How Crocs Conquered China — WSJ

Rock-bottom prices don't always mean rock-bottom businesses. The stocks we're examining today have all touched their 52-week lows, creating a classic investor's dilemma: bargain opportunity or value trap?

While market timing can be an extremely profitable strategy, it has burned many investors and requires rigorous analysis - something we specialize in at StockStory. Keeping that in mind, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.

Crocs (CROX)

One-Month Return: -15.8%

Founded in 2002, Crocs sells casual footwear and is known for its iconic clog shoe.

Why Are We Wary of CROX?

• Constant currency revenue growth has disappointed over the past two years and shows demand was soft
• Sales are projected to tank by 4% over the next 12 months as demand evaporates
• Waning returns on capital imply its previous profit engines are losing steam

At $83.92 per share, Crocs trades at 6.6x forward P/E. Check out our free in-depth research report to learn more about why CROX doesn’t pass our bar.

Select Medical (SEM)

One-Month Return: -13.7%

With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.

Why Do We Think SEM Will Underperform?

• Declining admissions over the past two years suggest it might have to lower prices to accelerate growth
• Forecasted revenue decline of 4.5% for the upcoming 12 months implies demand will fall even further
• Incremental sales over the last five years were much less profitable as its earnings per share fell by 3.4% annually while its revenue grew

Select Medical’s stock price of $12.60 implies a valuation ratio of 10.8x forward P/E. To fully understand why you should be careful with SEM, check out our full research report (it’s free).

Alight (ALIT)

One-Month Return: -33.3%

Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.

Why Should You Dump ALIT?

• Customers postponed purchases of its products and services this cycle as its revenue declined by 2.5% annually over the last five years
• Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
• Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Alight is trading at $3.67 per share, or 5.8x forward P/E. If you’re considering ALIT for your portfolio, see our FREE research report to learn more.

Stocks We Like More

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return).

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.

Footwear company Crocs met Wall Street’s revenue expectations in Q2 CY2025, with sales up 3.4% year on year to $1.15 billion. On the other hand, next quarter’s revenue guidance of $956 million was less impressive, coming in 10.7% below analysts’ estimates. Its non-GAAP profit of $4.23 per share was 5.3% above analysts’ consensus estimates.

Is now the time to buy CROX? Find out in our full research report (it’s free).

Crocs (CROX) Q2 CY2025 Highlights:

• Revenue: $1.15 billion vs analyst estimates of $1.15 billion (3.4% year-on-year growth, in line)
• Adjusted EPS: $4.23 vs analyst estimates of $4.02 (5.3% beat)
• Adjusted EBITDA: $329 million vs analyst estimates of $315.8 million (28.6% margin, 4.2% beat)
• Revenue Guidance for Q3 CY2025 is $956 million at the midpoint, below analyst estimates of $1.07 billion
• Operating Margin: -37.2%, down from 29.3% in the same quarter last year
• Constant Currency Revenue rose 2.7% year on year (4.8% in the same quarter last year)
• Market Capitalization: $4.18 billion

StockStory’s Take

Crocs’ second quarter met Wall Street’s revenue expectations but was met with a significant negative market reaction as management highlighted caution around U.S. consumer spending and a challenging retail environment. CEO Andrew Rees detailed that while international growth and strong gross profit supported free cash flow, North American sales faced headwinds due to reduced discounting and softer consumer demand. Management took a notably cautious tone, emphasizing the need for “bold decisions” to protect long-term brand health and profitability. The shift away from promotional activity in direct channels and the clean-up of aged inventory for HEYDUDE were among the key actions impacting results.

Looking forward, Crocs’ guidance reflects a conservative approach, with management projecting continued headwinds from cautious U.S. consumers and wholesale partners reducing open-to-buy volumes. Rees stated that the second half outlook is “concerning,” and the company is focusing on inventory discipline and cost savings to navigate uncertainty. The company expects persistent margin pressure from tariffs and anticipates further sales declines, especially in North America, as it prioritizes brand health over near-term revenue. Management is not reinstating full-year guidance and noted that a weakening U.S. consumer backdrop and cost inflation would shape near-term performance.

Key Insights from Management’s Remarks

Management attributed Q2 performance to international expansion, new product traction, and strategic pullbacks in U.S. discounting, while highlighting cost-saving measures and actions to stabilize HEYDUDE.

• International business drives growth: The Crocs Brand achieved 16% growth outside North America, with China and India leading gains. Management credited digital marketing, partnerships with local celebrities, and expansion of mono-brand stores as effective tools for boosting engagement, particularly during key retail festivals in China.

• North America faces headwinds: U.S. sales declined as Crocs pulled back on promotions to support long-term brand value. Rees noted a “cautious” consumer and lower traffic, especially among lower-income shoppers, while acknowledging shelf space losses to athletic brands as these competitors re-embrace broader distribution strategies.

• HEYDUDE reset accelerates: The brand’s wholesale business remains challenged, with efforts focused on taking back aged inventory and reducing marketing spend to reset the channel. While direct-to-consumer sales for HEYDUDE grew, management emphasized the importance of refreshing product assortments and elevating the brand’s wholesale presentation.

• Cost-saving actions underway: The company has already realized $50 million in cost savings this year, with a focus on reducing SG&A and improving supply chain efficiency. Management is engaged in further efforts to simplify operations and cut incremental costs, especially in light of the current revenue outlook.

• Tariffs weigh on margin: Tariff-related costs are now embedded in inventory and are expected to reduce operating margins by roughly 170 basis points in the next quarter. Management is pursuing selective price increases, mainly in international markets and specific styles, but does not plan broad-based price hikes given the broad consumer base.

Drivers of Future Performance

Crocs’ outlook is shaped by persistent U.S. demand uncertainty, tariff headwinds, and a strategic focus on brand health over short-term sales gains.

• U.S. demand caution persists: Management cited ongoing cautiousness among U.S. consumers, particularly at lower price points, which is expected to continue depressing wholesale and outlet traffic. Rees emphasized that reduced promotions and lower order volumes will likely weigh on North American sales in the near term.

• Margin impact from tariffs and costs: Tariffs are set to remain a headwind, with management estimating about $90 million in annualized costs. The company’s cost-saving program will seek to mitigate some of these pressures, but adjusted operating margins are expected to decline as revenue softens and expense deleverage intensifies.

• Focus on inventory discipline and brand reset: The company plans to limit inventory receipts, especially for HEYDUDE, while prioritizing new product introductions and SKU refreshes to maintain shelf appeal. Adjusted marketing spend and selective price increases are expected to help balance brand health and profitability, but management is not expecting a quick rebound in U.S. consumer demand.

Catalysts in Upcoming Quarters

Looking ahead, our analysts will be focused on (1) the pace of international expansion, especially in China and India, (2) the effectiveness of Crocs’ pullback on promotions and the resulting impact on margins and U.S. market share, and (3) progress in HEYDUDE’s channel reset, including inventory clean-up and any improvement in wholesale sell-through. Additional signposts include management’s ability to offset tariff headwinds and drive cost efficiencies.

Crocs currently trades at $76.55, down from $105.23 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

Our Favorite Stocks Right Now

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return).

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.