Europe was Crocs' fastest growth market in the second quarter ended on June 30, rising by 50.4 percent to $52.2 million. For the first time ever, Asia became the company's largest market, overtaking the Americas. But the feat will be short-lived and the Americas should remain the group's biggest market at least for another couple of years.
Asian revenues increased by 37.5 percent to $121.9 million and the Americas were up by 16.6 percent to $121.4 million. The group booked a record quarterly top line, with sales surging by 29.6 percent to $295.6 million, beating the company's guidance of $280 million.
Japanese sales rebounded after a slowdown at the start of the quarter caused by the earthquake and tsunami that hit the country on March 11. Growth was swift in several emerging economies including China. Asian sales were marked by a faster adoption by local consumers of the group's new products than in other geographies. More than half of Asian revenues stemmed from the spring collection during the quarter.
European growth was driven by the U.K., France and Germany, where Crocs has a direct presence, enabling the group to work more closely with key wholesale accounts and obtain more shelf space for new styles.
Crocs sees lots of growth opportunity in Europe, which is the second-largest footwear market after the U.S., as many retailers continue to focus on the group's core products, shunning the rest of the portfolio. Europe has traditionally been slower at accepting new styles, and the trend is expected to continue throughout 2011, according to Crocs.
The company recorded satisfactory growth in new European markets such as Russia and other countries of the Commonwealth of Independent States, as well as Nordic countries.
In the Americas, the company reinforced its partnership with most wholesale clients, increasing the number of items shipped and the number of doors served. Crocs estimates that its distribution in the U.S. is well balanced between retail and wholesale, and within wholesale between chains and independent retailers.
The group does not plan to significantly increase the number of wholesale clients in the U.S. during the rest of the year and growth will stem mostly from additional shelf space.
In the second quarter, group wholesale revenues increased by 25.5 percent to $175.8 million. The backlog at the end of the quarter stood at $168 million, 42.0 percent higher than a year earlier. The average selling price per backlog item was $19.79 against $16.50 a year earlier. The company estimates that $125 million of the backlog will generate revenue in the third quarter and $42 million in the fourth.
Retail revenues were up by 38.1 percent to $91.8 million. Crocs had 397 directly operated locations at the end of the quarter compared with 363 a year earlier. The group had 153 stores, 96 shop-in-shops, 81 outlets and 67 kiosks. The average revenue per store grew by 20 percent thanks to larger locations, a wider product offer and higher prices. In the third quarter, the company plans to open 33 stores, of which about 20 will be in Asia, four to five in Europe and about five in the U.S. Store openings are expected to slow down in the fourth quarter to around 20 stores. In Europe, Crocs plans store openings in France, Germany and Russia. In Asia, it will focus on China, Japan, Taiwan, Hong Kong and the Middle East. In the Americas, the group will open its first Brazilian store in the third quarter and open its new prototype store in the U.S. in the last quarter. The group aims to have about 450 stores operating worldwide for the Christmas season.
Internet sales rose by 30.1 percent to $28.1 million, led by Europe, up by 94.0 percent.
Overall footwear unit sales totaled 14.2 million pairs in the second quarter, up by 15.0 percent compared with a year earlier. New products represented about 35 percent of unit sales. The average selling price was up by 12.0 percent year-on-year to $19.96.
The company continued to seek to diversify its sales and the share of the top 50 styles fell to 69 percent of total unit sales in the quarter from 79 percent a year earlier. Crocs will start selling its color-changing Chameleon shoes to wholesale clients in the second half of the year thanks to increased production. Due to production constraints, which will remain for the remainder of 2011, the group had been manufacturing limited quantities of the model, sold exclusively through its direct channel.
The gross margin for the second quarter slipped slightly to 57.6 percent from 57.8 percent in the same period last year. As a percentage of sales, selling, general and administrative expenses decreased to 35.7 percent from 40.9 percent. The group expects full-year marketing expenditure to be roughly in line with 2010 but distributed differently. It will spend more on internet and corporate sponsorship activities and less on television advertising and “expensive” campaigns.
Net income increased by 71.9 percent to $55.5 million, or $0.61 per diluted share. Thanks to a change in the tax treatment of its businesses in Japan and other countries, the tax rate was below 15 percent in the quarter. Crocs anticipates the tax rate to rise to around 20 percent in the second half of the year.
The company forecast a 31.0 percent year-on-year rise in third-quarter sales to $280 million and diluted earnings per share of $0.40. Growth is expected to slow down in Europe compared with the second quarter and will be more aligned with the pace forecast in Asia and the Americas.
In the fourth quarter, the Americas are expected to be the fastest-growing market thanks to the strong presence in retail, which will benefit from the Christmas shopping season. At the end of the second quarter, the retail network totaled 192 locations in the Americas.