Why did Omega Advisors move away from its investment in Crocs?

Market Realist

Omega Advisors starts new positions in 3Q 2013 (Part 7 of 7)

(Continued from Part 6)

Omega Advisors Inc. is a New York–based investment advisory firm founded in 1991 by Leon G. Cooperman. Omega has approximately $10 billion under management (as of November 30, 2013).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Omega Advisors started new positions in Sprint Corp (S), Freeport-McMoRan Copper (FCX),  HCA Holdings Inc. (HCA), and Realogy Holdings Corp. (RLGY) and it sold Occidental Petroleum (OXY), Wells Fargo & Company (WFC), and Crocs Inc. (CROX).

Why sell Crocs Inc. (CROX)?

Omega sold a 0.51% position in Crocs Inc.

The company shares jumped recently on unconfirmed news reports that it was exploring a leveraged buyout and has held talks with Blackstone and KKR.

The company reported earnings that were below analyst estimates in 3Q 2013. It posted net income of $13.0 million or $0.15 per diluted share in 3Q 2013, compared to net income of $45.1 million or $0.49 per diluted share in the prior year period. For the quarter, revenues decreased $7 million or 2%, to $288.5 million.

Crocs saw strong performance in the Asia Pacific region and marked improvement in all channels of its European business. However, sales were weak in its Americas segment and Japan, where all channels performed below expectations. It saw decreased consumer optimism and also less discretionary spending for footwear, apparel, and other consumer goods in the U.S. It expects to see the slower trend continue in the fourth quarter due to a challenging back-to-school season, soft holiday indications, weaker employment growth numbers for the holiday season, and the macroeconomic concerns pressurizing its consumers.

In Japan, which represents 15% of its revenue, it was affected by unfavorable exchange rates and decreased wholesale volumes. Revenue from the Americas segment decreased $16 million, or 12%, compared to the same period in 2012. Revenue in its business in Japan declined nearly 23% during the quarter, or $11.7 million due to the weaker yen.

In terms of guidance, it expects revenue to be flat or down compared to the prior year, as it forecasted revenue of $220 million to $225 million.

The company also announced in its earnings release that its board of directors approved the repurchase of up to an additional 15.0 million shares under its existing stock repurchase authorization.

Despite lackluster results, the company is confident about its future prospects, as it has a strong global brand, a broad and expanding product line, and a robust balance sheet. Year-to-date, the stock is down 10%. Although the company has seen PE interest, analysts are cautious about investing in the stock.

Crocs, Inc, a world leader in innovative casual footwear for men, women, and children, offers several distinct shoe collections, with more than 300 four-season footwear styles. All Crocs shoes feature Croslite material, a proprietary revolutionary technology that gives each pair of shoes the soft, comfortable, lightweight, and odor-resistant qualities that Crocs says its fans know and love. The company claims Crocs fans “Get Crocs Inside” every pair of shoes, from the familiar clog to its new models of sneakers, sandals, boots, and heels.

CROX

According to hedgefundletters.com, Omega Advisors primarily invests in domestic public equity and dabbles in markets such as bonds and commodities. When the fund focuses on investing in value equities, it uses a combination of a top-down approach, to carefully choose the sector, and a long-short fundamental analysis. To create his portfolios, Leon G. Cooperman takes a bottom-up approach to form his portfolios with the S&P 500 index as the benchmark.

Cooperman was born in New York and as an undergraduate at Hunter College, he joined and was an active member of Alpha Epsilon Pi. After graduating, he became a Xerox quality control engineer in 1965. He later received his M.B.A. from Columbia Business School, graduating in 1967. After 25 years of service, Leon Cooperman retired in 1991 from his positions as general partner of Goldman, Sachs & Co. and as chairman and chief executive officer of Goldman Sachs Asset Management in order to set up Omega.

Browse this series on Market Realist:

Rates

View Comments (0)