Who is Crocs Trying to Fool?

It seems that Crocs Inc. (CROX) believes that they are going to be more than a fad. In fact, they are doing everything to expand beyond the casual sandal that has made them so popular.

Truth told, they are hideously ugly and a fad that will fade. This is no shoe revolution.

Crocs is looking to up the ante by entering into a more fashionable line of womans shoes. Now, the You by Crocs will offer a few hideously ugly and very expensive boots. I am picturing the Queen of England running out and buying the entire collection as soon as they are available.

The Wall Street Journal reports:

The introduction of the You by Crocs line of nine boots and shoes marks a departure for Crocs, which has logged meteoric sales growth from the popularity of its odd-looking, perforated shoes. The shoes — a hybrid of a sandal and a clog — are made of a plastic resin that wearers find both comfortable and light weight.

Among the most radical shifts for the You by Crocs line is the new arrivals’ retail price: $149 to $299 a pair. That’s far above the $30 price on Crocs’s standard shoes. The new line includes eight wedge-heeled models and one lifted flat, each of which features a combination of leather, suede and lambs wool. Crocs’s plastic resin occupies only the soles of the new models. The You by Crocs line will be available from retailer and online this fall.

WAIT, did they say $149-$299 a pair! So, not only is my sense of taste and fashion supposed to be thrown in the garbage, but I should also be mugged in the process? Talk about the Emperor’s New Clothes! Who are they trying to fool!

Jon Markman, MSNBC Commentator, wrote that it could be a $100 stock because if you look at the world population and the fact that they could capture a significant portion of that the revenues could…blah blah blah. Come on! Where is your head?

The product is popular, yes. It is making money for the company, yes. But a category killer and a new paradigm in shoes? Absurd! Mr. Markman is not focusing on the fact that the shoe is so easily copied and there is no chance that the style is able to keep any trademark-ability. Once the popularity reaches a crescendo, the countries that are well noted for their low-cost copies of named brands will create a price wall. Now it is a novelty without competition. We have seen this before and unless there is something more to the story, the stock will soon begin to fall rather precipitously.

*Tables sources - MSN Money

The only thing uglier that their shoes is the miscalculation investors are making about their financial statements. The growth that has occurred is a new phenomena for them. The ratios and growth rates that look so nice are comparing results from previous years when they had little or no net income. Their popularity over the past two years makes it look as if there is a terrific growth rate, but looking closer you will find it is on the back of very low numbers. This is not a fair comparison and should not be interpreted as umbers that will continue forever. Remember when Dell Computers (DELL) made that same mistake?

Can someone explain why there are so many sales by insiders? Maybe I am just picking now….

The EPS of $1.60 shows a current P/E approaching 55 times and if we look to DOUBLE the net income is still near 30 times. On a PEG ratio that seems tolerable, assuming that this becomes a global phenomena and one that is long lasting. Poppycock! Let the amateur play this one. The pros are surely looking to profit from the lust and innate greed of the average investor. The Shorts will have their day on this one… and soon.

Disclosure: Author has a short position in CROX

Comments

[Kris Tuttle:]

The rub is always in the timing on something like this. Your analysis is reasonable although has the clear bias of a guy who is short. No matter. There are two things that make me feel that the time might not be right this second. The first is that we are coming into the summer which I expect should be the best of times for them as they load the much expanded channel with their supply of the traditional Crocs. The second reason is the difficulty in figuring consumer tastes with something like this. I'm surprised by people I know showing up with these super ugly shoes on their feet. The boots and other modesl could appeal to a sort of croc lover at first. The shoe business and fashion are hard to fathom sometimes.

I'm with you in wanting to short a rocket like this but have been burned too many times being early. If some signals come in that suggest a slowing of their momentum it could be a good short.

2007 Jun 08 05:44 AM

[Richard Yar...:]

The knockoffs are already out there, as you point out this is usually the beginning of at least a pullback. Also with the Cramerites having been pumped early after IPO he'll soon be telling his minions to ring the register, but maybe not 'til after summer as this was one of his seasonal plays last year.

2007 Jun 08 09:24 AM

[Andrew Hor...:]

Kris:

The bias is why I am looking to short. Not the other way around. But I understand the comment. The play may be a Put, out of money that will not be too expensive. I was short yesterday, closed position fr a nice profit (day trade) and look to do more of the same as the volatility could be very nice on either side, but I am always leary about a stock that has fanatics using their product. This same fanatics will find something better and leave their loyal ugly pedal extremidy covering in the dust.

I am going to buy a pair of the ugliest color today to wear for the weekend.

Will look at Selling a Call for June.... The 85 or the 80, nice premium.. Or the July 85 Put...

2007 Jun 08 09:42 AM

[jerry parker:]

you're an idiot and you're trying to get others to join in.
you fail to realize that if you're already short, you DO NOT want others to join you.
if you do, it'll just get more crowded...how do you think the stock went from $40 to $86?
if you keep going and get more dummies to join you, you will lose more money when CROX hits $100.
as for your arguments on insider selling, give me a break.
there's been countless studies that there's no correlation to stock performance.
shall we look at GOOG, MSFT, AAPL, NTRI...give it up and try a new angle.
p.s. insiders sold LOTS of stock last year w/ CROX at $28 before it went up over 300%...how do you explain that vs. this year?

2007 Jun 08 11:13 AM

[borisb:]

jerry - name calling will not work for you. grow up. even if your right, such a high gravity ego will derail your progress later on your path.

