Cheers for Crocs

Cheers bartender Sam Malone once asked, "What is the point of life?" Trivia maven and U.S. Postal Service employee Cliff Clavin had the answer: "Comfortable shoes." Cliff would no doubt have been a fan of Crocs (Nasdaq: CROX  ) .

The company makes comfortable, brightly colored footwear that is part shoe, part sandal, and all foamy plastic. If Cliff were an investor, Crocs is a stock he might buy. Last week, management cited strong consumer demand and raised guidance for the second quarter to $0.23 to $0.25 per share from $0.21 to $0.22.

It should be a hot summer for Crocs, and it's time for investors to sit up and take notice (fellow Fool Tim Beyers certainly has). Seasonality and a growing distribution network as part of this company's strategy could ignite some serious growth.

It goes without saying that sandals sell better during the summer, and the next two quarters should be strong for Crocs. According to the recently raised guidance, management is expecting revenues of $62 million to $65 million for the second quarter (April through June). That has to be a conservative estimate. In the first quarter (January through March), the company booked $45 million in revenue. If consumers are willing to purchase $45 million worth of sandals in the dead of winter, they will certainly purchase more than $65 million during spring and summer months. Last year, Crocs increased sales to $26 million from $10 million from the first quarter to the second quarter. While I don't expect another increase of 160% this year, hopefully, the 44% increase predicted by management will turn out to be too conservative.

Crocs is also beefing up its distribution channels, or outlets. It has 7,300 doors, 900 of which were added last quarter. This includes traditional footwear retailers like Dick's (NYSE: DKS  ) , Journey's, West Marine, and Dillard's (NYSE: DDS  ) , but Crocs also sells through nontraditional footwear channels. Hallmark, Wild Oats (Nasdaq: OATS  ) , and Barnes & Noble (NYSE: BKS  ) are also selling Crocs. Crocs is able to sell through these retailers because the sizing is simple and the product is cheap enough ($29.99) to be a spontaneous, point-of-sale purchase.

Selling through these nontraditional retailers widens Crocs' distribution footprint, and it is an advantage over competitors in sandal footwear like DeckersOutdoor (Nasdaq: DECK  ) and VF Corp. Personally, I'd love to see Crocs and Starbucks (Nasdaq: SBUX  ) as partners -- imagine the commercial potential of more than 10,000 retail outlets selling foamy lattes and foam sandals. Given Starbucks' new initiatives for retailing CDs, movie promotions, and other products that fit with its "lifestyle" concept, this might not be so farfetched. But even if it doesn't happen, Crocs management does plan to add another 1,100 doors this year, which should give sales a nice boost.

In spite of the prospects for growth and Crocs' plans, plenty of people are betting against this stock: As Tim pointed out in his column, short interest is 27%. The stock isn't cheap; it trades at 37 times trailing earnings, which is rich compared with the footwear industry overall (17) and the S&P 500 index (20). But, it may be fair to pay up for growth in this case. Analysts are forecasting 30% annual growth for three to five years, and the price-to-earnings-to-growth ratio is reasonable at 1.23. It definitely isn't a risk-free bet, but there is plenty of upside for investors who have a long-term horizon and see the potential in Crocs.

For related Fool articles:

What type of investor are you? Deckers is aMotley Fool Hidden Gemsselection, and Starbucks was recommended inStock Advisor. Learn more about Crocs here. And a free trial can link you to other discussion boards available to newsletter subscribers.

Fool contributor Brendan Mathews doesn't own shares of any of the companies mentioned.

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