I would like to remind everyone that this conference is being recorded. It is my pleasure to turn the conference over to William Kent, Senior Director of Investor Relations. Mr. Kent, please go ahead.
Thank you, Melanie, and thank you all for joining us for our second quarter 2013 earnings conference call. Participants from the company include John McCarvel, President and Chief Executive Officer, and Jeff Lasher, Senior Vice President and Chief Financial Officer. Earlier this afternoon, we announced our second quarter 2013 financial results. A copy of the press release can be found on our website at crocs.com. We would like to remind everyone that some information provided in this call will be forward-looking, and accordingly are subject to the safe harbor provisions of the federal securities laws. These statements include, but are not limited to, statements regarding future revenue and earnings, backlog and future orders, prospects, and product pipeline.
We caution you that these statements are subject to a number of risks and uncertainties described in the Risk Factors section of the company's 2012 report on Form 10-K, filed on February 26, 2013, with the Securities and Exchange Commission. Accordingly, actual results could differ materially from those described on this call. Those listening to the call are advised to refer to Crocs' annual report on Form 10-K, as well as other documents filed with the SEC for additional discussion of these risk factors. Crocs intends that all of its forward-looking statements in this call will be protected by the safe harbor provisions of the Securities Exchange Act of 1934. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events. The company may refer to certain non-GAAP metrics on this call, including adjusted net income.
Explanation of these metrics can be found on the earnings release filed earlier today. I will now turn the call over to John McCarvel.
Thanks, Will. Thank you for joining us on our second quarter earnings call. With me today on the call is Jeff Lasher, Crocs' Chief Financial Officer. I will begin the call today with commentary on the second quarter, followed by Jeff, who will review the financial results for the second quarter and walk through our third quarter guidance. I will add some additional insight to our ongoing business before we take questions. Turning to the quarter. The second quarter turned out to be more challenging than we had anticipated during our last earnings call. While we are very pleased with the performance of our Asia Pacific and European segments, we were impacted by lingering challenges in Japan and the overall performance of our Americas business. Revenue for the second quarter was $364 million, or 12.5% growth versus the second quarter of 2012 on a constant currency basis.
Our first half revenue growth for 2013 is in line with our plans and prior communications. Revenue for the quarter was near the middle of our revenue guidance and was the highest quarter in the history of the company. I would like to share with you our perspective on the quarter and some of the decisions that we made and the thinking behind those decisions. In our second quarter guidance, we projected revenue at $360 million-$370 million and EPS at $0.60-$0.63 per share. While revenue in the Americas and Japan were challenged by lower than anticipated at-once business from our key wholesale partners, our direct consumer business generally delivered strong growth through expansion and comp performance in the quarter. It is important to understand the impact of the one-time charges and external factors in the quarter versus our prior guidance.
Let me list three key items for you. First, the Brazil statutory tax audit was a $0.07 EPS charge. The additional FX expense, non-related to the yen, was also about a $0.01 EPS charge. The unfavorable tax rate, which Jeff will go through later in the presentation, was a $0.02 EPS charge. Without these unanticipated factors, EPS from ongoing operations was $0.50 per share. Let's walk briefly through the regions and channels to better understand what transpired, as each market has different nuances and an impact to the business. Starting in the Americas. Weather had a significant impact on the cadence of buying activity in the quarter, and we experienced very different weather patterns from the second quarter of 2012. Sell-through of products early in the quarter was slower than anticipated but accelerated quickly in the latter half of May and throughout June.
Due to the late spring summer buying season, many of our wholesale partners did not place additional at-once order for delivery in the second and early third quarter. You can also see this impact in our backlog at the end of the second quarter. Our retail business followed a similar pattern throughout the quarter. Slow sales early in the quarter due to the weather was reversed by a very strong sell-through in June. Retail comps for the quarter were a positive 1%. We made a few key decisions later in the quarter to sell some products in the wholesale and retail channels with a higher level of promotional discount than we would have normally.
Inventory that had been purchased to support a higher level of at-once business in wholesale in the quarter was sold at a discount later in the quarter through both our wholesale and direct consumer channels in the Americas and Europe. It was our decision to reduce inventory and not carry over products to the back half of 2013 and the spring summer of 2014. Our balance sheet reflects stronger liquidity and lower inventory levels, which resulted in a very healthy inventory turns of 3.8 on an annualized basis. Our key new product introductions in spring-summer 2013 have done very well. While satisfying our core Crocs loyalists, our new products are bringing new consumers to the brand. Innovative, fun, comfortable new models are connecting with consumers. Sell-through at our major wholesale partners have been strong through the quarter, resulting in lower inventory levels at many major partners.