2007 Jun 17 12:21 PM

[Zachary Sch...:]

guilty as charged... I sit here wearing my ugly Crocs, thinking about how much money i would have made if i hadn't hedged my long position with calls that took my stock away last month. I like the shoes (more of an indication of my poor taste than a rebuttle to your argument) and I actually like the stock. The swiss cheese shoes ARE a fad. The stock IS expensive. And the shorts MAY turn out to be right.

But the company has proven the ability to take an idea and mass market it with an impressive distribution system and turn it into a huge profit. If this were a company with sales growing 500% a year but no profit (think back to the 90's) it would be different, but the management seems to have a very good handle on their abilities and I wouldn't bet against them at this point. Who knows - maybe the back to school backpacks will take off driving EPS to $4.00 this year. Maybe they will start selling boats that complement their no-slip shoes (just kidding of course) - whatever the strategy, it will be interesting to see how the management adapts to changing consumer tastes.

I'm not long the stock. I'm not short. but if it comes back in some, and their product line is able to adapt well, I will probably try to step in and buy again... Why oh WHY did i sell those calls???

2007 Jun 08 10:15 AM

[Andrew Hor...:]

Jerry - Oh, one thing... you are quite unprofessional, but that is clear from not only your opening comment, but it is apparent from the rest of your writing as well. Nice to give a few winners with that. Do you even know how to read a financial statement or is price the only important item

I would really like to know your ideas, but leave the emotions at the door for your myspace chat. If you do have some info and an really good insight, can you share.. I am interested and it seems that are clearly LONG (sorry to see the stock moving down so much today... now down $1.90 on...scratch that down $2.20 when the market is really down too, wait, the market is actually up...Hmmmmm) Must be other idiots trying to take some profits after such a huge run up.

That July 80 PUT I bought this AM is now up 12% since I bought it... I should have listened to you... Next time.

Comment all you like, just keep it professional please. Or at least adult-like

2007 Jun 08 10:37 AM

[Zachary Sch...:]

Andrew - i'm curious of your time frame along with your analytics. Obviously in the long run the stock value will be determined by the economic value of the company. However today's move certainly had nothing to do with financial statements as those are unchanged from yesterday or even a week ago. nothing personal at all, i'm just curious how you incorporate fundamental analytics into what appears to be a shorter-term trading strategy?

2007 Jun 08 11:19 AM

[Andrew Hor...:]

Zach:

There are two comments related to your question. The first is that I am truly concerned about the cheer-leading that is going on with this stock. You should take a look at the message boards on this. People are buying because they like the commercials. That is outrageous! They are using past evidence of stocks that have moved up to support their twisted idea that that contains any evidence about this stock.

The second point is this: Fundamental trading is used for an overall decision on the stock and the general direction once confirmed with the technicals. Short term trading is primarily a function of the technicals. CROX is running high due to investors desire to move it higher with a penguin type of mentality. (HERD?). I think there are both opportunities to play this as a long term short and pick up some points on the volatility that is created by the <b>"CROX ROX TEAM" </b>of investors...

One more thing, it is amazing the amount of excitement that I seemed to have caused when I initially wrote this article on Seeking Alpha and The Disciplined Investor site (my site) www.thedisciplinedinve... , that in of itself tells me that there is a great deal of emotion driving this stock. What does that tell you?

2007 Jun 09 02:48 PM

[john12:]

I like the idea that you are shorting CROX while buying their product "for the weekend". Maybe if you bought some more uglys for the family and friends, you could show the world just how ugly these things are while adding to the companies bottom line. Oh , watch out you might get to like them.....

2007 Jun 08 02:13 PM

[borisb:]

something more to the story, i perceive.... this is a new category of footware.
educated professions such as nurses and chiefs think very highly of the shoe/rubber performance.
the rubber is above average performance and uniquish to some degree, the price points are below sneakers, customer feedback in Sport Authory has been surprising favorable across many demographics, the popularity is based on performance rather then "fashion" or "fad", senior managment is from Flextronics and these guys know how to ramp global manufacturing better then anyone. they already have plants on most continents, 3 aqusitions that look somewhat smart, one subsidary ~ jizbitz (sp?) just won a milestone patent victory against a upstart clone, the international sales are ramping at a striking rate with surprisingly higher asp. until Nike or Rebook slam them it seems like the stock will maintain $3s billion market cap. The growth factors appear better then Underarmor, and remind me of the new growth in the beverage market, energy drinks, where Red Bull and Hansens cleaned up big time, while Coke and Pepsi just watched on the side lines. When Nike shows up with a version 2.0 of the clone product in global distribution that will be interesting, maybe not until 2008 after olympics? until then i may buy my 2nd and 3rd pairs. Also brilliant - practical Guy Adami, of Fast Money , recommend consideration to go long in upper 70s 2 weeks ago friday.

disclosure... i didnt take the product serious becuase of style but changed my mind in May due to product performance and opened small longs. looking to add.

2007 Jun 17 12:17 PM

[borisb:]

" Once the popularity reaches a crescendo " a near term crescendo is unlikely
given that these shoes are most comforatable out there and the performance vastly exceeds the competition. Everyone on the planet has a boring inventory of the same old same tired sneaker/tennis shoe crap with no reason to rush out and spend another $100 to benifit Nike. Now they have a better choice, and are inspired to go and buy something truely cutting edge. At the moment Crocs is making 4 million pairs a month and thats not much for a hungry 7 Billion people. i presume the fan base is about 20 million and will expand towards 150 million, if not all the 1 Billion cellphone users out there. thoughts?

2007 Jun 17 12:30 PM