Crocs: The best margins in the sector.

Crocs is a global leader in casual footwear, best known for its iconic Clog and expanding portfolio of sandals and personalization products like Jibbitz. With a business model focused on brand strength, product innovation, and high-margin revenue streams, Crocs has successfully grown its market share while maintaining strong profitability. The company is also expanding internationally, tapping into underpenetrated markets to drive long-term growth. The question remains: Should this footwear brand have a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that at the time of writing this analysis, I do own shares in Crocs, as it represents 4,38% of my copytrading portfolio. If you want to copy my portfolio or view the stocks I currently hold, you can find detailed instructions here. I also own Crocs products that I really like. However, my ownership of shares and products in Crocs will not impact this analysis. I will strive to keep it unbiased, as I always do. If you want to purchase shares or fractional shares of Crocs, you can do so through eToro, which provides a user-friendly platform that makes it easy to get started.

The Business

Crocs is a global leader in innovative casual footwear, best known for its signature foam clogs made from Croslite, a proprietary closed-cell resin that differentiates it from traditional rubber or plastic materials. Since its founding in 2002, the company has sold over 800 million pairs of shoes in more than 80 countries. While the Classic Clog remains its flagship product, Crocs has expanded into sandals, other casual footwear, and Jibbitz charms, which allow for personalization. Each clog features 13 holes, enabling wearers to customize their footwear with up to 26 Jibbitz at a time. The brand has gained strong traction among American middle and high school students, reinforcing its deep cultural relevance as a go-to school shoe. Crocs operates through two key brands: the Crocs brand, which contributed approximately 80% of total revenue in 2024, and HEYDUDE, acquired in 2022, which accounted for the remaining 20%. The company distributes its products through both wholesale and direct-to-consumer channels, with each segment contributing 50% of total revenue in 2024. With a presence in over 80 countries, Crocs has built an extensive distribution network spanning company-operated e-commerce sites, third-party marketplaces, retail stores, and outlets. The distinctive design of the Crocs clog is a core component of its moat. Its instantly recognizable silhouette has made it one of the most iconic shoes in the world. In 2024, the Classic Clog was named one of the Greatest Shoes of All Time by Footwear News, highlighting its enduring appeal. Further cementing its status, the original Classic Clog was placed on display at the Museum of Modern Art in New York City in January 2025 as part of an exhibit showcasing iconic consumer products. This recognition underscores Crocs’ role as a cultural and fashion statement. The company continues to drive relevance through high-profile collaborations with major brands and celebrities, keeping the product fresh, desirable, and consistently in demand. Beyond brand strength, Crocs benefits from an efficient, high-margin business model. The clog is made from just three ingredients, making it both inexpensive and easy to produce. This streamlined production process contributes to Crocs’ 24% operating margin in 2024, a level of profitability that sets it apart in the footwear industry. The use of Croslite ensures that the product is not only cost-effective but also lightweight, comfortable, and durable—key factors driving repeat purchases and long-term customer loyalty. HEYDUDE complements Crocs' portfolio with lightweight, flexible loafers that align with global trends in casualization and comfort-driven footwear.

Management

Andrew Rees has served as the CEO of Crocs since 2017, after joining the company in 2014 as President. With over 25 years of experience in the footwear and retail industry, he previously held leadership roles at L.E.K. Consulting, Reebok, and Laura Ashley. Under his leadership, Crocs has undergone a remarkable transformation, evolving from a struggling footwear brand into a highly profitable, globally relevant company. He spearheaded the company’s resurgence by streamlining operations, closing underperforming stores, and refocusing the business on its core strengths. By simplifying the company’s structure, he established a highly profitable and resilient growth model. A key driver of Crocs' success under his leadership has been its strategic approach to marketing. Andrew Rees has leaned heavily into social and digital marketing, leveraging collaborations with artists, brands, and designers to enhance Crocs’ relevance among different consumer groups. This strategy has helped reposition the Classic Clog as both a fashion statement and a cultural icon. In a recent earnings call, Andrew Rees emphasized Crocs' long-term vision, stating, “We will continue to focus on what the company does best: delivering growth with industry-leading margins that generate significant cash flow.” His leadership is centered on three strategic pillars: driving awareness and global relevance for the company’s core products, expanding market share in key regions through investments in direct-to-consumer sales, and diversifying the product portfolio to attract new customers. His disciplined execution of these strategies has enabled Crocs to maintain an high operating margin. Beyond operational success, Andrew Rees has demonstrated a strong commitment to shareholder returns. Under his leadership, Crocs has actively repurchased shares, particularly when the stock is undervalued. As a leader, Andrew Rees is known for his clear communication and ability to align teams around a common vision. He believes that in a large organization, it is essential to "humanize yourself" and be approachable so that employees feel comfortable sharing ideas. He also embraces a consensus-driven leadership style, emphasizing that success comes from making informed, collective decisions rather than always being the one with the right answer. Given his track record of revitalizing Crocs, his strategic focus on brand relevance and financial discipline, and his shareholder-friendly approach, I believe Andrew Rees is well-positioned to continue driving the company’s long-term growth.

