卡洛馳 (CROX) 2006 Q4 法說會逐字稿

Good evening, ladies and gentlemen,and thank you for standing by. Welcome to the Crocs Incorporated fourth quarter and fiscal 2006 earnings conference call. [OPERATOR INSTRUCTIONS] I'd like to remind everyone this call is being recorded. Before we begin, I would like to remind everyone of the company's Safe Harbor language. Please note, that some of the information provided in this call will be forward-looking statements within the meaning of the securities laws. These statements concerning Crocs' plans, projections, expectations, and estimates, objectives or future operations. The company's caution -- the company cautions you that a number of risks and uncertainties could cause Crocs' actual results to differ materially from those described on the call. Crocs has explained some of these risks and uncertainties in the risk factor section of its annual report on the form 10-K and its other documents filed with the SEC. That, you are encouraged to read these sections and all other disclosures appearing in the filings with the the SEC. Croc intends that all of the forward-looking statements in this call will be protected by the Safe Harbor provisions of the Security Exchange act of 1934. Crocs is not obligated to update its forward looking statements to reflect the impact of future events. Now, at this time, I would like to turn the conference over to the President and Chief Executive Officer, Ron Snyder. Please go ahead.

Good afternoon, and welcome, everyone to our fourth quarter and 2006 year-end earnings call. We have some exciting things to talk about today. We are very pleased to have delivered another strong quarter of sales and earnings growth, which represents a great finish to an incredible year for our company. Sales for the fourth quarter were up sequentially and increased 236% to $113 million. Net income increased 395% to $20.8 million, and fully diluted earnings per share increased 325% to $0.51 a share.

Our better-than-expected performance is fueled by ongoing sell-through of our classic footwear, the Beach and Cayman, along with growing demand for our newer models introduced during the second half of 2006. We also experienced higher-than-anticipated sales in our overseas markets, particularly Asia and Europe. International revenues increased 830%, to $44 million, and accounted for 39% of our total business in the fourth quarter, up from 38% in the third quarter of 2006. Finally both our Collegiate and Disney footwear collections are off to a tremendous start with sales exceeding our initial forecasts. We are extremely pleased at the early performance of these new growth vehicles which bode well as we prepare to further evolve and expand our licensing program.

Before I turn the call over it to Peter to review the financials in more detail, I want to quickly review some of the highlights from the past year. And there were many. Fiscal 2006 was an important period on many levels. Financially, we completed the largest IPO for a footwear company in U.S. history, followed by a successful secondary offering later in the year. Looking at our income statement, we delivered record results across the board, including increasing revenues more than 227% to $355 million, growing net income by 279%, to $64 million, and expanding earnings per share by 216%, to $1.61 a share. We also ended the year with approximately $66 million in cash and short-term investments, and virtually no debt.

Strategically, we made tremendous progress capitalizing on our current opportunities, while at the same time better positioning the company for long-term success. First, we significantly diversified our product offerings, with the introduction of several new models of footwear into the Crocs brand. Ending the the year with over 27 styles in the marketplace, compared with just 12 at the end of 2005. In the interest of time, I won't review all of the new introductions, but some of the top sellers include the Athens, our flip flop, the Mary Jane, Offroad and Scutes. Importantly, the breakdown between sales of our classics versus other styles has been reduced compared to last year, when the Beach and Cayman accounted for approximately 85% of our total business. That isn't to say the classics are not continuing to grow. In fact, they were up approximately 145% in 2006. But rather, it is good indication of the growth and evolution of our overall business. By the way, January sales for our website had classics at about 24% of sales.

Second, we expanded our domestic distribution by increasing the number of doors within our current account base, and adding new retail partners in all channels of distribution. We ended the year in over 10,000 doors throughout the U.S. We also significantly increased our shelf space for both existing products, and new introductions, as virtually every retailer who was offered our new products has accepted them. t the same time, we witnessed substantial growth in our international markets through 2006 and currently sell in over 80 countries worldwide. primarily through direct operations, but in some cases third party distributors. Late in the 2005 season we launched the brand in several markets such as Canada, United Kingdom, Scandinavia, the Benelux, Israel, Australia, Southeast Asia, Japan and South Africa. All of these markets experienced robust demand throughout this past year. Toward the end of our key selling season in 2006, we continued our rampant global expansion with increased activities in mainland Europe, opened up markets in Eastern Europe, the Middle East, Hong Kong, and Taiwan, just to name a few. As a result, we ended the year with over 8,000 doors outside the U.S. I can confidently say there isn't one market around the globe that hasn't embraced the Crocs brand and isn't performing at or above initial expectations.

