Crocs (CROX Quick QuoteCROX - Free Report) appears to be a lucrative pick for investors as the company boasts solid consumer demand in the Crocs and HEYDUDE brands, as well as strength in clogs, sandals and Jibbitz categories. This led to the robust fourth-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate for the eleventh straight quarter in the fourth quarter.

Adjusted earnings were $2.65 per share, rising 23.3% from $2.15 in the year-ago period. Revenues advanced 61.1% (or 64.8% on a constant-currency basis) year over year to $945.2 million in the reported quarter, driven by growth across all regions and channels.

Consequently, shares of this Zacks Rank #2 (Buy) company have outperformed the industry and the overall Consumer Discretionary sector in the past month. This Zacks Rank #2 (Buy) stock has rallied 25.1% compared with the industry’s growth of 7.1% and against the sector’s decline of 1.5%.

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That said, let’s delve into the factors that make Crocs a promising bet.

What’s Driving CROX?

Its previously acquired HEYDUDE, which sells lightweight, casual shoes and sandals for men, women and children, bodes well. This is the second high-growth and highly profitable brand added to the Crocs portfolio. HEYDUDE’s consumer-insight-driven casual, comfortable and lightweight products perfectly fit CROX’s existing portfolio. The acquisition is likely to diversify Crocs’ brand portfolio and add to its digital penetration, as HEYDUDE already has a strong online presence.

Notably, the HEYDUDE brand’s fourth-quarter revenues advanced 37% year over year to $279.2 million. For 2023, revenues related to the HEYDUDE buyout are likely to grow in the mid-20% range on a reported basis. Management expects the HEYDUDE brand to attain $1 billion in revenues in 2023.

Crocs has been making significant progress in expanding digital and omnichannel capabilities. Digital sales advanced 80% year over year in the fourth quarter, marking significant growth from the prior-year quarter’s 41%. The metric represented 45.1% of the total revenues, up from the prior-year quarter’s figure of 40.3%. This was mainly driven by brand strength, new products, refined user experience and marketing activities. Increased focus on the Crocs mobile app and global social platforms aided digital sales. Gains from strategic collaborations, influencer campaigns, and digital and social marketing efforts remained upsides.

CROX is on track with its long-term strategy and key initiatives to deliver sustainable growth. It expects to generate revenues of more than $5 billion by 2026, witnessing compounded annual growth rate (CAGR) of more than 17% in the next five years. The company expects to attain the revenue target, driven by strong digital sales, improved market share for sandals, growth in Asia, and innovative product and marketing. Management expects four times revenue growth in sandals by 2026.

The company sees long-term opportunities in Asia, primarily in China, which is the second-largest footwear market in the world. Management expects revenue growth to witness a CAGR of 25% and represent 24% of the total revenues in 2026. The company targets at least 50% of total revenues to come from digital channels by the end of 2026. Driven by strong revenue growth, the company anticipates improved profitability and cash flows through 2026. It expects an adjusted operating margin of more than 26% and annual free cash flow in excess of $1 billion by the end of 2026.

Driven by these factors, along with the impressive quarterly results, management issued upbeat guidance for 2023. For 2023, revenues are anticipated to grow 10-13% to $3.9-$4 billion. Brand-wise, Crocs’ revenues are anticipated to be 6-8% on a reported basis and 9-11% on a cc basis. Meanwhile, HEYDUDE’s revenues are predicted to grow in the mid-20% range on a reported basis. Adjusted earnings are envisioned at $11-$11.31 per share, with an adjusted operating margin of 26%.

For first-quarter 2023, revenues are expected to grow 27-30% from the prior-year quarter’s reported figure of $660.1 million. Adjusted earnings are forecast to be $2.06-$2.19 per share and the adjusted operating margin is likely to be 24-25%.

Bottom Line

Although inflation and elevated freight costs remain looming concerns, we believe that online strength, solid demand and well-chalked-out endeavors will help Crocs sustain its stellar show. Also, a long-term earnings growth rate of 15% and a VGM Score of A reflect its inherent strength. Topping it, earnings estimates for the current financial year have increased 4.7% to $11.19 over the past 30 days.

Other Stocks to Consider

Some other top-ranked companies are Ralph Lauren (RL Quick QuoteRL - Free Report) , H&R Block (HRB Quick QuoteHRB - Free Report) and Deckers Outdoor (DECK Quick QuoteDECK - Free Report) .

Ralph Lauren, a footwear and accessories dealer, flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ralph Lauren’s next-financial-year sales and EPS suggests growth of 5% and 12.8%, respectively, from the year-ago reported figures. RL has a trailing four-quarter earnings surprise of 23.6%, on average.

Deckers Outdoor currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 31%, on average.

The Zacks Consensus Estimate for Deckers Outdoor’s current financial-year sales and earnings suggests growth of 12% and 13.5% from the year-ago period’s reported numbers, respectively.

H&R Block provides assisted income tax return preparation and do-it-yourself tax return preparation services. HRB currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for H&R Block’s current financial year’s EPS suggests growth of 9.4% from the year-ago reported figure. H&R Block has a trailing four-quarter earnings surprise of 10.7%, on average.