Winter crocs.FERNANDO MORALES/The Globe and Mail
Investors are counting on more private equity involvement and new management to help turn around troubled shoe maker Crocs Inc.
Shares in the colourful footwear brand soared more than 20 per cent on Monday after Blackstone Group LP said it would invest $200-million (U.S.) in the Niwot, Colo.-based company.
Crocs added that its chief executive officer, John McCarvel, would retire in spring, a move applauded by Sterne Agee & Leach Inc. analyst Sam Poser, who has been critical of the company's management.
Blackstone's investment will increase the stake held by the New York private equity firm to 13 per cent and give it two board seats. Its bulked-up presence "may serve as a catalyst for positive change" at Crocs, Mr. Poser said in a note.
Crocs sales are sliding in North America and Japan, which together account for more than half of its revenue. The company faces increased competition and waning consumer enthusiasm for its soft resin footwear.
That's despite branching out from its trademark clogs, which today account for less than half its footwear sales. The company has expanded into other footwear styles as well as accessories such as hats and sunglasses.
Crocs was a retail stock darling when it went public at $21 (U.S.) on the Nasdaq in early 2006. Its shares rocketed to $75 within less than two years as buyers flocked to the company's clunky clogs.
The share price began to sink after the company missed revenue expectations and consumers slashed their spending during the financial crisis and subsequent recession. The stock fell to below $1 in late 2008.
It has staged a rocky recovery, with the shares trading as high as $32 in mid-2011 and falling to a 52-week low of just under $12 last month.
On Monday, Crocs stock closed up $2.81 to $16.14, which is still below its 52-week high of $17.95 reached in late May.
Some investors were expecting an outright takeover of the company, according to Peter Imhof, portfolio manager at Sprott Asset Management.
His firm sold its remaining stake in Crocs earlier this year, after growing tired of the "lumpy" quarterly earnings, and would be reluctant to get back in until it sees proof that new management is making significant progress.
"I would wait to see a turnaround in terms of their operations," said Mr. Imhof. "If I were a holder of this stock, I probably wouldn't be selling it right now."
Analysts expect the company to close underperforming stores while still expanding across parts of the Asia-Pacific, where sales are increasing. Investors are also counting on new products to help lure customers back to the brand.
"We believe 2014 will likely be a challenging year as the company attempts to shift its focus from revenue growth to increased profitability," said Mr. Poser, who raised his rating on the stock to "neutral" from "under perform" on Monday.
Mr. Poser is now one of eight analysts with a "hold" recommendation on the stock, while just one suggests it as a "buy," according to S&P Capital IQ.
The funds from Blackstone's investment will be used to repurchase Crocs stock, which Mr. Poser said should help improve growth in earnings per share, but "fixing the fundamentals of the business will require more extensive efforts."
Crocs shares are trading at 14 times their estimated earnings for 2014, which is cheaper than many other shoe makers. Steven Madden Ltd. changes hands for about 16 times forecast earnings, and Skechers USA Inc. and Deckers Outdoor Corp. both go for around 18 times next year's profits, according to S&P Capital IQ.
Despite its bargain appeal, the stock has underperformed its rivals over the past year. Prior to Monday's surge, Crocs shares were down 7 per cent year over year, compared with a 79-per-cent gain at Skechers and a 108-per-cent leap at Deckers, the company behind such brands as Teva and UGG.