Crocs Puts Best Foot Forward in Restructuring

NEW YORK (The Deal) -- Crocs (CROX) said late Monday it would exit badly performing stores, slash jobs, and streamline operations, sending shares of the plastic clogs retailer up more than 12% on Tuesday.

Niwot, Colo.-based Crocs said it would explore strategic alternatives and terminate product development of unspecified non core brands; shut down or convert between 75 and 100 company-owned storefronts - 18 of which will be impacted in the second quarter of 2014; and cut 183 jobs, most of which will be implemented immediately.

"The No. 1 priority is improving the operating margins of the business, focusing the organization on the right products and right geographies," Crocs CFO Jeff Lasher said in an interview Tuesday. "We have a couple of business units that we're not really sure make sense for us going forward," he added, noting this could refer to pure brands such as its Ocean Minded slip-on shoes and sandals or other more product line-oriented units.

The strategic plan will help the company reach 12% operating margins over time, Crocs said. The reduction in headcount is expected to result in $4 million in savings in 2014 and $10 million in savings in 2015, while store exits will trim sales by between $35 and $50 million. Lasher said between 25 and 30 of the store closings will be in the U.S.

"There is now a very publicly detailed strategic plan," said Steven Marotta, a footwear and apparel analyst with C.L. King & Associates. "Crocs has a high profile partner in Blackstone, a high quality president in Andrew Rees and a new CEO yet to be named - that's a nice recipe for investors to get excited."

The news sent shares of Crocs, trading on the Nasdaq, up 12.4% to finish at $16.68 Tuesday, bringing the company's market capitalization to about $1.46 billion.


Last November, reports emerged that Crocs had hit the auction block. Blackstone Group (BX) and Kohlberg Kravis Roberts (KKR) were among those rumored as potential bidders. Rather than an outright sale, Crocs on Dec. 30 scored a $200 million investment from Blackstone, permitting the company to buy back $350 million of its stock.

Crocs said at the time it was setting out to find a new chief executive following the announcement of CEO John McCarvel's resignation, which took effect in late April. Blackstone, in connection with its investment, gained two seats on the company's board that will ultimately select the new CEO.

The strategic restructuring plans came within Crocs' announcement of second quarter results, released Monday after the close of regular trading.

Crocs posted $376.9 million in revenue for its quarter ended June 30, slightly above analysts' expectations and up from $363.8 million a year earlier.

Its profit narrowed to $23.3 million, from $35.4 million, partly due to about $4.1 million in restructuring charges over the quarter. Revenue gains were attributed to growth in Europe, including improved e-commerce sales, among other things.

Crocs will also open a new Global Commercial Center in Boston in late 2014, shift its direct investments in smaller geographic markets to larger geographic markets worldwide, and consolidate its global e-commerce sites to 11, from 21. The company's headquarters will remain in Colorado.

"One of the reasons investors are applauding Crocs today is because in the consumer environment it's very difficult to find names that are working," Maretta said, noting that from both a macro economic standpoint and industry-specific standpoint, various factors are working against the consumer sector. "Investors are gravitating towards names that are either working or have potential to turnaround."

Other followers of Crocs agreed.

"Crocs is a well-established global brand with a strong international footprint that has significant opportunity for improvement," Piper Jaffray analyst Erinn Murphy wrote in a Tuesday note. "We favor the company's strategic focus on profitability."

The company's search for a new CEO continues, Lasher said, noting that Croc's new Boston offices will help cast a wider net for its search.

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