Mixed Bag at Crocs

Analysts are snapping at Crocs Inc. for its lackluster earnings trajectory in the next quarter.

“Crocs management has done a very good job of resurrecting the brand from the abyss,” said Sam Poser, analyst at Sterne Agee. “However, the company [needs to] consistently deliver on its guidance. The shift to owned retail and the plan to grow the store base by 15 percent increases the fixed costs and moves Crocs increasingly toward a vertical retail business model, [which] we have not been fans of for some time.”

Crocs reported third-quarter income of 49 cents a share, versus the Street’s estimate of 43 cents, “but the beat was entirely due to a tax benefit of about 13 cents,” noted Mitch Kummetz, analyst at Baird Equity Research.

Steven Marotta, analyst at C.L. King & Associates, was also disappointed with soft guidance for fourth-quarter revenue and profit, but still believes in the firm’s long-term growth opportunities and corresponding upside to stock price.

“Crocs’ direct-to-consumer strategy, new higher [average-selling-price] product offerings, underpenetrated markets and sound balance sheet, combined with an attractive valuation, offer long-term investors significant price appreciation from current levels,” he said.

In a conference call with analysts, Crocs Chairman and CEO John McCarvel said the third quarter was dampened by macroeconomic challenges in Japan and Europe.

“In Japan, we experienced a drop-off in our own retail stores, primarily from an overall consumer spending slowdown and partly from a comparison against significant gains in our same-store sales in last year’s results. In Europe, at-once demand for our wholesale accounts and distribution partners for our products was significantly down as most retailers experienced a cooler summer season and managed their inventory levels lower during the quarter,” he said.

A bright spot is that investments to diversify Crocs’ product line continue to pay off, specifically with items that carry higher price points in the clog business, McCarvel said, adding that the average sales price in the quarter increased by about 3 percent, while unit sales increased 6 percent.

The executive also pointed to positive order flow from all major wholesale partners. “When the spring ’13 booking season is completed, we expect backlog to be somewhere between 15 percent and 18 percent higher than spring ’12,” he said.

Crocs’ backlog at the end of the third quarter increased 33.2 percent year-over-year to $395.4 million. Net income was $45.1 million, or 49 cents a share, an increase of 49 percent from $30.2 million, or 33 cents, the same period a year ago. Revenue advanced 10 percent currency-neutral to $295.6 million.

The Niwot, Colo.-based firm ended the period with no debt and a 41.8 percent increase in its cash balance to $312.6 million. For the full year, Crocs expects revenue to grow 15 percent currency-neutral, and EPS to come in at $1.48, or nearly twice what it earned in 2011.

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