Quick check on Crocs’ inventory

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More blindman’s check on elephant…

Crocs stock (CROX) had a big drop in last two sessions, amid the loss of patent lawsuit in EU, and some rumors on the business slowdown in general. When Crocs reported its Q3 2007 earning back on Oct 31 2007, it mentioned there is some excessive inventory because of the disruption of a new distribution center in Europe (and to less extent distribtution problem in Japan and China).

Here I am calculating its historic turn over ratio here (source: Crocs Q3 2006 10k, Q3 2007 10k). The ratio is defined as sales divide by inventory. The higher the ratio, the better for the company’s revenue growth.

First 9 months 2005: 75,022/28,494 = 2.63
First 9 months 2006: 241,824/49,128 = 4.92
Full year 2006: 354,728/86,210 = 4.11
First 9 months 2007: 622,554/195,256 = 3.19

As we can see from above, the inventory turn over was low in year 2005, then ramp up in 2006, and it pulled back lately due the problems mentioned above.

On the other hand, in the retail business, we should look at the price trend to examine if the inventory will be worth less (note sub-prime loan write down in the financial sector lately). This has not happened for Crocs in the stores yet. As comparison, we can see Heelys discount their shoes (skates) to $39.99 in Sports Authority.

So, my gut feeling of Crocs is still doing OK, although the stock price really went down: its PE is about 15.5 as of Jan 9 2008, compared to about 40 three months. If it can hold its growth as it projected in last earning report (35% to 40%), this price is cheap.

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