Grim Reaper Wearing Crocs (CROX)

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CROCS Inc. (NASDAQ: CROX) is a story of the good, the bad, and the fugly.  The maker of ugly fad shoes reported earnings after the close, which technically were no earnings at all.  The company posted a net loss of $148 million, or -$1.79 EPS, but this included charges of $104.1 million for restructuring, goodwill, inventories, and other items.  Revenue fell by 32% to $174.2 million.  Gross margin went from roughly 60% down to 1.4%.

ThomsonReuters (First Call) had estimates pegged at $0.02 EPS on $201.7million in revenue.  The company’s guidance in August was $0.01 to$0.05 EPS and $195 million to $205 million in revenue.  The results weren’teven close, but it is sounding like a late night infomercial: "Butwait, Bob! There’s More"

The company’s CEO said that this was below expectations in an extremelychallenging retail environment.  The good news is that inventoriesshrank by 36% to $141 million, but this figure includes $65.8 millionin write-downs.  Crocs has said it will close aBrazilian manufacturing plant and will cut cap-ex in half in 2009 toadjust to lower volumes and lower sales.

So here is where the death sentence comes and where the Grim Reapergets to wear Crocs shoes (if you call them shoes).  The company sees aloss next quarter at -$0.50 to $0.66 EPS on revenue of $100 to $120million.  Analysts were only looking for -$0.06 EPS on about $185million.

It looks like the company ended with more than $56 million in cash atthe end of the quarter.  Its market cap at the close was $157 million.

If the company wants to really give anything back to shareholders,there are several things it can do.  First, halt all production andpink slip all employees.  Put the brand up for sale. Sell off whateverproperty plant and equipment it can at reasonable prices.  Donate theinventory to the homeless and recently unemployed for the tax credits,and then try to monetize those credits.

Yes, this is cruel.  That is the state of the market right now, and the company sounds like it is in an untenable position.

This closed down 11% at $1.90 in today’s regular trading and its 52-week range is $1.66 to $46.80.  That range should now read "was" as its stock is down over 30% at $1.25 in the after-hours trading session.

Jon C. Ogg
November 12, 2008