No, the Clothes Don't Have Holes

If you love your Crocs (Nasdaq: CROX  ) , your commitment no longer has to end at the ankle. Taking a page out of the Nike (NYSE: NKE  ) playbook, the fast-growing shoemaker is launching a clothing line in time for the holiday selling season.

Unlike companies such as Nike or Callaway Golf (NYSE: ELY  ) , Crocs isn't just slapping an embroidered logo on a shirt. The shirts, shorts, and skirts will incorporate a garment-friendly version of Croslite -- the company's proprietary closed-cell resin -- to make the items unique in the apparel industry.

Move over, Under Armour (NYSE: UA  ) ? Not quite. The original products aren't geared toward athletes and gym workout warriors. However, when you hear Crocs describe the benefits of the pliable version of Croslite with terms like "lightweight, versatile, breathable, and durable" and "resistant to harsh chemicals and heat, ensuring longevity after exposure to sun, UV light and sweat" it can be pretty mind-blowing.

What if Crocs is about to catch lightning in a bottle, again?

The company's signature shoes and their resin technology have been a hit. Sure, they may have looked ugly the first time you saw them out on the street, but the sometimes garishly colored shoes, with more holes than a slice of Swiss cheese, have transformed comfort into the mother of all fashion statements.

Investors have been rewarded handsomely for their faith. Crocs went public at $21 a share last year. Adjusted for a recent 2-for-1 split, the stock is nearly a six-bagger for its IPO shareholders.

Unlike Heelys (Nasdaq: HLYS  ) -- last year's other hot footwear IPO -- Crocs has continued to tread higher in 2007. Both companies were often treated as fad spinsters, but Heelys crashed into a brick wall without protective headwear this past quarter.

While Heelys has been talking down its near-term growth prospects, Crocs is letting its actions speak louder than Wall Street's words.

EPS

Est.

% Difference

Q1 2006

$0.09

$0.07

29%

Q2 2006

$0.20

$0.11

82%

Q3 2006

$0.27

$0.21

29%

Q4 2006

$0.26

$0.22

18%

Q1 2007

$0.31

$0.25

24%

Q2 2007

$0.58

$0.44

32%

Source: Thomson First Call

It's an impressive table, but check out the last three lines there. 18%? 24%? 32%? The actual magnitude of the positive surprise is accelerating. The rift between the company's actual earnings power and what analysts think is widening deliciously.

And this is just the shoes, people! The new clothing lines won't hit retailers until October. It may not be an instant hit. Many of the places selling Crocs shoes don't even stock apparel.

However, before you dismiss this as a dead-end potential catalyst, I beg of you to consider the Jibbitz.

Yes, I said Jibbitz.

So this is why your kids wants a Crocs shirt
If you're not familiar with the Jibbitz story, it's a good one. A stay-at-home mom begins making customized charms to add a little bling for the otherwise barren hole-sockets in her childrens' Crocs.

Her husband inspires her to dream bigger. A home equity loan later, the two are in business, crafting Jibbitz -- that's what the charms are called -- and scoring major points with licensed character deals.

Figuring it may as well cash in on the accessorizing phenomenon, Crocs acquired Jibbitz back in December.

Got that? Kids -- and a few adults that are kids at heart -- love to deck out their Crocs. Now let's go over the line of kids' clothing. The shorts, pants, and skirts allow children to accessorize their clothing with Jibbitz.

So put yourself in the shoes, quite literally, of a Crocs kid. They're hooked on the Jibbitz, and now they have a chance to expand the personalization process by decking out Crocs apparel with the charms. They're going to want the clothes. They're going to want to order more Jibbitz.

It's perfect, and even though the shares are no doubt richly valued at nearly 30 times this year's earnings, you still are months away from when the rest of the investing world will make the obvious connection.

As I noted before, your commitment doesn't have to end at your ankle. Move a few feet higher to your pocketbook. That's where the real commitment can have its advantages.

Under Armour is a sweet-fitting recommendation in theRule Breakers newsletter service. What makes it tick? What makes it so special? Those answers and more can be had with a free 30-day trial subscription. No Jibbitz included.

Longtime Fool contributor Rick Munarriz loves how Crocs also come in collegiate colors. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy is entirely free of holes.


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