Crocs (CROX) is trading higher today (+8%) after raising revenue guidance for Q4. The brand has been falling out of favor with consumers over the past few years, but it has been making a comeback with some important operational/marketing changes.
In terms of quick background, you're probably all familiar with its casual footwear for men, women and children. Crocs offers a broad portfolio of all-season products, while remaining true to its core molded footwear heritage. All Crocs shoes feature Croslite material, a proprietary technology that gives each pair of shoes soft, comfortable, lightweight and non-marking qualities.
Turning to today's news, Crocs increased its Q4 revenue guidance to $195-198 mln, up from prior guidance of $180-190 mln. The new guidance approximates 5% YoY growth, while the prior guidance would have been a slight decline or a slight increase from the year ago.
In addition to its revenue guidance, the company is also increasing its Q4 gross margin guidance by 200 basis points from approximately 43% to approximately 45%, which is a 300 basis point increase over the prior year's Q4. For all of 2017, Crocs continues to expect 2017 revenue to be down low single digits and for gross margin to be approximately 50% on a full year basis.
CROX had seen its stock price steadily decline from the low $30's in mid-2011 to about $6 in May 2017. Slumping sales are a big reason for why the stock has been falling. In fact, in March 2017, Crocs announced it would close 158 of its stores, which is a lot as Crocs' footprint will be reduced to just 400 stores by the end of 2018. Part of the rationale for the store closing is weak mall traffic. There has also been a market shift toward athletic shoes over the past year or two.
There are definitely a lot of strong opinions about Crocs' footwear: people love them (for their comfort) or they hate them (mostly for how they look). However, they are very popular with people who work on their feet all day (waitresses, cooks, nurses, hair stylists etc.)
In order to turn the brand around, in addition to store closings, Crocs has been reducing its SKUs as there are just too many different styles of shoes it offers. Also, Crocs has switched its marketing to more of a "come as you are" theme. It sorts of empathizes with customers who feel shoe-shamed by people who hate Crocs. The ad campaign encourages people to be different and embrace individuality. In addition, over the past few years, the brand moved beyond its standard clog shoe and started rolling out more fashionable sandals, flats and heels that would be difficult to tell they are Crocs at all.
In sum, it will take time to see if these changes can turn the brand around over the long term, but the stock has been climbing nicely since May 2017, up about 100% since then.