Surprise Hits: Recession takes a bite out of Crocs

What's adored by corpulento Italian chefs, despised by snarky fashionistas, and made of the same stuff that gives plastic wrap its maddening cling? That the answer is obvious is a testament to the surprising success enjoyed by Crocs Inc.'s (CROX) signature foam-rubber clogs.

The squishy shoes' rise to ubiquity helped Crocs boost sales from $109 million in 2005 to $847 million in 2007, when shoppers snapped up 46.9 million pairs. But both the company's fortunes and the shoes' popularity have slipped, leaving analysts, investors, and fans wondering if Crocs can pull off another surprise and thrive again.

As popular as the shoes once were, the stock was just as hot. Long a favorite of Jim Cramer, Crocs reached an intra-day high of $72.40 on Oct. 17, 2007. But that price, which put the company's market capitalization well north of $5 billion, proved unsustainable. A couple weeks later, investors sent the stock down 24 percent in a single day after the company announced quarterly results that fell short of analysts' estimates. It's now trading near $3.

As the recession deepened, Crocs sales have suffered along with its stock price, and few analysts were surprised when the company said revenue fell sharply in first quarter compared with a year ago.

Crocs's rise may have been unexpected, but its reversal of fortunes was not. As it turns out, brightly colored foam shoes neatly epitomize "discretionary spending." Now the company's auditors say bankruptcy is a real danger.

Yet someone must have bought the 8.2 million pairs of clogs, flip-flops, and hiking sandals that Crocs says it sold in the first three months of this year. And so the debate over their stylistic merits rages. Celebrities like Mario Batali, Jack Nicholson, Faith Hill, and Al Pacino are reportedly fans. And don't forget about the health benefits: Doctors say Crocs can help diabetics avoid foot injuries.

Even so, they're a sartorial lightning rod. (Indeed, some hospitals have sought to ban them on the grounds that "they act as 'isolators,' enabling enough static electricity to be generated to knock out medical equipment," according to Canadian newsweekly Maclean's.) Among Crocs' notable critics is late-night host Bill Maher, who beseeched viewers to "stop wearing rubber shoes."

Humorist Dave Barry's evidently not a fan, either. At his blog on The Miami Herald's website, a poll asking readers how they'd spend government stimulus money included among the possible responses: "This is really off-topic, but I don't think adults should wear Crocs."

Whether they keep doing so will determine if Crocs can surprise again.

Be sure to check out all 20 recent products that became Surprise Hits.

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