Crocs had a tough week as it fired a warning shot to Wall Street that it would fail to meet its earlier guidance for both the first quarter and the fiscal year.  The Street shot back with the company’s stock closing down 43.1% for the week, closing at $10.22 on Friday.  The company lowered its first quarter revenue guidance to a range of $195 million to $200 million and its earning per share expectations to a loss per diluted share in the range of 5 cents to breakeven. The company's previous guidance had revenues at $225 million and diluted earnings per share of 46 cents.


The company’s revised revenue expectations represents an increase of approximately 37% to 41% over the prior year, with domestic sales expected to increase 13%, European sales expected to increase approximately 90%, and Asia sales expected to be up approximately 75%.


The shortfall in earnings was driven by lower gross margin percentage and higher operating expenses. Gross margin is expected to decrease to approximately 45% for the quarter with half of the decrease attributable to lower sales volume and the other half to underutilized factory capacity in company-owned manufacturing facilities and distribution centers. SG&A is expected to increase to 39% of sales.


The company’s expected loss includes a portion of the one-time, pre-tax charge associated with the shutdown of the company’s Canadian manufacturing operations equaling approximately $16 million, or 13 cents per diluted share. Excluding this charge, the company expects first quarter 2008 diluted earnings per share in the range of 8 cents to 13 cents. Based on its lower revenue expectations for the first quarter, the company now expects inventories at quarter-end to increase approximately 5% to 10% as compared to December 31, 2007.


To help combat the softness on the bottom line, the company will close its Canadian manufacturing operations in order to consolidate its production at its lower cost company-owned and third-party facilities, which will benefit the second quarter bottom line by $5 million to $6 million.


For the second quarter, revenues are expected to increase between 10% and 15%, with the U.S. business up approximately 4% and international growing 20% to 30% versus the prior year. Diluted earnings per share are expected to be in the range of 42 cents to 47 cents, including a portion of the aforementioned one-time, pre-tax charge associated with shutdown of the company’s Canadian manufacturing operations equaling approximately $4 million, or 3 cents per diluted share.  Excluding this charge, the company expects second quarter 2008 diluted earnings per share in the range of 45 cents to 50 cents.


For fiscal 2008, revenues are now expected to increase between 15% and 20% over 2007 with diluted earnings per share in the range of approximately $1.54 to $1.64, including the total one-time, pre-tax charge of approximately $20 million, or 16 cents per diluted share associated with the shutdown of the company’s Canadian manufacturing operations. Excluding the charge, fiscal 2008 diluted earnings per share are expected to be between $1.70 and $1.80.


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