CROCS Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

CROCS Case Study Solution

INTRODUCTION:

Crocs Inc. was established by three partners in November 2002, with the aim of providing low priced sports shoes, slippers and sandals to the domestic consumer class in the USA. Crocs progression can be reflected by its impressive revenue growth rates which have risen 6 times,since its launch. And with various acquisitions, Crocs has successfully established its place on international grounds and has reached 8,000 stores in about 90 countries.

Ron Snyder, Chief Executive Officer of Crocs Inc. was too proud of his achievements, and believed that Crocs has a large room for growth and many more successful, until CROCs experienced a fall in share price, in August 2007.

Crocs secret of success lies in high-profit-margin, due to low production cost, as compared to other manufacturers in the industry. It has acquired five companies since its establishment, and each of them resulted in increased market scope and better production techniques.

In 2005,Crocs announced anInitial Public Offer, to raise $198 million funds by issuing 9.9 million shares. But instead it raised $ 208 million instead, and each share offered at $21 boosted with an increase of 35% to $28.56/share in the closing of the first day of stock market and even rose to $30.2/share before the first day closing. But meeting high expectations, Crocs reached revenue figure of $354 million in 2006 which was more than three times of 2006 revenues of $108 million.

When people see good they expect good, this is the reason that with remarkable results, investors of Crocs built high hopes for Crocs, and that was the reason that even with above budget revenues, Crocs share price fell by 36% (to $47.74) in August 2006. The reason behind was no growth in forecasted revenue (for next quarter).

Stacy Yeung, the analyst of Crocs, had high hopes and still believes that this temporary fall will recover in early future.

Crocs current Performance:

It can be observed that Crocs has been doing really good, especially in recent years. The EPS of 4.31 is even above Nike’s EPS of 3.32, though a number of shares can be a reason behind it. EBITDA of $241 million against $847 million of sales gives an impressive COGS to sales return of 41%. Overall Crocs’ successful management and impressive results have enabled it to cope with the market giants like Nike and have certainly kept Crocs prestige much above market average.

Sensitivity Analysis:

An effective method to evaluate company’s performance is through sensitivity analysis. Based on the given data and the necessary assumptions, the 5-year forecast (from 2008 to 2012) will result in an NPV of $489 million. Sensitivity to sales can be assessed by observing the impact of sales movement on its NPV. An increase of 20% of sales will lead NPV to $536 million with an 8% growth. But the decrease of 20% sales will result in an NPV of $357 million (a decrease of 28%).

Furthermore, to observe the change caused by higher or lower expense, we raised income-tax expense by 10% and noted a fall of 16%. These results show, that Crocs NPV has a more strong connection with expenses than its sales. Thus raising the variable cost of other expenses can put Crocs at high risk.

Available options:

Merger:

Crocs can protect its falling status, by merging itself with another well-recognized entity in the industry. Since Crocs still possess good image in the industry, there will be more than few companies who show their interest to merge with Crocs.

Debt Borrowing:

To shift effects of market movements on company’s equity, Crocs can restructure its capital investment, by adding a mix of debt borrowings. This way some part of Crocs investment will not depend upon investors view.

CROCS Harvard Case Solution & Analysis

Diversification:

Maybe it's time for Crocs to expand in new industries. The other income head indicates that company already has some additional investments, which mean that Crocs already possess some experience through operating in other industries. Crocs should consider expanding its roots to other industries, which may balance the negative impact of Crocs’ current market on the share price.

Recommendation:

Crocs, low gearing ratio, and its high growth have presented an attractive picture to investors and other stakeholders. Comparable indicates that Crocs is above industry average and is well equipped to reach high ends. Since its Launch, Crocs have been the very favorite among consumers of various markets. Hence, the temporary fall does not balance the high ends that which Crocs has achieved.

This it is recommended that Crocs should hold its position. And recover its worth by satisfying the investors and stakeholders, as there is still too much potential in the market, and Crocs has the right skill to achieve those future opportunities.

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