Shares of Crocs, Inc. (CROX) took a small step back on Wednesday, even as analysts pointed to some pretty comfortable-looking fundamentals. It's a classic case of near-term pain for potential long-term gain, with the company facing some headwinds in its home market.
The outlook here is about timing. There's pressure in North America right now, but the expectation is for a stronger recovery to kick in later this year. It's like knowing you have to walk through a puddle to get to dry land.
Bank of America Securities analyst Kendall Toscano is firmly in the "buy the dip" camp, reiterating a Buy rating on the stock with a price target of $120. Her take is that the first-quarter results, expected soon, will likely be roughly in line with estimates. Sales are being pressured, but not by a lack of demand for comfy shoes—instead, it's what Toscano calls "self-inflicted" moves like reduced discounting and changes in the wholesale business.
So where's the upside? Toscano sees it coming from a few places. First, gross margins are expected to remain strong. Second, international momentum is continuing to build. And third, the company is still actively buying back its own shares, which supports earnings per share over time. If Crocs can start showing clearer signs of recovery in North America, that could lead to the stock's valuation multiple expanding, she notes.
Those North America headwinds aren't disappearing overnight. Toscano expects them to stick around through the first half of the year. The good news is that international strength is expected to partially offset the weaker performance at home during that same period. Then, by the second half, the projected recovery in North America starts to look achievable as the company laps those prior strategic actions. It's a transitional year, with the pain front-loaded.
There are also some potential margin tailwinds. Toscano points out that management has been using conservative assumptions about tariffs for the first quarter, which could set the stage for some upside in gross margins if reality is kinder. Lower tariff rates could boost earnings, though the full benefit might take a while to show up. And for those worried about rising oil prices driving up costs? Toscano isn't too concerned, noting Crocs' contract structure and past resilience should help it weather that storm.
At the end of the day, Crocs shares were down 2.46% at $104.71. The market is focusing on the North America puddle, while analysts like Toscano are already looking at the dry land on the other side.
