Casual footwear provider Crocs (NYSE:CROX) reported first quarter results on Thursday and provided another indication that its namesake shoes and related accessories are more than a passing fad. The stock is also reasonably valued on and earning basis, and leaves room for upside surprises going forward.
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Revenues increased 19.9% to $271.8 million. This was attributed to strong trends in Asia and the Americas regions. The only laggard was the European region, which reported a sales decline of 2.7%. Wholesale orders to outside retailers including Amazon (Nasdaq:AMZN), Dick’s Sporting Goods (NYSE:DKS), DSW (NYSE:DSW), and Nordstrom (NYSE:JWN) grew 15.9% to account for 70.2% of total quarterly sales. Retail sales from the company’s own retail, discount and online sources, jumped 33.2% to account for the rest of the top line.
The increase in sales costs lagged total sales growth and helped gross profits advance 21.5% to $144.8 million. SG&A cost controls helped push operating income up 34.6% to $36.1 million. Slightly faster income tax costs resulted in a net income increase of 31.8% to $28.3 million, or 31 cents per diluted share. Crocs did not provide cash flow details in the earnings press release.
Outlook and Valuation
For all of 2012, analysts project total sales growth around 18% and total sales of nearly $1.2 million. The consensus earnings projection currently stands at about $1.45 per share and would represent annual profit growth of more than 15%. Combined with a current share price of about $20 per share equates to a forward P/E of 14.2.
The Bottom Line
Crocs hit a wall during the credit crisis and reported losses during both 2008 and 2009. But since then, sales have come back strongly. Its wholesale clients experienced similar trends and help explain the recovery in underlying demand. Crocs cash flow has also improved markedly and it generated approximately $1.12 in free cash flow last year.
The trailing free cash flow multiple of 18 is quite rich, but the forward P/E is much more reasonable. Crocs was once thought of as only a fad, but the past couple of years are suggesting that the brand has staying power as well as appeal on a global basis. It’s not unreasonable to expect another few years of double-digit growth in sales and profits, as well as steady shareholder gains given the earnings multiple leaves room for share price upside.