At one point in the quarter, 23 of the top 100 footwear styles sold on Amazon were Crocs. In Europe, our business continues to grow and strengthen in all three channels in a generally difficult economic and retail environment. Our wholesale business was up 2%, retail increased 96%, driven by new store openings and a positive 1% retail comp. E-commerce was up 5%, all on a constant currency basis. We are transforming our European business from being primarily wholesale and clog-oriented to a better balance of wholesale and direct-to-consumer business, offering wider portfolio of lifestyle products. New products now make up 19% of revenue in Europe, up significantly from prior years and quarters. New retail stores and a larger retail presence is achieving our long-term objective of connecting European consumers to the broad lifestyle portfolio of Crocs products.
In Japan, the consumer market remains challenged at a macro level. We see the impact on our business, too. However, the brand remains strong in the Japanese market. New product introductions have done extremely well. Notwithstanding the macro market pressures, our distribution partners remain bullish on the brand and have continued to build new partner stores in various parts of the country. Our wholesale business was down 3%. Retail was up 14%, and e-commerce up 1% on a constant currency basis. Retail growth was driven primarily by new store openings. Comps were a negative 19% for the quarter. Lastly, our Asia Pacific region continues to show strong growth. The strength of our casual lifestyle footwear brand can clearly be seen in this market. Consumers look for us to deliver fun, colorful, innovative products. Our spring-summer line for 2013 has done extremely well.
New products account for over 50% of the revenue in the quarter. Wholesale growth is up 22%, retail up 15% on the back of a 6% improvement in comp store sales. E-commerce is up 50%. The e-commerce business in the region is small, but offers significant long-term potential growth as it includes China, Korea, and Taiwan, all markets where e-commerce is emerging and growing at a rapid rate. With that, I'll now turn the call over to Jeff.
Thank you, John. Hello, everyone, and thanks again for joining us. What I'd like to do first is to go through the factors that impacted our second quarter results compared to our prior guidance. I'll then provide additional detail on the second quarter and our guidance for Q3. In the second quarter, we had various challenges that impacted our results that we did not expect when we had the Q1 call guidance. These include non-recurring expenses and impact of lower margins from three identified areas and a higher than anticipated tax rate. Separately and included in guidance, we continue to be impacted by unfavorable foreign exchange rates, macroeconomic forces, most notably in Japan, and our ongoing expenses associated with SAP and marketing investments.
As you saw in our release earlier this afternoon, we recorded a non-recurring charge of $6.1 million related to a resolution of a statutory tax audit in Brazil during the second quarter. In addition, our actual Q2 tax rate was 29% versus guidance of 21%. The Brazil expense was non-deductible, and our operating profit shift did not provide any reduction in global tax expense. Combined, these increased the rate as a percent of pre-tax profit. We now expect our full year effective tax rate to be 22%-25% after adjustments for the above-mentioned Brazil issue. This is higher than previous levels as our operating income in Japan has declined, and our mix of international profitability has shifted from low effective tax rate jurisdictions. Together, these two items reduced EPS by $0.09 per share in the quarter.
The remainder of the EPS shortfall versus our guidance for the second quarter was primarily the result of lower gross margins as we ended the quarter with gross margins of 55.2% compared to 59.3%. From a high level, margins were down due to several factors with mostly balanced weighting. One, we were more promotional in the Americas than in Europe in response to softer sales trends, primarily due to challenging weather. Two, revenue in our high-margin Japan business was lower than expected, notably in the retail channel, which has high profit margins. Three, we saw US dollar strength in some additional foreign markets outside of Japan impacting our margins in the second quarter. Next, on a year-over-year basis, we were impacted by planned additional marketing expenses, SAP investments, unfavorable Japan foreign exchange rates, and other macro forces.
Specifically, with the yen declining 18% versus the US dollar in the quarter, year-over-year reported revenue was reduced by 2%. This had an approximately 150 basis point impact on our overall gross margins and similar impact on our operating margins as a company. Overall, with the lower translation of our Japan yen-denominated operating income and ongoing lower purchasing power of the yen relative to the dollar, we saw a year-over-year decline in consolidated net income of $5 million or $0.06 per share. In addition, the macro forces impacted at-once orders and same-store sales, which declined 19.5% for the quarter. Also, on a year-over-year basis, our global SG&A expenses increased $26 million or 21% to $150 million. This consisted of $72 million in indirect expenses, inclusive of increased year-over-year marketing expense of $3 million and $2 million for our SAP project. Direct SG&A expenses totaled $71 million.
Our retail channel SG&A was up $12 million, as our store count increased from 484 locations in 2012 to 575 locations in 2013. Including those items and the non-recurring Brazil expense, total SG&A expense was up approximately 3% for the quarter. Other notable items for the quarter: revenue increased $33 million, up 12.5% on a constant currency basis from Q2 2012, driven by increased sales volume as units increased 16% to 16.3 million. This was partially offset by a 4% or $0.81 decline in ASP, which was $21.65 in the second quarter of this year. Clogs represented 44% of unit sales in the quarter, down from 46% last year, while non-clog wedges, loafers, and women's casual shoes increased as a percent of overall unit sales. Overall, our retail revenue increased 18% over 2012 levels as we added 91 net new locations since the end of last year's second quarter.
