STUBBED TOE

08.08.13

Crocs Stock Falls on Critical Research Report

After soaring to prominence, the plastic clog maker has suffered a series of setbacks in the past two years.

Crocs, the colorful clog company long loathed by fashionistas, has stubbed its toe again.

The once high-flying company, which saw sales fall sharply in 2009, is finding it difficult to mimic its early-stage growth. In its most recent fiscal year, sales rose by about 12 percent. As investors come to grips with the end of Crocs’ hypergrowth, the stock has fallen by about half in the past two years.

And in the past month, as the chart below shows, more holes have appeared in the company’s growth story.

CROX Chart

CROX data by YCharts

In late July, after Crocs reported a 43 percent decline in second-quarter profits, the company’s stock fell by nearly a quarter. The company has attributed a recent drop in sales to colder-than-normal weather and decreased consumer interest. This, despite the recent introduction of new products ranging from wedges to golf shoes. Perhaps the most disturbing trend for the company: a recent rise in Crocs-aficionados wearing socks with the clogs.

On Thursday, Crocs shareholders suffered another blow. It was reported that analysts from Stern Agee downgraded the company from “neutral” to “underperform,” citing reduced earnings expectations and concerns over the senior executive leadership. Sam Poser, the analyst who wrote the report for Stern Agee, wrote that “unfortunately, it appears that those who concur with the top executives remain at the company, at the expense of numerous talented people who have left.”

To make matters worse, Poser noted what he regards as a conflict of interest that may be influencing sales decisions at Crocs. Poser noted that the company sold both insoles and posture cushions to backjoy.com, a company that employs several ex-Crocs executives in leadership positions. Poser argued that the close relationship may have prevented Crocs from seeking out the best deal when selling its products. In addition, Stern Agee reduced its expected earnings for the company by about 2 percent for 2013, and by nearly 10 percent for 2014. (Crocs didn’t respond to a request for comment.)

Poser’s report caused a rapid sell-off of the stock, which was down nearly 6 percent at 13.18 in midday trading.