No Hope Left for Crocs

After the close Monday, shoe manufacturer Crocs, Inc announced drastically lower Q108, Q208, and FY08 guidance, sending shares down ~30% at the time this article was written. With the stock already down 50% before Monday’s nightmare, many on the Street had considered CROX “too cheap” to ignore. The stock was fetching a single digit multiple to forward 12 month earnings and on a first look basis, it looked like things couldn’t get worse. And then the tune changed.

In the press release, CROX management spun it the best way they could, blaming the macro:

Despite general weakness across the industry we continue to witness solid sell-through of our Crocs branded footwear and still expect domestic sales to still grow roughly 13% during the quarter. However, retailers in general are planning more cautiously, and therefore, we did not experience the level of at business we originally expected.

In a word, estimates were too high and the sell side refused to think of CROX as other than a best in class lifestyle play that could shake off the sordid economy. The smart money was waiting for a time bomb – and on Monday, they got it.

No wonder, then, that the last 3 CROX articles on Seeking Alpha were bullish in nature (Crocs Appears Well Positioned, Stock Is Cheap - Baird; Crocs: Value Building or Value Trap?; Crox Could Rise on Piper's Inventory Comments) but as you can see for yourself, we didn’t waste any time posting frequently in the comments section of these posts that CROX was road kill and likely to follow in the footsteps of Heely’s Inc (HLYS), a one trick pony shoe play that got slammed last fall amid inventory concerns, pathetic sell thru data, and rumors of lost contracts (HLYS ultimately did lose its relationship with Dick’s Sporting Goods (DKS)).

We’ve annotated the chart below with the same comments we made to our buy side contacts over the last few months, based on technical analysis and marinated with the inventory build our channel checks were confirming here in the Midwest. As you can see, investors had not one, but three, opportunities to dump CROX shares.

Bottom line: We are ratcheting down our price target from $15 to $9 to reflect today’s outlook and reiterate the strong sell rating we’ve had on the stock for months. With the stock down more than 30% at the open Tuesday, no reason to get macho with the stock now. Our guys will be playing the tepid bounces and shorting them back down. If it isn’t clear yet, this company’s only hope is a bottle of whiskey and a Mossberg.

Disclosure: Author had no position in CROX at the time of writing

Comments

[flatman]

It has been amazing to me to watch positive reports on CROX from analysts and at the same time see knock offs of their shoes at Walmart, Target, and Big Lots selling for $3.

[CrossProfit]

The best informative articles about CROX on Seeking Alpha were written by Amit Chokshi, see;
seekingalpha.com/autho...

Some of the articles are;
seekingalpha.com/artic...
seekingalpha.com/artic...
seekingalpha.com/artic...

Now this is what we call a good analysis...though there IS HOPE for this article if the author is willing to disclose how he 'knew' that:

"estimates were too high and the sell side refused to think of CROX as other than a best in class lifestyle play that could shake off the sordid economy. The smart money was waiting for a time bomb – and on Monday, they got it."

Also, 'smart money' is usually associated with a group of people or an institution. We are unaware of any specific group. Do you mean to say 'smart people' who felt this was worth a gamble?

You definitely were correct on this call, but one gets the feeling that you are working off of intuition, not any analysis.

Please correct if we got this wrong.

BTW, there is NOTHING wrong about making money intuitively, but I think in comparison with Mr. Chokshi's articles you would agree that this does not qualify as an analysis.

For example, see one of YOUR past articles that qualifies...
seekingalpha.com/artic...

CrossProfit

[Arpu78]

"this company’s only hope is a bottle of whiskey and a Mossberg."-I hope the author has never had to deal with the first hand effects of suicide, given his last tasteless sentence. Maybe he feels that this comment lends some tough guy cred to his hard-boiled analysis, call it noir blogging, but I hope it is just a question of youth and not deliberate callousness.

[mcadoo3312]

I completely agree with CrossProfit, but that is why you do follow up analysis on anything not written from a credible source. I also disagree with his $9 price target because the stock already had almost 50% short interest as a percentage of float. How much higher is that figure going to be after today?!

