Wei Wu ID: 7020761010 Executive Summary on Crocs Due on 10. 1 The executive summary aims to analysis whether the Crocs's stock, after the recent 36% decline, is still worth investing. When the market price plummeted in 2007, many investors lost faith because the management of Crocs is relatively young and thus unproven. Therefore it is fundamental that the track of Crocs's management be analyzed. The Crocs management proven to be vary competent. Since establishment it has been focusing on three issues: counteracting the market and industry risk; decreasing production costs; adapting market trend.
Firstly, it is notable that in footwear and apparel industry, large retailers with strong bargaining power shift inventory-holding risk to manufacturer while grasping other benefits. But Crocs has successfully developed a variety of distribution channels that dissipate the retailers' impact, improving the inventory turnover(See Chart 1). Moreover, while in 2007 the shrinking US economy led to the general market recession, Crocs still managed to exceed the profit expectation thanks to its global marketing strategy. It is expected that its markets in Brazil, India and China will bring significant revenue growth in the future.
Secondly, to minimize production costs, Crocs substantially and successful depends on third-party-operated factories for footwear production and the acquisitions of smaller corporations like Foam Creation and EXO that offer special materials or intermediate products. As can been seen in Chart 1, the Cost of Sales/Sales ratio was decreasing from 2003 to 2007. Thirdly, through several acquisitions, Crocs has been increasingly featuring product customization and environmentally-friendly nature for its products, thus guaranteeing their future market occupation.
Financially speaking, Crocs is doing well in general in the recent two fiscal years. It is observed in Chart 1 that the solvency ability of Crocs enjoyed remarkable improvement, making it less vulnerable towards debt&interest risk. And although a huge decline is observed in its ROE from 2005 to 2006, using DuPont method it is clear that the decline is caused by the drop in equity multiplier, the management-indicative ROA remains still(See Chart 2).
It must be pointed out that, despite the minor worsening trend in the asset management ratios, Crocs outperforms its competitors and industry average when it comes to revenue growth, production optimization and internal management efficiency(See Chart 3). Generally speaking, Crocs is considered vary competitive and potential in the footwear&apparel industry. Yet since the previous upward trend in stock price was motivated by high growth expectation and that the growth rate is expected to fall rapidly(See Chart 4), it is reasonable to infer that the price should continue to go down for a moderate period until the market become profit driven.
Also comparably the stock of Crocs is slightly overpriced for the time being(See Chart 5), therefore waiting for the stock price to form a sound resistance level is recommendable. |Chart 1 | | | | | | |Ratios |2003 |2004 |2005 |2006 |2007(est. ) | |Cost of Sales/Sales |0. 77 |0. 53 |0. 44 |0. 44 |0. 2 | | | | | | | | |Solvency | | | | | | |Current Ratio | | |1. 22 |2. 71 | | |Quick Ratio | | |0. 61 |1. 73 | | |Cash Ratio | | |0. 1 |0. 52 | | |Total Debt Ratio | | |0. 76 |0. 31 | | | | | | | | | |Asset Management | | | | | | |Asset Turnover | | |1. |1. 19 | | |Inventory Turnover | | |1. 68 |1. 79 | | |Receivable Turnover | | |6. 16 |5. 41 | | Chart 2 [pic] Chart 3 [pic] Chart 4 [pic] Chart 5 [pic]