The Numbers

The first and most important number we will investigate is the return on invested capital, also known as ROIC. We want to review a 10-year history, and we expect the numbers to surpass 10% for each year. Looking at the data, Crocs' performance over the past decade can be divided into two distinct periods. Up until 2018, the company struggled, with ROIC turning negative in two years and falling below 5% in 2017. However, from 2018 onward, the numbers have been significantly stronger. Crocs achieved its highest ROIC ever in 2021, a year fueled by COVID-19 stimulus spending, as consumers spent more time at home and sought comfortable footwear. Given the extraordinary conditions of that period, it is not surprising that these numbers were unsustainable. Over the past two years, Crocs has seen a decline in ROIC due to increased costs in retail, inventory management challenges, and broader macroeconomic factors. Despite these headwinds, the company still managed to maintain an ROIC above 20%, which is highly encouraging. Given Crocs' business model, I expect it to continue generating strong returns, and once the macroeconomic environment improves, I believe we will see ROIC trend higher again.

The following numbers represent the book value plus the dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. From 2013 to 2019, Crocs' equity declined each year, a trend that was far from encouraging. However, the company successfully reversed course in 2020, marking a turning point. In 2021, Crocs made a significant strategic move with the acquisition of HEYDUDE, which had a lasting impact on its equity figures. The acquisition led to a sharp increase in 2022, and more importantly, Crocs has continued to build on this foundation. The company grew its equity again in 2023, setting a new record in 2024 with its highest equity level ever. If this upward trend persists, it would further reinforce Crocs’ financial strength moving forward.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Crocs has consistently generated positive free cash flow every year since 2016 and delivered its highest free cash flow ever in 2024, which is highly encouraging. This record-level free cash flow was driven by improved operating cash flow and a reduction in capital expenditures, leading to Crocs achieving its highest-ever levered free cash flow margin. Strong free cash flow directly benefits investors, as Crocs allocates this capital toward debt reduction and share repurchases. The company has been particularly disciplined in buying back shares when it believes they are undervalued, which is why 75% of its capital allocation in 2024 was dedicated to share buybacks, while the remaining 25% was used to pay down debt. Crocs' confidence in its ability to sustain strong free cash flow is evident in its decision to increase its buyback program by $1 billion by the end of 2024. Additionally, Crocs' free cash flow yield has reached its highest level ever, indicating that its shares are trading at an attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within three years. We assess this by dividing total long-term debt by earnings. Based on our calculations, Crocs can repay its debt in 1,46 years, well below the three-year threshold. This indicates that debt is not a concern for me when investing in Crocs. Since the HEYDUDE acquisition, management has prioritized debt reduction, which I see as another sign of strong leadership. With debt now at a comfortable level, management has shifted focus toward returning capital to shareholders, ramping up share buybacks in 2024.

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Risks

Competition is a key risk for Crocs due to several factors, including the presence of well-established brands with greater financial and operational resources, shifting consumer preferences, and the growing number of similar product offerings in the market. The global casual, athletic, and fashion footwear industries are highly competitive, and Crocs faces challenges across its wholesale, retail, and e-commerce segments. While the company does not compete directly with a single firm across its entire product range, it faces significant competition from brands such as Nike, Adidas, Skechers, Birkenstock, Deckers Outdoor Corporation, and others. Many of these competitors have stronger brand recognition, broader product portfolios, and longer-standing relationships with wholesalers and retailers, giving them an advantage in securing shelf space and consumer attention. Companies with greater financial resources can also invest more aggressively in marketing, product development, and pricing strategies, allowing them to capture market share or better withstand economic downturns. Another competitive risk is the rapid evolution of fashion trends. While Crocs' Classic Clog has experienced strong demand and cultural relevance, consumer preferences can shift quickly. A decline in the popularity of Crocs' core product or the emergence of new footwear trends could lead to slower growth or declining sales, particularly if competitors successfully capitalize on changing tastes with alternative designs or styles. The footwear industry has historically seen cycles of brands rising and falling in popularity, making it crucial for Crocs to continuously innovate and maintain consumer interest. Additionally, increased competition has led to more companies offering products that closely resemble Crocs' designs and materials. While Crocs benefits from its strong brand identity and proprietary Croslite material, the growing number of competitors producing similar foam-based footwear at various price points could erode its market share.

