Crocs, Inc. (CROX: Charts, News, Offers) first made a name for itself four years ago with its lightweight hole-ridden footwear made of its patented non-slip closed resin material, Croslite. The stock reached fever highs in late 2007 trading at $75.21 per share before plummeting back to its current $12-$13 range. During the financial crisis of 2008-2009, Crocs was hit by a flurry of declining margins and sales and the unflattering label of “fad stock”, which caused many investors to permanently dump shares of the company, causing it to teeter on the brink of bankruptcy at a less than a dollar per share. Now, with the stock trading safely back near its 2006 IPO range, is it time to get interested again in the maker of self-described “ugly shoes” for the next leg up in its growth cycle?
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Crocs’ footwear line is divided into four categories – Core, Active, Casual and Style. Core comprises its trademark molded Croslite clogs and its variations; Active comprises boating, walking and hiking shoes; Casual includes sport designs; and the Style category includes more fashionable shoes aimed at department stores. The company sells these widely varied products in an average price range between $15-$100 US Dollars. Crocs has outperformed its main rivals in this price range – Skechers (SKX: Charts, News, Offers) and Deckers Outdoor (DECK: Charts, News, Offers), through a yearlong restructuring that reduced inventories by 60% and reduced dependence on its original Core line, which decreased the unattractive fashion folly stigma that most associate with the company. The company’s business is spread between the Americas (46%), Asia (37%) and Europe (17%). In the most recent quarter, Crocs reported a profit of $38 million for the first half of the year, a vast improvement over last year’s loss of $42 million. Total sales increased 18% to $395 million. Gross margin increased to 57.8% of sales, which was a key level back in 2007, when the stock traded in the $70s. Same-stores sales in July and August increased 12%. Based on the company’s guidance and growth prospects, two analysts have raised their 12-month target prices to $18, an increase of 40% from current levels. The company is expected to earn 68 cents per share this year and 85 cents in 2011, when annual sales are forecast to reach an all-time high of $851 million. This figure is a key level as well, since back in 2007 it reported sales of $847 million with its stock at all-time highs prior to the economic meltdown. This led to reduced orders and a huge inventory of unsold shoes that nearly destroyed the company.
Going forward, much of Crocs’ future depends on the health of the economy, as footwear and discretionary goods are often the first to be reduced from a personal budget in times of economic uncertainty. The stock’s flatline in the previous two years is proof positive of this trend. Since international sales account for over half of its total revenue, Crocs is poised to either benefit or be punished by their conditions. In Asia, many imitation brands, both legitimate and gray market, have appeared, at a fraction of Crocs’ retail price. While not extremely damaging to the bottom line, these have slowly chipped away at the company’s potential retail base. In the saturated footwear market in Europe Crocs has performed poorly as well in attempting to find an appropriate niche for its widely varied product line. The company faces competition from several familiar brands – Nike, Columbia, Timberland, Skechers and Deckers Outdoor all have brands which target Crocs’ aforementioned four footwear segments. Each of these companies has the unmistakable advantage of specialization over Crocs; Nike (NKE: Charts, News, Offers) in sports, Columbia (COLM: Charts, News, Offers) and Timberland (TBL: Charts, News, Offers) in hiking, and Deckers in outdoor shoes.
In 2009, the Crocs board replaced CEO Ronald Snyder with corporate turnaround expert John Duerden, who brought about many of its inventory reductions and the closure of seven Denver warehouses, before finally handing over the reins to current CEO Joel McCarvel in March 2010. The company is now smartly diversifying from its trademark plastic looks and attracting throngs of new customers. One such smart diversification is the addition of reasonably priced back to school shoes for juniors. The company currently has $96.9 million in cash and no debt, and currently trades with a forward P/E of 14.8.
Other News About CROX
Piper Jaffray Ratchets Up Price Target On Crocs – (CROX: Charts, News, Offers)
Crocs Shares Are Back In Fashion – The return of a fad or the birth of a growth stock?
Other Stocks in the News
Delta, Southwest Shares Flat on Merger – Southwest continues to strengthen its position (LUV: Charts, News, Offers), (DAL: Charts, News, Offers)
AOL Buys Tech Blog TechCrunch, Video Co 5min Media – AOL makes some acquisitions, but will this change anything in its eroding position? (AOL: Charts, News, Offers)
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
