Image: Crocs
David Zalubowski  /  AP file
Crocs Inc. disclosed in its annual report that it may not have the liquidity to survive.
updated 3/18/2009 8:38:05 PM ET 2009-03-19T00:38:05

The auditor of Crocs Inc. says it has “substantial doubt” about the shoe company’s ability to stay in business amid falling revenue.

Crocs disclosed the opinion of Deloitte & Touche LLP in an annual report filed Tuesday with the Securities and Exchange Commission.

“It’s a really serious sign the company has some financial difficulties ahead,” said Chris Hughen, associate professor of finance at the University of Denver’s Daniels College of Business. Still, he didn’t expect the company would die. “If they can right-size the company, the company will survive,” he said.

A Crocs spokeswoman didn’t immediately return a phone message Wednesday.

Crocs, which had ramped up for strong international and product growth only to watch sales drop last year, said it needs to find a cost structure that its revenues will support. The company lost $185.1 million last year as revenues fell almost 15 percent to $721.6 million.

The number of footwear units sold fell 24.7 percent over the year, the filing said. The company blamed deteriorating global economic conditions, falling demand and difficulty marketing its expanded product line.

Crocs said it must secure financing and maintain enough liquidity to pay obligations. It said it has $22.4 million in borrowings under a loan that matures April 2. As of Dec. 31, it had $51.6 million in cash and cash equivalents.

Through the end of 2007, Crocs grew so quickly it had difficulty meeting demand for its colorful, lightweight shoes, the company said in the SEC filing. It boosted production capacity, warehouse space and inventory, but revenue growth slid in 2008.

It had about 3,700 employees at the end of last year, down from 5,300 a year earlier. It also closed manufacturing facilities in Brazil and Canada last year.

Crocs said it expects more operating losses for the quarter that ends March 31. It is working to get a new credit facility and is exploring options for raising capital.

Crocs shares, which traded near $70 last year, were down 27 cents Wednesday, or 19 percent, to $1.14.

“The bottom line is, it’s a horrible time to be a premium product. People are looking to cut back on discretionary spending, and they view these shoes as something discretionary,” Hughen said.

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