Why CROX failed?

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By now it’s no secret that CROX stock failed. After it issued horrendous 2Q 08 preliminary results and full year guidance yesterday afternoon (refer to MarketWatch for more details). I don’t want to dive into the numbers and add salt to injury. I traded the stock last year until this Feb. when I realized it was time to sell. Besides my doubts on its financial and fashion, I could not understand why a company claims its success from logistics got “inventory” problem. For fashion retailers excessive inventory is a common problem but it’s also the worst. There are many factors account for the quick bust of CROX, some will argue those kinds of stocks always fail. Over the years I have seen Travel Zoo, OverStock, Hansen (drink), Jones Soda, Heelys. I think fundamental reason is that their business is not sustainable, because of its fickle fashion nature, or flawed business model.

Catalyst for the fall
The short sellers, esp. the naked short sellers. Short sellers have been bashing this baby since its IPO in early 2006. They have been losing money until Nov. 1 2007 when CROX 3Q 07 missed street expectation. After that it’s obvious there is not much risk, esp. considering SEC recently started banning naked shorting on Fannie/Freddie and 19 primary brokers. In other words, SEC was saying go naked shorting oil, coal, retailers,…we will not prosecute you.

How often do you mark to market?

When financial companies reports its quarterly earnings, it has to mark its hedging positions (lots of mortgage papers) to the market, the problem is nowadays there are no market for lots of those papers. So the banks have to estimate, e.g., Berkshire (BRK.A) has reported a loss on its long positions on stock index in its 1Q 08 report; Cheseapeke Energy (CHK) marked its natural hedging positions each quarter too. Companies have to do that because of accounting rules. But we have to differentiate two type of activities: realized loss and unrealzied loss. For BRK’s long term stock index positions, mark to market is a pure accounting thing, no cash is involved; for CHK that’s slightly different, because its positions is mostly 2008, 2009 and 2010 positions, so some will be real loss or gain.

My take is when a person checks his/her stock positions, he/she is marking to the market. So how often do you “mark to market”? Every week, every day, every hour,…

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