US footwear and accessories company Phoenix Footwear Group has widened its second quarter loss to $2.2m, from a loss of $1.0m during the same period last year, despite improving gross margin.

The company posted net sales from continuing operations down 10% to $17.9m for the quarter, with footwear brands falling 4% and its accessories business declining 14%.

However, the company reported that gross margin expanded 40 basis points to 34.1%, compared to 33.7% for the second quarter of 2007.

This increase was due to improved margins on sales to mass merchant customers of accessories, but offset by sales incentives and allowances in the footwear and premium footwear segments and additional royalty fees for the Tommy Bahama Footwear brand.

Cathy Taylor, Phoenix Footwear's chief executive officer, said: "Our second quarter results were negatively impacted by the challenging economic environment and extraordinary softness at retail.

"In spite of this hurdle Tommy Bahama maintained strong double digit growth and we were pleased with the sell through rates of products within our other brands.

"As our retail partners focused on inventory reduction however, reorders came in well below our expectations, resulting in lower sales overall."

Net sales for the first six months decreased 3% to $39.9m, resulting in a net loss from continuing operations of $2.5m compared to a net loss of $2.0m in the first half of last year.

Taylor added: "In light of the unusual softness at retail this summer we are behind our original projections and do not anticipate that we will be able to close the gap sufficiently to meet our previously issued guidance of sales and operating income.

"Nonetheless, we expect to achieve sales growth of approximately 5-10% for fiscal 2008, to return to profitability during the fourth quarter and to be approximately break-even for the whole year on an operating basis."