Global retail same-store sales increased 1% over last year, with Americas up 2%, Asia Pacific up 8%, Europe was up 1%, and Japan was down 19.5%. Our global outlet stores had a same-store sales increase of 16%. In summary, for the second quarter, while we had various challenges that impacted our results that we did not expect when we had the Q1 call, the fundamentals of the business remain as strong as the balance of revenue around the globe and strengthening retail performance outside of Japan solidify our long-term sustainable growth expectations for revenue. Our healthy balance sheet continues to be a source of notable strength. We had global cash reserves of $289 million with limited debt and believe that we will continue to grow cash balances from operations. In addition, we lowered our inventory to $161 million.
This lower inventory positions us to run our supply chain more efficiently in coming quarters. Moving on to Q3 guidance. In the third quarter, we expect revenue of $300 million-$310 million and EPS of $0.20-$0.23 per share. This includes slightly positive comp growth in the quarter. We expect gross margins in Q3 to be consistent with the prior year, as discounting in Q2 was primarily the result of late spring and weather conditions. We plan to open approximately 25 more retail stores globally by the end of the quarter and end the year with 600 company-owned locations. Backlog at the end of the second quarter is down 7% from June 30th, 2012. Total backlog as of June 30th is $161 million, down $11.6 million from 2012. On a constant currency basis, backlog is down approximately 3%.
Our third quarter outlook takes into consideration the late spring in North America, currency headwinds from the JPY, and European macroeconomic issues. In the third quarter, we expect revenue of $300 million-$310 million in EPS of $0.20-$0.23 per share. This includes an assumption of 2% comp growth in the third quarter. Currency expectations are now 100 for the JPY and 130 for the EUR. Thanks. I will now turn the call over to John for some closing comments before taking questions.
Thanks, Jeff. I would like to summarize for you again our overall view of the business. First, Crocs is a global brand with 66% of our revenue outside of the U.S., this continues to provide us with a diverse revenue base and long-term growth potential. From a Crocs perspective, what we see going forward is an improving Europe, a stabilizing Japan, a growing and strong Asia, and an opportunity for us to improve our going-forward business in the Americas. Secondly, while gross margins are down in the second quarter from historic levels, this is due to management decisions taken to be more promotional and aggressive in reducing inventory in selective markets. As Jeff said earlier in our guidance, our gross margins for the third quarter of 2013 will be consistent with Q3 of 2012.
Third, management remains committed to aggressively managing SG&A costs as it has in the past, both direct and indirect. Fourth, we expect to grow the continued second half of 2013, but at a slightly lower level due to the at-once levels of business in the Americas and Europe wholesale in the third quarter. With that, we'd like to turn the call back over to the operator, and we'll take our first call now.
Thank you. If you would like to ask a question, you may press star one on your telephone keypad at this time. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will go first to Erinn Murphy with Piper Sandler.
Great. Thank you. Good afternoon. I appreciate the context around the second quarter and just some of the many moving parts. John, I was hoping you could spend just a little bit more time on really the pattern of sales from the beginning of the quarter to the end of the quarter. You did indicate the improvement, what would be interesting is if you could speak a little bit more about any regional call-outs, if there was more improvement, maybe in Europe. Your closing remarks talked about your perspective on Europe starting to get a little bit better. Just helping us understand really the cadence as we progress throughout that quarter.
When we look at both the Americas and the European cadence throughout the quarter, it's very similar. Weather patterns were very similar, where we had cold March and April that really led to slower consumption, both at the wholesale level and at our own retail level, that continued on into the first half really of May. Looking at less than the historic sell-through with our wholesale accounts and within our own retail operations. It was really in the late part of May, after the Memorial Day weekend, that we made the decision to move to a little bit more aggressive BOGO program or promotional program in two specific markets, in Europe, in our retail stores, and in the U.S. In both markets, we saw double-digit comp performance during the month of June.
Whether that's specifically due to the promotional nature of the business or whether it was that the sun came out starting Memorial Day weekend and started to improve in many parts of the U.S., it's hard for us to discern what portion of the growth or comp performance comes from those two elements. Promotional activity is specifically geared towards the U.S. and the European markets. We don't see promotional activity, very low promotional activity throughout Japan and our Asian markets, hence, stronger margins and significant comp performance. As I said, Asia up 6% on the back of over 50% new product introduction sales in our retail stores.
