Saturday, October 9, 2010

3 cases for CROX

Crocs (CROX), known of its quirky, "ugly" clog-like sandals, the almost forgotten "hype" has seemed to make a come-back, in a different way, in a better way. The share price reached a new 52-week-high at $14.72 on Friday.

As a long-time follower of its stock since its IPO, and also a long-term fan of its product (I bought each one of my whole family members a pair of crocs and they love it!), I bring to you 3 cases for renewed optimism in the company:

1. High gross margin
I once had feared that the shoes might become just another commodity after the company used up its quirky brand power. By then, it would be hard for it to maintain high gross margin as it might have to lower the price point to compete with peers and more importantly, the knock-offs. However, CROX's management has averted this fate by employing supply-chain efficiency (e.g. moving distribution centers close to the target market) and introducing new, higher margin products. The gross margin in the second quarter of 2010 was a jaw-dropping 57.8%. In addition, the company managed to raise the average price to $17.76, up 12% from last year.

2. Expanded product lines
Before the financial crisis that almost announced the demise of the company, the former management had already had the plan of diversifying the product lines as this step was crucial to the sustainability and consistency of this once-one-trick-pony. The company now has gone from less than 25 styles/models to 250 models including a nice collection of warmer weather shoe wear and women's high-heels and pumps. The percentage of total revenue carried by the core products has dropped to 21%. Although colder seasons are still the weak spot for the company, it is on track to become a full-fledged shoemaker which will further strengthen its brand building.

3. Direct-to-consumer retail approach
Since the turmoil of the economy and also the company in 2007, the management has focused on switching more emphasis to direct-to-consumer channel from its previous wholesale approach. The company now runs 363 company-operated stores Not only does this approach vital to its future of brand-building, it also plays a crucial role in keeping the high gross margin.

In sum, CROX has emerged from its abysmal in a stronger way. Diversified products, prudent cost and inventory control and direct-to-consumer channel have led to and will continue to lead to more sustainable growth.

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.

Disclosure: The blog author owns CROX in her personal account as of October 9, 2010.

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