What would you consider reasonable, high, and low growth estimates (median, 25th, and 75th percentile growth estimates) for 2008 and for the long run?
B.Value the company under your best estimate of future growth rates and at the high and low estimates from assignment part A. What changes in the growth assumptions would rationalize the new Crocs stock price?
Crocs, Inc. Balance Sheet in thousands of US dollars) As of December 31 2005 2006 4,787 ASSETS Cash and cash equivalents Short-term investments Accounts receivable (net) Inventories Deferred tax assets Prepaid expenses and other current assets Total current assets Property and equipment-net Goodwill Intangible assets-net Deferred tax assets-net Other assets Total Assets 17,641 28,494 1,939 3,492 56,353 14,765 336 45,546 22,325 65,588 86,210 3,690 14,332 237,691 34,849 11,552 12,210 1,280 1,875 299,457 5,311 1,084 193 78,032 43,794 43,574 541 LIABILITIES Accounts payable Accrued expenses and other current liabilities Notes payable and current installments of long-term debt Total current liabilities Long-term debt Deferred tax liabilities Other liabilities Total liabilities 20,829 16,875 8,601 46,305 3,422 1,772 319 51,818 87,909 116 1,688 1,486 91,199 Redeemable common shares Redeemable convertible preferred shares 1,800 5,500 Common shares, par value $0.001 per share Additional paid-in capital Deferred compensation Retained earnings Accumulated other comprehensive income Total stockholders' equity Total Liabilities and Stockholders' Equity 17 13,976 (12,364) 16,697 588 18,914 78,032 39 131,834 (5,702) 81,081 1,006 208,258 299,457 Exhibit 1 Crocs, Inc. Income Statement in thousands of US dollars, except share and per-share data) For the year ended December 31 2004 2005 2006 2003 2007 (est.) 1,165 891 13,520 7,162 6,358 274 108,581 47,773 60,808 33,916 26,892 1.471 7,929 1,197) (1,571) Revenues Cost of sales Gross profit Selling, general, and administrative Income (loss) from operations Interest expense Other (income) expenses-net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Dividenda Net income (loss) to common equity 611 354,728 154,158 200,570 105,224 95,346 567 (1,847) 96,626 32,209 64,417 33 64.384 847,350 349,701 497,649 259,882 237,767 438 (2,997) 240,326 72,098 168,228 (1,200) (1,200) (1,200) (1,637) (143) (1,494) 142 (1,636) 26,289 9,317 16,972 275 16,697 168 228 (0.03) (0.03) (0.04) (0.04) 0.26 0.26 Income (loss) per common share Basic Diluted Average common shares (in millions) Basic Diluted 0.87 0.81 2.08 2.00 74.60 41.71 41.71 49.28 49.28 50.99 67.14 80.76 84.19 80.17 Cost of sales includes depreciation in thousands) of $3,334, 58,053, and $20,949 in years 2005, 2006, and 2007 est.). 2 Dividend on redeemable preferred shares. Data sources: Crocs 10-K filings excepe author estimates. Exhibit 6 Crocs, Inc. Valuation Summary (in millions of US dollars, except share and per-share data) Valuation of Crocs as of year-end 2007 based on data available in August 2007. All calculations assume debt is negligible. Data for 2006 are from the Crocs annual report. Model assumes a linear decay in growth rates from 2008 to steady state. Cash Flow Forecast 2006 $355 154 2009 $2,058 $3,367 Revenues Cost of sales Gross profit Selling, general, and admin. Operating income 2007 $830 342 488 251 237 2008 $1,370 589 781 425 Forecast Period 2010 2011 $2,788 1,227 1,515 1,562 1,852 1,111 641 741 2012 $3,569 