Outdoor financials: Crocs' accounting firm doubts company's viability, plus Dick's Sporting Goods, Quiksilver

Crocs' accounting firm doubts company's viability, Analysts initiate coverage of Dick's Sporting Goods at 'buy', and Quiksilver rating docked by S&P.
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Crocs' accounting firm doubts company's viability

In a Form 10-K filing with the SEC, Deloitte & Touche, the accounting firm auditing Crocs (Nasdaq: CROX), said it had "substantial doubt about the company's ability to continue as a going concern." It cited "the maturity of the company's revolving credit facility on April 2, 2009, and losses from operations" as raising that doubt.

Crocs said it had $22.4 million outstanding under the revolving credit facility with Union Bank of California as of Dec. 31, adding that it can no longer borrow under the facility.

Crocs said in the filing that its "continued operations are dependent on our ability to secure adequate financing and maintain a reasonable level of liquidity such that we can timely pay our obligations when due."

Crocs added that it's in discussions with lending institutions to secure an asset-backed borrowing arrangement to replace its current revolving credit facility, but it may need an extension of the deadline with its current lenders.

The company said it is considering other sources for capital to meet ongoing needs.

In FY '08, Crocs posted a loss of $185.1 million versus a $168.2 million profit in FY '07. Revenue in '08 declined to $721.6 million from $847.4 million a year earlier. It reported $80.5 million in inventory write-downs and $45.8 million in impairment charges in 2008. Sales costs rose to $486.7 million from $349.7 million in 2007.

In a statement with its Form 10-K filing, Crocs said, "The company took significant cost cutting measures during 2008 and intends to continue its cost cutting actions throughout 2009." It noted the closure of manufacturing operations in Canada and Brazil and non-retail staff reductions of about 2,000 people.

Crocs reported having $51.6 million in cash and cash equivalents as of Dec. 31.

Analysts initiate coverage of Dick's Sporting Goods at 'buy'

Analysts at Sterne Agee & Leach initiated coverage on Dick's Sporting Goods with a "buy" rating, saying the company is well positioned to weather the economic downturn.

Analysts Sam Poser and Kenneth Stumphauzer wrote in a note that Dick's Sporting Goods is likely to maintain earnings power despite declines in sales. Despite suffering as consumers limit their spending, the analysts said that Dick's Sporting Goods' reaction to the economic pressures, such as limiting store growth, tightening inventory and focusing on higher margin products will benefit them in the long term.

"We believe that changes in strategy and mix, even if caused by the current poor environment, are likely to be more a blessing than a curse," they wrote.

After the news, shares of Dick's Sporting Goods rose $0.76 to close at $13.82 on Mar. 17.

Quiksilver rating docked by S&P

Standard & Poor's Ratings Services lowered its ratings on Quiksilver (NYSE: ZQK) as the company works toward a deal to improve its liquidity and capital structure.

S&P lowered Quiksilver's ratings to "B-" from "B+" and placed them on "CreditWatch," which means the ratings could be cut further or raised after the credit agency's review is complete.

"Our resolution of the CreditWatch listing will focus on Quiksilver's ability to meet its near-term debt obligations, maintain adequate liquidity, and improve its operating business trends and financial metrics," S&P said in a statement. "If the company can complete a refinancing or strategic transaction, then we may review the ratings for an upgrade."

Last week, Quiksilver said it extended the maturity of its EUR 55 million (USD $71 million) line of credit to June 30 from March 14 to give the company more time to complete a strategic or refinancing deal. As of Jan. 31, the company had about $1.4 billion in adjusted debt.

--Compiled by Wendy Geister

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