Next, we created new vehicles for growth to compliment our exists businesses and help mitigate any potential seasonality in our sales. To begin, we signed a licensing agreement with Disney for use of their characters to produce a line of Disney by Crocs footwear. Originally signed for only the U.S., the agreement has since been expanded to include Latin America, Europe, Australia and New Zealand, Japan, the Middle East, and South Africa. Initial sell-through of the footwear here in the U.S. during the holidays was fantastic. We also partnered with colleges and universities to produce Crocs with respective school colors with their logo on the back strap. We began with several larger football schools, for example, Notre Dame, Texas, LSU, Colorado and in time for the college football season. We witnessed some unbelievable on campus same day sales across the country which I believe was indicative of the overall demand for this product throughout the season. Highlighted by tremendous sales of Florida products at the national championship game in Arizona. Not so good for Ohio state. To recap, we ended the year with 89 colleges in the program, and expect to add a handful more this coming year. More recently, we signed similar agreements with the national hockey league, and the national football league, and looked to replicate the success we have achieved at the collegiate level with professional sports franchises here in the U.S. and eventually overseas.

During the year, we also expanded our medical and institutional divisions. While still relatively small, they provide further diversification in terms of production distribution and target markets and we believe both are positioned to one day become meaningful contributors to our top and bottom line. Our medical line currently consists of three footwear models and is distributed to roughly 600 doctors offices in North America and recently expanded into 26 countries. At the same time our institutional account base also continues to expand with new partners like Columbia Healthcare and the American Nurses Association, which combined have over 160,000 members. Furthermore, we have numerous contracts under negotiation with large groups in the hospitality and transportation industries. 2006 is highlighted by a handful of key strategic acquisitions that will provide new streams of revenue and help to further diversify our operations of products. The Jibbitz acquisition, which was finalized in December is a fast-growing, high margin business that is a tremendous complement to our existing footwear platform. Jibbitz ended the year with over 600 SKUs and distribution in more than 4,000 global accounts. I can report that as of today with some of our recent licensing agreements, Jibbitz has over 900 designs available for sale. As you can see, this group, like Crocs, moves very quickly. And while we have only owned Jibbitz for a little more than two months I can tell you it has already made a very positive impact on our results, both directly and indirectly as many retailers report a dramatic spike in Crocs sales when Jibbitz are offered the same location. We also acquired EXO Italia, an Italian design house that for the best decade has been instrumental development of some of the most cutting edge UVA based footwear. Prior to completing the acquisition in October, we had been collaborating with EXO on several new fashion styles for our spring line including the Cleo, the Ithaca, and our new wedge accessory. We are now excited to have both EXO's proficiency and expertise in house as we look to further evolve our footwear collections. On a smaller scale, we purchased hockey equipment company Fury this past fall. Fury allows us to enter the sports padding market by developing high quality products that utilize our proprietary Crocs light material. While we don't expect Fury to have a meaningful impact on earnings right away, we are excited about the potential for this business going into 2008 and beyond.

2006 was a monumental year in terms of growing our brand awareness and expanding our recognition across the country and throughout the world. Here at home, we executed a number of important and exciting marketing and promotional programs, led by our title sponsorship of the AVP professional volleyball tour. As I said in our last call, everything about this partnership exceeded our expectations. The overall attendance, the media coverage, both locally and nationally, the size of the television audience, the athletes' performances, and the fans' enthusiasm. Not only for the sport, but for the Crocs brand and our products. We look forward to the upcoming season, which kicks off in mid April. 2006 was also a tremendous year in terms of PR for Crocs around the world. Our extensive global PR efforts generate 1.1 billion impressions for the brand worldwide. At the same time our national print campaigns were featured in marquis publications such as Rolling Stone, Oprah O, and Cookie, just to name a few. More recently we have increased our outdoor advertising to include college campuses, lifestyle centers, and sailing regattas. We also launched the Crocs RVs across America, in order to increase our presence in key events around the country and to keep Crocs tradition of executing innovative grassroots marketing initiatives.

From an operational standpoint, we significantly upgraded our infrastructure over the past 12 months and improved our operating platform in order to successfully meet the growing demand for Crocs. This included dramatically increasing our manufacturing capacity by adding and expanding both company-owned and third party facilities. We ended the year with in house manufacturing located in Mexico, Canada, and Italy and with third party producers in China, Romania and the U.S. As the result, we finished the year with the ability to manufacture more than 3.6 million pairs per month, and we are currently ramping that figure up to over 4.2 million for the spring.

During 2006, we implemented a highly integrated ERP system in the U.S. and Asia and will continue to roll out internationally in the first half of 2007. In fact, Europe and Mexico just went live on February 1. We also invested heavily in our distribution centers, opening Crocs stand alone DC's in the U.S., Australasia and Europe and factory direct centers in China, Canada and Mexico, in order to serve our retail partners in a more timely manner. It is safe it to say that we have built in a short amount of time a very impressive global infrastructure.

