A Poser’s Channel Checks Gone Awry

For months and months and months, Sam Poser (the same guy who just threw DECK under the bus by reducing his price target from $130 to an astonishing $72) pounded the table for CROX, the retarded rubber shoe maker.

Here’s what Sammy had to say:

September 19, 2011

Company Report

Footwear & Apparel

Crocs Inc. (NYSE: CROX)

Rating: Buy

Price: $28.28
Price Target: $40.00
Analysts: Sam Poser / Kenneth M. Stumphauzer, CFA /

Breadth of product line, improving distribution strategy, and numerous growth opportunities leave us very positive about current trends and the future

n Breadth and quality of product mix and growth opportunities are the key stories. We spent a few days last week with Jeff Lasher, CROX CFO, and came away quite confident that both our 2012 revenue and EBIT margin growth forecast will prove conservative. Based on many of our meetings, we believe that a large number of potential investors do not appreciate that only 9% (yes 9%) of Crocs revenue comes from the classic original Beach and Caymen clog styles. ~50% of the revenue does come from Clogs, but the best-selling new shoe in spring 2011 was the Translucent Adrina flat, which is about as far from a clog as one can get. Other recent additions to Crocs’ mix are the Chameleon, Golf, Sneaker, and Boot collections, all of which have very compelling new shoes that will continue to position the brand as an affordable comfort lifestyle brand.

n Global growth likely to continue in the double digits: In 2010 Americas, Europe and Asia represented 47%, 16%, and 36% of total revenue. 2012 YTD sales were up 25%, 46% and 36% in the Americas, Europe and Asia. Management said that international growth would outpace domestic growth for some time to come. Management said that the growth in the U.S. was going to be driven by an increase in door count at key large accounts, reestablishing relationships with major independent accounts and a broader mix of product in every channel of distribution. In the U.S. 50% of revenue comes from wholesale accounts, 50% of that wholesale business comes from independent retailers, and some key independents that cut back and or ceased Crocs business in 2008 are beginning to buy the shoes once again. Crocs appears to be in the process of looking for production facilities in Brazil (a country with material growth potential), which are needed due to duties of $12 per pair for shoes from China. The European business is driven primarily by Northern and Central Europe with little exposure thus far in troubled countries such as Spain and Greece. Asian sales are expected to continue to have rapid growth led by store growth of at least 15% in China, new customers in Japan and South Korea and new business in New Zealand.

n Strong margin and sales growth potential: At the analyst day earlier this year management put forth an EBIT margin goal of 15%, which will likely be achieved this year. Following our recent meetings with the CFO, we believe that management will put forth a 3- to 4-year plan next January at the ICR investor conference, and that the a high-teens margin goal will be put in place and will be primarily achieved through G&A leverage, on a plan for ongoing 20% plus annual revenue growth Crocs does have more GM expansion opportunities over time as the history from the backlog is gathered and educated decisions are made for speculative inventory for at-once sales. Remember that retailers are encouraged to place futures by being given a discount, and discounts are not given for A/O orders. In the short term, the reported backlog for spring ’12 on the 3Q11 earnings call will be a key data point. Given the new points of distribution and the strong new product, we would expect a backlog in excess of 35%. We are also comfortable with our 4Q11 GM estimate of 50% which is well below 1Q-3Q margins but 180bps above 4Q10 margin. We believe that management has learned from the mistakes of the past and are becoming well positioned for a strong future.

October 17, 2011

Company Report

Footwear & Apparel

Crocs Inc. (NYSE: CROX)

Rating: Buy

Price: $26.64
Price Target: $30.00
Analysts: Sam Poser / Kenneth M. Stumphauzer, CFA /

Early release of disappointing results due to disappointing retail sales. This is not 2007/2008 all over again. Lowering estimates and price target.

n Disappointing earnings and 4Q11 outlook: In a major surprise this evening, CROX lowered 3Q11 EPS guidance from $0.40 to $0.31-$0.33, and lowered revenue guidance from $280M to $273M-$275M. The revised EPS guidance reflects EBIT margin of ~13%, down ~300BPS from the original guidance but up ~90bps from 3Q10. The earnings miss was driven by light retail sales in North American outlets and kiosks that respectively had too little promotional product and could not effectively house new fall goods, and weaker than planned European retail sales. Retail sales have meaningful incremental margins, meaning that the modest top-line miss had a pronounced impact on the bottom line. The weak sales resulted in lower than planned penetration of the higher margin retail sales which was exacerbated by supporting some wholesale revenue with product that was slated to retail. Wholesale revenue exceeded the company’s expectation. In the press release and subsequent discussions with management, full financial details were not provided and will not be until the earnings call on October 27.

n Not 2007 but not pretty: Inventory levels are expected to be slightly down from $156M on a sequential basis, which means that inventory will likely be up around 7% and at most 9% on a year-over-year basis. Given that 3Q sales were up ~27% and 4Q11 has been guided to a low teens revenue increase versus our prior estimate for a 26% increase, inventory levels are well positioned.

n Strong wholesale backlog indicates strength into 2012: The backlog for the next 6 months is $297M (+30% y/y). We believe that 4Q backlog is up 18%-20% and 1Q12 is up 33%-35%. The company expects relative weakness in European markets, which surprised us as we thought that the small size of the business there would result in growth. Recent channel checks with major retailers indicate that sales of Crocs’ new styles remain strong and are accelerating and those retailers are planning Crocs up double digits in 2012. The planned increases will come through broader assortments and increased door counts as well.

n Lowering estimates and price target: We are lowering our 3Q11, 4Q11, FY11 and FY12 EPS estimates from $0.40, $0.15, $1.38, and $1.69 to $0.32, $0.05, $1.19, and $1.42. We are lowering our price target to $30 from $40. We still see strength in the overall brand and do not believe that the $5M miss is indicative of brand weakness. However, given the company’s history in 2007 and 2008, we would expect the stock to be in the penalty box in the near term. We do not believe the weakness in Europe is endemic of broader problems there. Rather, we believe that Crocs is having issues with its distributor partners which need resolution. Crocs’ senior management will be joining us at an event this weekend and we hope to get some more items clarified at that time. In the meantime we believe the weakness provides a buying opportunity.

The result?

Okay, Sammy got CROX wrong. No wait, he got his channel checks really, really wrong on CROX. But he’s been right on others, right? Let’s have a look.

SKX – Skechers USA Ltd. – Following management meetings and product review, we believe rewards outweigh the risks. Adjusting estimates
Skechers USA Ltd. (NYSE: SKX)
Rating: Buy

Current Price: $23.07
Price Target: $30.00

Oh fuck, more channel checks gone awry!

Maybe he had some good channel checks before?

SKX – Skechers USA Ltd. – We conclude, following meeting with management, that it’s not the end of the world as we know it. Lowering estimates and PT and retain Buy rating.
September 28, 2010 Company Report

Footwear & Apparel

Skechers USA Ltd. (NYSE: SKX)
Rating: Buy

Current Price: $22.71
Price Target: $38

Nah, he doesn’t know what the fuck he is talking about.

SKX – Skechers USA Ltd. – Following meeting with management we are more confident that opportunities abound to exceed our Street high estimates
Skechers USA Ltd.
SKX: $36.23 – Recommendation: BUY – Target Price: $40.00

Yeah, wrong again, just for shits and giggles.

“The Fly” reiterates his strong buy on DECK, price target $1 gagillion.