Why Crocs Stock Was Tanking Almost 4% Today

What happened

Shares of shoemaker Crocs (CROX 2.44%) were getting blasted today, falling 3.8% as of 1:25 p.m. ET. They were performing far worse than the market overall. For comparison, the S&P 500 was down 1.1%.  

So what

There was no specific financial news from Crocs that caused the stock drop. But the Bureau of Labor Statistics CPI (consumer price index) report yesterday is the likely cause. Inflation in the month of June was up 9.1% year over year, the biggest increase since 1980.  

And what does this have to do with Crocs? With basics like food and gas driving the cost of living sharply higher, consumers are adjusting their spending habits. While retail sales were showing resilience in May (as measured by the U.S. Census Bureau), the economic picture is changing quickly. More-discretionary spend on things like clothes and apparel could be in for a pullback, which would be bad news for shoe companies like Crocs.  

Now what

There was some good news for Crocs, though. A recent announcement by the company said it had obtained judgments against USA Dawgs and Double Diamond Distribution, two companies that have been making knockoff versions of Crocs’ foam clogs. The monetary consideration is minimal, but does help protect Crocs’ patent on its footwear designs.

Legal proceedings aside, Crocs is likely to remain in growth mode this year even if consumer spending experiences some turbulence. Not only is the Crocs brand expanding, but the company also recently completed the acquisition of casual footwear brand Hey Dude, which is expanding rapidly among younger buyers. Unlocking the full potential of Hey Dude by plugging it into Crocs’ existing distribution channels will take time, but could provide a big boost to the stock in the coming years.

For now, inflation is clouding the market’s ability to see the long-term potential for Crocs. Shares trade for just 4.4 times one-year forward expected earnings. If Crocs can execute on its plans, the stock could be a fantastic buy right now for investors willing to sit tight for at least a few years.

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