What to Look for in Q3′s Crocs Earnings Update

by James Brumley | October 21, 2013 12:02 pm

What to Look for in Q3′s Crocs Earnings Update

The next Crocs (CROX[1]) earnings announcement is coming after the market closes Wednesday, Oct. 30, and if this report is anything like most Crocs earnings updates … well, investors have a 50-50 shot at hearing good news.

Then again, “good” is a relative term. If the company merely meats its estimate, CROX still is going to see a drastic plunge in its bottom line.

Analysts are looking for Crocs earnings of 18 cents per share on $291.7 million in sales. Respectively, that’s well shy of last year’s profit of 37 cents per share, and a little short of the $295.6 million top line CROX posted for the third quarter of 2012.

The numbers, however, aren’t even going to be the key to judging Crocs earnings when they come out next Wednesday.

What investors are going to be looking for is proof that the shoemaker is going to be able to reverse 2013′s revenue struggle and earnings decline.

Crocs is projected to grow its top line 7% to $1.2 billion this fiscal year. But that’s the weakest sales growth rate we’ve seen from CROX since its enormous turnaround effort began in 2010. Next year’s sales-growth rate isn’t expected to any better.

As for the Crocs earnings growth rate, there’s trouble on that front too. If CROX earns the projected 99 cents per share that analysts believe is in the cards, that will represent the company’s first earnings dip since 2008. Perhaps worse, net profit margins are also poised to fall this year for the first time since 2008. On a trailing-12-month basis, net margins have already slumped from 2012′s 11.7% to only 8.8%.

And, unlike most apparel retailers, the third and fourth quarters aren’t particularly strong ones for Crocs. In fact, Q4 is generally the worst quarter of the year for Crocs, revenue-wise as well as earnings-wise. Point being, Crocs stock is in more than just a little bit of trouble; the projected profit of $1.18 per share and sales of $1.29 billion for 2014 are both being eyed somewhat suspiciously.

Of particular interest to shareholders will be the plausibility of the plan to stop the bleeding before it reaches unwieldy proportions. This includes recent news that the company will be adding high-heeled shoes, flats and ankle-strap sandals to its list of available products in early 2014. Crocs already has ventured out beyond “just clogs” already, but most of those lateral expansions have been met with a tepid consumer response thanks to the shoes’ still-Crocish look.

Investors also will be looking for encouraging geographical market news in Crocs earnings update. While sales in the United States are slowing, European sales are warming up as the continent’s consumers discover the ultra-comfortable foam clogs.

The Crocs earnings conference call will take place at 5 p.m. EST on Wednesday, Oct. 30, about an hour after the earnings news is scheduled to be released.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Endnotes:
  1. CROX: http://studio-5.financialcontent.com/investplace/quote?Symbol=CROX

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