Despite double-digit growth from Tommy Bahama, Phoenix Footwear Group, Inc. saw net sales from continuing operations drop 10% to $17.9 million for the second quarter of fiscal 2008, compared to $19.8 million for the same quarter last year. The decline was largely attributable to a 4% drop in the company’s footwear sales and a 14% declination on accessories, both of which CFO Scott Sporrer says are a result of “a very challenging retail environment.”

Phoenix reported a net loss from continuing operations of $2.2 million, or 27 cents per share, on 8.2 million weighted-average shares outstanding, compared to a net loss of $1.0 million, or 13 cents per share, as compared to the same period a year ago. The 2008 net loss included the non-cash write-off of $622,000 in debt issuance costs previously capitalized under the company’s previous credit facility, which was replaced during the second quarter of fiscal 2008.

Gross margins for the company expanded 40 basis points to 34.1% compared to 33.7% for the second quarter of 2007. The increase was due to improved margins on sales to the mass merchant customers by the company’s accessories segment, and was offset by sales incentives and allowances in the footwear and premium footwear segments, among others.

Sporrer said that Phoenix does not expect to meet its previously issued guidance on sales and operating income for fiscal 2008, but assured that the company expects to see net sales growth of 5%-10% and expects to break even for the year on an operating basis.