Is Now The Right Time to Buy This Footwear Company?
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Once again Europe’s weak environment has affected a retailer. This time it is Crocs (NASDAQ: CROX), a designer and distributor of footwear, and although the company posted excellent results, its dull outlook dimmed investors’ hopes.
The Quarter and Its Merits…
Increases in product prices as well as higher volumes pushed revenue north to $295.6 million. The footwear retailer’s loud colored, comfortable shoes are becoming increasingly attractive to customers. In fact, demand is well supported by supply as Crocs continued to increase its presence by opening more stores. It has added 89 stores over the year, leading to a total store count of 499.
The results are even more interesting when we get to the bottom line. Crocs’ earnings jumped a whopping 49% to $45.1 million over last year. The company’s drive for innovation was key during the quarter. Its new product styles contributed a remarkable 35% of the unit sales.
Into The Segments
Considering the segments, Crocs was an all-around performer. Among the three segments, retail and internet segments grew exceptionally well at 18% and 6% respectively. On one hand, increased number of stores boosted retail sales figures, and on the other, Crocs promotions increased its online sales.
Geographically, the retailer performed well with growth in American and Asian markets. Its products have huge demand in the Asian market, especially in China. China was the star performer with growth of 47% over last year.
Hitting the Bump…
However, the quarter wasn’t perfect. It had some shortcomings. The company’s results were affected by slowdown in Japan and Europe. Sales in both the regions decreased due to weak demand. Even factors such as the cooler summer affected sales unfavorably.
Even peers Wolverine World Wide (NYSE: WWW) and Deckers Outdoor Corp (NASDAQ: DECK) have been facing a similar situation of weak demand. Wolverine had recently posted a lackluster third quarter which disheartened investors. Its revenue plunged 2.4% to $353.1 million due to less demand in Europe. However, the company is trying hard to instigate customer interests through acquisitions of new brands, rolling out new collections and expanding its geographical presence.
Deckers Outdoor also posted disheartening results with a revenue decline of 9% to $376.4 million. The primary reason for the drop was the company’s price hikes which scared away buyers. This came in contrast to Crocs since Crocs’ price hike did not affect its volumes. Moreover, Deckers has also revised its outlook downward, similar to Crocs, because of continuous pressure of higher material costs and slowdown in demand. In order to fight the problem, Deckers Outdoor plans to decrease its product prices which might help buyers to get back to its stores.
Although the company gave an outlook which failed to please investors, it has some potential benefits as well. Crocs plans to increase its marketing efforts which can prove to be fruitful. In such an environment promotion is an effective way to lure customers. Moreover, it will be backed by new products in the months to come. New launches have always been an effective tool for the retailer.
Crocs is also intending to open another 35 to 40 new stores going forward. These stores will be added with a focus on the Asian and the European regions where the company foresees huge potential. Hence, retail operations will be strengthened by the expansionary moves.
On the wholesale front, the retailer declared that there has been a strong booking in advance for the next year’s summer, which highlights further growth in the segment.
Although the economic slowdown is hampering its growth, Crocs seems to be unstoppable. The retailer’s never ending efforts to provide product variety and comfort to its customers look increasingly attractive. Moreover, it has been smartly planning to make each segment strong. These initiatives seem interesting and can be beneficial in the future. Counting on these points, investing in this company is a good option.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Crocs. 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.If you have questions about this post or the Fool’s blog network, click here for information.