Crocs: Own A Pair and Buy Some Shares

You’ve probably heard of Crocs (CROX), the hottest footwear company in the U.S., and maybe even in the world. I would pay attention to the latter because that’s where Crocs can really expand - internationally. If you’re unfamiliar with Crocs, check out their company report to get a quick rundown of their company.

Crocs Company Report

Crocs, Inc. is a designer, manufacturer and marketer of footwear for men, women and children under the crocs brand. The Company offers 11 footwear models in up to 18 different colors. It markets its footwear products to a range of distribution channels, and sells its products in over 6,500 retail locations in the United States. It has also begun selling its products in over 40 additional countries. It also markets a line of crocs-branded apparel and accessory items. Crocs, Inc.’s closed-cell resin material, which it refers to as croslite, is the primary raw material used in all of its footwear and non-branded products. The Company also selectively uses croslite to manufacture a variety of other non-brandedproducts, such as spa pillows and kayak seats, which are marketed to original equipment manufacturers. In October 2006, the Company acquired EXO Italia, S.r.l. EXO Italia designs and develops ethylene vinyl acetate-based finished products primarily for the footwear industry. (Source: MSN Money)

Why does Crocs look appealing to International Investors?

At first look, Crocs is a fast growing domestic footwear company, but I think international growth is the most attractive element of their business model. Crocs sells its products in over 70 countries worldwide, a huge increase from 40 countries worldwide in 2005. International revenues have increased to $78.4 million in 2006 from $8.2 million in 2005 during the same 3rd quarter period. That’s a 950% sales growth rate, and Crocs has yet to fully tap the international market. Currently, 33% of revenue is generated outside of the U.S., a number that will increase as the Crocs name propagates around the rest of the world.

How long will it take for Crocs to reach the International consumer?

Crocs sells branded products in 70 countries. That’s an incredibly accelerated reach for a 4 year old footwear and apparel designer. Accelerated growth is mostly due to Crocs’ strategic distribution center placement. The company operates distribution centers in China, Russia, and Mexico, which provides great opportunities to sell branded products straight from the factory. Vertical integration has kept Crocs’ costs low, and prevented the company from taking on loans and excessive debt.

High Demand = Growth, Expansion, and Profits

The popularity of our footwear has in the past resulted in our inability to either produce or deliver shoes in sufficient volumes to satisfy the demands of our retail customers and consumers. We have been attempting to meet this demand by actively expanding our company-operated manufacturing capacity, as well as increasing the number of shoes produced for us by third party manufacturers. During 2006, we expanded our manufacturing capacity at the facility we operate in Mexico. We also recently expanded production capacity at our third party manufacturers located in China and added third party manufacturing capacity in Romania. In addition to expanding our production capacity, we are actively expanding our fulfillment and distribution capabilities. For example, we anticipate our new distribution facility in China, which is adjacent to our major third-party manufacturing facilities, will enable us to distribute our products more efficiently on a global basis. (Source: Crocs 10-Q 3rd Q report)

According to the latest quarterly report, demand has remained high in both domestic and international markets. Crocs is a global phenomenon as well as a domestic craze. Even with such great international success, Crocs’ management implements a very simple international business plan.

Outside of the U.S., we sell our products through over 1,500 international retail store locations. Our strategy is to sell through a broad range of sporting goods and department stores, as well as through specialty retailers, similar to the retail sales channels we have established in the U.S. We intend to continue to establish a direct sales presence in major foreign markets, rather than rely on distributors, which we believe will improve our margins and allow us to better control our marketing and distribution. We have established direct sales efforts in Australia, Austria, the Caribbean, France, Germany, Hong Kong, Japan, the Netherlands, Singapore, and the United Kingdom. (Source: Crocs 10-k ‘05 Annual Report)

Once again, Crocs continues to impress investors with easy to understand foreign strategies. When I can understand how the business makes money, I feel very confident about my foreign investments.

More Factors to Consider

• Crocs has recently made two acquisitions - Jibbitz, LLC, and EXO Italia
• 0.01 Debt to Equity Ratio - Vertical integration model kept debt at bay
• The company is still small, only has a market cap of $1.9 billion along with 39 million shares outstanding
• Do you own a pair of Crocs? Have you considered buying a pair? If the footwear and brand name appeals to you, then why not give their company stock a look?

Bottom Line: Crocs stock is trading near its 52-week high, so I wouldn’t advise buying shares now. So what can you do next? Add this stock to your watch list. I’m going to start tracking CROX on a weekly basis to see where it heads. Although I must say, the guilt of never wearing a pair has almost gotten to me.

Crocs owners: please share your expert opinions on Crocs footwear.

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