Wednesday, March 19, 2008

Crocs (NASDAQ:CROX): Building For Long-Term Growth & Stability; Global Demand Hedges Risk; Buy - Piper Jaffray

- Piper Jaffray is positive on Crocs (NASDAQ:CROX) following two days of meetings with management. Crocs addressed concerns including near-term sales rates, inventory levels, distribution segmentation, pricing, and margin sustainability. While it is reasonable to assume that U.S. sales growth is moderating (as modeled) and international sales are accelerating, PJ thinks the company is taking steps to further balance production and inventory levels heading into its peak selling season. At the same time, the global infrastructure is being fine-tuned to best maximize efficiency and minimize cost in order to preserve margin during all economic cycles.

Firm is comfortable with their $225M (v. $230M Street) top-line estimate in FQ1, given evidence of more conservative inventory planning at the retail level. Crocs continues to work toward a higher pre-book rate near 40% (v. ~20% LY), with the balance of sales being derived from in-season deliveries.

Approximately 70% of current inventory on hand is aligned with the company's top seven selling styles where fashion risk is low and over time, future orders will be placed against existing inventory. By flexing and contracting capacity utilization based on sales, they think the company can sustain mid-50s gross margin long-term.

Depreciation in CROX shares of late, they believe, is a result of an exhausted shareholder base, lack of clarity around sales & inventory relationship, and anxiety with respect to fad speculation. As they revisit their model, the firm remains comfortable with current assumptions, believing that underlying demand remains firm and growth rates are reasonable.

Reits Buy and $67 tgt. CROX remains on Alpha List.

Notablecalls: I very much like this call. The stock has been destroyed lately but Piper does a good job explaining why/how things could be geting better. This is the type of note that will bring nice gradual buy interest. The focus is on the inventory/booking comments.

Short interest still stands at 30%+

I'm almost tempted to call this one Actionable.


Vermont Trader said...

Hi long time lurker here.

I own CROX and have tried to call a bottom a few times in the last week. Seems very compelling on a fundamental basis and as a GARP type investment but it is trading very poorly

notablecalls said...

stupid call .(

Vermont Trader said...

I've taken a swing at it 2x today with tight stops... first at 17.8 and 2nd at 17.
Stopped out 2x..

I think the selloff in oil today is a huge positive for consumer names so taking one more swing at 16.9...