Search online for “hate crocs” and you’ll quickly see why Crocs Inc. (CROX:US) is eager to transcend the clunky clogs it unleashed on an unsuspecting world 11 years ago.
Bloggers have denounced Crocs as ugly and an escalator tripping hazard. On YouTube, a woman cuts a yellow pair into pieces and then feeds them to a blender. A Facebook page is called “Let’s Burn Crocs!”
Chief Executive Officer John McCarvel is all too aware of the Crocs animus and how it complicates his strategy to attract new customers and double sales in five years. The clogs still generate 47 percent of sales because lots of people like them, especially medical professionals and kids. Yet to hit his target, McCarvel must persuade the haters to buy the company’s other footwear. That’s why Crocs is telling the world all about its wedges, sneakers and leopard-print ballet flats -- and putting Crocs in the back of stores the way grocers do with milk.
“Our milk are those clogs,” McCarvel said in a telephone interview on June 5. “If someone wants them, make them walk through all the new stuff first.”
McCarvel, who became CEO in March 2010, has been credited with helping revive the Niwot, Colorado-based company (CROX:US) and making it profitable again. Still, even though sales rose 12 percent last year to $1.12 billion and net income (CROX:US) was the highest since 2007, investors are wary.
They watched the shares roar past $70 in 2007 and Crocs reach a market value of $6 billion. A year later the bottom fell out amid the financial crisis, competition from knockoff clogs and the company’s propensity to sell Crocs everywhere, including gas stations. By November 2008, the shares were trading at less than $1.
Since then, the company has issued erratic forecasts. In the third quarter of 2011 Crocs cut its sales projection four days before it reported results. The shares plummeted 39 percent the next day to $16.15 and rose 0.7 percent to $15.57 at the close today in New York. They’ve fallen 1.8 percent in the past 12 months compared with a 24 percent advance for the Russell 1000 Textiles Apparel & Shoes Index.
“The story is certainly different than it was years ago, and some people have yet to grasp what it is now,” said Michael Swartz, an analyst with SunTrust Banks Inc. (STI:US) in Atlanta who recommends holding the shares. “The stock collapsed and obviously people lost a lot of money. There’s still kind of that gut reaction to the stock.”
In the interview, McCarvel acknowledged investor concerns and said the company might be better served giving forecasts on an annual basis rather than quarterly. He also said that discussions with investors and analysts are often focused on its U.S. business though most sales (CROX:US) come from outside the U.S.
Crocs plans to open 90 locations around the world this year with about half in Asia, where sales jumped 34 percent in the first quarter. That would boost total locations by 20 percent to more than 500. Crocs had about half that in 2011.
“I don’t doubt they need to have stores in different parts of the world,” said Sam Poser, an analyst at Sterne Agee & Leach Inc. in New York, who also recommends holding the shares. Given that same-stores sales fell 5.2 percent in the most recent quarter, Crocs needs to improve existing locations “before opening a ton of new stores,” he said.
Foreign markets are key to the company’s growth, McCarvel said. He pointed out that it has little presence in several warm-weather regions that could help it have less of a seasonal business because in places like Kuwait and Brazil people wear sandals year round. The Middle East, Central America and South America now only account for about 8 percent of total sales.
Crocs isn’t relying just on hot climates to keep growing either. The company has done well in Russia because shoppers there didn’t get to know Crocs as the ugly clog company; they first embraced its fur-lined boots, McCarvel said.
And in China, where sales will pass $100 million this year after entering the country in 2006, Crocs are known more as an American brand similar to Starbucks Corp. (SBUX:US) without the fashion faux-pas history, said McCarvel, who joined Crocs in 2004 and led its Asia expansion before becoming CEO.
“There’s a much bigger audience out there,” Swartz said.
To grab it, Crocs increased its global marketing budget by 30 percent this year with such slogans as “A Shoe For Every You.” The aim is to become a lifestyle brand and introduce potential customers to Crocs’s more than 300 styles and convince those who think they know the brand, that they don’t.
A recent catalog could easily be mistaken for a mailer from J. Crew. On the cover, a preppy couple sits on a wooden boat. Grinning while in a half embrace, their legs dangle over the side, pulling the reader’s eye to their Crocs docksiders. The following pages are filled with strappy sandals and loafers. Clogs aren’t featured until the back.
To succeed, Crocs will surely need more customers like Jodi Karr. The 33-year-old bartender with tattooed arms recently visited a Crocs store in Toronto’s trendy Queens West neighborhood to buy another pair of navy blue sandals.
“People never think I’m wearing Crocs,” Karr said. “They usually just think about those original clog Crocs shoes. I love these things, though.”
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