What A Croc

Classic case of cocky brand mgmt gone bad. But my bear case liquidation analysis blesses current $63mm EV even if the brand is worth zero. Barring major fraud, I think CROX will be bought.
The volatility in this stock over the past two weeks told us that something big was coming down the pike. In that regard CROX did not disappoint. I won’t drone on about sales weakness, downsizing or asset writedowns. Ron Snyder (CEO) summed it up with two of the weakest statements I have heard from a CEO – ever.

1) “After several years of rapid expansion, highlighted by triple digit sales and earnings growth, our business has slowed during 2008.” Gee, thanks for that insight Ron.

2) “Our performance was below expectations and continued to be impacted by the extremely challenging retail environments in the U.S. and Europe during the third quarter.” Are you kidding me??? How a company with the trend characteristics of Crocs has the audacity to mention a ‘weak retail environment’ simply blows me away.

Ok, I got that off my chest. Thanks for listening. The question from here is bigger than the quarter, the restructuring, etc… The reality is that after hours, this stock is trading at $1.13. With 82.8mm shares, and 31 million in net cash, we’re looking at a total enterprise value of $63mm.

The market is saying that the $312mm book value is nowhere close to being real. I’m inclined to agree. But assume the following…

1) All stated liabilities are fairly represented, but that they head 20% higher over 2 quarters as the business continues to erode.
2) All $40mm in intangibles are actually worthless.
3) PP&E is only worth 50% of stated value.
4) Only 75% of accounts receivable are collected.
5) Remaining inventory is liquidated at 50% off.
That all nets out to $50mm, or $0.60 per share in value. This equates about 53% of the market cap – which unfairly assumes that the brand goes away.

Don’t forget that Crocs is a brand. Do I wear them? No. I think they are hideous. But I am not the customer. Even customers that have moved on still remember the name – and the reality is that Crocs has had reasonable success extending into areas beyond the core product, and the name is worth something. At $63mm, we’re getting pretty dang close. Unless there is fraud, this thing will be bought.

PS: I think I just spent too much time analyzing a $100mm market cap company!


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