1,606 1,963 1,178 785 201 105 1,173 659 514 920 356 550 249 72 360 118 NOPAT tax at 30%) Ch NWC Ch NPPE Free cash flows 519 116 449 146 73 230 40 20 63 122 178 345 489 Growth % COGS/Sales % SGA/Sales % NWC as % of sales NFAssets as % of sales Deprec. as % of NFAssets 227% 43.5% 29.7% 41.3% 16.4% 13.8% 134% 41.2% 30.2% 26.6% 10.5% 24.1% 65.0% 43.0% 31.0% 21.4% 10.4% 15.0% 50.3% 43.0% 32.0% 20.0% 10.0% 15.0% Assumptions 35.5% 20.8% 44.0% 45.0% 33.0% 33.0% 20.0% 20.0% 10.0% 10.0% 15.0% 15.0% 6.0% 45.0% 33.0% 20.0% 10.0% 147 221 87 293 558 714 412 206 279 673 337 357 Net working capital Net fixed assets Depreciation/amortization EBITDA Net income (loss) 31 42 21 258 168 545 360 683 449 Exhibit 4 Crocs, Inc. Operating Data on Comparable Companies This exhibit presents data on three sets of comparable firms for Crocs, Inc. The numbers in bold are the averages of the column values. Values in millions of dollars except for percentages. CAGR COGS to Sales EPS EBITDA SGA to Sales Sales Sales Company Primarily Footwear Dockers Outdoor Nike Timberland 90 4.52 3.32 0.93 2,542 116 400 17,643 1,312 32.0% 11.1% 7.1% 16.7% 57.2% 56.9% 52.5% 55.5% 26.2% 30.1% 33.9% 30.1% 205 1,263 3.70 0.41 0.60 251 57 199 Primarily Apparel Columbia Sportswear Lululemon Quiksilver Under Armour VF Corp Volcom Zumiez 1.02 98 1,015 54 56 5.32 1.39 0.94 12.1% 101.8% 20.3% 71.7% 5.1% 37.7% 36.2% 40.7% 2,095 612 6,796 268 383 55.2% 48.3% 53.8% 52.9% 59.6% 51.4% 66.1% 55.3% 27.1% 46.5% 36.1% 36.0% 27.6% 28.8% 25.1% 32.5% (263) Established Apparel Brands Liz Claiborne Phillips-Van Heusen Jones Apparel Group Warnaco Group (3.91) 3.10 1.25 1.70 348 4,521 2,010 3,840 1,825 4.3% 10.7% -2.3% 4.5% 4.3% 53.0% 56.0% 63.9% 64.0% 59.2% 38.5% 36.3% 26.2% 28.4% 32.4% Exhibit 5 Crocs, Inc. Valuation Data on Comparable Companies This exhibit presents data on three sets of comparable firms for Crocs, Inc. The numbers in bold are the averages of the column values. The calculations are based on November 2, 2007, stock prices. The table includes the price change in %) from October 26, 2007, to November 2, 2007. Price Nov. 2 Market Value of Cap Debt! Price to Earnings EV to EBITD A EV to Sales Recent Price Change Shares Company Primarily Footwear Deckers Outdoor Nike Timberland 127.05 13.00 61.85498.73 16.79 6 1.88 1,651 30,847 1,039 441 41 28.08 18.64 18.02 21.58 18.37 12.31 9.29 13.32 4.13 1.77 0.82 2.24 -9.1% -6.7% -13.9% 19 725 Primarily Apparel Columbia Sportswear Lululemon Quiksilver Under Armour VF Corp Volcom Zumiez 48.38 41.5 11.9 50.4 75.5 25.07 27.72 36.45 71.69 125.18 50.08 109.99 24.43 28.67 1,763 2,975 1,490 2,524 8,304 613 795 10 13.06 101.20 19.80 49.46 14.19 18.06 29.46 8.70 51.99 11.16 25.93 9.31 11.41 14.09 18.94 1.41 11.86 1.06 4.14 1.39 2.28 2.07 3.46 -0.8% -22.0% -11.9% -19.0% -13.3% -14.3% -33.8% 1,145 35.03 Established Apparel Brands Liz Claiborne 25.48 Phillips-Van Heusen 41.96 Jones Apparel Group 18.13 Warnaco Group 38.34 94.73 56.40 85.30 44.40 2,414 2,367 1,513 1,749 521 400 777 310 13.52 14.50 22.55 16.86 7.95 8.91 8.43 0.65 1.38 0.60 1.13 0.94 -7.8% -11.5% 2.2% -2.7% TILL HILUMIL (1009) Discount Rate 10-year Treasury rate Market risk premium Beta Discount rate 4.36% 5.50% 1.2 10.96% Valuation Terminal value (TV) Present value (PV) of TV PV planning Enterprise value (EV) Shares outstanding 9,860 6,504 650 7,154 85.00 Multiples Implied by Calculated Price 2007 2008 (trailing) (leading) Price