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This Casual Footwear Company Is All Set to Outperform

June 25, 2013 | About:
abirk

abirk

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Crocs Inc. (CROX) is a designer, manufacturer, and distributor of footwear and accessories for men, women and children. Its footwear products are divided into four product offerings: Core-Comfort, Active, Casual and Style. It uses a lightweight material that differentiates its product, and gives it an edge in the casual footwear industry. Crocs is best known for its unique footwear.



Financial and Growth
The company enjoys a current ratio of 3.88 and has hit the ball out of the park with its working capital management. It is very important for smaller companies, with smaller recognition, to manage their cash reserves well, thus lowering the chance of a liquidity problem later. In addition, the company had $6.6 million of long term debt outstanding, and it would be serviced at an interest rate of 2.63%. This gives the company a long term debt to equity ratio of .01. Such low leverage would help the company in its global expansion, and keep it popular amongst long term investors.

This Colorado-based company exploded onto the fashion scene primarily in 2007, posting a then-company record of nearly $850 million in revenues, and $168 million in net income. In 2008, revenues dropped below $722 million, and rising costs and one-time expenses caused the company to lose more than $185 million.

But, this leading footwear company started turning things around in 2009. Despite revenues continuing lower to about $645 million in 2009, the company cut some of its expenses, losing just $42 million for the year. The year 2009 was a start, but in 2010 the revenues reversed their downward trend. In terms of revenue growth 2011 was a strong year, and the ability to increase margins helped tremendously on the bottom line. Last year, the company posted 12.23% revenue growth, and was able to improve gross margins by 53 basis points. However, operating margins decreased by 8 basis points.

Crocs sells for a PE ratio (ttm) of 10.84. The market, very strangely, has been pessimistic about the prospects of the company. This could be because of the dramatic fall in the stock price of the company during 2007-08.

The company sells its footwear and other products around the world. In fact, a majority of its revenue originates abroad. Based on the 2012 annual report; Out of the company's 537 stores, only 170 are located in the U.S. 12 are located in Canada, 241 in Asia, and 97 in Europe. The Asia segment includes Australia, New Zealand and South Africa. Very clearly, the company has done a fantastic job of setting foot in many big markets across the world.

Even though the American segment generates the maximum revenue from a single continent, the Asian segment is catching up fast. Also, the country already earns more operating income from Asia than from America. Such foresight in identifying potential would bode the company well in future years.

McCarvel, who became CEO in March 2010, said that clogs are Crocs’ main ingredient. Due to strong positions in clogs and developing new brands, Crocs is able to continue growing its sales. Aesthetically, Crocs' clogs are not very appealing, but they come in attractive colors, are durable, easy to maintain and easy to slip on and off. In addition, Crocs are suitable for different ages, and are a favorite with both men and women.

Recently, Crocs and its chief legal and administrative officer honored as Silver Stevie® Award Winners in 2013 American Business Awards℠.



Positive Outlook


The spring and early summer months are the strongest for Crocs' sales and therefore, the company expects another year of increased revenue and earnings as indicated by increased year-over-year global preseason orders from its wholesale customers, and an estimated expansion of retail locations across the globe from 70 to 95 net stores.

Crocs expects to have increased revenues driven by continued higher volumes as a result of improving selling conditions, higher average selling prices, and positive market acceptance of new products contributing to the continued expansion of its reputation as a four season brand. The company is also expanding its retail and internet channels to have continually increased margins in 2013.

During 2013, the company is planning to make significant investments in the operational and technological efficiency as well as consumer marketing. It is also intended to focus on organic growth including the launch of new innovative products, attracting new consumers, retail excellence and wholesale channel expansion with key partners.

Crocs plans to open 90 locations around the world this year with about half in Asia, where sales jumped 34 percent in the first quarter. That would boost total locations by 20 percent to more than 500. Crocs had about half that in 2011.

Wrap Up
The word Crocs is synonymous with clogs around the world. However, Crocs is still able to grow at a fast pace as the company now offers a year-round collection of over 300 models for men, women and kids that are sold in nearly 100 countries. Crocs is also licensing its brand to such products as hats, bags, sunglasses and socks.

Crocs’ stock trades at a much lower P/E ratio than do many of its peers. Also, the future earnings of the company show good potential. The balance sheet is well maintained, and the business model has an inherent competitive advantage. Finally, the company is exploring a number of growth initiatives, which offer upside potential with limited downside. I am pretty bullish that in the near future the company is not going to disappoint its valued investors, as well as customers.

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Rating: 4.1/5 (8 votes)

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