Crocs closed out a disappointing second quarter as sales dropped in the U.S. causing the company to take a closer look at its operations and make plans for a future at a lower sales volume. To that end, management announced a host of moves designed to boost profitability going forward, including such immediate measures as a 25% decrease in executive management salaries through the end of the year and scrapping executive bonuses for 2008.


The closure of the company’s manufacturing facility in Canada and a reduction in global headcount are also expected to help. The company has already enacted one part of its plans, focusing on inventories and accounts receivables. Crocs generated approximately $21.6 million of cash in the quarter as a result of the aggressive inventory and accounts receivable management initiatives.

Inventories decreased 17% to $220.2 million at the end of the second quarter from $265.5 million at the end of Q1, but were still much larger than at the end of Q2 2007. Approximately $7.2 million of the quarter-over-quarter decrease was attributable to a reserve on certain slower moving styles. Since the end of Q2, inventory is down approximately an additional 9 million with inventory levels expected to continue to decrease over the remaining quarters of this year.

Another part of the company’s plan is to focus on its key accounts, or the approximately 50% of U.S. doors carrying Crocs product that account for approximately 80% to 90% of domestic sales.

For the second quarter, international sales rose 19.5% to $130.1 million compared to $108.9 million for the same period a year ago, but domestic sales declined 19.8% to $92.6 million from $115.4 million last year. Revenues from Asia rose 69% to $63 million for the quarter, becoming the company’s largest region outside of the U.S. Japan, China and Korea were called out as particularly strong countries. Sales to Europe increased 11% for the quarter to $55.6 million driven by strong demand in Germany and Spain. Canada and Mexico saw combined sales total $10.2 million.

Footwear sales accounted for approximately 91% of revenue and represented 10.9 million units sold for an average selling price of $18.39. Sales of the company’s classics products represented 29% of footwear sales, or approximately $58.8 million with ‘core’ styles accounting for approximately 50% of sales.


The spring 2008 collection, meanwhile accounted for 25% of total sales for the quarter. Retail sales grew 88% over the year-ago quarter with particularly strong sales coming from Asia, where the company now has over 96 company-owned locations and more than 40 third-party Crocs doos.

Looking ahead, Crocs reiterated its full year expectations of net revenues “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 Canadian manufacturing operations. For the third quarter, the company expects revenues to be in the range of $195.0 million to $205.0 million and diluted earnings per share of approximately a penny to 5 cents.