SubscribeCrocs…The Emperor’s New Shoes
June 7, 2007
It seems that Crocs Inc. ( CROX ) believes that they are going to be more than a fad. In fact, they are doing everything to expand beyond the casual sandal that has made them so popular.
Crocs is looking to up the ante by entering into a more fashionable line of womans shoes. Now, the You by Crocs will offer a few hideously ugly and very expensive boots. I am picturing the Queen of England running out and buying the entire collection as soon as they are available.The Wall Street Journal reported: “The introduction of the You by Crocs line of nine boots and shoes marks a departure for Crocs, which has logged meteoric sales growth from the popularity of its odd-looking, perforated shoes. The shoes — a hybrid of a sandal and a clog — are made of a plastic resin that wearers find both comfortable and light weight.Among the most radical shifts for the You by Crocs line is the new arrivals’ retail price: $149 to $299 a pair. That’s far above the $30 price on Crocs’s standard shoes. The new line includes eight wedge-heeled models and one lifted flat, each of which features a combination of leather, suede and lambs wool. Crocs’s plastic resin occupies only the soles of the new models. The You by Crocs line will be available from retailer and online this fall.”
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WAIT, did they say $149-$299 a pair! So, not only is my sense of taste and fashion supposed to be thrown in the garbage, but I should also be mugged in the process? Talk about the Emperor’s New Clothes!” Who are they trying to fool!
Jon Markman, MSNBC Commentator, wrote that it could be a $100 stock because if you look at the world population and the fact that they could capture a significant portion of that the revenues could…blah blah blah. Come on!!!!!! Where is your head!
The product is popular, yes. It is making money for the company, yes. But a category killer and a new paradigm in shoes. Absurd! Mr. Markman is not focusing on the fact that the shoe is so easily copied and there is no chance that the style is able to keep any trademark-ability. Once the popularity reaches a crescendo, the countries that are well noted for their low-cost copies of named brands will create a price wall. Now it is a novelty without competition. We have seen this before and unless there is something more to the story, the stock will soon begin to fall rather precipitously.
*Tables sources – MSN Money
The only thing uglier that their shoes is the miscalculation investors are making about their financial statements. The growth that has occurred is a new phenomena for them. The ratios and growth rates that look so nice are comparing results from previous years when they had little or no net income. Their popularity over the past two years makes it look as if there is a terrific growth rate, but looking closer you will find it is on the back of very low numbers. This is not a fair comparison and should not be interpreted as umbers that will continue forever. Remember when Dell Computers made that same mistake?
Can someone explain why there are so many sales by insiders? Maybe I am just picking now….
The EPS of $1.60 shows a current P/E approaching 55 times and if we look to DOUBLE the net income is still near 30 times. On a PEG ratio that seems tolerable, assuming that this becomes a global phenomena and one that is long lasting. Poppycock! Let the amateur play this one. The pros are surely looking to profit from the lust and innate greed of the average investor. The Shorts will have their day on this one… and soon.
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Comments
16 Responses to “Crocs…The Emperor’s New Shoes”
Got something to say?
Dude,
You better be the disciplined investor you claim to be and cover that short position of yours. Even if their new shoe line does nothing, their other lines are selling like crazy. I was talking to sales people on the east coast and HI and demand is strong for Crocs. You can see from how strong this stock is in the face of a very crappy market that momentum is up. After next weeks split the shorts will get hit twice as hard for ever $ rise. This is a classic short squeeze candidate. There may be a time when CROX is a short but that will no be anytime this summes. The #1 product search on yahoo is CROX … you are losing your shirt and it is going to get worse. Look at the QCOM chart from 1999-2000. A squeeze can be very painful. Look at new institutional BUYING on this stock … IT is rising fast and they are getting in at higher and higher levels as they want to ride the wave.
Aloha in Christ
Edword
PS I’m long the stock @ 56 and the
June 85 & 90 calls (up 200+% sold some … rest paid for)
July 90 calls up 60%
Sept 80-85 calls (up 200+% sold some … rest paid for)
Good info, but the fact I that there are only 3 days to cover does not show me a short squeeze that is very problematic. I understand the excitement over this stock and I am not one to fight the tape…. BUT, trees do not grow to the sky. Step back and set some good sell stops.PS. The Short idea is NEW and the position was only entered yesterday, closed already ($2.50 profit) and will re-enter the short at $90, HARD!
