Investment Case Update: August 8, 2025
Price: $75.24 (8/8/25)
Market Capitalization: $4.1B
Enterprise Value: $5.7B
What the Company Does
CROX makes and sells Crocs and HEYDUDE shoes in over 85 countries. With over $4B in sales and 127 million pairs sold in 2024, Crocs is among the globe’s top ten non-athletic footwear brands. Approximately 2/3rds of sales are in North America, with wholesale and direct-to-consumer channels each comprising about half of sales.
Why We Own It
With two big brands in a large addressable market (~$280B in casual footwear globally), CROX is a high-quality staple business trading closer to the valuation of a leveraged cyclical business. Since its launch as a public company in 2006, its products have been deemed a “fad” though have proven to be anything but, as shares have risen more than 7x from $10 at IPO, while sales have grown at a ~25% compound annual growth rate since 2018. Despite its high profitability with best-in-class operating margins (~25%) and returns on equity exceeding 57% in each of the past five years, the stock still gets no respect, trading at a single-digit multiple on earnings, free cash flow and operating profits. Not only do we believe intrinsic value is materially higher today than the current price, we also believe that management will continue to innovate and find value-accretive ways to grow the business, just as CROX has done for the past two decades. The equity market’s primary investor concern today is that CROX overpaid for HEYDUDE, though debt markets do not seem to share that view. Management is making the difficult decisions to reset HEYDUDE’s inventory balances in the wholesale channel and cut back on performance marketing in the brand’s digital channels, actions which are expected to weigh heavily on the brand’s top-line results in the near-term but should establish a more solid foundation for the brand to grow both revenue and margins over the long term. Revamped brand leadership is making strategic investments to grow brand awareness (only 35% in North America), especially within the virtually untapped female demographic, and deliver innovative products that excite their customer base, instilling confidence that HEYDUDE will stabilize and eventually build upon peak sales of nearly $1B (+20% from FY24 sales). Additionally, management feels good about the mid-teens growth trajectory of its Crocs international business, which accounted for >50% of the brand’s sales in 2Q (vs. 38% in 2022), helping offset expected weakness in the brand’s North America business due to reduced promotional activity.
How Management Allocates Capital
Management has three priorities – 1) Grow the brands, 2) Repay debt, 3) Repurchase shares. Net leverage is within management’s target range of 1.0x – 1.5x EBITDA, leaving ample room to deploy cash flows toward growth and share repurchase, which we believe is an especially attractive use of funds at the current valuation. Management seems to share that sentiment, as CROX has bought back $570MM worth of shares over the last 4 quarters and ended the quarter with total authorization of $1.1B (~27% of market cap).