Crocs…The Emperor’s New Shoes

June 7, 2007 1:18 pm

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.

Truth told, they are hideously ugly and a fad that will fade. This is no shoe revolution.

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.”

Cocs New Idea

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.

Crocs 10 year history

*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.

Crocs Insider Trades

Be Sociable, Share!


Be Sociable, Share!