Macroeconomic factors pose a significant risk for Crocs as they directly influence consumer spending, operational costs, and financial stability. The company operates in a discretionary market where demand for its products is closely tied to broader economic conditions. If uncertainty persists or worsens, Crocs may face challenges in sustaining its current growth trajectory. One of the primary risks is consumer spending volatility. Economic downturns, rising unemployment, and high consumer debt levels can reduce discretionary spending, leading to weaker demand for Crocs' products. Inflation further exacerbates this issue, as rising costs for essentials like food, housing, and energy leave consumers with less disposable income for non-essential purchases such as footwear. Interest rates and inflation also play a critical role in shaping both consumer behavior and operational costs. The Federal Reserve’s rate hikes have tightened credit conditions and reduced government spending, which could slow overall economic activity. If high interest rates persist, borrowing costs for both consumers and businesses will remain elevated, potentially dampening retail spending. For Crocs, this could translate into fewer orders from wholesalers and weaker direct-to-consumer sales. Supply chain disruptions and rising costs present additional macroeconomic risks. Global logistics challenges, elevated freight expenses, and increased wages, particularly in distribution centers, have already affected the company. If these pressures continue, Crocs may struggle to manage inventory efficiently or sustain its profit margins. Wholesale and distributor liquidity issues pose another concern. Economic downturns can strain the financial health of Crocs' wholesale partners, leading to canceled orders, delayed payments, or even business closures.

Relying on third-party manufacturers presents a significant risk for Crocs, as it affects production capacity, supply chain stability, and overall operational efficiency. Since Crocs does not own its own manufacturing facilities, it is entirely dependent on external manufacturers located in Vietnam, China, Indonesia, India, and Mexico. This reliance introduces vulnerabilities that could disrupt the company’s ability to meet demand, control costs, and maintain profit margins. One key risk is supply chain disruption. A substantial portion of Crocs' production is concentrated in Vietnam, with its largest third-party manufacturer accounting for 50% of Crocs brand footwear in 2024. Meanwhile, the HEYDUDE brand remains heavily reliant on China, with 58% of production based there. This geographic concentration increases the risk of operational bottlenecks caused by natural disasters, pandemics, labor shortages, or geopolitical tensions in these regions. For example, during the COVID-19 pandemic, several of Crocs’ manufacturing facilities in Vietnam were forced to shut down or operate at reduced capacity, leading to delays and financial strain. The company had to rely on expensive alternatives like air freight, which added $67 million in unexpected costs in 2022 alone. Additionally, Crocs does not have direct control over its manufacturers' operations, making it dependent on their ability to meet production deadlines, maintain quality standards, and secure financing for production. Competition for manufacturing capacity further exacerbates this risk, as larger footwear brands with greater financial leverage could secure priority access to factories, potentially delaying Crocs' production or limiting its output. Another concern is exposure to political and economic risks in the regions where Crocs' manufacturers operate. Trade policies, tariffs, and geopolitical instability - such as tensions between the U.S. and China, labor policy changes in Vietnam, or broader international conflicts - could disrupt supply chains or increase costs. For instance, changes in trade agreements, new tariffs, or sanctions could significantly raise production expenses or force Crocs to relocate manufacturing, leading to temporary inefficiencies and higher costs.

Reasons to invest

Sandals is a reason to invest in Crocs, as it represents a growing and strategic category that enhances product diversification, attracts new customers, and strengthens the company’s market position. In 2024, sandals accounted for 13% of Crocs' total sales mix, with sellouts in North America increasing by mid-teens compared to the previous year, despite an overall decline in the domestic sandal market. This growth was fueled by successful product launches, including the Getaway and Miami franchises, which exceeded expectations, as well as the continued strength of the Brooklyn line with new materializations like the Brooklyn Woven and Brooklyn Heel. The sandals category also plays a crucial role in expanding Crocs’ customer base. Management noted that 61% of sandal purchasers were new to the Crocs brand, and these consumers tend to shop more frequently, carry a higher average order value, and purchase multiple silhouettes. Additionally, sandal buyers are predominantly female, contributing to a more balanced customer mix and broadening Crocs’ reach beyond its core clog audience. Looking ahead to 2025, Crocs plans to build on this momentum by introducing fresh colors and styles within the Getaway, Brooklyn, and Miami lines. Retailer demand has been exceptionally strong, particularly in North America, signaling further growth potential. Management has also emphasized that sandals represent an opportunity to drive innovation into incremental product categories over time. As Crocs continues to expand its presence in this segment, its ability to capture market share in the broader casual footwear space strengthens, making sandals a key reason to invest in the company.

