Crocs Business Strategies Are Strengthening Future Fundamentals

Crocs

Crocs Inc (NASDAQ: CROX) shares bounced back sharply since the start of last year; CROX stock jumped 134% over the previous twelve months to a 52-week high of $15 a share at present. The substantial growth in CROX stock was supported by its strategy of selling an elevated mix of higher-margin products along with the reduction in operational expenses.

The company is working on three core objectives:

  • Simplifying its business to reduce costs
  • Improving the quality of its revenues
  • Positioning the company to drive sustainable, profitable growth

Its business strategies are working considering improving revenue and margins. Crocs posted revenue growth of more than 6% in the latest quarter, driven by double-digit growth in the wholesale and e-commerce businesses and positive comparable store sales from the retail business.

The company’s gross margin jumped 380 basis points Y/Y to 45.4%, the fourth successive quarter of gross margin growth. Along with the positive impact of currency conversion rates, its strategy of prioritizing high margin molded product, better managing promotions and improving go-to-market capabilities helped in expanding gross margin.

The reduction of 260 basis points in SG&A expenses allowed the company to narrow losses from the past year period. Its loss was standing around $30 million in the final quarter of last year, representing the improvement of 23% from the loss of $39 million in the year-ago period.

The company says, “They anticipate delivering continued gross margin gains and completing our SG&A reduction plan. This lays the groundwork for generating top-line growth in 2019 and, ultimately, delivering double-digit EBIT margins.”

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Liquidity Position Supports Future Fundamentals

The company appears in a healthy cash position to support investments and cash returns. Cash and cash equivalents soared to $172.1 million in fiscal 2017, higher 16.6% to $147.6 million from year-ago period despite share buyback of $50.0 million during the year. At the end of last year, the company had no borrowings outstanding on the $100 million credit facility.

The internal cash generation has also been covering capital requirements. It generated operating cash flow of $98 million in fiscal 2017, compared to capital requirements of $13 million.

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