Updates on three companies I saw at the ICR conference; Concerns over Elon Musk's illegal drug use

1) I saw 10 companies present at the ICR conference in Orlando yesterday, three of which are interesting enough to share with my readers...

The first is shoemaker Crocs (CROX), which my colleagues at Stansberry's Investment Advisory recommended in the September 2023 issue.

(Subscribers can read the full write-up from Senior Analyst Alan Gula right here. If you aren't a subscriber, you can find out how to become one and gain access to all of our past issues and open recommendations – including our latest one, which we just published on Friday – by clicking here.)

CROX shares have been highly volatile over the past five years, as investors can't seem to make up their minds if the company's rubbery shoes are a fad or not:

Before the open yesterday, Crocs pre-announced strong year-end results and 2024 guidance: fourth-quarter revenues are expected to be up 1%, above previous guidance of negative 1% to negative 4%... and in 2024, the company expects revenue growth of 3% to 5% and an increase in gross margin.

With CROX shares nearly cut in half since last spring, the news triggered a 20% jump in the stock yesterday.

The stock looks like it has more room to run... as the market has been myopically focused on headwinds associated with the Hey Dude brand and is missing the big story that Crocs has been on an absolute tear, as you can see in this chart of revenue and operating income since 2017:

For another write-up on the stock, see this August pitch on Value Investors Club.

2) Here's what I wrote on Friday about Boot Barn (BOOT), the largest western and work-wear retailer in the U.S.:

I share a lot of my favorite ideas here in my free investing e-mail, but I save my best ones for my paying subscribers (to learn how to become one here at Stansberry Research, click here).

In my February 2023 recommendation of Boot Barn for my former Empire Investment Report newsletter, I showed the company's long history of steady growth and concluded by highlighting the comparison CEO Jim Conroy made between BOOT and high-growth, sexy retailer Five Below (FIVE). Here's an excerpt from that issue:

Conroy pointed out at the ICR conference that discount retailer Five Below is expected to earn $5.65 in [earnings per share] in 2023 – a bit less than BOOT – but its stock is around $200 per share! So why, he asked, is Boot Barn's stock valued so much lower?

The answer, Conroy hypothesized, is that investors and analysts – who are mostly based in places like New York and Boston, where Boot Barn doesn't have any stores – "don't see our customers every day, so it's not familiar to them." He concluded by encouraging those in the audience to "go visit our stores and talk to our store associates and customers."

That's excellent advice...

No doubt some of Five Below's valuation premium is due to the belief that the company is likely to grow at a higher rate going forward than Boot Barn, but it's not at all clear that this will be the case, as both businesses have grown revenue at an identical compounded rate of roughly 20% over the past five years.

Yesterday, the stock rose 7% in the aftermath of the company announcing preliminary third-quarter (calendar fourth-quarter) earnings (here are the press release and slides) that exceeded expectations:

• Net sales of $520.4 million, representing growth of 1.1% over the prior year. 

• Same store sales decline of 9.7%, with a retail store same store sales decline of 9.4% and an e-commerce same store sales decline of 11.3%.
• Net income per diluted share at or above the high end of its previously announced guidance range of $1.79.
• The Company opened 11 new stores in the third quarter, or 37 stores year-to-date, bringing its total store count to 382.

Boot Barn's same-store sales soared an astonishing 54% in 2021, but were flat in 2022 and have fallen 6.3% in the past three quarters. As a result, this is what earnings per share look like over the past five years:

Earnings today remain far higher than before the pandemic, but the downward trend over the past two years is worrisome.

Other investors are trying to figure out exactly when sales and earnings will stabilize and buy the stock exactly at that moment... but I would rather be roughly right than miss it, so BOOT shares look like a buy.

Yesterday's announcement smelled like a bottom – and even if I'm a little early, Boot Barn is offsetting same-store sales weakness by growing its store base by 15% annually.

3) Lastly, I'm intrigued by beaten-up shoemaker Wolverine World Wide (WWW), which owns Merrell, Saucony, and a few other shoe brands.

As I wrote in Friday's e-mail, I wisely avoided the stock after seeing the former CEO's presentation at this conference a year ago, as inventory was out of control. Sure enough, this is what WWW shares did over the past year – falling to a 15-year low recently:

But in August, after a disastrous earnings miss, Wolverine brought in a new CEO. And in his first 151 days, he seems to be making progress in fixing the business.

Yesterday, the company pre-announced fourth-quarter results (here are the press release and slides) that were in line with guidance. Most important, inventory was down to $460 million – continuing a favorable trend over the past year:

The $285 million reduction in inventory over the past year freed up cash to pay down $100 million more debt than expected in the fourth quarter... No wonder the stock was up 18% yesterday!

As with Crocs and Boot Barn, Wolverine's pre-announcement and stock rally yesterday smells like a bottom. If so, there's a lot of room for the stock to run...

4) I've never used drugs, not even once...

The way I look at it, there are only two outcomes, and both are bad: either I will like the drug or I won't. If it feels great, then I'll probably want to do more of it and end up on the slippery slope to abuse and addiction. And if it makes me sick and miserable, why would I do it?

In light of this, you might think I would be losing my mind, calling on the Tesla (TSLA) board to act, the government to cancel contracts with SpaceX, etc., after the revelations in this Wall Street Journal article: Elon Musk Has Used Illegal Drugs, Worrying Leaders at Tesla and SpaceX – but I really don't care.

Learning that this increasingly erratic man-child is using drugs is about as surprising as learning that there's prostitution in Vegas...

If I were Musk's friend, I would tell him his drug use is reckless and foolish – but it wouldn't even be the main thing I was worried about: that would be his X (formerly known as Twitter) addiction, which has an alarming tendency to turn the brains of otherwise sensible people to mush.

I think it's sad that such a brilliant engineer and entrepreneur – to whom humanity owes a debt of gratitude – has gone off the rails to such an extreme degree. I don't know if it's due to spending every waking hour on X, having Asperger's, a lack of sleep, drug use, and/or the megalomania that comes with becoming the world's richest man – but whatever it is, I hope he gets help before he completely implodes...

There's no doubt that the story is accurate:

Here's a funny take:

And here's an excerpt from Bloomberg columnist Matt Levine's hilarious take yesterday:

We have talked a few times over the years about the mysterious Tesla lawyer whose court-mandated job is to review Elon Musk's draft tweets that might be material to Tesla shareholders. In theory, Musk has to show his tweets to this lawyer, and if the lawyer says "this is material and misleading," Musk is supposed to not tweet it. In practice... really? Musk is a volatile and demanding boss who tweets impulsively at all hours and, what, you're going to stop him? You're not going to stop him. Terrible job. I don't think anyone has ever actually done it, and as far as I know whoever used to pretend to do it has stopped.

Anyway here's a worse job:

An attorney for Musk, Alex Spiro, said that Musk is "regularly and randomly drug tested at SpaceX and has never failed a test."

Not Alex Spiro's job, I mean; Alex Spiro seems to be having fun. But imagine being the SpaceX employee in charge of randomly drug testing Elon Musk. Tiptoe into Musk's office after his night out not getting into Berghain and say "hey Mr. Musk it's time for your random drug test, here's a cup." What if he says no? What if he hands you back the cup and it is just full of cocaine? What are you going to do about it? You work for him and he is not, like, a chill and understanding guy.

(I also sent this story to my personal e-mail list on Musk and Tesla yesterday. If you'd like to subscribe to it, simply send a blank e-mail to: tsla-subscribe@mailer.kasecapital.com.)

Best regards,

Whitney

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