Crocs Is A 'Show Me' Story, According To Susquehanna

Crocs, Inc. CROX is a "show me" story, at least according to Susquehanna's Sam Poser who initiated coverage of the stock with a Neutral rating and $9.50 price target.

According to Poser, Crocs' management is "doing the right thing" for the company's long-term success, including a focus on improving gross margins, smarter inventory management, supply chain improvements and a tight cost control. However, the visibility of a recovery in China "remains low" and the lingering affect of a historical chain mismanagement needs to be overcome before becoming construction.

Specifically, Poser stated that Crocs showed a "vastly improved" supply chain execution in the second quarter and his checks indicate customers are "starting to gain confidence" in the company's ability to deliver orders as promised. However, he acknowledged it's "too early to claim victory on this front."

"It is important to point out that CROX currently suffers from a scale problem, as retailers are reluctant to chase strong performing CROX product in lieu of chasing inventory of larger, more impactful brands," Poser expanded. "We think the shortfall in fill-in orders in 2Q and the concurrent 12% drop in wholesale revenue is partly due to this phenomenon."

Looking forward, Poser expects that larger initial 2017 orders could result in Crocs' achieving greater scale and a "healthy" reported direct to consumer comp of 2.9 percent in the recent quarter suggests that "underlying end market demand continues to grow."

Nevertheless, Poser repeated that Crocs has only demonstrated two quarters of improved supply chain execution so the analyst needs to "see more to be fully convinced that Crocs has turned the corner."