SAN FRANCISCO (Reuters) - Crocs Inc CROX.O posted a deep quarterly loss on Wednesday as sales of its once-trendy, colorful plastic shoes plunged and it racked up high restructuring costs, sending its shares down 37 percent in extended trading.
The former Wall Street darling also outlined several new measures to slash costs and streamline the bloated company, including shutting a Brazilian manufacturing plant and reducing capital expenditures for next year by 50 percent from 2008 levels.
“They’ve built an infrastructure over the last few years to handle what they though was a $2 billion company,” said Sterne Agee analyst Sam Poser. “Now they’ll have $500 million maybe.”
Launched in Colorado in 2002, Crocs’ quirky, bright and comfortable resin clogs quickly attracted a cult following and, within three years, the brand began attracting notice around the country.
People who spent time on their feet, whether doctors or cooks, cited their comfort, and parents bought them for their kids because of their fun colors and ease slipping on and off.
But the novelty of the original Crocs clogs has since waned and Crocs has branched out its business into new styles. The weak U.S. economy has further crimped demand and hampered investor interest in the stock.
“This is a good solid kids business. The adult part, the full lifestyle brand? Who knows?” said Poser, who tracks footwear companies, but does not cover Crocs specifically.
Since hitting a lifetime high of $75.21 in October of last year, Crocs shares have shed more than 97 percent of their value, closing at $1.90 Wednesday on Nasdaq.
Also on Wednesday, Microsoft Corp MSFT.O founder Bill Gates reported a 5.6 percent passive stake in Crocs, amounting to 4.7 million shares, as of November 3.
In its third quarter ended September 30, Crocs had a net loss of $148 million, or $1.79 per share, compared with a net profit of $56.5 million, or 66 cents per share, a year earlier.
It was not immediately clear whether that was comparable to the 2 cents per share in profit expected, on average, by analysts polled by Reuters Estimates.
In August, Niwot, Colorado-based Crocs estimated quarterly earnings of 1 cent to 5 cents per share.
Results included a $70 million charge related to inventory write-downs, including products in certain colors expected to be marked down.
The company has been trying to cut back its infrastructure to be more in line with its future growth prospects. Its inventories, which fell 36 percent in the quarter, have been out of line with sales in recent months.
Analyst Poser said it was hard to know whether these inventory issues would recur.
“At this moment we can’t assume this is the last we’ll see of it,” he said.
Sales fell 32 percent to $174.2 million, below the $201.7 million expected, on average, by Wall Street, and the $195 million to $205 million expected by Crocs.
Gross profit margins tumbled to 1.4 percent of revenues from 60.6 percent a year earlier.
Chief Executive Ron Snyder said the company lowered its projected sales volumes and would “right-size” operations. Capital spending in 2009 will be about half what it was this year, he added.
Crocs, which has been rolling out stores around the world even as it has cut staff, plans to be “very discriminate” in spending money on store openings, said Snyder. He added the company would still look at openings in various areas of the world, but had scaled back plans for 2009.
Crocs has been developing new product lines, where it said demand had been high, and has been refining its merchandising and distribution strategies.
Nevertheless, in addition to the dismal state of U.S. consumer spending, Crocs has been hurt by news its shoes can get caught in escalators and cause injuries, together with the plethora of knock-off shoes in the marketplace, and a recent European Union ruling that a Crocs patent is invalid.
Crocs estimated a fourth-quarter loss of 50 cents to 65 cents a share on revenue of $100 million to $120 million.
Wall Street, on average, had been expecting fourth-quarter sales of $185.7 million, according to Reuters Estimates.
The company said it would not provide a 2009 outlook due to “the uncertainty in the global economies.”
Crocs shares dropped 37 percent to $1.20 in after-hours trading. The stock ended down 11.6 percent at $1.90 on Nasdaq, the lowest since May 2003.
Reporting by Alexandria Sage, editing by Richard Chang and Andre Grenon
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