Crocs (CROX) is heading into Q3 results with mixed investor sentiment, as the market weighs solid international momentum against concerns over softer North America results, UBS Securities said Monday in a report.
Investors remain focused on growth in Crocs' North America direct-to-consumer business, though the market is underestimating the drag from the company's recent shift in how it records Amazon.com (AMZN) revenue, UBS said.
Crocs moved its Amazon business to a first-party model at the start of Q3 from a third-party model, meaning sales from the platform will now be recorded as wholesale rather than direct-to-consumer, the report said. Because wholesale generates less revenue per unit, UBS expects the change weigh on reported North America revenue for the full year.
Conversations with investors point to a more bearish tone since Crocs' Q2 results, though the stock still does not fully reflect the likelihood of a below-consensus North America direct-to-consumer result, the report said.
UBS outlined several benchmarks it expects Crocs to meet, including a mid-single-digit decline in North America direct-to-consumer revenue in Q3, a $0.15 EPS beat, unchanged full-year revenue guidance, a $0.15 increase to full-year EPS guidance, and Q4 EPS guidance of $3 to $3.10.
Q3 results are expected Oct. 29.
UBS maintained its neutral rating on Crocs with a price target of $120.
Price: 120.53, Change: +0.35, Percent Change: +0.29
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