That's really helpful, John. I guess just maybe thinking about Japan as well then throughout the quarter, the comp fairly weak on top of a weak comp last year. I think Golden Week is probably a little bit better for a lot of retailers, but clearly the market's still not very strong overall right now. Could you just talk a little bit about how you feel like you're performing in the context of that market? Then secondly, just as we think about the evolution in Japan being much more of an established market, the channel, or if there is any channel conflict between both retail and wholesale as we think about that as we head into the back half of the year.
I think for the Japanese market, difficulty for them also exists through that early Golden Week period in early May where weather was not good. Again, their shopping consumer behavior was restrained. Clearly, what we saw also through the last part of May and then in through June is on a much more even comp store sales basis. When we look at the impact of the yen on the business, and Jeff can share his views of the impact that has, and he mentioned some of this in his commentary earlier, on a yen-to-yen basis, it's fairly flat quarter-over-quarter. We still see good demand for the products. Traffic has remained strong throughout the second quarter, but a better conversion in the June timeframe.
We think based on what we've seen through the June period and into July, it gives us confidence both in the sell-through with our key wholesale accounts there, as well as what we're seeing within our own retail accounts. It appears that that market is solidifying. It's getting to a point where we think we have some confidence in the back half of the year that's going to continue to trend in a more positive way, more positive being that it's not going to negative comp as it has. If you do remember last year in the third and fourth quarter in Japan, we did start to see a slowdown from our standpoint in the consumer behavior to buy products.
I say all that, Erinn, I also want to just remind you that that business, even at its impacted level, still remains one of the most profitable parts of Crocs today, even with a yen depreciation that we've seen and even with a little bit slower retail market.
Okay. Just last question. On the product line perspective, you're obviously in a much leaner position from an inventory perspective getting into the back-to-school season, but there's also a lot of new innovation hitting this fall, and it's actually been hitting over the last four weeks. You've got the Busy Day collection, the Retro sneaker. Can you just give us an assessment on how any kind of early read on how these are tracking, how they were received in the wholesale community as well as just in, obviously, you've got them in your retail stores or coming there now. Just help us frame up some of the product innovation that you guys are excited for the back-to-school season.
In the first half of the year, I think A-Leigh, the Retro, Huarache came a little bit later in the quarter, and Molded Boat all did extremely well. Hopefully, what we want is our wholesale partners who have done quite well with all those products, have sold through. Many of our top U.S. wholesale partners are less than 12 weeks worth of inventory. Some of our key partners are at four or five weeks worth of inventory at this point in time. They've sold through. They did not reorder. We're hoping that that's going to confidence in the sales of our spring/summer products will carry over. It's too early for us to give you a read at this point in time, as products are just flowing. Most of our products are just flowing into wholesale starting now in early July.
It's a little bit early for us to give you a read. New products that have hit our retail stores continue to do well. We're early in the third quarter to get that kind of read. We don't have a lot of product that goes to retail anyway, wholesale for back to school. That's not a strong period of time for us. It's a smaller part of our overall revenue plan.
We'll go next to Jim Duffy with Stifel.
Thanks. Hello. Question on the backlog. Can you speak to the composition of the backlog, maybe the split between quarters for expected shipments and also the split between seasons? To what extent does the year-to-year decline reflect perhaps cautious orders for next spring season?
I think first, it's important to note that our fall holiday pre-book is not down on a year-over-year basis. It's basically flat on a year-over-year basis. What we're really seeing in the backlog going into Q3 is lower spring/summer 2013 backlog going into the second half of the year. That's really been the decrease as we saw weather-related patterns that didn't materialize into at-once demand during the summer.
I think, Jim, the thing that we would normally see through the years of experience here is that we would see more sales of our products in the March, April, May timeframe. We would see more wholesale customers placing orders in May and June for delivery June, July, and early August. That impacted, as we talked about in the call today, our at-once business, especially in the U.S. and to a lesser extent, from a dollar impact standpoint, Europe. That carries over into our backlog for the third quarter revenue, which is why we've taken guidance down. We think the impact year-over-year looks to be about $10 million of Q2 orders that would be shippable normally to wholesale accounts in the first half of the third quarter, which didn't materialize. As Jeff says, backlog remains fairly consistent year-over-year for fall/winter products.
We have not started to book any spring/summer 2014 products yet. The booking deadlines come later in the third quarter. Jeff can give you the split between Q3 and Q4 backlog of the total of the $171.
$114 is our Q3, the balance would be in subsequent quarters.
John, a year ago, had you started to book orders for spring 2013?
No.
Is there some of that that's in the compare?
No. Normally, our booking date, we don't book anything for a June 15 date for delivery in 2014. Our first real booking dates are August 15 and September 15 in the quarter. No, we're comparing an apples-to-apples situation. We don't have spring/summer products for either year in June 30th backlog.
Got you. Okay. Based on conversations with retailers, do you have a sense that they'll be conservative in booking for spring next year and perhaps, given the challenging spring this year, want to take receipts later?
