Crocs Fights Value Trap vs. Value


Crocs Inc. (NASDAQ: CROX) is getting absolutely crushed. While we always accuse the company of having the world's ugliest shoes, the reason for its earnings woes may be different from just a poor economy. The results were bad enough that Stern Agee took its rating down to Neutral from Buy.

Results were mixed, beating on the earnings front but missing on sales. The shoe and apparel maker had net income of $45.1 million in the quarter, and that translated to $0.49 per share, versus a Thomson Reuters target of $0.43 EPS. Total revenue also rose about 7% to $295.6 million, but the consensus was $302 million.

Here is the real problem. For the fourth quarter of 2012, Crocs only expects break-even earnings per share on revenue of $220 million.

Crocs said that the international segment was weaker than expected. A challenging retail environment with a large drop in same-store sales in Asia and only a small gain in Europe. Foreign exchange rates were blamed as well. Sales growth during the quarter was driven by strength in the Americas and Asia as revenue increased 7.4% for the Americas, 11.3% for Asia but decreased 2.9% for Europe.

Cash and cash equivalents at September 30, 2012, increased 41.8% to $312.6 million, and the backlog increased 33.2% to $395.4 million.

Crocs shares are down almost 19% at $13.12, which is under the prior 52-week low, as the 52-week range had been listed as $13.80 to $22.59. Crocs still has a market value of $1.2 billion. This drop is on a share count of almost 7 million shares, and that is about 300% of normal trading volume.

Many investors may be hoping that this is now going to be a value stock since it trades well under 10-times expected earnings. That is cheap, but Crocs is sure trading as though the company is now a value trap.


Filed under: 24/7 Wall St. Wire, Apparel, Earnings Warning, Retail Tagged: CROX