Crocs Q2 2013 earnings

Crocs stock is down over 20% today as it released bad earnings.  Its Japanese operations continued their decline and had terrible results.  Comparable store sales for Japan dropped a whopping 19.5% quarter over quarter (on a constant currency basis).  Something is seriously wrong with their Japanese operations and I haven’t been able to figure out why.  As well, Crocs’ SG&A costs have gone up significantly while gross profits have stayed flat.  The overall result is that net income has dropped a third from $73.8M last quarter to $49.6M this quarter (-33%).

I see two scenarios:

  1. This is just a speed bump.  Since Jon McCarvel went from COO to CEO, earnings have roughly doubled.  Investors need to stomach the volatility and stick it out for the long run.  If McCarvel is fundamentally a good CEO, then he should be able to turnaround the Japanese operations and get the company back on track again.  This is an unusually ethical management team that has declined its bonuses because they felt like they didn’t deserve it.
  2. Crocs may stagnate or start to decline.  One could point towards negative aspects of Crocs.  Management has continually been overly optimistic in its earnings guidances.  It often says things that don’t really make sense.  McCarvel was on CNBC claiming that Crocs is recession-proof.  Now the company is blaming its bad performance on macroeconomic factors and weak consumer spending.  Insiders continue to sell stock.

Perhaps I am overly masochistic, but I am betting on scenario #1.  At $13 I think that the stock is slightly more attractive.

Links

My previous writeup on CROX

*Disclosure: Long CROX.

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