On paper, popular casual footwear manufacturer Crocs (NASDAQ:CROX) presented a very positive picture for the consumer economy, delivering an earnings and revenue beat for the second quarter of 2022. However, management guided down expectations for the full year, inciting a significant selloff in CROX stock as well as chatter on social media. Primarily, the concerns focus on the viability of the Crocs brand amid rising economic pressures.
Getting into the core figures, the footwear specialist delivered adjusted earning per share of $3.24, exceeding the consensus EPS target of $2.67. The latest print was also up substantially from the year-ago quarter’s EPS of $2.23. On the revenue front, Crocs rang up $964.6 million against expectations calling for $943.6 million. In Q2 2021, the sales tally was $640.8 million.
Crocs CEO Andrew Rees declared, “I am very proud of our second quarter results.” Further, Rees stated, “I am particularly excited by record revenues for the Crocs Brand and the strong growth internationally. Heydude continues to outperform our expectations and we now expect nearly $1 billion in pro forma revenues this year.”
Crocs completed in February 2022 its acquisition of Heydude, a privately owned casual footwear brand.
Unfortunately for CROX stock, the good news ended there. Management later revealed its guidance for full year 2022, anticipating consolidated revenues of $3.395 billion to $3.505 billion. Previously, its prior outlook called for approximately $3.5 billion.
CROX Stock Faces a Tough Consumer Environment
Though the Q2 results were impressive against the context of soaring inflation – with the consumer price index hitting 9.1% in June – the guidance downgrade strongly implies that broader pressures are starting to affect the footwear maker. Since the equities sector is generally forward-looking, many investors decided to exit CROX stock while the going was good.
Stifel analyst Jim Duffy weighed in on the company’s Q2 report, writing on a research note, “Big picture, we are concerned about indications of waning interest in the Crocs brand in the core N. America market that has been the engine of growth in recent years.”
Though the Crocs brand specifically may be losing relevance with consumers, troubling inflation indicators suggest the company could be facing a double-edged challenge. From one angle, the decline of purchasing power of the dollar – the erosion being roughly equivalent to 13 cents on the dollar since the start of the coronavirus pandemic – is a headwind that all consumer-facing businesses must endure.
However, what’s problematic for CROX stock based on the underlying company’s guidance downgrade is the brand might be losing its prior economic insulation.
Why It Matters
According to a CNBC report, in the final quarter of 2019, credit card debt hit a record high $930 billion. Though the pandemic may have inspired some personal finance changes, Forbes recently noted American household debt hit a record $16.2 trillion as mortgages and credit card spending swell. In turn, delinquencies are starting to creep up.
In other words, the implosion of CROX stock despite the underlying positive Q2 performance suggests investors are concerned about macroeconomic headwinds, with Crocs’ outlook hit being a possible warning sign.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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