Crocs Q2 Net Drops as Domestic Business Proves Tough

Crocs, Inc. saw second quarter net sales that were just below the year ago level, down to $222.8 million from $224.3 million last year. For the quarter ended June 30, 2008 international sales rose approximately 20% to $130.1 million compared to $108.9 million for the same period a year ago, but domestic sales decreased 20% to $92.6 million versus $115.4 million last year. The company reported net income of $2.1 million, or 3 cents per diluted share compared to net income of $48.5 million, or 58 cents per diluted share, for the quarter ended June 30, 2007.

Gross profit for the second quarter of 2008 was $90.3 million, or 41% of revenues, compared to $131.9 million, or 59% of revenues, for the second quarter of 2007. Selling, general and administrative expenses for the quarter were $89.9 million, or 40% of revenues, compared to $63.5 million, or 28% of revenues, in the year-ago quarter.

Ron Snyder, president and CEO of Crocs, Inc. commented: “The first half of 2008 was a challenging period for our Company as we dealt with a difficult macro-economic environment and lower than expected demand in certain markets. Despite our recent financial results, we continue to be confident about the strength of the Crocs brand and we remain optimistic about the future potential of this business. Over the near-term, we are focused on further reducing our expenses in order to exit this year with a leaner infrastructure while at the same time strategically increasing the retail presence and consumer awareness of our more recent product introductions. Longer-term, we are developing more comprehensive lines of footwear under specific category segments and implementing a more disciplined distribution strategy in order to reinvigorate our top-line. We are committed to improving our execution across the board and returning this company to growth and profitability.”

Balance Sheet

As of June 30, 2008, inventories decreased 17% to $220.2 million compared to $265.5 million as of March 31, 2008. In addition, the company ended the second quarter with cash and cash equivalents of $51.2 million, an increase of $21.6 million compared to cash and cash equivalents of $29.6 million at the end of the first quarter in 2008. Additionally, the company recognized impairment charges on certain fixed assets, primarily related to molds, in the amount of $2.9 million. These charges were recorded as the molds relate to styles that Crocs no longer intends to manufacture or styles for which the company has more molds on hand than necessary to meet projected demand.

Guidance

For the year ending December 31, 2008, Crocs reiterated that it expects revenues to be down modestly compared to 2007 levels with diluted earnings per share of approximately break-even, including the total pre-tax charge of approximately $20.0 million, or 16 cents per diluted share, associated with the shutdown of the company’s Canadian manufacturing operations. For the quarter ending September 30, 2008, the company reiterates that it expects revenues to be in the range of $195.0 million to $205.0 million and diluted earnings per share of approximately 1 cents to 5 cents.