Monday, April 14, 2008

Even Crocs can't avoid this Recession

How bad is this economic slowdown? Well I am sure all of you have seen or heard of Crocs. Its the trendiest clog in town and everyone wants a pair. Crocs shareprice tripled in 2006 as it became a must have shoe for every man, women, and child.

The Crocs story continued in 2007 as revenue continued to soar. Sales estimates were expected to stay hot as revenue growth for the 1st quarter of 2008 was expected to be 37%.

So how did they do for the quarter? Here are the results from Bloomberg:

"Crocs Inc., the maker of the namesake colorful clogs, said it will fire its 600 Canadian plant workers after lowering annual earnings and sales forecasts as consumer spending slowed.
Crocs, based in Niwot, Colorado, tumbled 28 percent after the close of Nasdaq trading.

The shoemaker will close its Quebec City factory to reduce expenses, said spokeswoman Tia Mattson.

The shutdown of the Canadian plant will contribute to a first-quarter loss of as much as 5 cents a share, Crocs said. Revenue will be as low as $195 million for the quarter. The company previously forecast profit of 46 cents a share on revenue of $225 million."

My Take:

I can hear the temper tantrums now as parents explain to their kids that they cannot afford to buy them the new Crocs styles this summer. Anyone put those things on BTW? Man they are comfortable.

Obviously -.05 cent loss versus a .45 cent gain is a huge miss and revenues came in more then 10% light. The stock plunged 28% in after hours trading.

Its always a surprise when a company like Crocs misses because its not a huge ticket item and their brand is extremely hot. Take notice when a company likes this misses. It tells you that the retail environment is horrific out there.

Earnings season should be interesting to say the least. We get Citigroup later this week and most of the investment banks next week. Expect more confessionals and additional write downs. Wachovia lowered their dividend after saying they had no intentions of doing this during their previous conference calls.


Avl said...

Jeff, I’d like you to comment on the merits of reaching new equilibrium in house prices where local markets become affordable to typical workers who earn median wages in their field.
Check out the 4/15 blog, “Unintended Socialization of the Housing Market and Its Consequences by Trader Mark, at SeekingAlpha:

He outlines a scenario where the proposed bailout introduced by Rep. Barney Frank actually causes more defaults. Trader Mark prefers letting prices decline until they’re affordable to workers (so do I). I comment on his site that the ultimate unintended consequence of Frank’s proposal likely could be arriving at much lower prices much quicker than desired, using the fundamental assumptions presented by Trader Mike.
Let us know what you think. I could see Frank using tons of inter-locked circuit breakers to prevent my scenario.

Jeff said...

Hi Avl

Interesting article. I agree with Mark that the "nationalization" of housing is happening but its going to happen through Fanny and Freddy.

Their market share of new mortgages has risen up to 80% from around 36% in 2007.

Now here is the question Does Barney Frank get his way and the banks lower the amount of the loan or does the taxpayer just end up bailing out Fanny and Freddy when they are forced into BK.

Fanny and Freddy will go under due to default rates. So then what happens?

There are two scenarios. One is the taxpayers bailout Wall St. As the government takes over Fanny and Freddy and gurantees the loan.

The second scenarion is more of what Mark is saying which is lowering the amount owed on the loan and Wall St. takes the loss. I agree that this would rapidly accelerate the price drops.

Sadly, I think we will end up paying for this because I don't think the banks are solvent enough to be able to lower the loan amounts. If it comes down to us eating this or finincial Armegeddon, Wall St. will win because a stable banking system must be maintained in the Feds eyes.

I say let them burn and lets get prices down but Bill Gross of Pimco just made a huge purchase of mortgage debt which tells me he thinks the government is going to bail this debt out. He took a multi billion dollar bet that this is how it plays out. Gross is one of the smartest guys on Wall St. and its hard to bet against him.

In the end we will be the ones that pay for Wall St.'s excesses and every taxpayer should call their state reps and complain when it happens.

I liked Barney's plan except for the fact he wants to give builders huge tax concessions amounting to billions.

Giving billions to the builders who just made billions during the boom should anger every taxpayer out there as well. Give this money to struggling homeowners who can't pay the mortgage.

We will see how this plays out. I agree though that the "nationalization" has begun IMO