Crocs hit skids

• Article
• Comments ()
• Click-2-Listen
• Videos

By Joyzelle Davis and David Milstead SCRIPPS HOWARD NEWS SERVICE

Among Camille Kintzele's friends, the once-familiar sight of clunky, rainbow-hued Crocs is becoming rarer and rarer. In their place is the $5 foam flip-flop, even on chilly days.

"Crocs aren't big in my class anymore," said Camille, a seventh-grader in Evergreen, Colo., who owns two pairs of Crocs she's outgrown and doesn't plan to replace. "There are a few people that still wear them, but only one or two people."

She isn't the only former Crocs fan whose enthusiasm has cooled.

Crocs recently reported that second-quarter sales fell for the first time in its history as a publicly traded company, dragged down by a 20 percent drop in U.S. sales.

"The first six months of this year have been difficult as we dealt with the challenging retail environment, unfavorable weather and increasing competition and a slowdown in [sales] of core styles here in the U.S.," CEO Ron Snyder told analysts on the second-quarter earnings call. On the positive side, he said, were strong international sales and the performance of Crocs' company-owned stores.

Crocs had long anticipated that it had to diversify beyond its mainstay clog, attempting to branch into protective sports gear, clothing and high-fashion lines. But none of those extensions has gained mass-market traction.

"They have some significant challenges," said Marshal Cohen, chief industry analyst for research firm NPD Group. In addition to competition from knockoffs, Crocs must find "the right extension that can get their core customers to grow and their non-customers to enter the market."

Adds Amit Choksi, a money manager who has profited by betting that Crocs' shares would fall: "The legacy product is so important to the company; if it fails, they might not have a chance with the new products."

"They're still selling a lot of shoes and you still see a lot of people wearing Crocs," Mr. Choksi said. "But the fad's starting to wear thin because you see a lot of markdowns. They're not commanding the $30 anymore."

Crocs' problems caused 75 employees to lose their jobs last month, largely at the company's Niwot, Colo., headquarters. Those cuts were on top of the closure of a 600-employee manufacturing plant in Canada, and another 44 workers laid off or reassigned this year at its headquarters and Boulder, Colo.-based Jibbitz subsidiary. In July, Jibbitz founders Rich and Sheri Schmelzer and team member Zan O'Leary resigned to spend more time with their families.

The series of stumbles has shocked and saddened investors in a company that for much of its short life could seemingly do no wrong. The company went public in January 2006 and, by year's end, began a run that saw its shares gain 600 percent in two years. That made multimillionaires of its executives and early investors, who sold millions of shares in the IPO, in a second large offering of shares and in the open markets.

CEO Ron Snyder sold nearly $140 million worth of Crocs shares during the period.

Doubters pointed to the heavy insider selling as a red flag and called the shoes a fad, the footwear equivalent of the 1970s pet-rock craze. They were shouted down by a chorus of believers, buttressed by the rapidly rising share price.

The stock's slide continued into 2008 and accelerated dramatically in July after the company sharply lowered second-quarter guidance.

When the company reported second-quarter results, it said net income plummeted to $2.1 million, or 3 cents a share, from $48.5 million, or 58 cents, in the year-earlier quarter. Crocs' profit decline violated its agreement with its bank, and the company had to renegotiate for a smaller line of credit.

Mr. Snyder said Crocs plans to modify its retail-sales strategy, focusing on "key retailers" that can display more of Crocs' products and opening more company-owned stores.

The company has also had better luck increasing sales overseas, with international sales soaring 20 percent to $130 million in the latest quarter. Crocs now sells in more than 100 countries, accounting for 58 percent of its sales, and says it plans to further bolster its presence in Asia and Russia.