Hard for us to tell, I think, what the wholesale thinking will be. Jim, early on in 2013, what a number of the major wholesale partners that we have, and especially in the mid-tier family channel, were actually looking at because of the lack of a fall/winter season for almost two years running, they started to come to us and talk about maybe taking some of the spring/summer 2014 products in the fourth quarter, products that they would sell all the way through. I think because of the late winter period that we had, we've seen them go back and rethink that a little bit, trying to look at what they think the weather patterns are going to be going into late 2013 and into 2014.
We haven't seen many of them come forth with any kind of merchandising plan that would roll out spring, summer products in their southern stores or warmer weather locations, in the fourth quarter of this year. I think from our standpoint, many of them did take products earlier this year, so we did see a little bit of that shift into the first quarter, as we talked about on the last call, where pre-bookings were a little bit higher with a February, March delivery. I don't know enough to tell you that now. Maybe as we go through the booking season, we'll get better indication from our key wholesalers in the U.S. and globally.
Okay. Sounds good. You talked about incremental marketing spend planned for this year. Do you continue to plan to spend the total of that? Related, I'm just wondering, given the difficulty of predicting the business, if you are confident you've been sufficiently conservative with the outlook for the third quarter?
I think you followed Crocs for a long time, a number of people have followed this for a long time. We've committed to managing the SG&A business according to the level of the business that we see. Jeff and the finance group have been working with the rest of the executive team, both at a corporate level and a regional level, to manage down expenses in the back half of the year. Yes, we will take down some of the anticipated marketing spend, additional marketing spend that we had in the plan where we can and where we think it's prudent to do so. As you know, a lot of times you're pre-booking out launches of products. We're pre-committing to advertising programs and marketing programs that are tying to promotional calendars, both internally and with our key wholesale customers.
We're not in a position to take a step back from that. Yes, you will see SG&A management in the back half of the year. You will see some reduction to marketing expense.
Okay. Thank you.
We'll go next to Corinna Freedman with Wedbush Securities.
Hi there. I wonder if you could clarify your comments about the outlet stores. I think you said they comp up 16%, or maybe I misheard that.
Great. Can you expand maybe, Corinna, just a little bit on the question?
The comps at your outlet stores.
Right. Jeff's comment in his section of commentary was that when we look at different segments of our retail channel, what we saw was strength in the outlet channels. We're developing an outlet strategy and a fleet of stores in Europe. We have a fairly significant outlet presence here in the U.S. What we have seen is that our consumers who continue to be challenged by employment issues, both in Europe and in the U.S., when you look at payroll taxes, you look at all the factors that we've all talked about in the macroeconomic conditions, we still see the strength in consumers looking for shopping in the brand. People are constantly looking for a good deal, looking for products that are reasonably priced.
What we see in our outlet stores is that we sell older models or still core products like clogs, at a fairly significant rate. When we offered the promotional programs that we did in June and into this first part of July, we see that really resonating with our consumers. These are people that make $65,000-$75,000 per year as a household income, and they're looking for value today. Outlet stores are a place for them to find value, as well as through our e-tailers, which, as I said in my part of the presentation, was a pretty significant accomplishment. We feel that 23 of the top 100 selling styles on Amazon were Crocs products at one point in time in early June.
I think the other key thing to add, Corinna, is that we are looking at outlet stores as the green space opportunity for the company. If you look at our outlet openings in the quarter, on a year-over-year basis, we've opened 34 net new locations. Out of our 90 total locations, 34 of those were outlets, and that's the segment that continues to perform well. We did call out comp for outlets in the first quarter as well, because it outpaced the overall average as well.
Okay. If you could give us a timing on the SAP testing and implementation and just lay out when those initiatives are going to occur this year.
You're not going to see anything in 2013, Corinna, relative to SAP. That will continue on into the early part of 2014 with an estimated go live somewhere in about the middle of the year at this point.
Okay. That's all I have. Thank you.
We'll go next to Taposh Bari with Goldman Sachs.
Hey, good afternoon. I wanted to focus on SG&A. I can appreciate the weather volatility, SG&A, I would imagine, given the fact that you're actually making your sales plan, is something that I think you guys could control. I think originally, Jeff, either last quarter or the quarter before, you had guided to SG&A being flat as a percentage of sales. Year-to-date, it looks like SG&A is de-levering about 200 basis points. As we look at your third quarter guidance, you're saying 305 midpoint on sales, flat gross margins. In order for me to get anywhere near your guidance, I have to put in about 500 basis points of de-leverage on SG&A. It actually gets worse.
Can you just walk us through why SG&A is de-levering 200 basis points year-to-date, and why the third quarter guidance calls for that number to get worse?
