Will Crocs Find Institutional Support At A Key Moving Average?

Who would have guessed that the clunky, colorful clogs made by Crocs NASDAQ: CROX  would be a fashion item in 2021?

The stock is trading near all-time highs, on the heels of a lengthy rally.

Crocs’ shoes, often subjects of derision for their chunky appearance, became well known around 2006 and 2007. The Niwot, Colorado company went public in February 2006. Over the next 20 months, the stock rocketed 444%.

Unfortunately for investors, October 2007 marked the highest point the stock would see for many years.

After tanking in the 2007-2009 market meltdown, then partially rallying back, the stock was mired in a trough for eight long years before beginning a comeback in late 2019.

However, that was cut short as the stock joined the broader market in the pandemic downturn in early 2020.

Over the past year, Crox took part in the market-wide rally, finishing 10 of the past 11 months with gains.

What changed? How did an often mocked line of shoes stage a big rebound, 15 years after its original popularity?

Thanking Health Care Workers

The shoes have been worn by health care professionals all along. The comfort and no-slip characteristics made them a shoo-in for people who are on their feet all day, and who need to be safe in potentially messy situations.

At the beginning of the pandemic, the company returned the favor to its loyal customers. Management launched an initiative to give away 10,000 pairs of Crocs a day to front-line medical workers. For 45 days starting in late March, the company shipped more than 860,000 pairs of Crocs to health care employees.

But something else happened in the past year.

Besides thanking medical workers, the company also teamed up with influencers to court Gen X and Gen Y consumers. Design collaborators include Post Malone, G Flip, Zooey Deschanel, Priyanka Chopra Jonas, Luke Combs, and Drew Barrymore.

Crocs also launched a partnership with KFC, which resulted in a shoe that it describes as, “Covered in a fried chicken print and a striped base, these will make your dreams of wearing a bucket of chicken finally come true.”

Store Closures and Efficiencies

On an operational level, the company closed stores in recent years. When the shoes were popular over a decade ago, Crocs went on a global store-opening spree. Unfortunately, that proved to be unwieldy, particularly as rival Birkenstock saw a resurgence in sales of its sandals, which outsold Crocs.

By 2019, Crocs operated 367 stores worldwide, down from 619 in 2013.

In March 2017, the company announced a plan to reduce its sales, general and administrative expenses by $75 million per year. Store closures were a large part of that plan, along with improvements in operating efficiencies. Those included organizational restructuring and leveraging costs through more system-wide standardization.

In the past two quarters, sales growth resumed, although the 2020 revenue slumps were limited to the single digits. In the most recent quarter, earnings grew a whopping 783%, to $1.08 per share.

Analysts expect strong full-year earnings performances this year and next. Estimates call for earnings of $3.94 per share in 2021, and $4.38 per share in 2022. Those estimates were revised higher after Crocs’ better-than-expected fourth-quarter report in February.

Watch For Institutional Support

The stock is up 19.95% year-to-date, and 179.72% over the past year.

After reaching a session high of $84.09 on February 19, the stock began pulling back. It bounced off its 50-day moving average on Thursday, ending the session at $75.16, down $2.45, or 3.16%.

Investors should watch for continued support at the 50-day average. That would be an indication that institutional owners, such as mutual funds, banks, insurance companies, hedge funds, and others are propping up their own positions in the stock, adding shares at a slightly lower price.

On the other hand, it wouldn’t be surprising to see some profit-taking, following the long rally in the stock, as well as in the broader market. Individual investors should watch carefully, and avoid buying shares at this time if the stock falls through key moving average support.