• Q2 losses hit $30.3m
  • Revenue of $198m exceeds guidance
  • Sees return to profitability next year

Plastic clog maker Crocs Inc has swung to a second quarter loss of $30.3m on slumping sales - but says its top-line results were better than expected due to strong gains in the retail channel.

"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.

He also said moves to reduce operating losses "through the balance of this year" are likely to return the firm "to profitability next year."

The footwear maker's loss of $30.3m or $0.36 per share for the three months to 30 June compares with a profit of $2.13m or $0.03 per share in the same period last year.

However, excluding impairment and restructuring charges, the company said its loss for the quarter would have been $5.0m or $0.06 per share.

Revenues were down 11.3% to $197.7m from $222.8m last time, beating company guidance for the quarter.

Higher retail and internet sales - up 58.9% and 24.8% respectively - were unable to offset a 28.2% slump in revenues at wholesale, which account for 63.2% of the company's business.

And while sales in Asia increased 30.5% to $80.0m, demand continues to slide in the Americas (down 19.4% to $85.5m) and Europe (down 41.8% to $32.2m).

Crocs also said it had paid off a $17.3m credit facility, and intends to secure a new asset-backed revolving credit facility by the end of the third quarter.

Looking ahead, the company said it expects third-quarter revenue of between $150m and $160m, with a loss per share of between $0.06 and $0.14.

INSIGHT
There's no doubt Crocs is trying to put as positive a spin as possible on its second quarter results after repeatedly fighting off analyst and media criticisms dismissing it as a one-shoe fad after its phenomenal early growth came crashing down last year.

Speaking on a conference call on Thursday, CEO John Duerden hit back. "The rumours of our demise have been greatly exaggerated," he said.

"There are those out there who have written us off. This quarter's results financially, operationally and qualitatively show that this company and the brand are still very much alive."

Duerden, speaking after his first full quarter at the helm of the Niwot, Colorado based firm, said consumers "rose up in defence of the brand," leading to better than expected sell-through at the company's own retail stores and on the internet, as well as market-share gains in Asia.

As well as "the extraordinary strength of the Crocs brand", Duerden said he has been buoyed by the enthusiastic reception for new product lines, like the Prepair athletic recovery shoe which opens up new markets for the firm.

It is also planning new rollouts based on its proprietary closed-cell resin, Croslite, including the new Crocband shoe, a Crocs sandal emblazoned with a racing stripe around the sole, which was unveiled yesterday.

While he accepts the company "certainly has its challenges" - not least of which is trying to steer a turn-around of the company that reported a $185m loss last year - Duerden is keen to play up the strides that have been made in the past couple of quarters.

One of the biggest problems Crocs has had to tackle has been its soaring inventory levels, after production was stepped up when the brand took off - but sales failed to keep up.

It has responded by disposing its shoes - 800,000 pairs have been donated to charities in the US and abroad during the past quarter - and slashing its US distribution facilities down from seven locations to one.

As a result, inventory levels continue to come down, falling by 15% since last quarter and down 22% since the end of last year. Global inventories are now more than 58% below their historic highs in 2008.

But there is still a long way to go.

Our turnaround remains in its infancy... there's a still a lot of work to be done over the next 12-18 months to bring this co back to profitability," Duerden said.

"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."

In fact, IT is seen as a priority after the company's explosive growth means its infrastructure "is still burdened by both manual and duplicitous processes."

"Our 2009 capital expenditures give priorities to IT initiatives that will bring about efficiencies in the business and heightened customer service. Many of these are expected to be in place by the end of the year," Duerden says.

Click here for the full financial release from Crocs Inc.