A Lesson in Resisting Temptation

CROX wins the award for the name I’ve been most tempted to turn positive on over the past year. Yes, the core product is a complete fad that is heavily dependant on consumers under the age of 12 and over the age of 50 (i.e. not good). Yes growth is negatively inverting, asset turns are eroding as CROX grows away from its core, and yes, margins are coming down.

But the stock has been trading like the brand is terminal – which I absolutely do not think is the case (nor do any retailers I speak with regularly), and the international opportunity remains rather huge. I’ve been increasingly tempted by the numerous SG&A, capex and working capital levers that are available to management to recapture margin. With investors giving up hope and the stock trading off 45% after hours and trading at sub-1x sales and tangible book, it’s tough to resist the temptation to do the deep dive here. Expect to hear back from me soon with some deep analysis.

In the spirit of maintaining my role as my own worst critic, my biggest regret here is not having a mechanism to catch the divergence between shipments and retail sales. The chart below shows how wholesale sales are falling short of retail relative to prior quarters based on the numbers CROX reported after the close and meshing with NPD data we received last week (which appeared to check out OK). Catching this just days earlier would have offered me the foresight to catch a nice trade and, more importantly, preserved capital for our clients who own the stock. Research Edge clients can rest assured that I’m on the case to capitalize on this next time around – for CROX as well as everyone else in the industry.
Wholesale sales are falling short of retail relative to prior quarters based on the numbers CROX reported after the close and meshing with NPD data we received last week.

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