Popular Rubber Clog Crocs Struggling To Stay In Business Amid Weak Demand
Getty Images/Scott Olson
The demise of Crocs (CROX), it seems, may have been greatly exaggerated.

Remember the company's signature product? Close to a decade ago, those colorful, clunky resin clogs were all the rage. The company that made them couldn't sell the things fast enough, at one point reaching sales of 50 million pairs in 2007. Then fashion moved on, as it always does, and the economic slowdown started to bite into sales.

Crocs plunged from a $168 million net profit in 2007 to a $185 million loss in 2008. In 2009, the company nearly ran out of cash and had a hard time making payroll.

But Crocs' fortunes have improved. In its most recent quarter, the firm posted a loss, but it was narrower than the market was expecting. And it's found an investor that believes in its future -- private equity giant Blackstone Group (BX), which recently provided a $200 million cash investment in return for a block of preferred shares eventually convertible into a stake of around 13 percent of the company. Perhaps the time has come to take those old clogs out of the closet, dust them off, and slip them on for a stroll.

Stepping It Up

Fashion is highly susceptible to consumer whim. The hot item is never hot for very long, and once consumers move on, it can be hard for the company to recover. In Crocs' case, this was exacerbated by its limited product line -- almost exclusively the clogs.

The company learned from its mistakes. Since consumer tastes moved out of clog-land, Crocs has significantly broadened its product line to 300 styles. It now offers boots, flip-flops, deck shoes and slip-ons akin to the casuals from VF Corp.'s (VFC) Vans subsidiary.

In terms of profitability, Crocs recovered quickly from its time in the fashion wilderness. From that 2008 bottom-line deficit of $185 million, the company sliced its loss to $42 million the following year, then stepped back into the black in 2010 (to the tune of $68 million). After two straight years of declines, revenue started to pick up in 2010, rising a nice 22 percent on an annual basis and advancing in every subsequent financial year. In fact, 2013's top line came in at nearly $1.2 billion -- around $350 million higher than the firm's big glory year of 2007.

In the Black(stone)

This kind of performance helped attract the Blackstone Group, which likes to buy its assets cheap and (eventually) exit when the going gets better.

Blackstone's $200 million cash investment late last year equated to a cash infusion of around $2.26 per share, and the stock promptly rose by slightly more than that amount after the deal was announced. It seems that shareholders welcome the presence of Blackstone and were encouraged by the vote of confidence it implies. But has that boost in value made Crocs too pricey for the market?

At the moment, the stock trades at nearly 28 times expected fiscal 2014 earnings. That's notably more expensive than the 16 times expected earnings of Deckers Outdoor (DECK), which, like Crocs, manufactures a product (Ugg boots) that saw a wild surge of popularity before falling out of fashion. Another pure-play footwear company, Skechers (SKX), can be bought for 19 times current fiscal year earnings.

On that basis, Crocs stock is even more expensive than Nike (NKE), arguably one of the best apparel stock plays on the market. Shares of Nike, a master at keeping pace with trends in its fitness niche, trade for just under 26 times anticipated current fiscal year earnings.

Fashion Forward?

With the fresh involvement of Blackstone -- which now holds two seats on Crocs' eight-member board following its investment -- it's hard to gauge Crocs' strategic direction. Another question mark is the firm's leadership -- CEO John McCarvel is due to retire "on or about" April 30.

At the moment, given how expensive the stock is and the uncertainties going forward, Crocs stock is probably not a screaming buy. However, the company has shown a propensity to recover from expired trends and grow while it's at it.

Crocs isn't doing at all badly these days. And even though its clogs aren't the flavor of the month anymore, we can't say the firm has completely fallen out of fashion.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Nike and owns shares of Crocs and Nike. Try any of our newsletter services free for 30 days.​

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15 Comments

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wistrade

CROC's Santa Cruz
(chocolate canvas loafer) has helped the nerve damage in my feet better than any pain pill could ever do. There is something magical about these shoes where the comfort for people with feet problems is simply amazing. I am just thrilled that I can still purchase these shoes that I ordered a stock pile of them so they will outlast me.
Let me say one more time if you have feet problems try out a pair, the insole is absolutely amazing. They may not be beautiful but it's what's in the inside that counts.
Knowing this and the word of mouth of people that know the feeling and by podiatrists that hear it from their patients very well could make this the best seller among anyone that is looking for pain relief and the most comfortable shoe made. Plus have that something special in their design either by accident or superior engineering? What matters is that they do work.

May 28 2014 at 2:45 PM Report abuse rate up rate down Reply
Gumby

They are the greatest garden shoes ever! All you got to do is hose it off. it is waterproof. Nothing feels as good as rinsed shoes that dry almost instantly! No damp smells whatsoever!

March 20 2014 at 11:27 AM Report abuse rate up rate down Reply
PHANTOM6838

these shoe's have to be the ugliest shoe's , as well the unsafest thing to wear.

March 10 2014 at 7:45 AM Report abuse rate up rate down Reply
doubtsingreen

Actually they have a wonderful flipflop that lasts so much longer than those cheap flipflops you can buy. They have the same nubs on the inside that feel great on bottom of your feet. Living in Southern AZ I wear them all the time for around the house or to go run errands. I have had them about a year now and none of that rut like you get with those foam like flip flops.

March 10 2014 at 7:35 AM Report abuse rate up rate down Reply
Gina

They may be the UGLIEST shoes on the planet but man are they comfortable! I've walked many miles in my big rubbery uglies but they are so bouncy and comfortable, I'll take the heat of the ugliness for the comfort any day!

March 10 2014 at 7:15 AM Report abuse +1 rate up rate down Reply
tylyn1210

noooooooooo..........

March 10 2014 at 4:53 AM Report abuse rate up rate down Reply
sewzen

Comeback? They never left me. I own at least 20 prs. of assorted styles and colors. And it isn't because I find them attractive, either.lol But, for anyone with lower back issues and mobility problems such as I have, these are the ticket. Everyone I recommend them to ends up loving them. I say "don't knock them until you have tried them". Long live CROCS :-)

March 10 2014 at 2:31 AM Report abuse +2 rate up rate down Reply
jcfamily4ever

LOVE Crocs! We all wear them in my family. Had on my pink ones just today! Great quality and major comfort. Thanks Amazon for still selling this amazing product... I don't wanna see some overseas (Made in China or Vietnam) company start making a terribly cheap quality of this great shoe.

March 10 2014 at 2:28 AM Report abuse +2 rate up rate down Reply
Angela Ott

For those talking about how ugly they are, go to their website! They don't just make one style. The original clog style is ugly to me as well, but they have a bunch of really super cute options that no one would believe were "crocs."

March 10 2014 at 1:15 AM Report abuse +1 rate up rate down Reply
HEIDIFIDO

I have a old pair and I will buy a new Pair because they are so so so comftable on my Feet
and the high ARC is great

March 10 2014 at 1:00 AM Report abuse +1 rate up rate down Reply