Investment Case Update: May 12, 2025

Market Capitalization: $6.7B
Enterprise Value: $8.4B
Price: $118.85 (5/12/25)

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 (~$160B 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 tenfold 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 has been transparent about eliminating non-strategic wholesale accounts for HEYDUDE, which has put a damper on the brand’s recent growth trajectory, and revamped brand leadership is making strategic investments to grow brand awareness, especially within the virtually untapped female demographic, instilling confidence that HEYDUDE will stabilize and eventually build upon peak sales of nearly $1B (+20% from FY24 sales).

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 bought back $551MM worth of shares in 2024 and then boosted its buyback authorization by another $1B, bringing total current authorization to $1.3B (~21% of market cap).