Crocs (CROX)

Footwear company Crocs (NASDAQ:CROX) beat Wall Street’s revenue expectations in Q1 CY2025, but sales were flat year on year at $937.3 million. Its non-GAAP profit of $3 per share was 20.6% above analysts’ consensus estimates.

Company Overview

Founded in 2002, Crocs (NASDAQ:CROX) sells casual footwear and is known for its iconic clog shoe.

Before the advent of the internet, styles changed, but consumers mainly bought shoes by visiting local brick-and-mortar shoe, department, and specialty stores. Today, not only do styles change more frequently as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some footwear companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Crocs primary competitors include Skechers (NYSE:SKX), Deckers (NYSE:DECK), Birkenstock (private), and private companies Sanuk and Teva.

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Crocs grew its sales at an exceptional 27.5% compounded annual growth rate. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Crocs’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 4.2% over the last two years was well below its five-year trend.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 3.9% year-on-year growth. Because this number aligns with its normal revenue growth, we can see that Crocs has properly hedged its foreign currency exposure.

This quarter, Crocs’s $937.3 million of revenue was flat year on year but beat Wall Street’s estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

Crocs’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 25.2% over the last two years. This profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

This quarter, Crocs generated an operating profit margin of 23.8%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Crocs’s EPS grew at an astounding 54.1% compounded annual growth rate over the last five years, higher than its 27.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q1, Crocs reported EPS at $3, down from $3.02 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Crocs’s full-year EPS of $13.12 to shrink by 4.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Crocs has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 20.6% over the last two years, quite impressive for a consumer discretionary business.

Crocs burned through $82.61 million of cash in Q1, equivalent to a negative 8.8% margin. The company’s cash burn increased from $43.32 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

Over the next year, analysts predict Crocs’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 21.6% for the last 12 months will decrease to 18.2%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Crocs hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 35.5%, splendid for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Crocs’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Crocs reported $166.5 million of cash and $1.86 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.10 billion of EBITDA over the last 12 months, we view Crocs’s 1.5× net-debt-to-EBITDA ratio as safe. We also see its $53.2 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Crocs beat analysts’ constant currency revenue expectations this quarter. We were also glad its EPS and EBITDA outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 2.7% to $103.72 immediately following the results.

Updated: May 15, 2025 at 10:48 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Crocs, you should also grasp the company’s longer-term business quality and valuation.

Crocs isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its Forecasted free cash flow margin suggests the company will ramp up its investments next year. And while the company’s impressive operating margins show it has a highly efficient business model, the downside is its projected EPS for the next year is lacking.

Crocs’s P/E ratio based on the next 12 months is 9.3x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $127.47 on the company (compared to the current share price of $117.04).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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