Crocs, Inc. (CROX) just handed short sellers an expensive lesson. The foam clog maker delivered a fourth-quarter earnings beat that sent shares rocketing higher Thursday morning, amplified by the fact that nearly 14% of the tradable shares were sold short heading into the print.

The numbers tell a pretty compelling story. Crocs posted adjusted earnings of $2.29 per share against analyst expectations of $1.90, while revenue came in at $957.64 million versus the $922.33 million consensus. That's the kind of beat that makes people scramble to cover their positions.

Not everything was perfect, though. Fourth-quarter adjusted gross margin compressed to 54.7% from 57.9% the previous year. Operating income took a harder hit, falling 26.8% to $146 million, which translated to a 15.3% operating margin compared to 20.2% a year ago. Adjusted operating income declined 19.7% to $161 million, landing at a 16.8% margin.

CEO Andrew Rees seemed pleased regardless: "We ended 2025 on a strong note with a better-than-expected Holiday quarter."

The brand performance showed an interesting split. The flagship Crocs brand eked out 0.8% growth to $768 million, while HEYDUDE continued its struggles with a 16.9% decline to $189 million. Geography told a similar tale—international Crocs sales jumped 14.1% to $332 million, enough to offset a 7.4% drop in North America.

On the capital allocation front, Crocs bought back 6.5 million shares in 2025 for $577 million. The balance sheet showed $130 million in cash at year-end, total debt of $1.23 billion, inventories at $369 million, and capital expenditures of $51 million.

Looking Ahead to Q1 and Beyond

Here's where things get interesting. For the first quarter of 2026, Crocs guided for adjusted EPS of $2.67 to $2.77, comfortably above the $2.52 consensus, even while expecting revenue to decline 3.5% to 5.5% year over year. The company projects Crocs brand sales to fall in the low single digits and HEYDUDE revenue to drop 15% to 18%, while targeting an adjusted operating margin around 21.5%.

For the full fiscal year 2026, management expects revenue to land somewhere between down about 1% and slightly positive. The core Crocs brand should grow up to 2%, while HEYDUDE is projected to decline 7% to 9%. The company anticipates modest expansion in adjusted operating margin from the current 22.3%, with about $25 million in non-GAAP adjustments related primarily to supply chain optimization and cost-cutting efforts.

The full-year adjusted EPS guidance of $12.88 to $13.35 sits well above the $12.10 consensus. Capital spending should run $70 million to $80 million, with an adjusted tax rate near 18%.

Rees outlined the strategy: "We enter 2026 with greater confidence around our growth engines which are diversified across channels, geographies, brands, and product categories. We have identified and actioned $100 million of cost savings in 2026 aimed at driving greater efficiency while providing the flexibility to continue to invest behind our brands and deepen our connection with consumers."

The Short Squeeze Factor

What made Thursday's move particularly dramatic was the elevated short interest. Crocs had 6.058 million shares sold short, representing 13.72% of the publicly traded float. When a heavily shorted stock beats expectations this convincingly, short sellers rushing to cover their positions can amplify the upward momentum.

Price Action: Crocs shares surged 14.23% to $94.50 in premarket trading Thursday.