Last summer at Glenmoor Country Club, I noticed scores of people lounging around the pool with what looked like disposable plastic shoes.
I figured the club issued this ostensibly cheap footwear in the locker room so members wouldn’t walk barefoot or risk having to get their own shoes wet.
These shoes came in several colors. I figured this was so locker room attendants could easily sort them by size.
Otherwise, these clunky clogs looked like something a little Dutch girl would wear – a poor little Dutch girl who could not afford real wood.
Leave it to my wife to set me straight:
“Are you kidding? Those are Crocs. Those are the hottest things.”
Imagine my shock: I had no idea the economy was so bad that country-club folks had to pad around in plastic shoes.
During the economically tumultuous 1970s, my mom would buy me canvas gym shoes at Kmart for $1. This would have been embarrassing, except that most of my more affluent friends simply refused to believe that one could actually buy two shoes for $1.
Crocs must be the $1 knockoff of Birkenstocks, I thought.
Wrong again. My wife told me she had been to Nordstrom to buy a pair for our son. They cost about $30, she said.
“You wasted $30 on plastic shoes?” I cried.
“You don’t understand,” my wife said. “They are the hottest things.”
I’ve since come to learn that Crocs are not plastic. They are made out of something called “closed-cell resin.”
Apparently, this substance has a strange effect on millions of people. Once they see it, they absolutely have to have it in many of the 18 available colors.
Consequently, Crocs cannot keep pace with demand. The Niwot-based company, which came out with its first branded shoe in November 2002, had only $1.2 million in revenues in 2003. But last year, it had estimated revenues of $108 million.
Crocs sold 6 million pairs last year, and it’s a safe bet they’ll sell more this year. Big retailers carry the shoes, including The Sports Authority, Dick’s Sporting Goods, REI, Dillard’s and Nordstrom.
Despite such success, or perhaps because of it, the company and its founders will soon make more money selling stock than they’ve ever made selling shoes.
Based on available financials, Crocs has only made $16 million in profits over its brief life. Yet on Wednesday the company and some of its stockholders will sell stock worth nearly $200 million.
After its initial public stock offering, the company will have a market capitalization of more than $740 million.
That’s astonishing considering the company’s book value. The company warns in its stock registration papers that anyone buying at the assumed IPO price of $19.50 will experience immediate dilution of $16.82 per share. In other words, based on something called “net tangible book value,” the company’s stock is only worth $2.68 per share. And once executives and employees start cashing their stock options, the dilution will be greater, the company warns.
Nevertheless, some people will buy Croc stock because they love the shoes. Others will buy betting that its parabolic growth curve will continue. Stock analysts are bullish on Croc’s IPO, too.
“I wouldn’t be surprised if it doubled” in its first day of trading, said Melanie Hase of Greenwich, Conn.-based Renaissance Capital, which analyzes IPOs.
She notes that recent IPOs of apparel companies – Volcom, Zumiez and Under Armour – popped by an average 58 percent on their first trading day.
“They are the shoe of 2006,” Hase said. “Longer term, they are a big question mark, because the next best thing might come around a year from now.”
Who can predict fashion?
Half of the proceeds of Crocs’ stock sale will go to selling stockholders, including the company’s three founders.
It’s sell, sell, sell before the shoes go out of style. Ninety-four percent of Crocs’ revenues come from its shoes.
So what if consumers suddenly decide they don’t like adorning their feet with brightly colored closed-cell resin?
Well, they won’t be calling it Croc stock for nothing.
Al Lewis’ column appears Sundays, Tuesdays and Fridays.
