Estee Lauder (EL 1.48%) and Crocs (CROX +0.65%) sit at opposite sides of the fashion spectrum. Lately the two stocks have found themselves at opposite sides of the performance spectrum, too. But if you are looking for a consumer goods stock, it is interesting to compare the business models here.
Crocs, a product for the masses
When it comes to shoes, it is hard not to recognize Crocs' highly stylized plastic clogs. The company makes other products, including sandals and the recently acquired Heydude brand of shoes, which still heavily involve plastic but come in more traditional styles. So in some ways Crocs is trying to broaden its appeal beyond its core clog.
NASDAQ: CROX
Key Data Points
Second-quarter 2023 results were fairly strong. Overall sales were up 12% year over year, with strong growth in Asia. That led to an earnings per share increase of 11%. Sandals were also a big seller in the quarter, with sales up 34% year over year.
And yet clogs are still the big driver of performance. During the pandemic, consumers seemed to renew their love for the company's simple footwear, likely because people were stuck in their homes. If this single product line were to fall out of favor, which has happened in the past, Crocs' financial results would likely weaken dramatically.
To be fair, Crocs is making the right strategic moves by diversifying its product lineup. But it has a lot of work ahead of it before it can really consider its portfolio diversified. That's why investors should probably take the current strong performance with a grain of salt. If this $5 billion market cap shoe company stumbles on the fashion front, the stock will probably tumble as well.
Estee Lauder -- the high end isn't working out right now
Now compare Crocs to Estee Lauder, which makes cosmetics. Many of this $50 billion market cap industry giant's products are quite costly. Fashion, while important, isn't as integral to its portfolio. Many of its products are luxury basics, like hand lotion and face cream. These don't tend to go in and out of style in the same way as footwear.
NYSE: EL
Key Data Points
And yet fiscal 2023 sales fell 10% year over year, and earnings were down a huge 57%. That's terrible, but perhaps not quite as ugly as it seems. The company took a big hit during the pandemic when people were stuck in their homes, rebounded as the world learned to live with the coronavirus, and is now seeing weakness again.
But there's some nuance here. The swift rebound from the early pandemic hit was likely a case of consumers going on a buying spree that left them with all the cosmetics they needed -- for a little while. Now, things are starting to get back to a more normal level.
EL Revenue (TTM) data by YCharts
For example, quarterly sales have increased sequentially for four quarters. And a big headwind for the company was a decline in Asian travel, which was really just another lingering effect from the pandemic. When you step back and think about the big picture, things just don't seem quite so bad.
In fact, management expects fiscal 2024 to see stronger same-store sales growth and improved margins. That suggests that the company is slowly working through the pandemic headwinds even though it is roughly three years out from the original hit. If management is correct in its projections, Mr. Market might be overly negative on the stock right now. It looks like there could be material turnaround appeal for more aggressive investors.
Which stock wins?
There's no easy answer here, as there are negatives to both Crocs and Estee Lauder. And yet the outperformance of Crocs relative to Estee Lauder seems a bit overdone. After all, Crocs could easily fall out of fashion again, and that would quickly crimp the company's results. That scenario could play out if work from home returns to work from work, which would reduce demand for clogs.
Such a shift would likely increase demand for the types of products Estee Lauder sells even as other trends shift in its favor, like renewed travel in Asia. While neither of these stocks is probably going to be appropriate for risk-averse investors, a business recovery at Estee Lauder seems more likely than an uninterrupted increase in demand for Crocs' wares.
