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Crocs, Inc. (CROX)’s Turnaround Is Floundering: Time to Look Elsewhere

Crocs, Inc. (NASDAQ:CROX)Crocs, Inc. (NASDAQ:CROX), just like its feature product, is a love-hate company. The stock’s valuation, compared to the rest of the sector, looks attractive (on a historical basis anyway). The company has tried to reinvent itself by putting new products on the market, but so far, according to the company’s most recent results, this strategy is not working.

The fashion world is fickle and highly competitive, and for a company to become well-established and profitable, a unique selling point (USP) is needed. Crocs, Inc. (NASDAQ:CROX) had this USP, but unfortunately, this turned out to be its main failing.

Sales are struggling

Crocs, Inc. (NASDAQ:CROX) has its die-hard fan base, but this has not been enough to keep sales high and growing, so the company has tried to start again with a new range of products. So far, this has not gone to plan. Earnings fell 43% for the first quarter, while revenue expanded 10%, signifying that the company is spending heavily to try and ramp up sales growth. Management blamed this decline on colder-than-normal temperatures, which while true, is not reason for a near 50% drop in earnings. Management remains optimistic, but based on the fickle nature of Crocs’ customers and over-reliance on the weather, I would not be overly optimistic because it appears that the company has no control over its sales growth.

In addition, Crocs’ new line of products is similar to that of many other producers, with no identifiable difference apart from the Crocs brand/logo, and as already shown, this is not the company’s strongest point.

Still, Crocs, Inc. (NASDAQ:CROX) is well-positioned for a turnaround with a debt-free balance sheet and $290 million in cash. The company’s gross margin stands at 46%, so Crocs, Inc. (NASDAQ:CROX) continues to have plenty of cash flowing in (cash inflows have averaged $61 million per quarter for the last year).

In comparison

In comparison, Nike Inc (NYSE:NKE)‘s biggest selling point is its brand name and the swoosh. The company’s multiple selling lines and diversification offer multiple income streams, so dependence on one range of products does not limit the company. This is where Nike has been able to expand rapidly over the past year or so, while Crocs, Inc. (NASDAQ:CROX) has floundered. In addition, Nike Inc (NYSE:NKE)’s size and economies of scale have meant that the company has been able to expand margins while driving for revenue growth. At the end of the second quarter, net profit margin was up 1% year-over-year, while revenue expanded 7.4% in the same period.

For this growth, investors must pay a premium. In particular, Nike Inc (NYSE:NKE) trades at a 7% premium to the sector average P/E of 21.8 on a trailing 12-month basis, and on a forward P/E basis Nike trades at a 28% premium to its sector peers (Nike trades at a forward P/E of 18.1, while the sector average stands at 14.2). Still, with a globally recognizable brand, strong balance sheet (almost no debt), and expanding profit margins, Nike could be a good bet.

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