Footwear company Crocs (NASDAQ:CROX) reported its second-quarter results before the market opened on Aug. 9. Revenue continued to decline, with both the wholesale and retail businesses suffering sales slumps, and the pace of store closings accelerating as the company attempts to right-size its retail footprint. E-commerce was a bright spot, growing by a double-digit percentage. Here's what investors need to know about Crocs' second-quarter results.

Crocs results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$313.2 million

$323.8 million

(3.3%)

GAAP EPS

$0.20

$0.13

53.8%

Non-GAAP net income

$19.9 million

$12.0 million

65.8%

Data source: Crocs.

A Crocs classic clog in green.

Image source: Crocs.

What happened with Crocs this quarter?

  • Crocs' second-quarter revenue was near the top of its guidance range of $305 million to $315 million. On a constant currency basis, revenue slumped 2.7% year over year.
  • Gross margin was 54.2%, up 180 basis points compared with the prior-year period. The company pointed to improved products, better inventory management, and a shift toward more molded product as the main drivers of the gross margin improvement.
  • Wholesale revenue dropped 7.3% year over year, with a 4.9% increase in the Americas, a 12.7% decline in the Asia-Pacific region, and a 14.5% decline in Europe.
  • Retail revenue slumped 4.4% year over year, with a 3.8% decline in the Americas, a 4.6% decline in the Asia-Pacific region, and a 6.3% decline in Europe.
  • E-commerce sales rose 14.5% year over year, with a 2.6% increase in the Americas, a 34.8% increase in the Asia Pacific region, and a 10.4% increase in Europe.
  • Crocs ended the quarter with 503 stores, down from 542 at the end of the first quarter and 558 at the end of 2016.

Crocs provided the following guidance for the third quarter and the full year:

  • Third-quarter revenue is expected to fall between $230 million and $240 million, down from $245.9 million during the third quarter of 2016.
  • Third-quarter gross margin is slated to be roughly flat year over year. The third quarter of 2016 included a benefit of 200 basis points because of a favorable inventory adjustment.
  • Full-year revenue is expected to be down by a low single-digit percentage, unchanged from previous guidance.
  • Full-year gross margin is expected to be roughly 50%.

What management had to say

Crocs President and CEO Andrew Rees, who took the helm in June, pointed to the progress the company made during the quarter:

During the second quarter, we continued to revitalize the Crocs brand and drive improvement in the quality of our revenues. A favorable response to our spring/summer 2017 collection, particularly as it relates to clogs and sandals, drove solid growth in these silhouettes. A focus on our core molded products and effective inventory management enabled us to deliver gross margins which exceeded guidance, while our intense focus on expense management kept SG&A below projected levels. 

Rees sees this momentum carrying into the second half of the year: "We are optimistic about the early response to our fall/holiday 2017 collection, and anticipate that the positive sentiment seen to date will continue throughout the second half of the year, despite the challenging retail environment."

Looking forward

There was little good news on the revenue front for Crocs during the second quarter, save for an increase in Americas wholesale revenue and an acceleration in e-commerce sales. The 14.5% e-commerce sales jump was much better than the 2.7% increase reported during the first quarter, a sign that the company's efforts are paying off in that area.

Crocs is closing retail stores at a quick pace, with the store count dropping by nearly 40 during the second quarter alone. This move will put pressure on revenue, but closing underperforming stores should help the bottom line. Comparable sales were flat globally during the second quarter, providing some evidence that the retail business isn't too far from to turning the corner.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Crocs. The Motley Fool has a disclosure policy.