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If you ordered a free copy of my presentation last Thursday to the Bryant College security analyst class, you'll see on pgs. 33-34 how Crocs (CROX) loses money if you expense investment in working capital. GAAP earnings in 2007 were $168 million, but net working capital rose $184 million, pushing the shoe maker into a $(16) million cash loss.

Management should collect most of its receivables, so the company is not on the verge of bankruptcy. But if you have Crocs latest 10-K, look how much money they have tied up in inventory. $248 million on 12/07 vs. just $86 million the year before. Sure, sales jumped a lot in 2007, but inventory as a percentage of sales also climbed, to 29% at year-end 2007 vs. 24% for year-end 2006. This is not profitable growth.

Yesterday, Crocs said it expects first-quarter revenue of $195-$200 million, with a per share loss of up to 5 cents. In February, the company said it expected sales of $225 million and earnings of 46 cents. Shares fell 43% today in response to the abrupt reversal in fortune.

To soothe investor pain, Crocs board approved a move to repurchase 5 million shares after its next earnings announcement on May 7. If Crocs' stock stays at $10, this means management intends to spend up to $50 million on share buybacks. Since the company had just $35 million on 12/31/07 and since this business model is capital intensive, the buyback idea is unwise.

If management wants to signal that all's well with their business, then let insiders buy shares with their own money. If this happens, I'll take notice. Just don't use the company checking account...the credit markets are frozen and now is not the time be knocking on bank front doors with hat in hand.

If you didn't get a copy of the presentation and want one, send me an e-mail at

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