Crocs Inc. (CROX Quick QuoteCROX - Free Report) has seen its shares slide 2.5% in the past week after it reported third-quarter 2024 results on Oct. 30, 2024. Meanwhile, the broader industry has grown 1.7% and the Consumer Discretionary sector has risen 0.2% in the past week. The decline followed a bleak outlook for the fourth quarter and 2024. Let us review the company’s third-quarter results, outlook and other factors to assess if the stock still presents a buying prospect despite the decline.

In the third quarter of 2024, Crocs reported revenue and earnings growth, beating expectations. Adjusted earnings per share (EPS) reached $3.60, exceeding the Zacks Consensus Estimate of $3.13 and increasing 10.8% year over year. Consolidated revenues rose 1.6% year over year to $1.06 billion, surpassing the consensus estimate of $1.05 billion. On a constant-currency basis, revenues increased 2% from the previous year, driven by strength in the Crocs brand and exceptional international growth.

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Despite the strong third-quarter results, Crocs' HEYDUDE brand underperformed, with revenues dropping 17.4% year over year. This decline was led by a 22.9% fall in wholesale revenues and a 9.3% drop in direct-to-consumer (DTC) revenues. Comparable DTC sales for the HEYDUDE brand also decreased 22.2%.

North America revenues rose 2.1% year over year, while International revenues increased 15.5%. Crocs saw significant growth in Australia, China, France and Germany. In China, the business grew more than 20%, with nearly two-thirds of this improvement driven by mono-brand partner stores. Although the company saw growth in China this quarter, it was notably lower than the more than 90% increase recorded last year.

Does Bleak Forward Outlook Raise Questions for CROX?

Looking ahead, Crocs anticipates a relatively subdued consumer environment in the United States until the Black Friday/Cyber Monday holiday period. Per the company, the industry saw heightened promotional activities in China during the mid-season festival, reflecting a more conservative approach by China consumers. As a result, the company expects to see a greater pullback in major Tier 1 cities like Shanghai and Beijing.

Given the challenging macroeconomic conditions in China, management is adopting a more cautious outlook for the rest of the year, as these constraints may have dampened consumer sentiment.

Due to these factors, management has provided a pessimistic outlook for the fourth quarter. The company anticipates revenues to remain flat or increase slightly year over year in constant-currency. Revenues for the Crocs brand are expected to grow 2% year over year, while the HEYDUDE brand’s revenues are projected to decline 4-6%.

For the fourth quarter, management expects the international growth rate to fall below the year-to-date growth rate due to ongoing regulatory pressures in India, which have negatively impacted the company’s ability to meet demand. In North America, the outlook is also negative based on expectations of a more selective consumer and the timing of wholesale shipments across quarters. However, the company anticipates positive DTC revenues for the fourth quarter.

For 2024, enterprise revenues are projected to increase 3% year over year in constant-currency, which is at the lower end of the previously mentioned 3-5%. Revenues for the Crocs brand are expected to grow 8%, while HEYDUDE brand revenues are anticipated to decline 14.5% due to weaker-than-expected sellouts in both wholesale and digital channels. Previously, management had estimated the Crocs brand’s revenues to grow 7-9% and HEYDUDE’s revenues to decrease 8-10%.

Is CROX’s Overall Share Performance Equally Disappointing?

Despite the recent decline, Crocs shares have shown steady growth in the past year. The stock has rallied 29.4% in a year compared with the industry’s rise of 2.1% and the sector’s 15.6% growth.

Crocs’ shares have also outperformed peers like Under Armour (UAA Quick QuoteUAA - Free Report) and Columbia Sportswear’s (COLM Quick QuoteCOLM - Free Report) gains of 21.7% and 5.3%, respectively, in the past year. CROX shares reflect a significant rally against lululemon athletica’s (LULU Quick QuoteLULU - Free Report) decline of 22% in the same period.