Yeah, like I said, Taposh, on the prepared remarks, we saw in the quarter about $3 million increase associated with marketing, $2 million out of SAP on a year-over-year basis. Our retail channel expenditure was up about 20% with a similar rate of growth in our store count. Our SG&A expense continues to go up in correlation with our retail store count. That was up $12 million in the quarter and included in our SG&A expense is the $6 million for Brazil, associated with the resolution of the sales tax audit there. When you look at it and you strip away those issues, our SG&A from a kind of a core controllable SG&A was up 3%.
When you look out into the future quarters, the year-over-year increase in SG&A, for the direct channel is going to be in correlation with your overall revenue growth associated with the additional retail stores. Our overall growth in indirect SG&A for Q3, is still round about the rate of overall revenue growth, if not a little bit lower in our internal models for 2013.
Okay. Maybe I misasked the question. Was the original guidance for SG&A to be flat this year? Or did I mishear that?
Well, we never said that our SG&A was going to be flat this year. We said that our direct channel SG&A would grow in correlation with our revenue and our retail store count. We said that our indirect store, our indirect SG&A, or our kind of our overhead SG&A would grow round about half the rate of overall revenue growth. We were going to make an investment in SAP, to the tune of about a million and a half to $2 million per quarter. We were going to make an investment into marketing for the year. Those were specific call-outs that we made back in February of this year.
Okay. I wanted to ask a question just about the relationship between backlog and wholesale growth. If we rewind back to last quarter, your backlog was up 1%. Historically, there's been a relatively comparable, pretty tight correlation between backlog and future quarter wholesale growth. This past quarter, if we look at backlog, it was up 1%, yet this quarter, wholesale revenues were up 7%, yet you're saying that at-once actually missed your expectations. Can you just walk us through that dynamic, what's happening there?
On the quarter, first, you have to look at the impact of the Asian business and the strength of wholesale in the Asian market and on the quarter, I think, to get a perspective as far as what happened relative to wholesale growth. In the third quarter, we, as Jeff walked through the numbers, we've taken down the expectation for at-once revenue during the quarter. Today, I think if you look at this, we expect still about 20%-25% of our revenue for the quarter still to come from at-once orders in all markets, which we're comfortable with today given the diversity of the brand globally. In the past, I think our at-once orders have been a more significant percentage in dollar amount in Q2 and Q3.
I think right now we're trying to understand exactly what our key wholesalers are going to do in the third quarter. We're being conservative in what we think we are going to expect to see from them.
Okay.
I think finally, we saw, as we said earlier to Jim's question, pre-books going into the quarter was $114 million for Q3. Historically, our pre-book revenue as a percentage of total wholesale revenue for Q3 has been about 75%.
Okay. Thank you. Just one last question for you, John. Kind of more theoretical. Just want to get your thoughts on this. Looking at Crocs on paper, it screens very well. It's a cheap stock. The return metrics are great. Great margins, global brand. Quarters like this, there's just this record of inconsistency in terms of just execution. I get that there are external factors at play, but I was hoping you could perhaps give us some thought as to what you think contributes to this level of inconsistency just historically, and what the management team is doing to reduce that degree of volatility going forward.
We've had many conversations over the last couple of years when we look at quarterly guidance with the youth of this company, the global diversification. I think if you're operating in one single market, it's really easy to be able to forecast and control the business. At the young age of this company and with the growth of the business, I think, we for a number of years did not miss guidance on any quarter. In the last two years, we've seen quarters where we missed top-line guidance by $5 million and bottom-line guidance, not inclusive of one-time charges to be $0.02-$0.03.
kind of where we're at in the business. We try to be as conservative as we can when we go into our quarterly process and giving guidance to the street. I think when we looked at the quarter, given the strength of new products, the enthusiasm that our wholesalers had and our own enthusiasm for the products and what the sell-through looks like once the sun came out, I think it's really hard for us to have forecast the level of consumer conservativism in the first six to eight weeks of this quarter in two major markets. We do try our best to be conservative when we go in and we give guidance for the quarter.
I know that this creates a huge amount of concern on the street, and we continue to work at this to do our best to hit the numbers that we give from a guidance standpoint. I unfortunately just don't think that there's anything this quarter, given what happened weather-wise, that we could've forecast even when we gave guidance at the end of April.
Okay. Well, thank you and good luck.
We'll go next to Scott Krasik with BB&T Capital Markets.
Thank you. Hi, everyone. Thanks for taking my question. You talked about the global outlet comping up strongly and talked about the excellent results after you went to a BOGO event. ASPs, I think you said, were down this quarter. Is there a chance that even though a big part of the strategy is to introduce higher priced product, that maybe this stuff is just a little bit too expensive to drive the volume you're looking for?
