Crocs Inc. (CROX), crushed by a steep drop in demand for its colorful clogs, is treading more comfortably these days.

Two years ago, Crocs and its stock looked like a fashion fad on the brink of extinction. It had been a swift fall for a company whose initial public offering raised $223 million back in February 2006 as the distinctive footwear became ubiquitous.

Crocs' stock soared to an all-time high of $75.21 on Oct. 31, 2007. Fifty-four weeks later, it hit an all-time low of 79 cents a share.

After stomaching $227 million in losses, Crocs is still here, again enriching investors who dare to bet on a company with a self-described "ugly shoe."

After having plumbed penny-stock territory, Crocs shares are back in fashion, handily outperforming rivals Skechers USA (SKX) and Deckers Outdoor Corp.(DECK), maker of Teva sandals and Ugg boots.

Crocs shares recently traded up 1% at $12.85 and have increased twelvefold since January 2009, propelled by a year-long restructuring that cut inventories by 60%, shuttered seven Denver warehouses and reduced reliance on sales from its original clogs.

The overhaul is working.

Profit was $38 million for the six-month period that ended June 30, following a 2009 loss of $42 million. Sales rose 18% to $395 million. Gross margin climbed to 57.8% of sales, putting that metric back near 2007 levels, when sales boomed.

From July 1 through August, U.S. same-store sales, or sales at stores open one year, were up 12%, according to Russ Hammer, Crocs's chief financial officer.

Analysts have said the stock could run up another 40% from present levels based on the company's growth prospects. In the past week, two of the four analysts who cover Crocs raised their 12-month target prices to $18 a share, according to FactSet Research.

The average estimate is for Crocs to earn 68 cents a share this year and 85 cents a share in 2011, when annual sales are forecast to reach a record of $851 million. Sales swelled to $847 million in 2007, and the company scrambled to meet demand.

A year later, the economy tanked, and retailers slashed orders. The company suddenly faced a massive overhang of unsold shoes.

The rebound at Crocs contrasts with another company panned as a fad, Heelys Inc. (HLYS). The maker of sneakers with built-in wheels went public in December 2006, but its shares have languished below $5 a share for two years. The stock once traded around $40 a share.

A broader product line is helping Crocs, which seeks to extend demand for its footwear beyond spring and summer, with new shoes for winter use.

"Through the building of new products on a lower manufacturing footprint and increased points of distribution globally, Crocs is poised to win," Wall Street Strategies analyst Brian Sozzi said Tuesday in a research note. He added that "consumers have wised up to the more diversified nature of Crocs, and are willing to pay higher prices to get foot comfort."

Sales of new 2010 shoe models -- such as sneakers for kids and women's flats -- accounted for 31% of company sales in the first half of this year.

The new models are boosting prices and helping margins. The average sales price for its 250 items is $17.76, up from $15.80 a year ago. The company sells everything from socks to flip-flops to men's work shoes.

Crocs has bolstered its back-to-school lineup and set up local-language Internet sites for France, Germany and Italy. Web sales rose 16% for the six months ended June 30. Crocs rings up 60% of its sales in Asia, South America, Europe and Canada.

Also this year, Crocs opened 53 company-owned retail stores as it closes kiosks located in malls and highly trafficked areas. Stores give the company a chance to stock more products than a few kiosk items.

Yet not everyone is sold on the turnaround.

Crocs shares sold short--a gauge of investor skepticism--are creeping higher. While nowhere close to 2008's sky-high levels, short interest represents 14% of Crocs common shares outstanding. That's up from 10% in May.

Investors will want to pay close attention to the average number of days it takes Crocs to collect money after it makes a sale, an accounting metric followed by mindful investors as "days sales outstanding."

This ratio has been rising but it's far from clear whether Crocs is sitting on another inventory pileup. The next six months should give investors a good idea as Crocs aims to prove it's not a mere fad--again.

-Matt Andrejczak; 415-439-6400; AskNewswires@dowjones.com

 
 
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