Crocs Sales Slide 11.3% in Second Quarter

The loss was also better than the range the company previously provided when it guided to a non-GAAP Q2 2009 loss per diluted share of 15 to 31 cents a share. The company generated non-GAAP income before taxes of $2.6 million in Q209. Non-GAAP Q2 2009 operating results exclude the effects of the following:

    * $34.8 million in impairment and restructuring charges,
    * $16.3 million in additional stock-based compensation expense related to the previously announced Q2 2009 tender offer, and
    * $3.1 million in net charitable donations.

These were offset by the following favorable impacts:

    * $25.3 million gross margin impact related to sales of product that had been previously impaired and
    * $3.6 million gain from foreign currency exchange rate fluctuations during the second quarter.

On a GAAP basis, the company reported a net loss of $30.3 million, or 36 cents a share, compared to Q2 2008 net income of $2.1 million, or $0.03 per diluted share.

Year-over-year second quarter changes in the company’s channel revenue streams were as follows:

    * Retail sales increased 58.9% to $55.3 million;
    * Internet sales increased 24.8% to $17.4 million; and
    * Wholesale sales decreased 28.2% to $125.0 million.

Changes in the company’s regional revenue streams during the same periods were as follows:

    * Asia increased 30.5% to $80.0 million;
    * Americas decreased 19.4% to $85.5 million; and
    * Europe decreased 41.8% to $32.2 million.

The company’s second quarter 2009 revenue included $23.7 million in sales of previously impaired footwear. The company’s sales of non-impaired product for Q2 2009 were $174.0 million, which exceeded the Company’s guidance of sales between $135.0 million and $160.0 million for second quarter.

Balance Sheet

The company’s cash and cash equivalents increased 50% to $77.5 million at June 30, 2009 from $51.7 million as of December 31, 2008. The strong quarter end cash position allowed the Company to completely repay the $17.3 million borrowed under the company’s credit facility as of June 30, 2009 subsequent to the end of the second quarter. The credit facility was extinguished on August 3, 2009, ahead of its September 30, 2009 maturity date. The company has signed a term sheet with a well-known lender and intends to secure a new asset-backed revolving credit facility by the end of the third quarter.

Inventory decreased 22% since December 31, 2008 to $111.6 million at June 30, 2009 as the company continued its efforts to reduce inventory on hand.

The company had accounts receivable of $67.0 million as of June 30, 2009 compared to $35.3 million at December 31, 2008 as a result of higher sales in the quarter. Days sales outstanding decreased from 52.3 days for the three months ended June 30, 2008 to 30.9 days for the three months ended June 30, 2009.

Net capital expenditures in the second quarter of 2009 were $9.7 million compared to $21.3 million the second quarter of 2008.

Working capital improved to $153.0 million during the quarter, an increase from $145.8 million as of December 31, 2008.

“Our second quarter performance reflects the tangible business improvements we’re continuing to make and underscores the enduring consumer appeal of the Crocs brand,” said John Duerden, President and Chief Executive Officer. “Our top-line results were better than expected driven by strong gains in our retail channel, as consumers responded positively to the broad product assortment now available at our Company-operated locations. We continue to gain market share in Asia, where our business has been strong in recent quarters. We strengthened our balance sheet, reducing inventory and repaying all outstanding borrowings under our credit facility. While we are encouraged by our progress, we are clearly not satisfied with these results. We intend to reduce expenses, improve our cash position and making targeted investments in our systems and procedures to serve customers better and to increase productivity.”

Duerden continued, “We’ve made substantial progress on the disposal of our excess inventory in a responsible manner. Our U.S. distribution facilities have been consolidated down from seven locations to one, enabling us to provide our product to customers more effectively and efficiently. As we continue to streamline our cost base, we expect to reduce our operating losses through the balance of this year and return to profitability next year.”

Guidance

The company expects to generate between $150 million and $160 million in revenue during its fiscal third quarter, with a diluted loss per share between $0.14 and $0.06. This guidance excludes the effect of one-time and non-recurring charges.