Crocs’ Stock Drops on Q3 Profit Warning Despite Strong Q2 Report

1. Aug.Crocs Inc. (NASDAQ: CROX) experienced a notable decline in its stock price on Thursday, shedding about 5% despite reporting second-quarter earnings that exceeded Wall Street expectations. The footwear giant, renowned for its innovative casual footwear, warned of a potential dip in profits for the upcoming quarter, casting a shadow over its robust Q2 performance.

Q2 Financial Highlights
For the second quarter of 2024, Crocs reported a profit of $228.9 million, or $3.77 per share, up from $212.4 million, or $3.39 per share, in the same period last year. The company’s revenue reached $1.112 billion, marking a 3.6% increase (or 4.8% on a constant currency basis). The growth was primarily driven by a substantial increase in direct-to-consumer (DTC) revenues, which surged 8.9%, and an impressive gross margin of 61.4%, up from 57.9%.

Andrew Rees, CEO of Crocs, highlighted the strength of the Crocs brand, particularly its exceptional international growth. He also mentioned the company's efforts to support the long-term health of the HEYDUDE brand by ramping up marketing efforts in the second half of the year.

Crocs Brand Performance
The Crocs brand reported a 9.7% increase in revenues, totaling $914 million. The growth was seen across various channels and geographies:
- DTC Revenues: Increased by 12.5% to $479 million.
- Wholesale Revenues: Rose by 6.9% to $435 million.
- North America Revenues: Increased by 3.0% to $489 million.
- International Revenues: Saw a significant rise of 18.7% to $425 million.


Financial Outlook and Challenges
Despite the positive Q2 results, Crocs’ guidance for the third quarter of 2024 raised concerns. The company expects:
- Revenues to range from a 1.5% decline to a 0.5% increase compared to Q3 2023.
- Crocs brand revenues to grow by 3% to 5%.
- HEYDUDE brand revenues to decline by 16% to 14%.
- Adjusted operating margin to be approximately 24.5%.
- Adjusted diluted earnings per share to be between $2.95 and $3.10.

For the full year 2024, Crocs maintained its revenue growth outlook of 3% to 5%, with the Crocs brand expected to grow by 7% to 9% and the HEYDUDE brand anticipated to decline by 10% to 8%. The adjusted operating margin is projected to exceed 25%, with adjusted diluted earnings per share estimated to be between $12.45 and $12.90.

Market Reaction
The market reacted negatively to the profit warning for Third Quarter (Q3), overshadowing the strong Q2 results. The concerns about the sustainability of Crocs’ growth, particularly in the HEYDUDE brand, and the anticipated lower profits for the upcoming quarter, led to the drop in stock price.

From a technical perspective, it is evident that CROX has undergone a series of falling wedge patterns, each preceded by a bullish reversal pattern. Presently, CROX is exhibiting a similar pattern, accompanied by a relative strength index of 36.66. Anticipation for Q3 suggests a potential decline in CROX until it reaches significant support at the $112 level. A breach above the one-month low is likely to signify a bullish reversal for CROX.

Conclusion
Crocs Inc. continues to demonstrate resilience and growth, particularly with its flagship Crocs brand. However, the profit warning for Q3 has highlighted potential headwinds, especially with the HEYDUDE brand. Investors will be keenly watching how Crocs navigates these challenges and whether it can maintain its positive momentum in the coming quarters.