Scott, I think you have to look at it on a global basis, right? That's not what we see in markets like Japan and in markets like Asia. I think if you look at Asian comp at 6% in the second quarter based on last year, we comped up 5.2% in the quarter. In some cases, Scott, we even sell the products at a higher level, a higher price than we do even in the U.S. domestic marketplace. Pricing isn't an issue in those markets. If we look at the European priced products where we're at relative to the competition, where we're at with comparable products, U.S. dollar denominated, company like us and products like us, we don't see that as to be a barrier.
We come back and we look at what the issues are, as we said throughout the call today, being heavily an Americas-centric issue. What our marketing data tells us, what we see in the feedback that we get, is when we're in a price point between 25 and $60, 25 and $70, we still see consumers not having a problem with buying products with the Crocs logo on it, with Crocs branded products because they know the quality, the comfort that it comes. When we get above that $60, $65, $70 kind of price point, we do see that to be an area from both a marketing standpoint and from a consumer standpoint, that we don't believe that right now the brand can take products up above that price point. We don't have many products that go above those costs today.
We don't see ASP for the majority of the products we sell today to be the issue. Most of our men's products run anywhere between $45 and $65 price points. On a comparative basis, people are buying similar products for anywhere from $70 to $90. We don't see pricing to be an issue in our core business.
Okay. In terms of just reporting the numbers going forward, is it possible, I think you had talked previously about maybe putting out the quarters that show a breakout of Japan and Asia. Can we get that for Q3 and Q4 before you report the numbers? Is that possible?
Yes, it is possible.
Is that going to happen?
Yes, we'll get that to you.
Okay. Thank you.
We'll go next to Sam Poser with Sterne Agee.
Thank you for taking my call. I've got three things. Number one, what were you assuming the At Once business in Q2, and what are you looking for at the back half, especially in the fourth quarter? Secondly, you guided for 600 stores at the end of the year. That's less than the 90 store openings you planned on doing originally. Can you talk about that? I have one more thing.
I'll let Jeff take that, Sam.
Okay. For At Once orders, which was your first question?
Right.
We did assume in At Once about a year-over-year increase globally, and we did have some issues with At Once demand in the quarter. As we looked at the quarter unfolding, especially in the later parts of the quarter, we have not seen the At Once demand that we expected. Frankly, when you look at the data coming out of the wholesale accounts where they have relatively low inventory levels, we would've expected more aggressive ordering patterns from our wholesalers based on this information. The wholesalers are taking conservative positions, and that gives us hope for Q3, but we have a very conservative approach to Q3 guidance, and an assumption of At Once demand that's relatively moderate for Q3.
Yeah. Normally, I think we would be in the 30%-35% range for At Once business for both Q2 and Q3. What we've seen and what we're carrying over in backlog, we're forecasting down 15% lower At Once business now for the quarter. Your second question about retail stores. We're up 91 stores June 30th, 2013 versus June 30th, 2012. We opened stores in the second half of last year at a fairly healthy clip, especially over in Europe when we opened stores in Q4. This year, our plan is to open a very modest amount of second half stores, only 25 in Q3 and only a handful in Q4. When we look at the year-end, we're looking at 600 versus a starting point of 537. The year-over-year, December 31st versus December 31st is where the 60 comes from.
Right. For the full year, you said you were going to open like 90. Your number's going to be lower than the 90 at the end of the year.
Right.
The original plan. Correct?
Our estimate right now is that we'll be at 600 stores.
When you look ahead into next year, are you going to put that down? Are you going to work more to get your current stores working better rather than opening new stores in a general sense?
I think you have to go region by region. I think if you look at the Asian business today, for example, we have 50 of our own stores in China, and our partners have 650 stores. We will continue to add a certain number of stores in the Asian market like that. We anticipate that our partners will add another 150 stores in China going into 2014. Today, when we look at our pipeline of stores for next year, we still feel that we're in the same range, 75-90 stores. 25-30 stores in each geography. Most of our U.S. pipeline looks like outlet stores today in markets where we feel we need the presence. You're going to still continue to see a certain amount of growth in warmer weather locations and in France and Germany and Europe for next year.
I think you see a little bit slower, maybe, in growth in terms of stores in the pipeline. I think we're feeling with the retail systems in place, better retail systems in place now with Oracle planning in place going into spring/summer 2014. We're in a better system standpoint on how we merchandise, allocate, and manage our stores on a global basis. The organizational construct is better. We've added count throughout the world. We have a new head of Asian retail now for six months, who came from Levi Strauss & Co. in the region. We've done that in other parts of the business, in our retail business. We're feeling people-wise, systems-wise, product-wise. Second year is generally better. People weren't too sure about Huarache going into the season. People weren't too sure about molded boat shoes. People weren't too sure about A-Leigh. Second years are generally better for us.
We are maybe at a fault, we're eternally optimistic that we think that we've got the right products in the right place at the right price point going into the next year.
