What a crock: Low expectations hammer Crocs, Inc.
Crocs footwear is displayed in one of the company's retail stores in Chicago, Ill.
Crocs Inc., purveyors of rubbery footwear, fell off a cliff this morning. The company's stock dropped 35 percent after it told investors that it expects poor sales and falling profits because of the economic slowdown.
Investors were surprised at just how badly Crocs has been affected. In other words, Crocs' previous guidance was... a crock.
Some might think it's good news that people aren't buying ugly -- albeit comfortable -- shoes. But the fact that the economy is deteriorating so rapidly that it's taking companies like Crocs by surprise is making the Marketplace Daily Pulse feel somewhat weaker today.
The Colorado-based company said yesterday that it expects sales for the period that ended on Sept. 30 to be between $273-275 million. That's lower than a July 27 forecast of $280 million and an average estimate of $280.5 million from analysts. Consumers are buying fewer shoes than expected, Crocs said.
So what's the footwear company's solution? To double down. Crocs said it plans to counter a possible global economic slowdown by boosting sales of new, higher-priced styles.
]() Crocs' reversal of fortune is a bit of a shocker to investors who've gotten used to watching the company surge while much of the market has languished. Before today, Crocs' shares had gained 56 percent this year. A look at the chart to the right shows the company's resurgence after the lows of last year -- until today, of course.
Investors might now be wondering whether this presents a buying opportunity. Over at Seeking Alpha, Bill Maurer thinks not.
I'm not ready to call this the end of Crocs as we know it. Until the revenues completely top off or the earnings start declining consistently year over year, I won't be in that camp. However, I've seen this kind of news before in Crocs. The stock dropped 36 percent the next day, and another 20 percent from that point in the next week. I don't see it out of the question that Crocs touches $15 at some point this week. Investors like growth stories, but when fears arise of that growth, they lose 50 percent quickly. Longer term, I could see Crocs going to $10 before it puts in a bottom. It will need to do some work to get people back in, and that may be at the expense of fourth quarter revenues, earnings, or both.
Maurer says Crocs' announcement wiped out 10 percent of its expected revenue growth and two-thirds of its expected earnings growth. The company was expected to do its first billion-dollar revenue year in 2011. Now it may not. Maurer wonders whether this was a one-quarter miss or a sign of things to come. That's a million dollar question.