Have you looked at insider selling???? OOOOOFAAH
June 6, 2007
Shares Short 8,868,200
Days to Cover (Short Ratio) 3.3
Shares Short – Prior 9,137,900
Short % Increase / Decrease -2.95 %
Trading Volume – Today 7,873,951
Trading Volume – Average 2,680,300
Total Shares – Outstanding 39,965,682
EPS 2.04
PE Ratio 41.80
Andrew:
I could not agree with you more that Crocs is no more than a fad. The problem with shorting fads, however, is that one can get flattened by the tsunami while waiting for the tide to go out. Several years ago, I wrote a piece suggesting a short-sale of a fad coffe-donut company called Krispy-Kreme. Shorted it at $30/share & then again at $60 [split-adjusted]. Fortunately, I was not asked by my broker to cover–and all ended well for me when the stock subsequently tanked!
Wishing never to go through that stomach-churning event again, I stick to buying puts 90 days out. EG: BLUE NILE
http://10qdetective.blogspot.com/2007/05/is-luster-off-blue-nile.html
Andy– Good Luck!
Best Regards,
David J. Phillips, Publisher
http://www.10qdetective.blogspot.com
PS We both might think that Crocs look “ugly,” but tweens & toddlers love them! I have to peel them off the feet of my two girls, ages 6 & 8, AFTER they go to bed!
PPS. One valid point in your argument is that I am seeing more generic Croc rip-offs being sold by side-walk peddlers.
The thing that you miss, that Motley Fool misses, that practically all of the Crocs-deniers miss is that they are NOT a fad. They are too damned ugly to be a fad. I know many people who wear them and (as a stock holder) I’ve asked them why they have them. Everyone of them listed practical reasons. Not a single one said a single word about looks or fashion.
I bought CROX after my buddy’s wife spent 5 minutes praising these new shoes called Crocs. They are comfortable, light weight, inexpensive, easy to clean, anti-bacterial, etc. I did my DD and purchased shares in 12/06 and 104% later I’m ecstatic.
People are not buying Crocs to be fashionable and keep up with the times, they are buying them BECAUSE THEY ARE A GREAT PRODUCT!!!! In your entire, spittle-filled article you never once come close to even acknowledging this possibility. Hello, McFly?
No problem with the fact that they are a good product. No one ever said anything otherwise. The problem is that the stock has gotten ahead of itself. That is all. No Spittle here…
It is amazing the amount of response I have with the comments that I made about a company that sells SHOES. I have ripped other stocks before for financial reasons… Why do you suppose that people are getting so uptight about a company that sells sandals?
What is your DD telling you about the top end price Mark? BTW, croc-deniers….I suppose that this is a religion now that worships pedal extremedy coverings.
Tell you what, I will be the first to go and buy a business suit from Crocs, surely to be made out of an amazing material that will never need to be cleaned……That would be awesome!
Mark…did you own Enron? It was a great company that seemed to have a great story and really made sense. Anyway, I am wounded by the denier slander.. Need to take off the rest of the day.
Great article…I only wish it had as much exposure as “Crammmer” or that dopey Markman guy.
You did fail to mention the absurd Price to sales ratio approaching 8!
& the complete seasonality of their product (75% of sales from summer shoes)….nice call on the insider sales though…hard to believe the CEO cashed out 70 million dollars worth of stock within the past 12 months (50 million in May alone) and not a peep from any analysts…
I’m looking to short into the next earnings report as I believe if they don’t completely hit it out of the park & more importantly guide higher….the stock is due for a major correction…
Hell, I’ll probably pull the trigger long before then as the float loosens up next week & I believe the co. will do a secondary soon…don’t wanna miss that from the short side.
Good call.
While I don’t own a pair, I’m kicking myself for not rushing to buy shares about 14 months ago when I was practically ridiculed at a buddy’s bachelor party / fishing trip because I was the only one there who didn’t have one. Every single guy was running on and on about how great they were, no back pain, feet didn’t hurt, it made me urinate liquid diamonds etc.. I just couldn’t get myself to buy a pure fad. To tell the truth, I almost bought some of them the other day to just see what the heck it is that everyone is raving about. Maybe make them yard work shoes.
Enough about that, I would love to see this stock tank like crazy to the dismay of the poster that thinks you are spittle covered Andy. Fad or not, good product or not, the problem is exactly what your article nailed: there’s no way to make crocs immune to SE Asian manufacturing and imitation. Would I short the company? Not until I see the institutions running from CROX in droves. The insiders sure have a better idea of the future than the rabid public. You just don’t liquidate 70MM in one year if you don’t expect a drastic retracement in your share price.
