Croc shares plummet after lower sales forecast, Quebec plant closure
By Ben Shingler The Canadian Press
By Ben Shingler The Canadian Press
April 18, 2008 – Footwear maker Crocs Inc. will close its Quebec factory
in July, ending 670 jobs at the plant that helped create the colourful
foam clog sensation.
Shares of the Colorado-based company were pounded in Tuesday trading
after it lowered first-quarter forecasts, blaming fewer sales of the
funky shoes and costs related to the shutdown of the plant.
The company will shift Quebec City production to Mexico but
will keep open its sales and marketing office and retail store in the
Quebec's economic development minister blasted the move as a "nice case of savage capitalism."
Raymond Bachand accused Crocs of being interested only in the cosmetic benefits of shutting down a factory.
"Crocs Quebec represents about four per cent of their worldwide
production," he said Tuesday in Quebec City. "They wanted to give the
markets a signal that they were doing something since they're flush in
The Quebec City plant was opened by Foam Creations in 2001.
Workers helped Crocs design the comfortable, odourless foam used in the
footwear. Crocs bought Foam Creations in 2004.
Crocs said 262 people had already been laid off and the rest will lose their positions by the end of July.
The Teamsters union representing Quebec's Crocs workers was not ready to concede the plant will close.
"We are meeting with factory management later (Tuesday) or in
the next few days," said Stephane Lacroix, director of communications
"Hopefully the government will help us as well.
"When we're talking about research, development and innovation, we think we can compete."
Philippe Couillard, the provincial cabinet minister for the
Quebec City region, said Tuesday the government had contacted the
company and tried to prevent the closure. But Couillard said Quebec
cannot stop Crocs from closing the plant.
Crocs will be able to meet its North American needs through a
flexible manufacturing operation in Mexico, chief executive Ron Snyder
said in a conference call Tuesday.
"That's a very vertically integrated factory, where the Canadian facility didn't have all of those capabilities," Snyder said.
He said it makes sense to consolidate all manufacturing in North
America in a lower-cost factory capable of producing both sewn and
moulded products as well as compounding its own raw materials.
"While it was a difficult decision to close down our
manufacturing facility we believe it was necessary in order to improve
our cost structure going forward," Snyder said.
Crocs shares closed down $7.68 to $10.11, a drop of 43 per cent in heavy Tuesday trading.
In the past 52 weeks, it has traded between $15.42 a share and $75.21 a share.
Crocs cut its first-quarter revenue estimate to between $195
million and $200 million, from previous guidance of $225 million.
Analysts had predicted revenue of $223.3 million.
The revised forecast will translate into an increase of 37 per
cent to 41 per cent in revenue over the previous first quarter, with
domestic sales up 13 per cent, European sales rising about 90 per cent
and Asian sales 75 per cent higher, the company said.
For the fiscal second quarter, Crocs expects diluted earnings
per share between 42 cents and 47 cents, or 45 cents to 50 cents,
excluding a three-cent charge for closing the Canadian plant. Analysts
had expected a profit of 79 cents per share.
For fiscal 2008, Crocs expects a profit of $1.54 to $1.64 per
share, or $1.70 to $1.80 excluding one-time charges. Analysts had
predicted a profit of $2.63 per share.
In a note to clients, Wedbush Morgan Securities analyst Jeff
Mintz downgraded Crocs' stock from a "strong buy" to a "hold." He said
he was concerned about margins and the potential weakness in the core
"We believe these sales are at risk of significant decline as
consumers, especially in the U.S., begin to move away from the style
that defined Crocs," Mintz wrote.
The cut in guidance likely was triggered in part by inventory
problems. Crocs last year had difficulty meeting demand, which probably
led to stores over-ordering and ending up with high inventory levels,
However, Mintz added, international sales should keep the company's revenue growth in the double digits this year.
JPMorgan analyst Robert Samuels said the announcement was "a
stunning fall" that he believes represented a "significant
mismanagement of expenses."
"We stick by our belief that there is a place in the current
footwear market for Crocs as a brand but would recommend staying on the
sidelines until macro pressures, inventory issues and record short
interest play out," he wrote to clients.
It is a difficult setback for the six-year-old company that
sells a colourful variety of shoes made of a proprietary closed-cell
resin material and featuring holes scattered across the top and around
Based north of Denver, Crocs was founded in 2002 by three
Boulder businessman who wanted to market an unusual resin shoe
developed and manufactured by Foam Creations Inc. The company went
public in February 2006.