This hot shoe stock crushes Nike in 1 key metric


Since the beginning of 2021, the two Nike (NYSE: NKE) and the S&P500 gained about 25%. While returns like this would otherwise be applauded by investors, a lesser-known and under-the-radar shoe stock has produced a 188% year-to-date return. Shareholders can thank increased turnover and profit for Crocodile(NASDAQ: CROX) remarkable price appreciation. Not only has his stock vastly outperformed world athletics clothes juggernaut, but Crocs also leads in a very important financial metric. Let’s see what it is.

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Keep more of every sale

During the last quarter, Crocs’ Gross margin was an impressive 63.9% compared to Nike’s 46.5%. And it’s not just a one-off phenomenon. With the exception of two separate quarters, Crocs has had better gross margins over the past decade. Why is this important? Continue reading.

Since gross margin is the difference between what it costs to produce a product and the price paid by a customer, obviously the bigger the difference, the better. It’s also a clear sign of pricing power, which is one of Warren Buffett’s favorite investment characteristics. Moreover, a customer’s desire to pay a higher price is directly correlated to the difference and quality of a specific product compared to what its competitors are offering.

That said, what makes Crocs’ higher gross margin even more extraordinary is that its shoes are priced far below those of Nike. “The average selling price during the third quarter was $24.42,” Crocs chief financial officer Anne Mehlman said. Call for third quarter results with analysts. By contrast, Nike shoes — thanks in part to expensive Jordan shoes — fetch much higher prices.

Innovation (or lack of innovation)

Crocs shoes have an understated, simple design – and they’re easy to assemble, which keeps costs down. They really don’t require a lot of innovation and forward thinking. Contrast that with Oregon-based sports giant Nike, where thinking outside the box and pushing the needle when it comes to design, fit and style is second nature.

Crocs just had one of its best quarters, but the word “innovate” (or some variation of it) was only mentioned three times in its recent earnings call. By comparison, Nike’s management team uttered this key word 28 times throughout his last call.

Its easy-to-make shoes are also one of the main reasons Crocs has been able to overcome supply chain challenges. Starting production at factories that aren’t shuttered due to the pandemic is apparently a quick process because the company’s Classic Clog shoe has only three components. “We will continue to diversify our manufacturing base. I think Indonesia is our most immediate target,” CEO Andrew Rees said.

The same production issues facing Nike have forced the management team there to cut the fiscal 2022 revenue forecast to mid-single-digit growth from the previous estimate of a low increase at two digits.

Don’t rely on Nike

Do not be mistaken. Nike has an incredibly powerful brand and a long track record of outstanding success in the apparel market. Plus, his big push over the past few years to integrate technology into his business to improve the consumer experience is admirable. It’s also something other companies in the industry can learn from, including Crocs.

But Crocs is making its name known in the competitive shoe market. Investors should take note of this.

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool owns stock and recommends Nike. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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