LOS ANGELES (Reuters) - Shares of Crocs Inc CROX.O plummeted over 40 percent on Tuesday, a day after the maker of brightly colored plastic shoes slashed its sales and earnings projections for the first quarter and year, in what one analyst dubbed a "stunning fall."
At least one Wall Street brokerage, Wedbush Morgan, downgraded its shares to “hold” from “strong buy” with analyst Jeff Mintz citing reduced retail demand for the product.
“Current macrotrends in the environment” have led to weaker-than-expected sales, according to Crocs Chief Executive Ron Snyder, speaking to analysts during a conference call on Tuesday. Colder weather and the closure of the company’s Canadian factory were also expected to crimp profit.
Reduced store traffic in U.S. stores, together with fewer retail orders, have cut into the footwear maker’s sales, given what Snyder called the “impulse buy” nature of his company’s shoes.
“We need the traffic in order for our sales to really pick up,” Snyder told analysts.
U.S. consumers have been cutting back on purchases as they feel pressure from high gasoline and food costs, a slump in the housing market, tight credit and fears of a recession.
J.P. Morgan analyst Robert Samuels called Crocs’ lowered guidance -- which predicts a possible loss of up to 5 cents per share in the first quarter from an earlier view of 46 cents profit -- “stunning.”
“We think bears will take the shortfall as evidence that the brand is over,” Samuels wrote in a note.
Samuels said he believed there was still a place in the footwear market for the Crocs brand, but advised investors to stay on the sidelines until current economic pressures, inventory issues and short-selling activity play out.
The company’s shares have already taken a beating in recent months. As of Monday’s close, shares were down 76 percent from an all-time high of $74.75 in October, battered by consumer complaints that the shoes can cause injuries on escalators, patent disputes, and reports of slowing business.
A mere 10 to 15 percent projected increase in revenue in the second quarter -- when stores gear up for the strong summer and back-to-school selling seasons -- give “fuel to the argument that the brand’s popularity is in sharp decline,” Samuels wrote.
Meanwhile, margins tumbled during the quarter, based on projections, in what Samuels called a “significant mismanagement of expenses” that called into question the credibility of Crocs management.
For fiscal 2008, Crocs now sees earnings to range between $1.54 and $1.64 per share, from an earlier view of $2.70. Revenue is forecast to rise between 15 to 20 percent over 2007, below the 37 percent the company had projected earlier.
The company declined to comment on its previously held long-term growth projection of 20 percent to 30 percent, saying it would do so when it announces first-quarter earnings.
Shares of Crocs fell as low as $10.30, down 42 percent, on Tuesday from Monday’s closing price of $17.79 on the Nasdaq.
Reporting by Alexandria Sage, editing by Phil Berlowitz
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