All the critics who have been predicting the end of Crocs, Inc., have been quieted — for now — by the companys second quarter results. Total sales for the second quarter were $197.7 million, an 11.3% slide compared to $222.7 million in the same period last year, but margins jumped and results handily beat Wall Street estimates. Notably, the company experienced a 47% increase in revenue during Q2 2009 compared to its 2009 first quarter. Sales were driven by a positive reception to the 2009 spring line, by above-expected performance in its retail business, better-than-expected sales of impaired product and continued strong performance in Asia.
Wall Street responded by driving shares up more than 60% for the week to close at $5.49 on Friday.
Company President and CEO John Duerdon responded to the negative hype around the Crocs brand, stating, “To paraphrase a quote from the American author Mark Twain, the rumors of our demise have been greatly exaggerated.”
That statement was mainly in response to a Washington Post story published in July that labeled Crocs as a cheap recession fad and forecasted the end of the brand. Loyal consumers –perhaps worried that their beloved Crocs may soon exist no more — stormed the Internet site the day following the articles posting, with record purchasing of more 16,000 pairs of shoes.
This was definitely a major boost to online sales, as revenues generated by Internet sales in the second quarter came in at $17.4 million, a 25.2% increase over second quarter of last year. Internet sales represented 8.8% of total worldwide revenue in the second quarter. The company now has e-commerce-enabled sites in 21 countries with its Crocs online loyalty program reaching over one million subscribers worldwide.
The Asia market contributed the most to Crocs comeback, with second quarter sales in that region increasing 31% to $80 million compared to Q2 of 2008. The increase was driven by strong sales in both retail and wholesale channels in the region. The company added seven retail locations in the region during the second quarter of 2009. Both the European and American markets saw considerable drops in revenues for the quarter as a result of the economic instability.
After inventory levels reached an all-time high at the end of the first quarter of 2008, the company set a goal to reduce footwear inventory levels to below $100 million by the end of 2009. Inventory decreased 49.3% to $111.6 million at quarter-end, $84.9 million of which relates to net footwear finished goods, compared to the comp date last year. While the majority of the decrease in inventory was due to sales of product, the company also contributed 800,000 pairs of shoes to the Crocs Cares program, which consisted of both impaired and full price product.
While Crocs is seeing many signs of a healthier return, the company is not out of the dark just yet. Many still worry that a return to profitability is a long way off, and that CROX must continue to cut expenses and focus on restructuring measures.
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 14 cents and 6 cents.
