Bear of the Day: Crocs (CROX) - Bear of the Day

Crocs (CROX), Zacks Rank #5 (Strong Sell), manufactures and markets footwear products. The company recently disappointed investors reporting June quarterly profits of 48 cents per share against a Zacks Consensus Earnings Estimate of 64 cents. The 25% negative earnings surprise contributed to a sharp price decline, and has left the stock struggling near a six month low.

Earnings estimates are falling:

Earnings estimates for Crocs have declined sharply over the past thirty days and paint a negative picture. The Zacks Consensus EPS Forecast for 2013 has declined 37 cents to $1.02, while Zacks Consensus EPS Forecast for 2014 has dropped 39 cents to $1.22. The graphic displays the downward trend in analyst revisions.



There have been no estimate increases for either 2013 or 2014 over the past 30 days and seven estimate decreases over the same period.

Gross margins are under pressure:

Gross margin has been eroding in recent quarters. It has declined from 54.6% in the quarter ending September 2012 to 53.7% in the quarter ending June 2013. Gross margins were the lowest since 2010.

A decline in the order book of 6.7% and a weak consumer environment in the U.S. and Europe look to be generating headwinds to the outlook for sales and gross margin.

Valuation:

Valuation is not expensive at 12.4 times forward 12 month earnings, but the PEG ratio is 1.00 and over the 10 year median of 0.90. Concerns over profit growth and margin erosion may justify a depressed looking PE ratio.

Alternatives:

Those looking for exposure to the apparel industry may want to think about Hansbrands (HBI) Zacks Rank #1 (Strong Buy). Unlike Crocs, earnings estimates for Hansbrands are being revised upward. Gross margins are also expanding, and near the top end of the historical range.

When it comes to Crocs, this shoe does not seem to fit into y! our portfolio.