CROX’s One-Year Stock Performance

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The current share price of $106.29 reflects a 35.7% discount to the company’s recent 52-week high mark of $165.32. Also, the CROX stock reflects a 37.8% premium from its 52-week low of $77.16.

Undervalued Stock: Is it Opportune Time to Buy?

Crocs is currently trading at a discount to its industry on a forward 12-month P/E basis, making the stock an attractive pick for investors. The recent pullback has brought Crocs’ stock valuation much below the historical and industry benchmarks.

CROX is currently trading at a forward 12-month P/E ratio of 8.07X, below the industry average of 13.46X and the S&P 500’s average of 21.71X. Trading much below its five-year high of 34.18X, the current valuation appears more affordable and appealing, presenting an opportunity to accumulate shares. The stock’s current Value Score of A further validates its appeal.

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While the company’s performance for the HEYDUDE brand, and some near-term challenges in China and North America have resulted in a cautious outlook, the stock still looks appealing, given the strength in its core Crocs brand and an otherwise strong International business. That said, let us analyze the company’s inherent strengths.

Analyzing CROX’s Core Strengths

The company has established a robust identity for its flagship Crocs brand, characterized by several key strengths, including its unique product design, broad market appeal, solid demand, global expansion and innovative collaborations. The Crocs brand is best known for its distinctive, lightweight and comfortable footwear made from Croslite. The company has been experiencing strength in clogs, sandals and personalization for a while.

Strong demand trends led to impressive results for the brand in third-quarter 2024. The Crocs brand saw a 7.4% year-over-year revenue increase in the third quarter, with DTC revenues rallying 7.7% and wholesale revenues rising 7.1%. Comparable DTC sales for the Crocs brand grew 4.8%.

For fourth-quarter 2024, the adjusted gross margin is expected to grow for the enterprise, with the Crocs brand slightly up and the HEYDUDE brand slightly down year over year. Adjusted earnings are projected to be $2.20-$2.28 per share, with the adjusted operating margin at 19.5%. For 2024, Crocs forecasts an adjusted operating margin of more than 25%. Adjusted EPS is envisioned at $12.82-$12.90, suggesting growth from the $10.92 recorded last year and the $12.45-$12.90 guided earlier.

CROX is progressing with its long-term strategy and key initiatives to achieve sustainable growth. Its growth plan centers around three main initiatives. First, the company aims to elevate brand awareness and relevance by igniting iconic products across both brands. Second, it invests in Tier 1 markets to enhance market share through talent acquisition, marketing, digital efforts and retail expansion. Third, it seeks to diversify its product range to attract a broader consumer base.

CROX’s long-term targets include generating more than $5 billion in revenues, seeing a compounded annual growth rate (CAGR) of more than 17% over the next five years through 2026. The company expects to achieve this revenue goal through strong digital sales, increased market share in sandals, growth in Asia, and innovative product offerings and marketing strategies. Management anticipates quadrupling revenues from sandals by 2026 and sees significant long-term opportunities in Asia, particularly China.

CROX’s Estimates Reflect a Positive Trend

The Zacks Consensus Estimate for Crocs’ 2024 EPS has increased 0.2% and that for 2025 has declined 6% in the past 30 days.

For 2024, the Zacks Consensus Estimate for CROX’s sales and EPS implies 3.2% and 7.5% year-over-year growth, respectively. For 2025, the consensus mark for sales and EPS indicates 3.7% and 2.3% year-over-year growth, respectively.

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How to Strategize Your CROX Stock Investment?

Crocs’ third-quarter 2024 results reveal a resilient performance despite headwinds from the HEYDUDE brand and some challenges in China. The company looks well-placed on strength in its namesake brand and long-term strategies. However, CROX’s soft revenue expectations for the near term raise questions about its performance.

The company’s long-term prospects and brand strength, combined with a relatively lower valuation than peers, offer an attractive opportunity for investors seeking positions in this profitable lifestyle retailer. For current shareholders, holding onto the Zacks Rank #3 (Hold) stock can be beneficial. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.