Niwot, Colo.-based Crocs, Inc. (CROX) and Designer Brands, Inc. (DBI) in Columbus, Ohio. are two popular retail footwear companies. CROX produces soft, lightweight, non-marking, slip-and-odor-resistant shoes made from closed-cell resin material. It sells its products through wholesalers, retail stores, e-commerce sites, and third-party marketplaces. DBI offers an assortment of brand-name dresses, casual and athletic footwear through wholesale, First Cost, and direct-to-consumer e-commerce sites. In addition, both companies provide accessories for women, men, and children.
As consumer spending rebounds with improvement in the job market, companies in the footwear industry are striving to launch flexible, casual, and eco-friendly product lines to keep pace with changing consumer trends. Because of a strong e-commerce presence and increasing foot traffic in stores with the economy’s reopening, U.S. fashion footwear sales rose 7% year over year to $2 billion during the first quarter of 2021. The global footwear market is expected to grow at a 1.8% CAGR to $341.27 billion in 2026.
While DBI gained 51.5% over the past year, CROX surged 79%. In terms of their performance so far this year, CROX is a clear winner with 109.5% gains versus DBI’s 88.1%. But, which of these stocks is a better pick now? Let’s find out.
On July 21, CROX announced its commitment to becoming a net-zero company by 2030. At 3.94 kg CO2 eq. per pair of Classic Clogs, CROX will be a 100 percent vegan brand by the end of 2021. Currently, CROX is finalizing its approach to a more sustainable biobased Croslite material, the predominant material in its footwear.
On July 7, CROX and global esports organization Gen.G announced a partnership for a Minecraft build competition. “The ‘Build Your Life in Color’ competition is another example of how Crocs continues to innovate by creating authentic relationships with brand fans and consumers on the digital stage,” according to Crocs SVP & Chief Marketing Officer Heidi Cooley.
On April 15, Leading sports retailer Lids partnered with DBI to bring licensed sports products to its stores in Canada for the first time. With this new partnership, Lids will have shop-in-shop concept stores coast to coast in 45 Canadian locations of DBI’s Designer Shoe Warehouse (DSW) and The Shoe Company. This new partnership also encompasses online sales with Lids’ products available on each store’s website moving forward. Both companies hope to witness expanded market reach across Canada.
Recent Financial Results
CROX’s revenues for its fiscal second quarter, ended June 30, 2021, increased 93.3% year-over-year to $640.77 million. The company’s non-GAAP gross profit came in at $396.30 million, up 116.4% from the prior-year period. Its non-GAAP income from operations has been reported at $196.44 million, representing a 166.1% improvement year-over-year. While its non-GAAP net income increased 109.9% year-over-year to $144.38 million, its non-GAAP EPS increased 120.8% year-over-year to $2.23. As of March 31, 2021, the company had $197.85 million in cash and cash equivalents.
For its fiscal first quarter ended May 1, 2021, DBI’s net revenue increased 10.4% year-over-year to $839.43 million. The company’s non-GAAP gross profit came in at $216.11 million, compared to a $26.46 million loss in the year-ago period. DBI’s adjusted operating profit has been reported at $18.75 million, compared to a $209.66 million loss in the prior-year period. Its adjusted net income came in at $9.47 million, compared to a $130.30 million loss in the year-ago period. Its adjusted EPS has been reported at 0.22 for the quarter, compared to a $3 loss in the prior-year period. The company had cash and cash equivalents of $49.30 million as of May 1, 2021.
Past and Expected Financial Performance
CROX’s revenue and tangible book value grew at 21.2% and 29.9% CAGRs, respectively, over the past three years. The company’s total assets have grown at a 35.2% CAGR over the past three years.
Analysts expect CROX’s revenue to increase 47.1% year-over-year in the current year and 8.9% next year. Its EPS is expected to increase 77.6% in the current year and 12.6% next year. The stock’s EPS is expected to grow at a 10% rate per annum over the next five years.
In comparison, DBI’s revenue and tangible assets have declined at CAGRs of 4.6% and 45.3%, respectively, over the past three years. The company’s total assets have grown at a 12.4% CAGR over the past three years.
Analysts expect DBI’s revenue to improve 35.8% in the current year and 6.9% next year. However, its EPS is expected to increase 116.7% in the current year and 90.8% next year. Analysts expect the stock’s EPS to grow at a 14.7% rate per annum over the next five years.
DBI’s trailing-12-month revenue is 1.3 times CROX’s. However, CROX is more profitable, with a 57.9% gross profit margin versus DBI’s negative value.
Also, CROX’s ROE, ROA and ROTC values of 257%, 27.2%, and 39.8%, respectively, compare favorably with DBI’s negative values.
In terms of forward EV/Sales, CROX is currently trading at 3.79x, which is 426.4% higher than DBI’s 0.72x. CROX’s 14.04x forward EV/EBITDA is 24.6% higher than DBI’s 11.27x.
Also, in terms of trailing-12-month Price-to-Book value, CROX’s 22.83x is 472.2% higher than DBI’s 3.99x.
Both CROX and DBI have overall C ratings, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
Both the stocks have a C grade for Value, which is consistent with their slightly higher-than-industry valuation ratios. CROX’s 19.60x non-GAAP forward P/E is 21.9% higher than the 16.08x industry average. DBI has a 21.80x non-GAAP forward P/E value , which is 35.6% higher than the 16.08x industry average.
In terms of Quality, CROX has been graded an A, which is consistent with its higher-than-industry profitability ratios. CROX’s 26.8% trailing-12-month EBIT margin is 248% higher than the 7.7% industry average. In comparison, DBI has a C grade for Quality, which is in sync with its negative EBIT margin.
Of the 66 stocks in the A-rated Fashion & Luxury industry, DBI is ranked #57, while CROX is ranked #47.
Beyond what we’ve stated above, our POWR Ratings system has also rated CROX and DBI for Growth, Momentum, Sentiment, and Stability. Get all DBI ratings here. Also, click here to see the additional POWR Ratings for CROX.
The easing of travel restrictions and new consumer trends position footwear companies well for growth. However, neither of the two stocks—CROX and DBI —are good bets now, given their higher-than-industry valuations. So, we think it could be wise to wait for better entry opportunities in both these stocks.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry.
CROX shares were trading at $131.75 per share on Monday afternoon, up $0.46 (+0.35%). Year-to-date, CROX has gained 110.26%, versus a 18.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More…