Crocs Fights Value Trap vs. Value

Results were mixed, beating on the earnings front but missing on sales. The shoe and apparel maker had net income of $45.1 million in the quarter, and that translated to $0.49 per share, versus a Thomson Reuters target of $0.43 EPS. Total revenue also rose about 7% to $295.6 million, but the consensus was $302 million.

Here is the real problem. For the fourth quarter of 2012, Crocs only expects break-even earnings per share on revenue of $220 million.

Crocs said that the international segment was weaker than expected. A challenging retail environment with a large drop in same-store sales in Asia and only a small gain in Europe. Foreign exchange rates were blamed as well. Sales growth during the quarter was driven by strength in the Americas and Asia as revenue increased 7.4% for the Americas, 11.3% for Asia but decreased 2.9% for Europe.

Cash and cash equivalents at September 30, 2012, increased 41.8% to $312.6 million, and the backlog increased 33.2% to $395.4 million.

Crocs shares are down almost 19% at $13.12, which is under the prior 52-week low, as the 52-week range had been listed as $13.80 to $22.59. Crocs still has a market value of $1.2 billion. This drop is on a share count of almost 7 million shares, and that is about 300% of normal trading volume.

Many investors may be hoping that this is now going to be a value stock since it trades well under 10-times expected earnings. That is cheap, but Crocs is sure trading as though the company is now a value trap.

JON C. OGG