Why Crocs Stock Dropped 30.6% in May

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What happened

Shares of Crocs (NASDAQ: CROX) plunged 30.6% in May, according to data from S&P Global Market Intelligence. This was a result of tariff concerns despite solid first-quarter results from the casual footwear company.

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More specifically, Crocs stock was among a handful of footwear and apparel companies losing ground last month as investors fretted over global trade and macroeconomic tensions, particularly as it relates to the impact of escalating tariffs on products imported from China to the U.S. It certainly didn't help that the broader market indexes fell hard in May, including a nearly 7% decline from the S&P 500.

So what

Crocs earned a brief reprieve early last month, however, rising as much as 3% after its first-quarter 2019 results technically exceeded expectations. Revenue climbed 4.5% year over year -- or 9% at constant currencies -- to $295.9 million, as growth from wholesale (up 5.2), e-commerce (up 16.5%), and comparable retail-store sales (up 8.7%) more than offset the impact of store closures. On the bottom line, adjusted (non-GAAP) net income soared more than 50%, to $26.7 million, or $0.36 per share. Analysts, on average, were only modeling earnings of $0.26 per share on revenue closer to $292 million.

Crocs CEO Andrew Rees stated the year was "off to a great start," with strong product demand contributing to accelerated sell-throughs and the company's fifth straight quarter of double-digit direct-to-consumer comps growth.

"I am more than confident than ever in the strength of our brand and our future," Rees said, adding that Crocs' board increased its share repurchase authorization by $500 million "as a reflection of our optimism."

Now what

For the full-year 2019, Crocs also told investors to expect revenue to increase 5% to 7% from $1.088 billion in 2018. The midpoint here is roughly in line with Wall Street's consensus estimates.

Nonetheless, investors are understandably worried over the impact a broader economic slowdown and escalating trade wars might have -- a concern amplified two weeks after Crocs' quarterly report when the company joined over 170 other footwear companies in signing a letter urging President Trump to reconsider a proposal for increasing tariffs on $300 billion of Chinese goods. That letter notably called the tariffs a "significant tax increase" that "would impact every type of shoe and every single segment of our society."

The silver lining? If the tariff situation takes a turn for the better, this steep pullback may prove to be a compelling buying opportunity for beaten-down stocks like Crocs. Until then, I suspect the stock will remain under pressure.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.