Crocs Earnings Take Big Bite Out of Stock

Crocs, Inc. (NASDAQ: CROX ), the cult stock behind the cult footwear hit of the
same name, is the quintessential fad investment. The stock raced up 400% after
its IPO before flaming out spectacularly, going from a peak of around $70 to
bottom out at $1 per share. Investors should have known better after that ugly
performance and anyone who saw the ugly footwear should have understood the
ride couldn't last forever. But after a huge restructuring and rebranding
effort, some on Wall Street were again duped into thinking Crocs had hits its
stride once more. CROX stock recently regained the $30 mark on this enthusiasm.
But just like everything else in the fashion industry, things changed fast for
Crocs. An ugly profit report Monday has prompted panic on Wall Street and
shares of CROX stock are set to open Tuesday down as much as 35%. The story of
Crocs is a crazy one. CROX stock went public in February 2006 at $30 per share
and surged immediately. Crocs split 2-for-1 soon after, then raced up five times
over to about $70 per share by October 2007. It was one of those stocks growth
guys and momentum investors adored, with revenue and profits both tripling from
fiscal 2005 to fiscal 2006. Of course, it was all a fad. After all, how many
brightly colored plastic shoes can one own unless you're a rodeo clown?
Overexpansion, slumping sales and a massive inventory of unsold shoes resulted
in Crocs firing a third of its employees by the beginning of 2009. The company
also made a push into emerging markets and a rebranding to include loafers,
boots and other real footwear. The company returned to profitability last year
and has notched an impressive six straight quarterly profits and eight straight
quarters of improving year-over-year EPS numbers. Revenue is set to top $1
billion this year if estimates hold true, meaning Crocs could turn out better
numbers even than it did in fiscal 2007 before the crash. You can understand why
investors were willing to jump back in, and why CROX soared 50% this year while
the market struggled to break even. Unfortunately, after Monday's ugly
earnings report, those rosy estimates are looking less than certain for CROX.
The Crocs earnings report after the bell indicated soft sales, lower revenue
forecasts and general confirmation that the company could once again be
overbought. The million-dollar question for traders is whether the selloff today
will be as severe as (or more severe than) it should be. Some analysts contend
Crocs has succeeded in diversifying its offerings and has staying power,
particularly in Asia, and its spring line could take the company to the next
level in 2012. Others say weak sales at kiosks and outlets, along with broader
consumer spending woes in Europe and the U.S., are proof the stock will continue
to stumble. Unfortunately, it might not matter whether the footwear company
truly is on the mend. Because for many investors, Crocs already has bit them one
too many times. Jeff Reeves is the editor of InvestorPlace.com. Write him at
editor@investorplace.com , follow him on Twitter via @JeffReevesIP and become a
fan of InvestorPlace on Facebook . As of this writing, he did not own a position
in any of the aforementioned stocks.