Friday, August 7, 2009

Crocs up 30%, or one dollar and thirty cents. (CROX)

AlphaNinja - Crocs (CROX) blew away revenue estimates last night, sending shares up quite a bit today.
Details:

-->>Excluding sales of some previously written down inventory, gross margin was 48%, up from about 40% in the year-ago period.
-->>Inventory declined 22% year over year, impressive as revenue was down only 11%
-->>Cash Increases 50% to $78 Million in First Half of 2009
-->>Announces Full Repayment of Outstanding Credit Facility

The conference call could have been about 15minutes shorter had CEO Duerden not rambled on emotionally about how the evil media called for the death of the brand, etc. He noted that the day after the Washington Post trashed the company, they saw a record 16,000 pair of shoes sold online. Not sure if he was trying to be funny, but Duerdon called that day "the beginning of the feelgood revolution."

Duerdon's dramatics aside, significant progress is being made. This company grew SO fast that they did it sloppily, and now one of their biggest initiatives is to repair the seriously damaged relationships with wholesale shoe retailers, who were facing stock shortages and horrible Crocs customer service.

Regarding the Crocs brand and the fight against knockoffs, Bob O'Brien of Barrons noted today that:

"Their product line also proved as effortlessly knocked off as a breakfast cereal. Just as there’s no patent protection for bran flakes with raisins, there wasn’t anything to preclude rivals from extruding plastic into a footwear shape. When they didn’t face the same marketing costs - hey, Crox did all the selling for the brightly colored plastic footwear industry - competitors could offer cheaper versions of essentially the same product."

The CEO explained that in the USA and Japan, knockoffs are not an issue so much, as these customers care about the brand name, but that Europeans are "cheaper" (his words) and more open to imitations, so Crocs has weaker pricing in Europe.

As for the slightly longer-term outlook, Crocs management targets Gross Margin of 45-48%, and a low30% range for SG&A. Crocs is slated to do about $530-$540million in revenue this year and next. Let's be generous and use $600million -->> using those numbers I'd get to net income of $62million or 74cents per share in earnings. A 15 P/E gets you to an $11 stock price. Wow, sounds great with the stock currently at $5.50, until you realize that it's a pipe dream -->> Crocs is targeting an SG&A (Selling, General & Administrative) rate of 30% of revenues, while they're currently running about 49%. Maybe they'll get to that number someday, but this management and stock are in "prove-yourself" territory, and do not deserve the benefit of the doubt.

No comments:

Post a Comment