Crocs Inc. (CROX:US), the shoemaker known for its brightly-colored clogs, held buyout talks that are unlikely to lead to a sale, leaving it to consider other options to boost value, people with knowledge of the matter said.
Blackstone Group LP (BX:US), which had explored a takeover, is now in discussions with Crocs about alternative deals, one person said, asking not to be identified as the information is private. The options include a stake sale or joint venture, another person said. KKR & Co. and other private-equity firms have decided against a bid, people said.
One hurdle to a buyout is the drop in Crocs’s shares (CROX:US) this year, which has resulted in potential buyers seeking a price that is far lower than the Niwot, Colorado-based company would accept, two people said. The shares, which ended yesterday 30 percent below their high of $17.95 in May, have tumbled as the company cut profit and sales forecasts.
“One of the bigger issues for this company right now is management credibility,” said Michael Swartz, an analyst with SunTrust Banks Inc. in Atlanta who has a neutral rating on the shares. “It seems like they don’t have great visibility into their own business.”
Crocs rose almost 10 percent to $13.89 in New York today, its biggest gain in over a year, giving the company a market value of about $1.23 billion.
The company has struggled since 2007 to recapture the growth and profitability that it enjoyed when its clogs were still faddishly popular. Its market value peaked at over $5.6 billion (CROX:US) that year, before tumbling along with profits that were hurt by competition from knockoffs as well as the decision to sell the clogs -- now called Crocs Classic -- everywhere, including in gas stations.
The shoemaker, which also sells other styles of shoes that bear no resemblance to the clogs, may report income of about $65 million (CROX:US) this year, analyst projections compiled by Bloomberg show. That’s compared with earnings of $131 million in 2012, and $168 million at the peak in 2007, the data show.
A buyout would be a good option for Crocs, with private-equity firms potentially able to boost profitability by cutting costs, said Steven Marotta, an Albany, New York-based analyst at CL King & Associates.
“It’s buyout or really, really, really theoretically dead money for quite some time,” he said in a telephone interview. “The company has a very clean balance sheet. They also have depressed operating margins which financial buyers I’m sure would look to bolster.”
Crocs had about $300 million in cash and almost no debt as of Sept. 30.
In September, the company cut a profit and sales forecast for the third quarter that it had provided less than two months earlier. Earnings also fell short of expectations in July.
Another option for Crocs is to find a buyer from within the apparel industry, said Matt Powell, an analyst for researcher SportsOneSource, which tracks the U.S. footwear industry. The company is dependent on warm-weather shoes, so if the spring or summer is abnormally cold, like this year, it can damp sales, he said.
“A volatile brand that is so weather dependent would be well served to be tucked in with a larger company,” he said.
The gap in price expectations would also make a sale to a strategic buyer a challenge, one person said.
Chief Executive Officer John McCarvel and spokeswoman Katy Lachky didn’t respond to several requests for comment. Spokesmen for Blackstone and KKR also declined to comment.
To contact the reporters on this story: Kiel Porter in London at email@example.com; Jodi Xu in New York at firstname.lastname@example.org; Jeffrey McCracken in New York at email@example.com
To contact the editor responsible for this story: Jeffrey McCracken at firstname.lastname@example.org