Stocks of Crocs tumble. Hey Dude sales are slowing due to guidance.‍

It was just reported that Crocs, with its CROX per share price falling nearly 10% over the past year, also reported another strong quarter, with the company's sales jumping nearly 40% over the past year. However, the stock of Crocs dropped by double digits on Thursday after the company released financial guidance that fell short of analysts' expectations for the second quarter and fiscal 2023.

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As a result of the adjusted earnings for Crocs (CROX) in its first fiscal quarter, the company reported adjusted earnings of $2.61 a share, ahead of analyst consensus estimates of $2.16. In addition, the company reported that its gross margins of 53.9%, up from 49.2% in the same period last year, was also better than forecasts of $856.8 million. Revenue of $884.2 million outpaced forecasts of $856.8 million.

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On Thursday, the stock of the company fell nearly 19% to $118.57 due to the company's disappointing guidance, which overshadowed the good results of the company.

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The company told reporters on Tuesday that it would expect revenue to range between $3.95 billion and $4.05 billion in fiscal 2023. It is expected that the low end of the company's guidance will be slightly below analysts' expectations for revenue to be $4.01 billion. The company will have adjusted earnings per share range from $11.17 to $11.73, compared with analysts' expectations for earnings per share of $11.26.

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Additionally, the company's second-quarter earnings per share are expected to fall below expectations, with adjusted earnings per share ranging from $2.83 to $2.98, which is lower than the company's expectations for $3.26. The adjusted second-quarter operating margin is expected to be lower than the first quarter, coming in at 26% from 27.9%.

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According to the company, some of its difficulties can be traced to its most recent acquisition, Hey Dude, which also manufactures casual shoes with a price tag of roughly $2.5 billion. Crocs acquired Hey Dude in February 2008 for roughly $2 billion.

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B. Riley Securities analyst Jeff Lick estimates that the segment's revenue for the first quarter was $235 million, but that was short of consensus estimates for $254 million. The company said on Thursday that Hey Dude was also weighing on Crocs' margins this quarter, but the company predicts that later in the year, when the company's margins will start to improve.

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During the earnings call at 8:30 a.m., and by the market today and in the coming days, we expect this to be the metric that will receive the most scrutiny, as well as the topic that will be the focus of our earnings call,” Lick wrote to clients. The CEO explained that even though he would have liked to see Hey Dude come up with a “bit of a wow number,” the growth was still impressive.

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According to Webush analyst Tom Nikic, during an earnings call on Thursday, the segment's 15% growth pro forma was "a bit more modest" than the growth that happened during recent quarters, as he explained in an earnings call on Thursday.

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Nikic wrote in a research note following the earnings call that he believes the slowdown at Hey Dude is the biggest incentive for investors to move the stock, since investors view these hyper-growth brands as a way to hedge against the threat of Crocs North America going under.

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This year, as well as throughout the previous year, management admitted the brand faced constraints with its distribution center and logistics capabilities, and that a slower growth rate had been expected for the year ahead.

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In the call, CEO Andrew Rees acknowledged that the company faces shortages of capital. "We are making considerable investments to alleviate these constraints, but most of those investments won't come online until next year," he said.

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As far as Nikic is concerned, these issues could be temporary. He believes the company's long-term growth prospects are still good, making the stock's nearly 20% decline appear excessive, therefore showing that the decline may be temporary.

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We think that there is way too much hype surrounding this selloff and we would ideally view this as a buying opportunity," he said in an email reply.