Goldman Sachs Initiates Coverage on Crocs and Other Shoemakers

Tuesday, November 27, Goldman Sachs initiated coverage of Crocs, Inc CROX and several other footwear purveyors including Foot Locker FL, Deckers Outdoor DECK and Steven Madden SHOO. The report prefers CROX and FL due to their near-term earnings and large cash reserves. They anticipate that CROX and FL will uphold their agreement with shareholders in distributing dividends and share buybacks. The report is also neutral on DECK and recommends to sell SHOO. Preferring more athletic-oriented brands to those that rely on fashion, it notes that SHOO is at full valuation, peak operating metrics, and fashion dependence. The downside risk is disproportionate to that of the group average. Goldman Sachs is hot on Crocs because they believe it has outgrown its roots as a U.S. footwear fad. Crocs is now a $1 billion brand that is expanding across the world. For the past 30 days, Crocs has fluctuated from as high as $13.23 share (current as of mid-day trading on Tuesday, November 27) and as low as $12.03 per share. Crocs is also down 9.6% from its price one year ago. Overall, the news from Goldman Sachs looks on the bright side of CROX. They are relying on a particularly strong fourth quarter performance due to the heavy weight of Crocs' 50% American sales base. Also, they expect Crocs to initiate some large-scale stock repurchasing activity, which is the direction management has leaned in recent times. One reason for the sell recommendation on Steven Madden is the SHOO company's reliance on their private label, which is more competitive and less profitable than the branded business.