Some investors are not seeing the appeal of Crocs‘ multibillion dollar deal to buy the casual shoemaker Hey Dude.
But Crocs Chief Executive Andrew Rees said the retailer sees the chance to expand the Hey Dude brand to new geographies — along the coasts of the United States and throughout the North. Crocs is also hoping to grow its portfolio of shoes beyond the rubber clogs that it’s best known for while still tapping into comfort trends, he said.
On Thursday morning, the retailer announced its plans to acquire the privately held footwear label Hey Dude for $2.5 billion, in a cash-and-stock deal. The transaction is expected to close in the first quarter of next year and immediately add to revenue and earnings growth, it said.
But Crocs shares tumbled about 13% by Thursday afternoon, on pace for their worst trading day since April 2020, as investors fretted over the news.
“We think a great way to diversify and provide a little bit more security to our investors is to not diversify away from the iconic clog within Crocs, but to add another brand, which has its own icon,” said Ress, in an interview on CNBC’s “Power Lunch.” “And that provides, we think, a tremendous diversification and a really compelling reason for us to acquire this brand.”
“We think it has far more potential, both here in the U.S. and also globally,” he added about Hey Dude.
Founded in Italy in 2008, Hey Dude does more than 40% of its business online and is expected to bring in roughly $570 million in revenue in 2021, Crocs said. The brand’s sales are forecast to be between $700 and $750 million in 2022, according to Ress.
In a research note sent to clients, Piper Sandler called Hey Dude “one of fastest rising brands” it has been tracking as part of its biannual “Taking Stock With Teens” survey. Hey Dude was the No. 8 favored brand in its survey this past fall compared with No. 17 last year and No. 54 two years ago, it said.
Piper Sandler also said that Crocs shares were mispriced after the announcement. “We believe concerns are that investors are unfamiliar with the brand, worried about the sustainability of growth and management didn’t reiterate guidance,” it said.
Crocs shares have had a massive runup in 2021, rallying roughly 93% year to date. The company’s market cap is about $7.2 billion.