affordable prices, Crocs certainly has a lot to gain. On the overall average revenue growth of 17% that it hopes to achieve over the next five years, the top Crocs team believes Asia will overtake its other markets and grow an average of 30% per year to ultimately account for 25%. Sales.

Is the action a buy?

Along with this potential growth rate, Crocs believes it can manage an adjusted operating profit margin of at least 26% over the next five years. The stocks currently trade nearly 24 times over 12 months of free cash flow, a premium over the average for footwear and accessories companies. But if Crocs achieves its sales and bottom line ambitions, this shoe stock is a long-term value.

Personally, I am in wait-and-see mode at the moment. But if the company continues to track its pandemic-era sales boom while maintaining a double-digit growth rate the rest of this year and into 2022, the comfortable clog movement could be real. Stay tuned.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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