Although I've never personally worn a pair, I've been a fan of Crocs (CROX +4.67%) for quite some time. I first started paying attention to the maker of colorful injection-molded clogs produced not far from my home in Colorado in the early 2000s, when my kids and their friends all clamored for them. I enthusiastically followed the company's rise through the autumn of 2007, when its post-IPO stock price shot up 400%. I watched somewhat less enthusiastically while Crocs collapsed over the next 13 months, and shares fell by more than 98%.
Since then, though, I've been generally impressed by the company's attempts to diversify its footwear offerings and expand overseas. As recently as last March, I predicted that Crocs might have finally regained its mojo by leveraging a solid brand image and popular kids' shoes with a slew of new products, new markets, and new outlets.
However, now I'm throwing in the towel. Here are three reasons why.
1. Crocs is badly underperforming its peers.
In its third-quarter earnings report issued in late October, Crocs missed analyst expectations for revenue and earnings per share. Both measures also fell short of the year-earlier period. Following a similarly disappointing performance in the prior quarter, Crocs' stock collapsed 11% and remained around its 52-week low until mid-November. (More about that in Point No. 3.)
Even with the climb, though, shares are still down about 3.5% year to date. This looks even worse when you compare the company to some of its peers. Deckers Outdoor (DECK +2.00%), for example, is up nearly 91% this year, while Skechers USA (SKX +0.00%) is up more than 73% and Wolverine Worldwide (WWW +2.92%) is up nearly 50%.
More telling, perhaps, are the details behind these numbers. Crocs attributed the latest quarterly disappointment largely to poor performance in its dominant domestic market, where revenue fell nearly 12% year over year because of major declines in wholesale and Internet sales.
Company officials blamed this on "decreased consumer optimism" and said the "challenging back-to-school season, soft holiday indications, weaker employment growth numbers for the upcoming holiday season and the toll that ongoing battles over U.S. fiscal policy take on our consumers" led them to project that these slower trends would continue into the fourth quarter.
All of this is in sharp contrast to Crocs' peers, which reported positive quarters that mostly exceeded expectations. Skechers, for instance, reported third-quarter revenue that was the second highest in its history, and attributed 20% quarter-over-quarter growth to a double-digit improvement in domestic sales. Deckers reported that retail sales during the period were up more than 34% year over year, and said it expected fourth-quarter revenue to be up over 14% from 2012 levels. Wolverine said fiscal third-quarter net income rose 66% on single-digit growth in North America, and it raised its full-year adjusted earnings forecast based on year-to-date performance.
2. New products are just more of the same.
Crocs has tried to branch out from its initial clog styles over the years, but acceptance has been slow. New models have included slip-on flats for women, canvas loafers for men, and enclosed workplace shoes for both sexes. The company also introduced a line of golf shoes last year and a Huarache sandal last spring.
While some of these new products have reportedly fared well in growing markets like Russia, Austria, and the Nordics, they apparently haven't caught on as much among key North American consumers. Neither have the company's ongoing efforts to improve consumer awareness that it offers more than just clogs.
So what does Crocs do? In early November the company boasted that its 2014 introductions would be led by licensed footwear bearing Duck Dynasty and Star Wars designs. Frankly, that doesn't give me much confidence.
3. A failed buyout signals major worries.
Perhaps the most disconcerting news of all, though, came on Nov. 11 when it was revealed that the company had been secretly attempting to go private -- and that the move had fallen flat. Media outlets such as Bloomberg News reported that Crocs had been in discussions with private-equity firms including Blackstone Group and KKR & Co., but that those talks had broken down over price expectations. (Bloomberg also estimated the company would earn just $65 million this year, compared with $131 million in 2012 and $168 million at its peak in 2007.)
Although news of the talks initially sparked a brief boost in its stock price, their failure, according to media speculation, took the air out of the rally and left Crocs "considering its strategic options." To me and many others, not many of the options available look very promising.
The Foolish bottom line
To steal a phrase from NPR, all things considered, it is probably time to slip Crocs off for good. The fact that it is losing ground on its home turf is most troubling, especially in light of its peers' recent positive performances in the U.S. The failed move to go private -- and what that failure might portend -- further shakes my confidence.
Combined with ongoing challenges in Japan, another important market, these issues will continue to overhang the company's attempts to grow in Europe and the Asia-Pacific region. That, simply put, does not bode well for a turnaround in the foreseeable future.
