Crocs, Inc. CROX has been reeling under rough waters, due to several challenges it has been facing for a while. Tough macroeconomic factors, including continued inflationary pressures along with intense competition and an increased promotional retail backdrop, have been making things difficult for the stock. Persistent softness at its HEYDUDE brand is also hurting.

Consequently, shares of this leading footwear  dealer have lost 25.5% in the year, underperforming its Textile - Apparel industry’s 17.6% decline and broader Consumer Discretionary sector’s 4.4% increase. The stock has also lagged the S&P 500 index’s 8.7% growth.

What’s not Working for CROX?

Global inflation, high interest rates, logistics challenges and adverse foreign currency transactions remain concerning. Hence, this has been limiting the consumers’ spending for clothing and less-requisite items, and, in turn, hurting the demand for company’s products. 

Higher costs might squeeze Crocs’ margins and, in turn, hit its overall profits. In addition, high freight costs, increased wages, mainly in the distribution centers, and elevated raw material costs have been hurting. The company has been struggling with increased selling, general and administrative (SG&A) expenses stemming from higher marketing investments and rising costs related to continued investment in talent, digital and retail to support market share gains. 

Also, distribution and logistics inefficiencies have been acting as headwinds. In the most recent quarter, adjusted SG&A expense, in dollars, increased 23% year over year. The metric, as a percentage of revenues, expanded 610 basis points year over year to 37.7%. Management expects mid-teens adjusted SG&A growth in the first half of 2025 and a low-single-digit rise in the back half. This includes a marketing spend of 9-10% as a percent of revenues.

Sluggish performance at CROX’s HEYDUDE brand is weighing on the overall results. Although the brand’s revenues were flat year over year in the fourth quarter of 2024, the HEYDUDE brand saw an 8.6% decrease in its wholesale revenues. The direct-to-consumer comparable sales for the HEYDUDE brand fell 8.3% in the same quarter. For 2025, revenues for the HEYDUDE brand are anticipated to decline in the band of 7-9%.

The company’s outlook for 2025 embeds an extra 10% tariff on goods imported from China into the United States starting Feb. 4, and the expected additional 25% tariff on goods imported from Mexico starting last month. In 2025, management projects the share of enterprise imports into the United States from China to be about 15%, with Crocs at 10% and HEYDUDE at 27%. For the enterprise, the company estimates a nearly $11-million headwind to its gross profit from such additional tariffs or roughly 25 basis points to the gross margin.

Earnings Estimate Revisions for Crocs

Reflecting the cautious sentiment around CROX, the Zacks Consensus Estimate for earnings per share has seen downward revisions. Over the past seven days, the consensus estimate has declined 17 cents to $13.03 for the current year and 32 cents to $13.90 per share for the next year. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

CROX Price Performance

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Final Words on CROX

Although the aforesaid factors are not working in favor of CROX stock, the company is making strategies to revert to growth. Crocs has been focused on strong consumer demand for its core brand and effective pricing strategies. The company has been experiencing strength in clogs, sandals and personalization for a while.

As of now, we advise to refrain from investing in Crocs, as the stock currently carries a Zacks Rank #4 (Sell).

Key Consumer Discretionary Picks

We have highlighted three better-ranked stocks, namely, Ralph Lauren RL, Gildan Activewear GIL and Royal Caribbean RCL.

Ralph Lauren, a designer and distributor of premium lifestyle products, including apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Ralph Lauren has a trailing four-quarter earnings surprise of 6.5%, on average. The Zacks Consensus Estimate for RL’s current financial-year sales indicates growth of 5.8% from the year-ago figure.

Gildan Activewear, a manufacturer of premium quality branded basic activewear, carries a Zacks Rank of 2 at present. GIL has a trailing four-quarter earnings surprise of 5.3%, on average. 

The consensus estimate for Gildan Activewear’s current financial-year sales indicates growth of 4.4% from the year-ago figure.

Royal Caribbean carries a Zacks Rank of 2 at present. RCL has a trailing four-quarter earnings surprise of 15.7%, on average.

The Zacks Consensus Estimate for RCL’s 2025 sales and EPS indicates an increase of 9% and 26.7%, respectively, from the year-ago levels.

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Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

Ralph Lauren Corporation (RL) : Free Stock Analysis Report

Crocs, Inc. (CROX) : Free Stock Analysis Report

Gildan Activewear, Inc. (GIL) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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