Crocs sinks on concern that allure fading

By Meg Tirrell and Cotten Timberlake, Bloomberg News

Published July 25, 2008 at 9:25 a.m.
Updated July 25, 2008 at 8:53 p.m.

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Crocs Inc. plunged 45 percent in Nasdaq trading after the Niwot-based shoemaker forecast earnings lower than its previous prediction, raising concerns that it may not be able to sell its colored foam clogs profitably.

Crocs may post its first drop in sales since it sold shares to the public in 2006 as retailers cut back on orders. Thursday's decline contrasts with the sevenfold increase in the 20 months after the initial share sale, when investors bought on the hopes that forays into apparel and celebrity endorsements would sustain the company's revenue growth.

"It brings up serious questions about their business model," said Keri Spanbauer, a retail analyst at Minneapolis- based Thrivent Financial for Lutherans, which manages $73.2 billion of assets.

Crocs fell $4 to $4.95 in Nasdaq Stock Market composite trading, the biggest decline since its initial share sale in February 2006. That's down 93 percent from the stock's record high of $74.75 on Oct. 31. The shoemaker said retailers cut back on clog orders as U.S. consumers spend less.

With U.S. consumers tightening spending, Crocs' brand isn't strong enough to command prices four times those of its imitations, Spanbauer said. At Nordstrom Inc. stores, Crocs sell for $24.95 to $69.95 each. Similar clogs sell for as little as $5 on Wal-Mart Stores Inc.'s Web site.

International demand in the second quarter failed to make up for the decline in the U.S. or meet Crocs' expectations, Chief Executive Officer Ron Snyder said Friday on a conference call with analysts and investors.

Sales rose 13 percent in Europe in the second quarter and 65 percent in Asia, Crocs said. For the first quarter, they more than doubled in Europe and advanced 93 percent in Asia. International sales accounted for 42 percent of Crocs' total 2007 revenue.

For the year, the company said it may break even, while revenue will be "down modestly." The clogmaker had 2007 sales of $847.4 million, more than double 2006's $354.7 million. Earnings were $168.2 million, or $2 a share, up from $64.4 million, or 81 cents, the year before.

Analysts surveyed by Bloomberg estimated second-quarter profit, excluding some items, of 39 cents a share on sales of $248.2 million. For the year, they projected adjusted earnings of $1.68 on a 16 percent increase in revenue.

"It's a fad, not an essential basic in the consumer's wardrobe," retail consultant Walter Loeb said in an interview. "Many people have Crocs and, particularly with the weak economy, consumers may not be interested in new Crocs this year." Loeb is president of the Loeb Associates retail consulting firm in New York.

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