Competition

SUMMARY 

Although it's part of the company strategy to invest more in company-operated retail locations, almost 60% of the revenues come from the wholesale business. When comparing some facts with other wholesalers we conclude Crocs is very well positioned in terms of growth, return on equity and assets. It also has the highest margins of the sample while it seems cheap in relative valuation terms. 

Its performance has been very negative for the last year even when compared with its peers. 

As the retail is more of a fast-growing business in the last years (partly due to a recovery after 2008 crisis), Crocs doesn't stand out in terms of growth, but keeps scoring first in margins and higher returns on equity and assets. When compared to its retail peers it's not so easy to conclude about its valuation as results are mixed. 

Cash-flow growth is definitely a positive and distinctive factor of Crocs, Inc.

It's important to notice that all this analysis is based on past information and that may be a misleading proxy about future performance.

Instead of doing a descriptive analysis on the sector trends and trying to estimate the impacts on Crocs valuation, I'm going to analyse competition on an individual basis. I'm going to compare some specific growth rates, ratios and multiples and then take conclusions to understand if Crocs share price is reasonable in relative terms. 

It's also important to notice that I'm not from USA and don't really know these companies, their reputation and their products and that is a very important analysis. 

WHOLESALE BUSINESS

• Deckers Outdoor Corp.
• Skechers USA Inc.
• Steven Madden, Ltd.
• Wolverine World Wide, Inc.
• VF Corporation
• ...

(when there's no information displayed is because one of the numbers used to compute the ratios and growth rates was negative, e.g.: Skechers USA Inc Net income is negative in 2011 so ROE is not displayed)

In terms of revenue growth for the last three years, Crocs is just a little bit above the average (21%), is the first in the sample in terms of EPS growth and is second to what concerns cash-flow growth. Its important to understand that Deckers and VF Corporation had negative cash-flows in 2011 due to investments made in acquisitions. Still, given these numbers I believe Crocs is well positioned in terms of growth compared to this peers.

Regarding some operational metrics, Crocs has above average results in all of these. It scores second (after Deckers) in ROE, ROA and Net margin. It has the highest Gross margin, and no significant debt. To be true, Crocs has a revolving credit facility which provides up to $70 million in borrowings, but its use has been very residual (outstanding balance of $0.4 million as of December 31st, 2011).

In terms of relative valuation, mixed conclusions can be drawn. In the earnings multiple, Crocs is priced below the average of its peers making it cheaper. But if compared through the book value or sales, Crocs is actually priced above the average. If Skechers is taken out of the sample this conclusions are reversed as this company can be seen as an outlier because it had negative income in 2011 and its PBV and P/Sales are too low, probably to reflect that as well.

The 1-year return of the stock price of Crocs is about -45%. The only worst performance was Deckers' with -54%. Actually, Crocs has the 2nd worst performance of this sample for the last 6 and 3 months (-2% and -27% respectively).

RETAIL BUSINESS

• Genesco, Inc.
• Macy’s
• Dillard’s
• Dick’s Sporting Goods Inc.
• The Finish Line, Inc.
• Footlocker, Inc.
• ...

As we can see, when compared to retail peers, Crocs doesn't stand out so much in terms of growth. The growth in revenues is higher than the average, and we'll see that this is being accomplished with higher margins than other competitors. Still, EPS growth is lower than the other companies for the last three years. Since the other companies revenues growth was substantially lower, this might mean other companies are doing a better job in cost reduction. Anyway, the company still stands out in generating cash-flow.

Regarding these metrics, Crocs presents the best results, leading in ROE, ROA, Net Margin and Gross Margin. 

In relative valuation terms, results seem close to the ones drawn in the wholesale business analysis. It presents the second lowest PER, but above-average PBV and P/sales. 

When compared with its retail peers, Crocs reveals by far the worst 1-year return as well as the worst 6, 3 and 1-month return.

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