Crocs, Inc. reported Q2 revenues increased 15.3% to $228.0 million. Excluding $23.7 million in previously-impaired product sales that the company considers non-recurring, sales jumped 31% for the period. Net income reached $32.3 million, or 37 cents a share, rebounding from a loss of $30.3 million, or 36 cents, a year ago.
“We're clearly seeing the financial benefits of executing our strategic plan,” said Crocs CEO John McCarvel on a conference call with analysts.
By segment, Wholesale sales increased 12.0% to $140.0 million; Retail increased 20.1% to $66.4 million; and Internet climbed 24.1% to $21.6 million. By region, sales increased 22.4% to $104.8 million in the Americas; Asia grew 10.9% to $88.6 million; and Europe increased 7.5% to $34.6 million.
Backlog as of June 30 was up 41% from last year to $118.5 million, and approximately 70% of its H2 wholesale business is pre-booked.
On the call, McCarvel said Croc's revenue growth was “broad-based, all markets and all sales channels.” At wholesale-sales of Crocs products with its major retail partners in department stores, family channels, sporting goods, and with independents-“are all up consistently through Q2 and into early Q3. We hear customers are returning to retailers, actively looking for the brand.”
He credited “significant diversification” across its product range. “While our core products are still up 21% of our overall sales, we continue to bring relevant and exciting new products to market,' said McCarvel. “New products introduced in Spring/Summer of 2010 accounted for 31% of our first half sales. As with most footwear brands, we are currently pre-lining our Spring/Summer 2011 products with key customers, and are excited about the response indication we are receiving.”
Croc's average selling price in Q2 increased 12% to $17.76 from $15.80 one year ago, reflecting a shift toward newer products at higher price points. Twenty-four percent of Croc's sales came from new Spring/Summer 2010 products in the quarter, including the new Croc Band collection; classic and core represented 12% and 21%, respectively. Besides Croc Band, the women's Flat and kids footwear did well.
The Consumer-direct channel saw “solid growth,” as evidenced by an 8% comp gain in the U.S. market. Crocs opened 30 new stores, shop-in-shops and outlet stores in Q2, mainly in the U.S. and Asia. CROX ended Q2 with 363 retail locations compared to 310 a year ago.
Gross margins improved 670 basis points to 57.8% of sales as a result of cost reduction actions, namely the consolidation of its global warehouse footprint; a more efficient supply chain, including increased direct shipments to customers; as well as the increased sales contribution from its consumer direct division. SG&A decreased to 40.9% of sales from 63.5% in Q2 last year.
Inventory increased 2% at quarter-end, resulting in inventory turnover of 3.5x in the current quarter.
McCarvel said Crocs expects gross margins in future quarters to be affected by product cost inflation from factories and in its logistic services but also believes the company's “unique supply-chain strategies will afford us the opportunities to mitigate some of the anticipated increases.”
Looking ahead, Crocs expects Q3 revenues of approximately $205 million, a 24% increase excluding $11.5 million in impaired, non-recurring product. EPS for the third quarter is expected to increase to approximately 22 cents to 24 cents versus 9 cents in third quarter 2009, which excludes last year's one time tax benefit of 16 cents a share.
