Crocs: Profit From the Latest Seasonal Craze

Sometimes the best investment opportunities appear when you least expect them to. Last weekend, I was shopping with my wife… and when I say shopping, I mean I was dragged to the mall kicking and screaming as the watcher of my four-month-old baby, so my wife could shop. (Not that there’s anything wrong with that, mind you.)

But as I walked, shoulders down, grim-faced, I noticed a gaggle of young girls screaming about the latest fashion craze in the window of the mall shoe store. “Like, oh my Gawd,” one of them said. “I, like, must have those shoes.”

That’s when I saw the next big investing opportunity sitting in front of me, and I, too, found myself overjoyed with the opportunity. “Like, oh my Gawd,” I screamed… in my head. “This is the latest in funky footwear fashion that everyone’s been talking about.”

Mind you, I’m the last person to talk fashion with. Just ask the people I work with. But I do know a good investment opportunity when I see it. The company -- Crocs Inc. (CROX).

Big Shoes to Fill

The bulky shoes in your shoe store window are flying off the shelves quicker than you think. So fast, in fact, that this Colorado-based business quickly flew from $1.2 million in 2003 to more than $108 million by 2005.

That’s quite impressive considering that in 2002, the company reported $24,000 in revenue and sold 1,500 clogs. Last year, it sold six million.

By February 2006, the company had its IPO and watched as shares skyrocketed from $21 to $28.55. Since then, shares have ranged between $20–37, and are currently at $25. The company’s Q1 filing wasn’t bad either, with revenue increasing 309% to $44.8 million, compared to the same quarter last year as net tripled to $6.4 million, or 17 cents.

But when the company cited strong consumer demand and upped guidance for Q2 from 23 cents to 25 cents on revenue of $62–65 million, and from 21 cents to 22 cents on revenue of $53–55 million, that’s when we got excited.

Last year, the company earned $16.7 million, or 51 cents a share, reversing the $1.6 million, or seven cents per share 2004 net loss. Revenues were up to $108.6 million. For full-year 2006, Crocs expects to post a profit of 77–79 cents a share on revenue of $200–205 million.

Hot summer in the city of Niwot, Colorado

We’re expecting a hot summer for Crocs, considering it sells sandals. And if you haven’t already taken notice, now is the time. Why? One, there’s seasonality. And two, not only is it cheap after being beaten down from $37 to $25 -- take a look at Q1 numbers:

The company had about $45 million in revenue in the winter months. Let me repeat that -- in the winter months. If people are paying for sandals in the winter, think of what they’ll buy in the spring and summer months of the year.

It’s selling these shoes in 7,300 stores. 900 of those were added in Q1, and include the likes of Dick’s and Dillard’s. Even Wild Oats and Barnes & Noble are selling them. The best part -- the bulky clogs are winning over everyone from food service personnel and nurses to boaters and swimmers, and beyond.

The Recent Upgrade Doesn’t Hurt

This one has growth written all over it. And, hey, I may not be a big fan of the big brokerage houses, but after Wedbush Morgan Securities went bullish, too, upgrading CROX from Buy to Hold, I may be singing a different tune.

Number one, it’s a growing brand. It has a deal in place with Disney to sell shoes with the Disney characters on them and it has a deal with colleges to make shoes with school colors. That’s fantastic. I expect nothing but good news from this stock with regards to earnings, marketing strategies, you name it.

Disclosure: The author has no position in CROX

Related: The Summer of Crocs: Can The Funky Shoe Company Continue to Grow?