Crocs Transition Taking More Time; Stifel Downgrades

Stifel’s Jim Duffy mentioned that while the global retail environment was tough, early Spring checks in North America were “uninspiring.”

Duffy downgraded the rating on Crocs, Inc. CROX from Buy to Hold.

North American Retail

Although the analyst believes that the company would be able to return to double digit EBIT margins over the long term, “CROX planned path to achieve this objective by 2018 is predicated on high single digit revenue growth,” which Duffy believes is aggressive.

Duffy pointed out that retailers in the northern hemisphere carried excess fall and winter footwear inventory into 1H16, which resulted in a highly promotional environment in 1Q.

Although the earlier Easter and the weather helped early sales of spring merchandise in the U.S. during March, April appears to have been a “soft patch.”

“We believe retailers globally are taking a conservative stance with inventory management into fall challenging both at-once in 2Q and open-to-buy orders for 2H,” the analyst stated.

Early Spring Checks

Early spring checks in the U.S. do not indicate any building up of brand momentum. Although Crocs stores are carrying newer styles, wholesale checks suggest the store penetration is below expectations.

“We interpret this to mean that channel partners are taking a measured approach to embracing product line transition. More concerning, checks with heritage accounts showed some regions are either no longer carrying the brand or only carrying a limited assortment of styles,” Duffy mentioned.

The analyst expressed concerns regarding the company achieving its revenue growth targets for 2016.