Last week Crocs (CROX: Charts, News, Offers), the maker of the popular, patented Croslite rubber shoes, shocked investors with a dire earnings warning – that it would fail to meet market expectations of 40 cents per share with earnings between 31-33 cents per share for the quarter. To add insult to injury, the company now expects its revenue to fall between $273-$275 million, missing expectations of $280 million. Shares lost nearly a third of its value in a single day, dropping within striking distance of its 52-week low of $13.20, last seen approximately a year ago.
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The footwear maker, which had previously seen its shares soar as high as $75 back in 2007, is set to report earnings on Thursday, October 27. The stock gained 198% last year, outperforming all of its industry peers. Critics have often written off the company, best known for its hole-ridden rubber shoes, as a flash in the pan fad, while supporters have touted the company’s diverse product line of more conventional shoes and the stock price’s sturdy fundamental scaffolding. Crocs currently offers over 250 styles of shoes in addition to its flagship footwear, including sneakers, boots and casual shoes.
CEO John McCarvel attributed the quarter’s weakness to poor revenue from its North American market, which makes up 40% of Crocs’ revenue, as well as “macro headwinds” in Europe, which currently contributes 15%. Its U.S. business was hurt by weakness in its outlet locations and kiosks, which comprise two-thirds of the company’s U.S. revenue. McCarvel attributed its poor showing at the outlets to the economic downturn, stating that more cost-conscious customers are likely to frequent those locations. Analysts believe that the outlets and kiosks had too few promotional items, and were ill-equipped to house its fall products, which led to a drop-off in sales volume.
While the company has showed continuing strength in Asia, the company’s market perception as a warm weather brand is likely to cause a significant slowdown in the area as well throughout the winter. The company has steadily evolved into an international brand, decreasing its dependence on North American markets from 60% to 40% over the past three years. McCarvel has stated that the company is still growing 27% annually, and that the 30% sales growth it posted for the first three quarters of fiscal 2011 has been “very solid.” Crocs is also expected to report its second full year of profit after two consecutive years in the red. For the full year, Crocs is anticipated to earn $1.38 per share for 2011 and $1.66 for 2012, signifying a mild recovery ahead.
For the fourth quarter, Crocs now forecasts that sales would grow at a “low-teen” percentage right, far lower than analysts’ expectations. Most analysts believe that shares of Crocs are likely to trade sideways until the spring and summer quarters, when the company has traditionally shown the most strength. The company’s current backlog, which indicates future demand, increased 30% to $297 million for the period ending on September 30. The company has been careful to reduce any inventory buildup, a problem that sunk the company in its heyday in 2007. It has also scaled back on the number of retail points, which at one time included Hallmark stores and gas stations, in order to slim down its footprint.
While Crocs’ earnings are set to disappoint on Thursday, investors should not consider the company an effective bellwether of the industry. Both Nike (NKE: Charts, News, Offers) and Deckers (DECK: Charts, News, Offers) are currently considered safer bets than Crocs, and will benefit while Crocs sits out the current year-end rally. However, investors should consider revisiting Crocs shares early next year, as the company is still cash rich and has legs to run. Just don’t expect any miracles from this stock in the near term, save a few short-term rallies fueled by day and swing traders.
Other News About CROX
Crocs Shares Given New $30.00 Price Target by Sterne Agee Analysts
Can Crocs double from current depressed levels?
Crocs shown no mercy
Crocs carpet bombs shareholders with terrible news.
Other Stocks in the News
Nike to Invest Very Aggressively in China
Nike turns up the heat on its competitors.
Don’t Equate Deckers Outdoor With Crocs
Can Deckers avoid Crocs’ fate?
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
