Hearing the words "Balenciaga," as in the luxury shoe brand, and "Crocs," as in the ugly, plastic sandal, in the same sentence is a contradiction in terms. Therefore, it must have taken quite the visionary to distill the outcome of this unlikely melding, which has proven a fashion coup.
Polar opposites and profits
The Crocs (CROX -1.24%) brand first came on the scene in 2006, and their quirky, easy-to-wear design was an immediate hit with the high-street shopper from kids to teens to adults. Balenciaga, on the other hand, is quite a different animal. The brand brings to mind high-end, high-heeled stilettos meant only for the fashion-obsessed and comfort-oblivious poised elites.
Nevertheless, in 2017, a collaboration between these two polar opposites created the croslite-based Balenciaga platform sandal. This Croc clog on a plastic platform base took the shoe market by storm. Initially, the shoes could be pre-ordered on sites like Barneys of New York at a price point ranging between $495 and $850, while a basic pair of Crocs could be had for less than $40. Had the whole world gone sandal mad?
Can such pairings persist?
While Kering -- parent company to Balenciaga and other well-to-do names such as Gucci, Yves Saint Laurent, and Alexander McQueen -- has enjoyed steady earnings, Crocs has had a more volatile history. In 2006, the stock price was around $13, and the company met with immediate success, peaking in 2007 with a stock price at around $66. The company fared poorly through the financial crisis but has steadily grown since then with a current stock price of around $24. Kering, on the other hand, has seen a steady increase in its stock price amid fewer and weaker headwinds.
This collaboration between Crocs and Balenciaga has been a success, but investors are wondering if Crocs can keep up the momentum in 2020. At the moment, it seems so. The brand's popularity is showing no signs of waning among teens, and other fashion brands are eager to be Crocs' next collaborator.
Collaborators abound
Crocs partnered with Vera Bradley in the summer of 2019, and the final designs once again sold out. Shares of Crocs were up 6%. In July, Urban Outfitters was the lucky finalist announcing a limited edition release of Crocs at ComplexCon Chicago. The Chinatown Market x Crocs Classic Tie-Dye Smiley clog had a tie-dye vamp and heel, and came with two oversized Smiley Jibbitz, all at a price of $70. Whether it be tie-dye, platform, or stiletto heels, the ideas keep coming.
Confidence in the financials
Shares of Crocs are up 30% over the past year. The company has continued to beat expectations in the past two quarters, and is now valued at $1.95 billion.
The stock dropped in May by approximately 30%, which was largely a knee-jerk reaction to tariff concerns and a possible trade war with China. There also may have been concerns that Crocs could not meet demand, or perhaps it did not want to keep up with demand in order to stimulate sales. Either way, the strategy has worked, and confidence is high at the Crocs shop. After Crocs reported first-quarter 2019 earnings, its board increased its share repurchase authorization by $500 million, indicating that the company considers its stock undervalued.
For Crocs, it's all about the next collaboration. Whether Crocs' next partner is with a luxury name such as Gucci, a sports powerhouse such as Nike, or a social influencer such as Post Malone, Gen Z has a penchant for all and a love for anything retro. What's next? The croslite Fila winklepicker? The options are endless.
