Crocs receives $200M from Blackstone, announces CEO retirement

Crocs receives $200M from Blackstone, announces CEO retirement

The Blackstone Group LP invested $200 million in Crocs Inc., taking two board seats and a 13 percent equity stake in the Niwot-based shoemaker, company officials announced Sunday night.

Shares of Crocs jumped more than 20 percent on Monday as a result of the news.

Additionally, John McCarvel, Crocs’ chief executive officer and president, announced plans to retire by April 30. McCarvel, Crocs’ CEO since 2010, also will vacate a seat on the board of directors.

Crocs plans to recruit a CEO who will focus on refining the company’s short- and long-term strategic plans that have a “sharper focus on earnings growth with less emphasis on top-line growth.”

“We will focus on improving financial performance, particularly in the Americas and Japan, as well as enhancing our global retail execution,” Crocs Chairman Thomas J. Smach said in a statement. “As we increasingly focus on profitable growth and retail excellence, we may moderate the pace of our investments in new retail stores; however, we remain focused on creating long-term value for Crocs shareholders.

“Over time, we intend to further elevate our brand positioning by enhancing our consumer-driven marketing and distribution strategies and capabilities.”

Smach said Crocs would benefit from Blackstone’s resources and experience in the areas of retailing and branding.

Crocs plans to put the investment from Blackstone (NYSE: BX) toward a $350 million stock buyback. The company said it would also revise its capital structure to accommodate the share repurchase.

The buyback is expected to reduce the company’s stock float by 30 percent, Crocs officials said.

“We expect these initiatives to reduce volatility in both our common stock price and our shareholder base and provide a strong foundation to unlock long-term value for our shareholders,” Jeff Lasher, chief financial officer of Crocs, said in a statement. “We’ve been unable to repurchase stock while negotiating this transaction, but we now expect to do so beginning in the first quarter of 2014.

“We intend to be patient, methodical and opportunistic as we execute this expanded buyback plan.”

As a result of a separation agreement reached Friday with Crocs, McCarvel will receive a $1.1 million payment on the first payroll date after his resignation takes effect and an additional $1 million a year after that resignation date, according to filings made Monday with the U.S. Securities and Exchange Commission.

McCarvel also would be entitled to receive funds earned under Crocs’ 2013 annual incentive program, officials said in the filing.

On the heels of the news, Sterne Agee analyst Sam Poser upgraded his rating in Crocs to “neutral” from “underperform.”

“The retirement of John McCarvel from his CEO post and from the board of directors removes a large road block to success,” Poser wrote in a research note. “Blackstone’s involvement (13 percent ownership upon conversion) may serve as a catalyst for positive change, including closing underperforming stores and limiting future store openings. While increased share repurchases should help (earnings per share) growth, fixing the fundamentals of the business will require more extensive efforts.”

Crocs likely will face challenges in 2014 as it shifts its focus from revenue growth to increased profitability, Poser wrote.

Crocs officials said the company’s fourth-quarter revenue should land in the low end of the $200 million to $225 million previously projected. The company’s expected loss, predicted in the range of 20 cents to 23 cents, is expected to be at the higher loss end of the range.

After experiencing skyrocketing popularity and a bullish stock performance in 2006 and 2007, Crocs fell back to Earth in 2008, when operational and inventory woes added to a decline in sales.

Crocs experienced an upswing in the following years, after a turnaround led by former Reebok executive John Duerden, but the company’s earnings and stock performance have remained muted.

During the past year, analysts have expressed concerns about inventory performance, profitability and senior leadership.