Lastly, to the other question about the guidance and the global brand and the young global brand with all the differences. We've talked about this in the past. There's guiding conservatively and guiding conservatively. Clearly, the eternal optimism seems to be overtaking, adding too much optimism to your conservatism. The question is, are you thinking about guidance for the balance of this year the same way you thought about it at the beginning of the year? I'm saying the same way you thought you were guiding at the beginning of the year, because guide and beat is good, guide and miss is not. It's very difficult to try to figure out, should we listen to your guidance or should we just cut it by 10%, 20%?
Despite how conservative you say you are, it's very hard to figure out what's going on. When you said you're cutting your at once expectations, I guess, cutting it down by 10%, 15%, is that enough? Should you be guiding your at once expectations down 40% and then beat that? Have you changed the way you're thinking about the way you're delivering the message here? In your businesses, you're running good increases and stuff like that, you're setting a very high bar for yourself. You're not always jumping over it.
I think we are more conservative as each quarter goes on. I know maybe that doesn't feel like that today. I think when we step back and we look at this business for the first half of the year, revenue growth has met expectations, has met our expectations, has met Street expectations. I think the unfortunate part of this, look, we're not the only brand that suffers with seasonality of consumer behavior when we didn't have many winter seasons there for a couple of years. Brands that were heavily fall/winter-based, they had to go through the same dynamic to move product, to move inventory. To do the right thing for their business. We felt this quarter, first quarter, we're very close, in line. Revenue was in line with the expectation.
We had a choice to make, whether we would kind of forego the promotional activity, take a chance on June being warmer and letting that come to fruition. We made the decision this quarter that it was going to take a hit on profitability. You have to take out all those other one-time charges. The hand that we got dealt with, we try to be conservative for the third and fourth quarter this year. We're giving guidance for the third quarter we feel is conservative based on what we see for At Once buying patterns for the third quarter. We hear it loud and clear. We see it. We're working really hard at meeting, beating and
Hello? Hello?
Did I get cut off?
I don't know. Yeah, you cut off for a second there. Anyway, let's talk about SAP, and then I'll get off and I'll let everybody else ask questions. SAP, almost every company we've seen that does SAP hiccups while the implementation. You've said publicly that you think that you've got a simplified version of SAP, and when you flip the switch, the lights are going to shine, and it'll all be good. Again, that may happen, but historically we've seen even the biggest companies in the world, like Nike, have significant problems as they've converted to SAP. Shouldn't your guide to be to say, "Look, we hope the lights shine, but we're going to temper that a lot." Again, regardless of how well you've planned it, because it's a difficult situation.
Again, maybe the optimism just really needs to be tempered more than you're currently tempering it.
Well, I don't think, Sam, that we've given any guidance towards 14 at this point in time, what we think that impact could be or what it's going to look like. What we have said is that where Nike did a lot of customization to the SAP solution that they implemented, we're going with the straight AFS solution with no customization to their apparel footwear solution. That's what we've said so far. As far as the impact to the business, of course, you're going to have some kind of impact to the business. What we've said is, it's our goal to minimize this, to do this judiciously. We're not going to implement SAP until we've gone through proper testing globally to determine the impacts that it may have, and we can't give you any more guidance than that at this point in time.
We're still somewhere, as Corinna asked earlier, nine to 12 months away from implementation. We'll continue to give you updates, all we've said so far is that we're not doing customization and we're working closely with SAP to be as vanilla as possible.
All right. Well, thank you, and good luck.
We have time for one more question. We'll take our last question from Steve Marotta with C.L. King & Associates.
Good evening, everybody. You mentioned the delta in marketing spend in Q2 was $3 million. Can you offer that delta for Q3 and also remind us what aggregate spend is for this year versus last, please, marketing?
Yeah. The $3 million was for Q3. We anticipate, as John said, the second half of the year will be up slightly in marketing costs. When we look back on the full year, we'll be up about one full percentage point in revenue at the end of the year, which is about what we said at the beginning of the year for our incremental marketing spend.
Okay. Lastly, you mentioned in the prepared remarks that you endeavored to clear inventory by the end of the quarter. The inventory levels on the balance sheet would imply that you did it, but I just want to verify that was entirely successful, that you are happy with where the inventory is, and that there is no material carryover from Q2 to Q3.
No material carryover Q2 to Q3. A lot of what we did during the quarter was to move, as I said in my remarks, a lot of what we had procured for At Once, a business that we thought would materialize in a quarter, and we moved through a significant number of old, small numbers of styles that were in our L.A. D.C. warehouse. We took the number of SKUs in the L.A. D.C. warehouse down about 8,000 SKUs. We're happy with the cleanup activity. It should be beneficial to the business going forward in terms of our supply chain management being more efficient and effective. We've made also a significant improvement in the quality and level of inventory in Japan. We've reduced the amount of warehousing and distribution costs in that marketplace, also. We feel good about the progress that we made during the quarter.
Okay. Thank you.