Crocs Inc. (NASDAQ:CROX) is an American footwear company, best known for its light-weight, non-slip shoe made with its patented material. As of 2009, Crocs operates a total of 307 Crocs retail locations. In 2009 the company sold a total of 36.8 million pairs of shoes worldwide. The average selling price for Crocs was $16.00 in 2009, compared to $18.35 in the previous year.
However, Crocs has had a significant downturn in earnings in 2009, during which it reported a net loss of $42 million and a 10.5% decrease in net sales. These are all effects of a global economic slowdown dampening demand for Crocs' products, not only in its core North American market, but around the world as well. Crocs has tried to curtail this downward trend by aggressively expanding into less-affected global markets; this strategy has been met with many challenges, including an influx of cheap imitation goods.
Crocs' shoes are differentiated due to their soft, lightweight, non-marking, slip- and odor-resistant nature. The product began as a simple and innovative product targeted at water sports enthusiasts, but it's popularity has since grown tremendously. Crocs operates 84 full-priced stores, 170 kiosks, and 63 outlet stores worldwide. Additionally, the company generates 62.2% of its revenues from wholesale distributors such as Nordstrom (JWN), Dick's Sporting Goods (DKS), Sports Authority, and Dillard's (DDS).
Footwear (95.3% of net sales): Crocs footwear products are divided into four categories:
Other (4.7% of net sales): This includes complementary accessories and apparel for men, women and children.
The company divides its sales into three geographical segments:
In a sluggish economy, consumers become are price conscious and spend less money on discretionary goods. This is bad news for shoe makes like Crocs because when people are spending less money, the demand for shoes fall because instead of buying a new pair of shoes, they will wear their existing ones for a little longer. The weakening demand for shoes means negative implications for Crocs' bottom line. Crocs has already felt the effects as it's net sales have dropped almost a quarter since the start of the economic downturn.
International sales account for more than half of Croc' revenue, a number that has been growing steadily over the years. This decline in North American revenues can be attributed to the bleak economic conditions in the United States coupled with the challenges Crocs faces in merchandising of their expanded product lines, the maturity of their core products in the consumer market and lessening demand for their products. Crocs also faced dismal performance in the European markets. This decrease in revenue can be traced to certain European countries, particularly in those which represent a more mature market for Crocs' products. The existence of imitation products that also contribute to a fall in sales. The company is making generating more growth in the Asian market, which is attributable to higher unit sales from increasing direct sales channels in China and expanded available product offerings. Crocs hopes that strengthening demand from Asian markets will be able to bolster the severe demand contractions in the more mature North American and European markets. However, the sluggish world economy and the emergence of high quality imitation goods is a increasingly threatening sales in this region.
Crocs has been embroiled in several high-profile lawsuits over the last few years. Crocs' reputation was dealt blows when a series of lawsuits were filed against Crocs for injuries to the wearer (mostly young children) due to the shoe getting caught in moving escalators. One of the main plaintiffs won $7 million in a lawsuit against the company. There were also other reports that Crocs shoes potentially generated an excessive amount of static electricity and were banned from areas with sensitive equipment. Lawsuits and rumors like this hurt the company's reputation and could sway people into buying a different brand of shoe.
In 2009, the board replaced CEO Ronald Snyder who presided over the boom and bust of Crocs with corporate turnaround expert John H. Duerden. Snyder, though, did not go away empty-handed. According to the Colorado company’s proxy, the 53-year-old was paid a $3.03 million “retirement package” Deurden, whose retirement at age 68 seems more plausible, was paid $2.23 million. His service ended in March when Chief Operating Officer Joel McCarvel took the job. Crocs now seems to be heading in the right direction.
Shares are up more than 142 percent this year as investors bet that a public weary of spending their days pounding the pavement looking for work would want to invest in the comfortable shoes. Crocs smartly decided to diversify its product line including its recent addition of modestly priced back-to-school shoes.
Second quarter 2010 net income was $32.3 million, or 37 cents per share, reversing a loss a year ago. Revenue in the second quarter increased 15% year-over-year . Operating Margin Improves to 16.9% Selling, General, & Administrative expenses decreased 25.8% to $93.2 million or 40.9% of sales. The Company’s cash and cash equivalents as of June 30, 2010 increased 25% to $96.9 million. It had no bank debt as of June 30, 2010.
Crocs' main competitors include most mainstream athletic wear companies. The largest four include: