In typical presentations, you tell people what you're about to tell them, then you tell them, then you tell them what you just told them. If you're using PowerPoint slides, the audience quickly forgets it and then goes to some horrible hotel buffet.
Sometimes, telling people what you told them turns out to be a bad thing. Take Crocs (CROX +0.12%), for instance. The company reiterated its quarter-end forecast earlier today.
"Remember when we said we were going to make $220 million in revenue?" they asked. "That's still happening."
That's paraphrased, but regardless, investors weren't excited about the announcement, and the stock fell 6%. Did investors just have their hopes up, or is this genuinely bad news? Here's a detailed look at what's going on at the shoe company, as well as what investors should be on the lookout for in the coming months.
Where Crocs is coming from
Crocs had a pretty rough go of things in 2012. Sales were up but failed to meet the high expectations that the market had for them. Last quarter, revenue and profit both climbed, but investors were looking for more, and the stock took a beating after the announcement. In addition to missing analyst forecasts, Crocs has been releasing weak internal forecasts as well. This quarter's $220 million was a shortfall when it came out, and it's still short of the market's hopes.
In the most recent announcement, the company also mentions the "[d]ifficult holiday retail sales environment similar to other brands." Which raises massive red flags for investors who are looking for growth. That line says two important things. First, it says that Crocs is not breaking out of the habits of the market to create products that people have to have. By being subject to the whims of buyers, Crocs is subject to the weakness of the economy and the fickle sense of fashion dictated by the market.
Second, it says that when such competitors as Decker Outdoors do better than Crocs, they're beating the market in a way that Crocs is unable to. While Decker has been suffering from raw-material cost issues as well as style concerns, it's still one of Crocs' biggest competitors and the obvious other choice for investors.
Where Crocs wants to go this year
If it's going to turn the boat around, Crocs needs to fix its international problem. Demand in Japan and Europe has been weak, and those areas are pulling down successes in the domestic market. The reiteration of its fourth-quarter forecast shows that Crocs didn't have a stellar Christmas season. That's a demand problem that the company needs to work on. While some of its cost problems are harder to control -- like a weak euro -- revenue concerns are all well within its grasp.
One of the big drivers that the company has highlighted is its ability to expand into "contraseasonal" markets. That just means that since summer shoes sell well from May to September in the Northern Hemisphere but fall off during the colder months, Crocs is going to try selling more shoes in the Southern Hemisphere. It's a straightforward plan, but it showcases some of the obvious revenue drivers that the company has overlooked.
The bottom line for investors
In addition to Decker, Crocs is competing with Skechers (SKX +0.00%), which cleared out its backlog of horrible toning shoe issues and is now headed for better pastures. But sights are set high for Skechers as well, with analysts looking for some growth after the company's per-share loss last year. If Crocs is going to make the kind of splash that it needs to impress the market, it had to turn one of its problem areas into a success story.
Over the next two quarters, investors should be looking for growth in Japan and/or Europe. If the company can show that it has a clear plan for fixing those markets, and then can execute that plan, it will be on a good path. The system of releasing more and more new designs without fixing the operational or demand side of the equation can't go on forever, and it's how good fashion companies fall apart.