Jibbitz is a reason to invest in Crocs, as it represents a unique, high-margin revenue stream that differentiates the company from its competitors while driving deeper consumer engagement and repeat purchases. Unlike other footwear brands, Crocs has successfully built a personalization ecosystem around Jibbitz, offering consumers a way to customize their footwear with decorative charms. This not only enhances the appeal of Crocs products but also encourages multiple purchases, increasing customer lifetime value. In 2024, Jibbitz sales grew by 6%, with strong performance in international markets and notable demand for elevated and licensed products. Management has emphasized that Jibbitz consumers are among Crocs' most valuable, as they tend to purchase with higher frequency. Looking ahead to 2025, the company sees significant opportunities to expand Jibbitz penetration, particularly through improved wholesale execution, deeper international expansion, and faster speed to market. The company recently shipped approximately 600 new Jibbitz fixtures into North American wholesale locations, reinforcing its commitment to broadening the personalization offering to a larger customer base. Crocs also continues to innovate within the Jibbitz segment by introducing fresh colors, textures, and even new applications such as personalization through back straps. Management remains highly enthusiastic about Jibbitz as a key driver of consumer engagement, as personalization remains a strong industry trend. With the company's focus on increasing digital and wholesale penetration, continuously refreshing its product lineup, and leveraging its market leadership in personalization, Jibbitz is poised to remain a compelling and growing part of Crocs’ business, reinforcing its competitive edge and enhancing overall profitability.

International growth is a reason to invest in Crocs, as the company is still in the early stages of expanding its brand presence in key global markets, providing a long runway for growth. In 2024, international revenues grew 19% year-over-year to $1,4 billion, following 23% growth in the prior year. Notably, China became Crocs’ second-largest market after the U.S., with revenue surging 64% year-over-year. Western Europe also delivered strong results, with France and Germany leading the region’s double-digit growth. Crocs sees international expansion as its most significant growth driver, as its market share in major global markets - such as China, India, Japan, Germany, and France - is currently only about one-quarter of what it has achieved in more established regions like the U.S., U.K., and South Korea. This underscores significant untapped potential as the company increases marketing investments and brand penetration in these markets. Looking ahead to 2025 and beyond, Crocs plans to continue expanding its international footprint by opening new retail locations across China, India, Southeast Asia, and the Middle East. The company is also focusing on premium outlet stores in China, Western Europe, North America, and Japan to attract higher-value customers. With low double-digit international growth expected over the medium term, Crocs’ expansion into these less mature markets presents a compelling investment opportunity, as the brand has a clear path to increasing market share and sustaining long-term revenue growth.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 15,88, which is from the year 2024. I have selected a projected future EPS growth rate of 7%. Finbox expects EPS to grow by 7% in the next five years. Additionally, I have selected a projected future P/E ratio of 14, which is double the growth rate. This decision is based on Crocs' historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $108,10. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Crocs at a price of $54,05 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 993, and capital expenditures were 69. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 48 in our calculations. The tax provision was -39. We have 58,3 outstanding shares. Hence, the calculation will be as follows: (993 – 48 - 39) / 58,3 x 10 = $155,40 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Crocs' free cash flow per share at $15,84 and a growth rate of 7%, if you want to recoup your investment in 8 years, the Payback Time price is $173,89.

Conclusion

I believe that Crocs is an intriguing company with strong management. The company has a moat through its Clog, one of the most iconic shoes in the world. While ROIC has declined in recent years, Crocs has consistently maintained a ROIC above 20% since 2019. Additionally, the company achieved its highest-ever free cash flow and levered free cash flow, enabling it to ramp up share buybacks. Confident in its ability to sustain strong free cash flow, Crocs recently expanded its buyback program. However, there are risks to consider. Competition remains a key challenge, as stronger rivals, shifting consumer trends, and an increasing number of similar product offerings could erode market share. Macroeconomic factors such as economic downturns, inflation, and high interest rates may weaken consumer spending and reduce demand for discretionary products like footwear. Rising operational costs, supply chain disruptions, and financial strain on wholesale partners could also impact profitability and sales growth. Furthermore, reliance on third-party manufacturers, particularly in Vietnam and China, increases the risk of supply chain disruptions, cost inflation, and limited operational control. Despite these risks, there are strong growth drivers. Sandals represent a compelling opportunity, driving product diversification, attracting new customers, and expanding market share - 61% of sandal buyers are new to the brand. Jibbitz is another reason to invest, offering a unique, high-margin revenue stream that enhances personalization, drives repeat purchases, and differentiates Crocs from competitors. International expansion also provides significant untapped potential, as Crocs is still in the early stages of brand penetration in key global markets. I believe Crocs is a great company, and purchasing shares below the margin of safety price of $108 presents a strong long-term investment opportunity.

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