Crocs' Rocky Future - Barron's

Better-than-expected earnings helped Crocs' (CROX) shares soar on Friday, but Barron's Avi Salzman explains why the shoemaker faces a questionable future.

Crocs' survival thus far has been impressive, especially the 28.6% bounce in its stock after it reported better-than-expected earnings last week. However, its strategy going forward is not without problems. Crocs has opened more retail outlets as its wholesale business struggles, but this could become a costly option and adds an extra element of uncertainty to sales. To succeed, the company will need to expand its partnership and fix its wholesale business.

Crocs isn't expected to make a profit in the next two years, and has impaired inventory to work through. Sales in North America and Europe are falling, and its loyal following doesn't necessarily translate into growth, plus Crocs' style of shoewear is easily copied.

• Jeff Mintz, an analyst at Wedbush Morgan, rates the stock as Neutral and thinks the company's future depends on whether it can expand the brand by introducing new types of footwear.
• R.W. Baird analysts rate the stock as Neutral, noting "the company now needs to right-size its business, and we don't see shareholders being rewarded in the process."
• Thomas Weisel analysts rate the stock as Hold, and see future earnings as 'increasingly cloudy.'

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• In contrast to some of the analyst calls above, Piper Jaffray upgraded Crocs to Overweight last week, as concerns about the firm's health are alleviated, and Crocs refocuses on a direct-to-consumer model. The price target is $7.50, vs. Friday's close of $5.49.
• Crocs: Q2 EPS of -$0.06 beats by $0.15. Revenue of $198M (-11%) vs. $150M. Sees Q3 EPS of -$0.14 to -$0.16 vs. -$0.20. Sees Q3 sales of $150M-160M vs. $141M. (PR)
• Read Crocs' earnings call transcript.

Comments

[PenName Dave:]

>Crocs isn't expected to make a profit in the next two years, and has >impaired inventory to work through

The CEO said they'd make a profit in 2010... for what thats worth.

Aug 09 01:49 PM

[Robert Mart...:]

I'm bearish on CROX:

1) Margins: The firm is losing money, and it is moving to higher-cost retail outlets.
2) Low barriers: The shoe business has low barriers to entry and the Crocs design is easily imitated.
3) Demand: Consumers are retrenching in a recession.

Bottom line: I can't see a sustained profit rebound, and this stock seems more like speculation than investment.

Aug 09 02:40 PM

[Idiotbuster:]

Nobody has a way of knowing if Crocs will succeed or not. I buy some pairs and I think the brand is revolutionary and can lend itself to many different colors and styles. They can not be exactly copied because Crocs hold patents on the revolutionary material called Croslite that is used in making Crocs shoes. If you want to buy knockoffs of Crocs , go to 99 cent stores or fishing marinas for all I care.. Get yourself a blister or two!

Aug 10 01:33 AM

[Nyetnichevo:]

I am truly amazed at the level of media bashing on all fronts regarding Crocs as a company. Surely these good folks don't have an agenda and they get paid big salaries to sit around writing detailed analysis and all the reasons they don't like Crocs. Yet the company, the people who wear them, the shareholders, all seem to disagree because they love the company, the shoes, and obviously see things turning around and the share price significantly undervalued. Maybe the media should take a slow boat to China and buy some cheap knockoffs and keep disparaging Crocs Inc. for we don't care what they say, write, feel, think or do. They are just cheap mouthpieces for their masters the professional short sellers. Long LIve Crocs !!

Aug 10 08:57 AM

[Old Trader:]

Agreed they need to expand the line...I've always been leery of "one trick ponies", regardless of the product/sector.

Aug 10 09:27 AM

[oilsands:]

Old trader: overall I agree with your concern, but what about those frozen dots the kids buy? Seems to thrive and have no competition. Definitely a one trick pony. There are Crox knock-offs, but no competition for the real thing.
Nyetnichevo: right on. thanks for another good comment.
Yes this is a spculative buy. There are hundreds of speculative buys out there. The very new managemnt of Crox is learning the hard way but probably will right the ship. The heavy bage of people who want to unload their shares will keep the price relatively low for some time. Long term Crox could thrive, especially with smart marketing in Asia.

Aug 10 11:30 AM

[Mel Shapiro:]

$1.99 Shoes that suckers/faddists paid $49.99 for.... goes to show what a high this economy was on. Reality bites. I'll predict right now... those "shoes" will eventually find themselves parked in Dollar Stores. And the manufacturers will still make a profit.

Aug 10 01:18 PM

[just-a-cons...:]

I can't believe they aren't marketing the Crocs YOU line better. They have hidden the ugly croslite inside the shoe and all you see is heels to die for. If they can just get this line onto women's radar, you will see a resurrected company.

Aug 11 12:38 PM

[staples - w...:]

Wow, am I glad that I follow on Rachael. I love to follow Rachael, specially when she chooses to show off her tight, firm and the I know you are looking at it...writing style that makes a stock like Crocks interesting. This is assuming a good sense of humor, not about the writing duh. Your new? picture seems to portray such a sense. it appears in your writing.

In all seriousness, I was shocked that Crocks shot down so far. I really shouldn't have been, but i really did expect something more out of them before it went to under $2. To add a Crocks simile it was like taking a nap somewhere toward the beginning of the summer of '07' all smiley and gloating with happy dreams of happy feet ( no 42nd st. reference, don't want to show Rachael my age)!!!. Waking up briefly for a glass of milk and a few cookies around the beginning of 2008, where very much like Hymen Roth won't be alive to see the New Year, but went back to my nap dreaming of a slight pullback / correction, only to wake up in November 2009 to a 'What the F'?

It was somewhere in penny stock land around a dollar or 2. My question truly is...what happened that made it go up to 6 and change?

I see the rip offs everywhere. My drug store, my 99 cent store to Walmart.

I dint think I have seen a real pair for sale anywhere now that I think of it...and I am in NY

Did I miss something?




Staples
thedowjokesreport.com

Aug 12 02:27 PM