Andy i greatly enjoy your humbling podcast, but i will have to question this CROX article. This product is prazed and loved by consumers in New York (reminds me of the ipod a couple of years ago) and i havent met one unhappy customer. I first bought the stock a couple of months ago, when a nurse i spoke to from the Dominican Republc explained that these shoes are very popular and were well recieved by her peers. Manhattan is crazed by the COMFORT of these “plastic looking things”. And with their new effort of expanding into different styles, those that brushed it off for its ugly appeal are beginning to embrace a newly reinvented and actually fashionable Crocs.
Also i dont think enron and crox are similar comparison. The higher end consumer will embrace YOU by Crocs positively (just survey random women in the street that sport Coach bags to get a womens perspective). It is my opinion that their is still organic growth ahead ( holding long unless the street,not wallstreet, begins to treat it like a fad)
1) Thanks for the kind words on the podcast. 2) Re CROX, Here is the rub. I am not saying to back up the truck and short the stock with all your power and might. All I was suggesting is that the stock is getting pricey and much of that is due to the amazing amount of speculation and the short covering that is very evident. What I find most amazing is that this is getting so much attention. Remember, I never said that the products was not good, did not discredit management, did not even suggest that this was anything more that overvalued occurring to the financial’s and the forward numbers. On the other hand, I did suggest that it was fad-like and that the foray into the higher priced shoe arena could be problematic.
Oh, of course I did state they were ugly, but I think most agree with that already. Non the less, I am always on the lookout to hedge positions and portfolios with those stocks that may have been hit or even surged over short period of time as it could mean a reversal is close at hand.
CROX is up $4 today again on no news except a lone upgrade. Tell me, how much until it is overpriced? It is a retail/apparel company. Right?
Enron? How is Enron in anyway similar to Crocs? Enron never produced anything. They were nothing but a balance sheet with a bunch of transactions that turned out to be BS. Crocs produce a tangible product that their customers absolutely love. Do you know something that I don’t? Is a Ken Lay protégé running this company?
And as far as a never needs to be cleaned business suit…umm, are you talking about? Crocs advertises light-weight, comfortable, odor-free, easy to clean shoes in a variety of colors and styles…and it delivers exactly that. Are you saying they aren’t what they are advertised to be? They are too good to be true? In my, and everyone else’s experience that I know…they ain’t. Again, your comparison is lost on me.
Whatever. I’m not so much trying to change anyone’s mind or evangelize as I am trying to figure out why people still don’t see what I see and I still see a great product that shows no signs of dying a fad’s death and a bunch of people who can’t get over the idea that it is a fad.
I guess Croc’s hip style, ubiquitous marketing campaign, and Air Jordan’s-like marked up price are to blame for that. Except that they are too ugly to be hip, I’ve never seen/heard/read a single ad and they sell for the same price as the crappy Nike flip-flops I bought.
EVERYONE NEEDS TO SLOW DOWN! Stop taking everything so personally. It is a stock, a product, a company. Did I miss the invitation to the rah-rah session? I must have..I must have!
Maybe my shoes are too tight or something, but it is either that I have attracted an amazing following since Friday, I am completely wrong, or maybe I have hit a nerve. No matter, thanks for all of the interest. I will look at the stock again when I see MATERIAL information that provides information beyond comfort and appeal, I will use in creating an updated outlook. I understand your comments (the hundreds on both sides by the way) and am trying to be un-emotional as I teach with my podcast, blog and book.
This is an interesting subject and I think I will explore via podcast later today, watch for the post.
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[...] Crocs, the ugly footwear company with the uglier chart history is going to report after the close. This company is the poster child for a fad gone wrong. If you recall, just least year, Crocs was the love of many investors as the unparalleled comfort of their hideous shoes was thought to be correlated to the stock price. But as they say: beauty is only skin deep and the ugliness of that reality sent shares tumbling 95% from their high in less than 12 months. Sales have almost completely dried up and the EPS growth has done a complete reversal. In response, the company is now closing some of its manufacturing operations. The last remnant of sales may be seen this quarter as analysts are predicting revenue of $200 million and an EPS of only $.02. Looking back, even without an impending recession, this was one that could have been predicted – as long as an investor’s feet were not caught under the spell of the of that magical footwear.(What do I really think of Croc’s ? Click HERE) [...]
I have complained about the chemical burns in the exact pattern of my Crocs Malindi shoes – very painful when the skin actually peeled off my toes and the bottoms of my feet! Can you imagine how much that hurts.
I wore my Crocs a lot due to working on cement floors, and they are comfortable, but now I want others will be aware of the potential problem. – Rose
As a Newbie, I am always searching online for articles that can help me. Thank you