By Davit Kirakosyan
B.Riley initiated coverage on Crocs (NASDAQ:CROX) with a Buy rating and a price target of $157.00, viewing the company as a multiyear core holding that should deliver absolute and relative returns in 2023 and beyond, and noting that the Q1/23 and full 2023-year guidance appear achievable and beatable.
Crocs is also becoming a meaningful medium in the area of brand, media property, and celebrity development. Given the prevailing inventory challenges in the footwear industry and the growing consumer inclination towards seeking value through cost-effective alternatives, B. Riley anticipates that Crocs stands to gain from this trend.
The company guided 2023 China revenue growth up 30%, and B. Riley perceives an opportunity for further growth. Crocs exited 2022 with 35% China growth in H2/22. Additionally, other global footwear companies reported declines in Q4/22, indicating that Crocs is outperforming its peers. Crocs began the repositioning of its China business in 2019, which was further delayed due to COVID-19. As of the end of 2022, Crocs' China business accounted for $125 million, equivalent to 5% of its overall sales. Crocs' long-term goal is for China to contribute 10% of its sales, which aligns with other international footwear players that typically generate more than 10% of their revenue in China.
The firm said that Crocs is poised to generate over $600M in free cash flow for both 2023 and 2024. “If this projection is accurate, Crocs could be less than 1.5x levered by the end of 2023 and less than 1.0x levered in 2024, which we believe creates balance sheet/strategic flexibility and optionality,” added the firm.