The Net Asset Replacement Value of CROX

I valued CROX using Greenwald’s asset replacement value method. This is the first post in a series of 3. 

According to their 10-K for 2023

	Book Value (M)	Adjustment	Adjusted Value (M)
Cash and cash eq	149	100%	149
Accounts receivable*	306	80%	245
Inventories**	385	75%	289
Income taxes receivable	4	100%	4
Other receivables	21	80%	17
Prepaid expenses and other assets	45	20%	9
Machinery and Equipment	164	60%	98
Leasehold Improvements	149	40%	60
Furniture, Fixtures, Other	32	30%	10
Construction-in-Progress	13	100%	13
Goodwill	712	0%	0
Deferred Tax Assets	668	80%	534
Restrcited Cash	4	100%	4
right-of-use assets	287	50%	144
other assets***	31	100%	31
total tangible assets			1607
intangible assets****	1793		3200-4000
Total liabilities	2919		2919

*Net allowances of $27.5

**Days inventory outstanding is on average 91.9 days. It is valued at LIFO. I think this inventory could be sold similar to book price in under a year.  I will value inventory at a 80% discount. 

***This seems to be mostly software systems, I’d assume you would have to recreate something similar/IT costs. 

****The biggest intangible assets are brand equity (or consumer mindshare, consumer captivity, brand loyalty, whatever you want to call it). The biggest driver of which is marketing/ad spend. See Below

Valuing the Intangibles

Source: https://www.unconventionalvalue.com/p/continued-thinking-on-crox

Doing some quick math, assuming that marketing spend was around 50mil before 2014, and  60% of all firm marketing spend went to spend on crocs core business in the US. If true, Crocs likely invested $1.2 billion over approximately 20 years to reach 92% brand awareness in the U.S. (HEYDUDES has around 20% awareness in the US).

I think this company has unique attributes that would make it hard for a competitor to replicate at a similar cost. Crocs has a very distinct look, and essentially created the clogs category. So naturally it gained a lot of free marketing in terms of negative press (all press is good press for brand awareness) and word of mouth (what are those?!). I think a new entrant would have to spend significantly more than 1.2B in order to match crocs current brand awareness and relevancy. I would double that to get to 2.4B, and add back in international growth and HEYDUDES marketing spend (the other ~800M in spend) to arrive at an estimated value of 3.2B.

Another way that can you measure customer relationships is in a P/S ratio (which Greenwald prefers for fashion companies) the average price to sales ratio of an acquired footwear company is  0.96 . Crocs has 4B in annual revenue, so in this case the value of the book of customers would be also 4B.

With this I can calculate an asset replacement value:

tangible assets  + intangible assets = AV

1607 + 3200 (or 4000) = 4.8B-5.6B

Next I will calculate it’s earning power value.