This is a free preview of Porter & Co.’s Distressed Investing. In the full issue, analyst Marty Fridson details the coming turnaround of an American icon company: recommending its stocks to readers. To get the full issue, click here.
Recommending The Beaten-Down Stock Of An American Icon
From two recent, very well-conceived acquisitions, we
Foresee further progress for this company’s efficiency,
On the plus side as well, it’s reducing its debt,
In short, the stock looks like a good (though risky) bet.
– Martin Fridson
Three guys on a boat in the Gulf of Mexico is not the usual breeding ground for an entrepreneurial breakthrough.
But in the early 2000s, Lyndon Hanson, Scott Seamans, and George Boedecker found themselves in a place few entrepreneurs would choose to launch a revolution: a sailboat navigating the waters between Mexico and the Florida Keys. Hanson, at 40, was at a rock-bottom moment – divorced, unemployed, and mourning the death of his mother. But on that trip, on that boat with two others, Seamans revealed a prototype that would change his life, and the footwear industry, forever – though the venture nearly went under once, as we’ll see.
It was a shoe made from a strange, lightweight, rubber-like material, riddled with holes like Swiss cheese. Originally designed as spa slippers, Seamans had been unable to find a market. Born a tinkerer, he had modified them, adding a heel strap for stability. He challenged his friends to try them. Their first reaction was immediate: "Those are ugly."
Yet, as they fished and drank beer on the open water, the comfort won them over. The shoes didn't slip on wet decks, they didn't sink, and despite the heavy use, they didn't stink – a common curse of traditional boat shoes. When they returned to shore, they turned that "ugly" assessment into a business venture.
They called them Crocs for their crocodile-snout profile.
The initial launch at a 2002 Fort Lauderdale boat show was pure chaos. Hanson tossed shoes at passersby, ignoring their protests that the shoes were hideous, simply insisting, "You just got to try them on."
It worked. People tried them, fell in love with the comfort, and within three days, they had sold 1,000 pairs. The success continued quickly, and sales escalated. By the time the company went public four years later, in 2006, it was a sensation with $350 million in revenue.
But success breeds ambition, and ambition often breeds mistakes. Following its initial explosion, Crocs fell into a trap of overextension. In 2007, under the leadership of then-CEO Ronald Snyder, the company – convinced it could be everything to everyone – released a line of leather high heels. It was a bizarre, jarring departure from the "ugly" but functional clogs that defined the brand.
Then the 2008 financial crisis hit. The brand that had once been a darling of the market saw its valuation crash 98%. Sales plummeted 30%, and auditors openly questioned if the company could survive. It was bloated with unnecessary retail stores and disconnected product lines. The once-mighty Crocs were on the brink of extinction.
The turnaround began not with a flashy new product, but with a return to sanity. In 2014, private equity firm Blackstone invested $200 million and cleaned house. The real pivot point came in 2017 when Andrew Rees, a veteran of shoe brand Reebok, took the reins.
Rees did the unthinkable: he stopped trying to make Crocs "cool" by forcing them into traditional fashion boxes. Instead, he embraced what they were – they began their success by being “ugly.”
He slashed the company’s massive list of product variations by half, cutting out the failed experiments like leather heels. He closed hundreds of company-owned stores, pivoting aggressively toward e-commerce and a direct-to-consumer model that boasted better margins.
Perhaps most importantly, he leaned into the "ugly" identity. Instead of fighting the brand's polarizing reputation, he curated it. Crocs launched exclusive, limited-edition collaborations with high-profile names like Salehe Bembury, Justin Bieber, and Post Malone. These partnerships proved that the clogs were a canvas for self-expression, not just a utilitarian necessity. Even the holes became a feature, turning into display cases for "Jibbitz" charms that allowed kids and adults alike to personalize their pairs.
The results were transformative. Crocs didn't just survive – the company became a cash-flow machine. It proved it was no fad, with sales skyrocketing to $3.6 billion in 2022. By the time it acquired the casual-footwear brand Hey Dude in 2021, Crocs had successfully positioned itself as a diversified powerhouse rather than a one-trick pony.
Today, Crocs is a testament to the idea that business success isn't about chasing someone else’s definition of "cool." By embracing its functional, strange aesthetic – and by knowing exactly when to cut the fluff – Crocs turned its greatest weakness into a multibillion-dollar strength. They learned that if you focus on your own lane, eventually, the world will catch up.
Crocs’ decline stemmed from trying to force its functional clogs into "cool" fashion categories like leather heels, while the company whose stock we recommend this month suffered from bloated management, failed diversifications into financial services, and a short-sighted refusal to embrace digital technology.
Their turnarounds reflect a strategic return to basics. Ultimately, both companies reversed their trajectories by discarding distractions and doubling down on their core strengths.
The Second Life For An American Icon
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