Raymond James cuts Crox on slower growth and margin pressure

Investing.com — Raymond James downgraded Crocs (NASDAQ:) to Market Perform from Outperform in a note Wednesday, citing concerns over slowing growth and margin pressure.

While the company beat third-quarter expectations, guidance for Q4 and 2025 has weakened, impacting investor confidence in potential EPS growth.

“We think Crocs brand 4Q guide of +2% is conservative given International momentum,” analysts noted.

However, they flagged domestic sales declines as troubling. ” Domestic DTC (important brand indicator) has slowed q/q for the last three quarters, which raises questions about customer acquisition potential,” added the firm.

HEYDUDE, the company’s other footwear brand, also presents challenges, according to Raymond James.

“The 4Q24 guide down was a ~20-point swing vs. three months ago, underscoring low visibility.,” Raymond James said, adding that it’s unclear when the brand will return to sustainable growth.

The firm also highlighted ongoing pressure on operating margins due to increased investments in talent and marketing. Crocs expects a further compression in EBIT margins by 100 basis points in FY25, on top of a 220-basis-point decline projected for 2024.

Analysts expressed surprise that SG&A expenses aren’t being reined in despite slowing revenues, calling it “potentially an opportunity.”

Despite some growth potential in international markets, particularly outside of China, the outlook remains uncertain. Raymond James sees “Crocs International leading growth in FY25,” but they note that North America’s planned growth lacks visibility, which is critical for improving the stock multiple.

Raymond James cut its 2025 EPS estimate to $13.45 from $14.35, reflecting just 4% growth, with buybacks contributing 2.5%.

“We expect valuation to remain pressured until there’s a better line of sight for upward revisions to revenue and margin expectations,” concluded the firm.