Why Crocs Might Go Private

I’ve been holding on to this article on Crocs for a while mostly because I just didn’t have time to do anything with it.  What it says is that Crocs is looking to go private because it’s just not as cool as it was.  Currently, it’s traded under the symbol CROX on the NASDAQ and is at $12.88 as I write this.  Here’s a five year stock chart on the stock’s movement.

You’ll note that the stock is trending down at a time when the market has been trending up. 

In the 9 months ended last September 30th, Crocs earned $77.4 million on revenue of $964 million.  That doesn’t sound so bad.  Okay, but in the same 9 months in 2012, it earned $135 million on revenue of $898 million. Selling more and making less.  If that isn’t a sign of being less cool, I don’t know what is. 

So what have we got here?  The gross margin for the nine months fell from 55.8% to 53.9% and selling, general and administrative expenses rose 18.3% from $350 to $414 million.  Operating income fell from $151 to $106 million.  I’m going to resist the urge to do a complete financial analysis (I hear those sighs of relief).   

My point is simple.  It seems a lot of people still want to buy Crocs, and the company can make money.  What they can’t do is satisfy Wall Street’s endless demands for the growth that makes stock prices rise.  And I’ll bet anything that if they try to do that, their gross margin will continue down and the brand will lose credibility as it tries to push its distribution harder, faster, further.  Remember it would be trying to do that in a poor economy with a lot of competition. 

Is this starting to sound at all like any other companies we follow? 

Some smart person probably said, “Hey, if we weren’t public, we could pull back our distribution, improve our brand positioning and gross margin, cut some expenses (from not being a public company and because our improved distribution would let us reduce some marketing expenses) and maybe make more money with less working capital invested!”  Perhaps they’d consider closing some of their 600 or so stores as well. 

Maybe that would work or maybe, for this brand, it wouldn’t.  But continuing to try and satisfy the requirements of the public market looks like a bad plan.  I haven’t heard that there’s a deal done yet.  I’ll let you know if I hear and you do the same for me.