Footwear company Crocs (NASDAQ:CROX) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 6.2% year on year to $938.6 million. It made a non-GAAP profit of $3.02 per share, improving from its profit of $2.61 per share in the same quarter last year.

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"We delivered an exceptional first quarter, led by mid-teens growth of our Crocs Brand, driven by robust consumer demand both in North America and in international markets." said Andrew Rees, Chief Executive Officer.

Founded in 2002, Crocs (NASDAQ:CROX) sells casual footwear and is known for its iconic clog shoe.

Footwear

Before the advent of the internet, styles changed, but consumers mainly bought shoes by visiting local brick-and-mortar shoe, department, and specialty stores. Today, not only do styles change more frequently as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some footwear companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Crocs's annualized revenue growth rate of 29.5% over the last five years was exceptional for a consumer discretionary business.

Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Crocs's recent history shows its momentum has slowed as its annualized revenue growth of 26.4% over the last two years is below its five-year trend. 

Crocs also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 28.7% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see that foreign exchange rates have been a headwind for Crocs.

This quarter, Crocs reported solid year-on-year revenue growth of 6.2%, and its $938.6 million of revenue outperformed Wall Street's estimates by 6.1%. Looking ahead, Wall Street expects sales to grow 4.5% over the next 12 months, a deceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Over the last two years, Crocs has shown strong cash profitability, giving it an edge over its competitors and the option to reinvest or return capital to investors while keeping cash on hand for emergencies. The company's free cash flow margin has averaged 17.7%, quite impressive for a consumer discretionary business.

Crocs burned through $43.32 million of cash in Q1, equivalent to a negative 4.6% margin, reducing its cash burn by 145% year on year. Over the next year, analysts predict Crocs's cash profitability will improve. Their consensus estimates imply its LTM free cash flow margin of 19.6% will increase to 23%.

Key Takeaways from Crocs's Q1 Results

We were impressed by how significantly Crocs blew past analysts' constant currency revenue and EPS expectations this quarter, driven by outperformance in its flagship Crocs and HEYDUDE brands. On the other hand, its full-year revenue guidance fell slightly short of Wall Street's estimates while its earnings outlook was in line. Overall, we think this was still a really good quarter that should please shareholders. Investors are likely disappointed by the guidance, however, and the stock is down 2.3% after reporting, trading at $123.85 per share.

So should you invest in Crocs right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.