Earnings 42.69 28.70 EV to EBITDA 27.74 18.95 EV to Sales 8.62 5.22 Price per share $84.17 Data sources: Author estimates except 2006 data, which come from the Crocs annual report. Crocs, Inc. Balance Sheet in thousands of US dollars) As of December 31 2005 2006 4,787 ASSETS Cash and cash equivalents Short-term investments Accounts receivable (net) Inventories Deferred tax assets Prepaid expenses and other current assets Total current assets Property and equipment-net Goodwill Intangible assets-net Deferred tax assets-net Other assets Total Assets 17,641 28,494 1,939 3,492 56,353 14,765 336 45,546 22,325 65,588 86,210 3,690 14,332 237,691 34,849 11,552 12,210 1,280 1,875 299,457 5,311 1,084 193 78,032 43,794 43,574 541 LIABILITIES Accounts payable Accrued expenses and other current liabilities Notes payable and current installments of long-term debt Total current liabilities Long-term debt Deferred tax liabilities Other liabilities Total liabilities 20,829 16,875 8,601 46,305 3,422 1,772 319 51,818 87,909 116 1,688 1,486 91,199 Redeemable common shares Redeemable convertible preferred shares 1,800 5,500 Common shares, par value $0.001 per share Additional paid-in capital Deferred compensation Retained earnings Accumulated other comprehensive income Total stockholders' equity Total Liabilities and Stockholders' Equity 17 13,976 (12,364) 16,697 588 18,914 78,032 39 131,834 (5,702) 81,081 1,006 208,258 299,457 Exhibit 1 Crocs, Inc. Income Statement in thousands of US dollars, except share and per-share data) For the year ended December 31 2004 2005 2006 2003 2007 (est.) 1,165 891 13,520 7,162 6,358 274 108,581 47,773 60,808 33,916 26,892 1.471 7,929 1,197) (1,571) Revenues Cost of sales Gross profit Selling, general, and administrative Income (loss) from operations Interest expense Other (income) expenses-net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Dividenda Net income (loss) to common equity 611 354,728 154,158 200,570 105,224 95,346 567 (1,847) 96,626 32,209 64,417 33 64.384 847,350 349,701 497,649 259,882 237,767 438 (2,997) 240,326 72,098 168,228 (1,200) (1,200) (1,200) (1,637) (143) (1,494) 142 (1,636) 26,289 9,317 16,972 275 16,697 168 228 (0.03) (0.03) (0.04) (0.04) 0.26 0.26 Income (loss) per common share Basic Diluted Average common shares (in millions) Basic Diluted 0.87 0.81 2.08 2.00 74.60 41.71 41.71 49.28 49.28 50.99 67.14 80.76 84.19 80.17 Cost of sales includes depreciation in thousands) of $3,334, 58,053, and $20,949 in years 2005, 2006, and 2007 est.). 2 Dividend on redeemable preferred shares. Data sources: Crocs 10-K filings excepe author estimates. Exhibit 6 Crocs, Inc. Valuation Summary (in millions of US dollars, except share and per-share data) Valuation of Crocs as of year-end 2007 based on data available in August 2007. All calculations assume debt is negligible. Data for 2006 are from the Crocs annual report. Model assumes a linear decay in growth rates from 2008 to steady state. Cash Flow Forecast 2006 $355 154 2009 $2,058 $3,367 Revenues Cost of sales Gross profit Selling, general, and admin. Operating income 2007 $830 342 488 251 237 2008 $1,370 589 781 425 Forecast Period 2010 2011 $2,788 1,227 1,515 1,562 1,852 1,111 641 741 2012 $3,569 1,606 1,963 1,178 785 201 105 1,173 659 514 920 356 550 249 72 360 118 NOPAT tax at 30%) Ch NWC Ch NPPE Free cash flows 519 116 449 146 73 230 40 20 63 122 178 345 489 Growth % COGS/Sales % SGA/Sales % NWC as % of sales NFAssets as % of sales Deprec. as % of NFAssets 227% 43.5% 29.7% 41.3% 16.4% 13.8% 134% 41.2% 30.2% 26.6% 10.5% 24.1% 65.0% 43.0% 31.0% 21.4% 10.4% 15.0% 50.3% 43.0% 32.0% 20.0% 10.0% 15.0% Assumptions 35.5% 20.8% 44.0% 45.0% 33.0% 33.0% 20.0% 20.0% 10.0% 10.0% 15.0% 15.0% 6.0% 45.0% 33.0% 20.0% 10.0% 147 221 87 293 558 714 412 206 279 673 337 357 Net working capital Net fixed assets Depreciation/amortization EBITDA Net income (loss) 31 42 21 258 168 545 360 683 449 Exhibit 4 Crocs, Inc. Operating Data on Comparable Companies This exhibit presents data on three sets of comparable firms for Crocs, Inc. The numbers in bold are the averages of the column values. Values in millions of dollars except for percentages. CAGR COGS to Sales EPS EBITDA SGA to Sales Sales Sales Company Primarily Footwear Dockers Outdoor Nike Timberland 90 4.52 3.32 0.93 2,542 116 400 17,643 1,312 32.0% 11.1% 7.1% 16.7% 57.2% 56.9% 52.5% 55.5% 26.2% 30.1% 33.9% 30.1% 205 1,263 3.70 0.41 0.60 251 57 199 Primarily Apparel Columbia Sportswear Lululemon Quiksilver Under Armour VF Corp Volcom Zumiez 1.02 98 1,015 54 56 5.32 1.39 0.94 12.1% 101.8% 20.3% 71.7% 5.1% 37.7% 36.2% 40.7% 2,095 612 6,796 268 383 55.2% 48.3% 53.8% 52.9% 59.6% 51.4% 66.1% 55.3% 27.1% 46.5% 36.1% 36.0% 27.6% 28.8% 25.1% 32.5% (263) Established Apparel Brands Liz Claiborne Phillips-Van Heusen Jones Apparel Group Warnaco Group (3.91) 3.10 1.25 1.70 348 4,521 2,010 3,840 1,825 4.3% 10.7% -2.3% 4.5% 4.3% 53.0% 56.0% 63.9% 64.0% 59.2% 38.5% 36.3% 26.2% 28.4% 32.4% Exhibit 5 Crocs, Inc. Valuation Data on Comparable Companies This exhibit presents data on three sets of comparable firms for Crocs, Inc. The numbers in bold are the averages of the column values. The calculations are based on November 2, 2007, stock prices. The table includes the price change in %) from October 26, 2007, to November 2, 2007. Price Nov. 2 Market Value of Cap Debt! Price to Earnings EV to EBITD A EV to Sales Recent Price Change Shares Company Primarily Footwear Deckers Outdoor Nike Timberland 127.05 13.00 61.85498.73 16.79 6 1.88 1,651 30,847 1,039 441 41 28.08 18.64 18.02 21.58 18.37 12.31 9.29 13.32 4.13 1.77 0.82 2.24 -9.1% -6.7% -13.9% 19 725 Primarily Apparel Columbia Sportswear Lululemon Quiksilver Under Armour VF Corp Volcom Zumiez 48.38 41.5 11.9 50.4 75.5 25.07 27.72 36.45 71.69 125.18 50.08 109.99 24.43 28.67 1,763 2,975 1,490 2,524 8,304 613 795 10 13.06 101.20 19.80 49.46 14.19 18.06 29.46 8.70 51.99 11.16 25.93 9.31 11.41 14.09 18.94 1.41 11.86 1.06 4.14 1.39 2.28 2.07 3.46 -0.8% -22.0% -11.9% -19.0% -13.3% -14.3% -33.8% 1,145 35.03 Established Apparel Brands Liz Claiborne 25.48 Phillips-Van Heusen 41.96 Jones Apparel Group 18.13 Warnaco Group 38.34 94.73 56.40 85.30 44.40 2,414 2,367 1,513 1,749 521 400 777 310 13.52 14.50 22.55 16.86 7.95 8.91 8.43 0.65 1.38 0.60 1.13 0.94 -7.8% -11.5% 2.2% -2.7% TILL HILUMIL (1009) Discount Rate 10-year Treasury rate Market risk premium Beta Discount rate 4.36% 5.50% 1.2 10.96% Valuation Terminal value (TV) Present value (PV) of TV PV planning Enterprise value (EV) Shares outstanding 9,860 6,504 650 7,154 85.00 Multiples Implied by Calculated Price 2007 2008 (trailing) (leading) Price Earnings 42.69 28.70 EV to EBITDA 27.74 18.95 EV to Sales 8.62 5.22 Price per share $84.17 Data sources: Author estimates except 2006 data, which come from the Crocs annual report
