Shares of Crocs Inc. jumped more than twenty percent in Nasdaq trading after the company unveiled turnaround plans that include a $200 million injection from private equity and the departure of CEO John McCarvel.
Blackstone Capital Partners has agreed to purchase 200,000 of newly issued series A convertible preferred stock in exchange for a 13 percent stake in the company and two board seats, armed with the intention to sharpen Crocs’ focus on earnings per share growth.
“The retirement of John McCarvel from his CEO post and from the board of Directors removes a large road block to success,” said Sterne Agee analyst Sam Poser. “Blackstone’s involvement may serve as a catalyst for positive change, including closing underperforming stores and limiting future store openings.”
The Niwot, Colo.-based company plans to use Blackstone’s bailout to help fund a $350 million stock repurchase program, which is tipped to take place in the first quarter of 2014.
Analysts are forecasting private equity will push to close some of Crocs’ struggling U.S. stores, drive continued growth in Asia, and enhance product innovation. The management shake-up comes as the company lowered its fourth-quarter revenue guidance to the low end of its previously provided range of between $220 million and $225 million, compared with analysts’ consensus forecasts of $222.2 million.
While most market watchers lauded the private equity partnership, most agreed that 2014 would remain challenging for the struggling company, which had been mulling an array of strategic options after reporting a 71 percent slide in third-quarter net profit due to weaker sales in the U.S. and Japan. “We believe that the transition is necessary, but we don’t know enough about what this transition holds to be too bullish about it,” said Robert W. Baird & Co. analyst Mitch Kummetz.
Richard Polk, president of Boulder, Colo.-based Pedestrian Shops, and an early believer in the brand, sees the acquisition as a move in the right direction. “They [private equity] don’t chase trends,” said Polk about the private equity investment. “It’s the real deal. They see an opportunity. It’s another affirmation that these guys [Crocs] in Boulder did change the [footwear] world.”
McCarvel, who has been CEO since 2010, is set to step down by Apr. 30 next year.
“As we look forward, 2014 will be a significant transition period for the company,” chairman Thomas Smach said in a statement. “We will recruit a new CEO who will work with the reconstituted board to refine our short-term and long-term strategic plans.”
In addition to McCarvel’s departure, analysts said Smach and additional management members would need to leave the company to drive earnings growth.
While Polk said his Crocs business has declined over time, due in part to the opening of a Crocs store nearby, he still maintains a strong business with the company’s chef shoes. “I don’t do my original volume,” he said. “But, I can’t stop selling them. Boulder is a big foodie town.”
Crocs shares were more than 20 percent higher at $16.14 in afternoon trading.