Crocs Shares Are Back In Fashion
September 28 2010 - 11:50AM
Dow Jones News
Crocs Inc. (CROX), crushed by a steep drop in demand for its
colorful clogs, is treading more comfortably these days.
Two years ago, Crocs and its stock looked like a fashion fad on
the brink of extinction. It had been a swift fall for a company
whose initial public offering raised $223 million back in February
2006 as the distinctive footwear became ubiquitous.
Crocs' stock soared to an all-time high of $75.21 on Oct. 31,
2007. Fifty-four weeks later, it hit an all-time low of 79 cents a
share.
After stomaching $227 million in losses, Crocs is still here,
again enriching investors who dare to bet on a company with a
self-described "ugly shoe."
After having plumbed penny-stock territory, Crocs shares are
back in fashion, handily outperforming rivals Skechers USA (SKX)
and Deckers Outdoor Corp.(DECK), maker of Teva sandals and Ugg
boots.
Crocs shares recently traded up 1% at $12.85 and have increased
twelvefold since January 2009, propelled by a year-long
restructuring that cut inventories by 60%, shuttered seven Denver
warehouses and reduced reliance on sales from its original
clogs.
The overhaul is working.
Profit was $38 million for the six-month period that ended June
30, following a 2009 loss of $42 million. Sales rose 18% to $395
million. Gross margin climbed to 57.8% of sales, putting that
metric back near 2007 levels, when sales boomed.
From July 1 through August, U.S. same-store sales, or sales at
stores open one year, were up 12%, according to Russ Hammer,
Crocs's chief financial officer.
Analysts have said the stock could run up another 40% from
present levels based on the company's growth prospects. In the past
week, two of the four analysts who cover Crocs raised their
12-month target prices to $18 a share, according to FactSet
Research.
The average estimate is for Crocs to earn 68 cents a share this
year and 85 cents a share in 2011, when annual sales are forecast
to reach a record of $851 million. Sales swelled to $847 million in
2007, and the company scrambled to meet demand.
A year later, the economy tanked, and retailers slashed orders.
The company suddenly faced a massive overhang of unsold shoes.
The rebound at Crocs contrasts with another company panned as a
fad, Heelys Inc. (HLYS). The maker of sneakers with built-in wheels
went public in December 2006, but its shares have languished below
$5 a share for two years. The stock once traded around $40 a
share.
A broader product line is helping Crocs, which seeks to extend
demand for its footwear beyond spring and summer, with new shoes
for winter use.
"Through the building of new products on a lower manufacturing
footprint and increased points of distribution globally, Crocs is
poised to win," Wall Street Strategies analyst Brian Sozzi said
Tuesday in a research note. He added that "consumers have wised up
to the more diversified nature of Crocs, and are willing to pay
higher prices to get foot comfort."
Sales of new 2010 shoe models -- such as sneakers for kids and
women's flats -- accounted for 31% of company sales in the first
half of this year.
The new models are boosting prices and helping margins. The
average sales price for its 250 items is $17.76, up from $15.80 a
year ago. The company sells everything from socks to flip-flops to
men's work shoes.
Crocs has bolstered its back-to-school lineup and set up
local-language Internet sites for France, Germany and Italy. Web
sales rose 16% for the six months ended June 30. Crocs rings up 60%
of its sales in Asia, South America, Europe and Canada.
Also this year, Crocs opened 53 company-owned retail stores as
it closes kiosks located in malls and highly trafficked areas.
Stores give the company a chance to stock more products than a few
kiosk items.
Yet not everyone is sold on the turnaround.
Crocs shares sold short--a gauge of investor skepticism--are
creeping higher. While nowhere close to 2008's sky-high levels,
short interest represents 14% of Crocs common shares outstanding.
That's up from 10% in May.
Investors will want to pay close attention to the average number
of days it takes Crocs to collect money after it makes a sale, an
accounting metric followed by mindful investors as "days sales
outstanding."
This ratio has been rising but it's far from clear whether Crocs
is sitting on another inventory pileup. The next six months should
give investors a good idea as Crocs aims to prove it's not a mere
fad--again.
-Matt Andrejczak; 415-439-6400; AskNewswires@dowjones.com
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