Crocs and the International Shoe Market

Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Shoe seller Crocs' (NASDAQ: CROX) stock performance has lagged competing shoe companies, but trends in its international income show that the company now offers much better growth potential. Crocs is based in the United States, but it makes most of its shoe sales outside of the country. It reported a billion dollars in revenue for 2011, which included $382 billion from Asia and $171 billion from Europe. This is a total of $553 billion in overseas sales, versus $448 billion in all of the Americas.

Crocs' overseas segments are growing much faster than its Americas segment. Revenue from Asia was $285 billion in 2010, and European revenue was $128 billion. Both of these segments reported 34 percent earnings growth, which was double the 17 percent growth that Crocs reported in the Americas. As with many other multinational companies, the weakness of the US dollar played a part in producing these higher earnings. The company reported significant income effects from foreign exchange, although it did sell more shoes overseas as well.

The benefits of Crocs' international operations show up more dramatically in its operating income. From 2010 to 2011, the company's Americas operating income improved 15 percent, while its operating income from Asia increased 52 percent and its operating income from Europe improved 66 percent. Crocs actually obtained a majority of its operating income from Asia in fiscal 2011. Europeans seem to be willing to buy Crocs even in the midst of major financial turmoil, so the shoemaker might perform even better if the European Union can resolve the crisis. Of course, if economic events continue to go badly for Europe, they present a significant risk factor for Crocs.

When Crocs reported a loss in its 2008 annual report, it made a higher percentage of its sales in the Americas. Crocs' 2008 Americas sales were $366 million, while its sales in Asia were $205 million and its sales in Europe were $151 million. The company did report 26 percent higher sales in Asia that year, but this wasn't enough to make up for falling sales in the Americas and Europe.

Crocs' competitor Deckers (NASDAQ: DECK) has shown better stock performance over the past few years, although Deckers' price to earnings ratio is still slightly lower, 13.35 compared to Crocs' 14.89. Like Crocs, Deckers also sells its shoes to shoppers in Europe and Asia. Higher demand and the weaker dollar have also boosted Deckers' foreign sales. Deckers announced that its overseas revenue improved from $237 million to $432 million in 2011, an 82 percent gain that surpassed Crocs' 2011 results, and boosting its foreign revenue to 31 percent of its total. Although Deckers is carrying a lot of inventory right now, continuing growth in foreign markets should help it sell off more of its shoe stock.

Skechers USA' (NYSE: SKX) stock has suffered over the last year. The company recently made an international move of its own, establishing a subsidiary to improve its sales in the Japanese market. In its March 5th announcement, Skechers also predicted that it would sell twice as many shoes in Japan within the next five years. Skechers collects about the same share of its revenue from international shoe buyers as Deckers does, 30 percent. Skechers' sales in the United States fell substantially last year, dropping 30 percent, while the company's international sales actually improved, rising 13 percent. Skechers may be able to recover over the very long term because of market factors that also affect Deckers and Crocs, but for now the other two shoe vendors are much better investments.

Wolverine Worldwide (NYSE: WWW) has also established subsidiaries in foreign countries, although it doesn't report its international sales in separate segments like Crocs does. Wolverine stated that it earned more of its revenue from foreign shoppers in 2011 than rivals Deckers and Skechers, at 40 percent, although Crocs still leads in the category. Wolverine does mention in its annual report that it operates its own branded retail stores in the United States, Canada and Britain, while the company grants independent vendors licenses to sell Wolverine shoes in other parts of the world. 

Crocs seems like it's benefiting most from improvements in the international shoe market, and Wolverine has also seen a strong boost from international sales. Deckers looks like it will be able to capitalize on the trend as well. Although the trend also favors Skechers, its poor performance in the American market holds it back, so I only suggest buying Crocs, Deckers, and Wolverine.  

The Motley Fool owns shares of SKECHERS USA. enovinson has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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