Additionally, International growth for the product is in its early stages as Europe and Japan reportedly have high demand. That being said, I do not believe the company a total flash in the pan, but I also believe the product's life in the global market is beginning to make the turn from cash cow to dog. There are profits still to be made, but they could be quick, so pay attention.

[ValueInvestor]

Crocs are nothing but a fad, just like duck boots were in the 90's. In 5-10 years nobody will be wearing Crocks and the company's product will be belly up.

[DanielJacome]

1) Mgmt lost credibility - stick a fork in it and move on with your life.

2) We won't respond to all the personal attacks -- net net, our article was posted on CROX BEFORE the bell. CROX opened north of $12. If you took our article to heed, we saved you another 16.4% as CROX is now @ $10.22, down ANOTHER 2 bucks from the open and before the call.

3) We use lively language to make our points; if it makes you sad, you're not focusing on what matters: alpha. We're not here to make you feel good, that's management's job.

[CrossProfit]

Dan,

You wrote "We won't respond to all the personal attacks". What personal attacks?

And what was point 3 all about? Arpu78 was offended by a certain term that you used and when stating so was careful to give you an easy way to apologize -"but I hope it is just a question of youth and not deliberate callousness".

Just imagine for a minute a scenario where let's say because I'm Jewish I use a term that to me seems just fine yet a Christian reader finds it offensive for reasons that I'm not aware of. This Christian reader post a comment expressing in no uncertain terms that the language I used was very offensive but then adds that perhaps since I'm Jewish I didn't realize it. My response would be "Thank you for pointing this out, in the future I will try to remember this".

Maybe you should consider something similar and stop looking at everything as a "personal attack".

Saul Sterman
CrossProfit

[DanielJacome]

NOTE:

1) Not all the analysts who follow CROX acted today -- only DA Davidson and Wedbush -- came out to downgrade the stock.

2) Implication - if academic studies are right, and sell siders are slow to digest negative earnings announcements/guidance shocks -- then there should be some more negative comments/price target readjustments on the way....

3) Bottom line: we think CROX goes even lower from here with arguably some vacuous, mild bounces here and there.

[DanielJacome]

The bloodbath rages on - CROX down from $10.22 to $9.82 today and closer to that $9 handle we talked about yesterday...

[Gumby]

I wear Crocs for a year and it is pretty worn out. I smell them ..nothing!! It is made of Croslite that bacteria cannot live on. It is a great pair of shoes, thongs, boots , whatever you wish to buy !! Talk a bit more science , you are talkikng too much on numbers... Crapshooter, you are!!

[Gumby]

Come to think of that.... I bought Nike thongs or sandals with velcro. It smells like heck that made me dizzy... Tiger Woods, endorse Crocs, will ya?

[Gumby]

Crocs will come up with basketball Crocs sneakers, I betcha! This will give Nike, Adidas, New Balance, whatever the run for their money!!! Crocs shoes is resistant to tear or any kind of breakage. Like Kevlar in a soft comfortable feeling. It is a single molded thing no stitches, glue, padding, phony logos, etc. Crocs is great! The prices are great!!! I am gonna buy or order another pair or two at crocs.com and I will put a few Jibbitz buttons on them. Cool!!

[Gumby]

Ordinary sneakers you bought here are made in glue fumed factories overseas that make workers sick from inhaling fumes. Crocs just inject Croslite into them . That Croslite materilal resist bacteria and is a high value material as compared with plastic crap put into other sneakers made overseas. They are cheap materials that make your feet itch and you buying anti itch spray cans.... My feet dont itch at all in my Crocs .

[Ken_17]

Dan: You need to learn to use some sensitivity and restraint in your writing. Buying and selling stocks is supposed to be an unemotional process, why should writing about them be any different?

[DanielJacome]

User 180192, thanks for your comment, we'll try to harness our energy in the future.

[Paul Price]

Latest earnings are out and CROX is > $11 aftermarket on a day when the DJIA was down > 200 pts.

CROX looks strong on new guidance for $1.55 - 1.70 for the year.

[DanielJacome]

Look at the weak international numbers: they were not that great, and that is what CROX mgmt is pitching as their main avenue for growth -- it is seeing a squeeze here but there is a thin safety net under this stock.