In 2006, we applied for and received multiple design patents for our footwear styles, both here and abroad. We are committed to defending our intellectual property and position in the marketplace and to that end we have taken legal action against several companies we believe infringed on our rights, and that process is ongoing. In review, 2006 was filled with many accomplishments and milestones and I would personally like to thank our entire organization for their hard work and dedication. Without their efforts, none of this would have been possible. Peter will now review the financials. And then I will come back to discuss our outlook for 2007 and long-term growth plans. Peter?

Thank you, Ron. Sales for the fourth quarter were $112.9 million compared to sales of $33.6 million in the fourth quarter of 2005, an increase of 236%. For the quarter, domestic sales rose over 139.1%, to $69.0 million, and international sales increased to $43.9 million, from $4.7 million a year ago. Gross profit for the fourth quarter of 2006 was $65.1 million, or 57.7% of sales, compared to $17.8 million, or 53% of sales in the fourth quarter of 2005. SG&A for the fourth quarter was $34.6 million, or 30.6% of sales, compared to $10.9 million, or 32.4% of sales in the corresponding period last year. Income from operations for the quarter was $30.4 million, or 26.9% of sales, versus income from operations of $7.0 million, or 20.8% of sales last year. Net earnings were $20.8 million, compared to $4.2 million a year ago, and diluted earnings per share were $0.51 versus $0.12 in the fourth quarter of 2005.

For the full year, sales increased 226.6%, to $354.7 million, compared to $108.6 million in 2005. For 2006, domestic sales rose 138% to $227.6 million, and international sales increased to $127.1 million, from $12.9 million a year ago. Gross profit for fiscal 2006 was $200.6 million, or 56.6% of sales compared to $60.8 million, or 56.0% of sales in fiscal 2005. A 60 basis point increase in line with our long term goal of being in the mid-50s. SG&A for the full year was $105 million, or 29.6% of sales, compared to $33.9 million or 31.2% of sales a year ago. A 160 point decrease and lower than our stated goal of being in the very low 30s. Income from operations in fiscal 2006 was $95.6 million, 27% of sales, versus income from operations of $26.9 million, or 24.8% of sales in 2005, and in the middle of our goal of being between 26 and 28%. Net earnings were $64.4 million, fiscal 2006, compared to $17 million in fiscal 2005, and diluted earnings per share were $1.61 versus $0.51 last year.

With regard to the balance sheet, December 31, 2006, we had cash and cash equivalents equal to $66.4 million. This compares to $4.8 million in cash and cash equivalents at December 31, 2005. We ended the fourth quarter of fiscal 2006 with inventories of $86.2 million, compared to inventories of $28.5 million at the end of fiscal 2005. During the quarter we built our inventory in our most popular styles primarily to meet potential upside demand as we move into our key selling season. This also has freed up manufacturing capacity for our new models, which will allow us to provide better customer service. We are comfortable with these levels given our forecasted demand, continued global expansion. Now, turning to guidance, for the first quarter, ending March 31, 2007, we currently project net sales to range between $113 and $117 million, and net income per diluted common share between $0.47 and $0.49. For the full-year 2007, based on strong responses from recent trade shows and significant international door extension, we are raising our revenue and diluted earnings per share growth targets to more than 45% over fiscal 2006 levels, and up from our previously stated guidance of more than 30%. I will now turn the call back to Ron for some closing remarks.

Thanks, Peter. We entered 2007 with great momentum in our business and excitement about the multiple near and long-term growth opportunities we see going forward. In January, we debuted our new fall product line in Europe at Bread and Butter, where our booth was by far the busiest on the floor. Here in the U.S., we just wrapped up outdoor retailer, WSA and Magic, and the feedback again was extremely positive. We still see significant growth prospects for our core business, while at the same time, we are very excited about the new growth vehicles we have created.

For 2007, our business plan calls for increasing shelf space at our retailers. Spring books for our classics and new product introductions from 2006 are very encouraging. While at the same time, early response for our retailers and consumers on our new spring line has been quite promising. This is important, as several of these models were designed by EXO Italia and are a significant departure from the normal Crocs look and carry slightly higher price points, including the Cleo, the Sassari, the Capri and the Crocsland. We will also be expanding our licensing program by launching additional products under our existing agreements and introducing new models under our recently signed partnerships. This spring, Disney by Crocs will be available in new styles like the Crocsland and with additional characters including Cinderella, Winnie the Pooh, Pirates of the Caribbean and more to come. We have also just begun shipping the initial product line to our international markets as well. More recently, we announced similar creative licensing agreements with other leading entertainment companies, including Nickelodeon, with their Spongebob Squarepants and Dora the Explorer characters and DC comic superheroes [inaudible] Batman, Superman and Wonder Woman characters. We are currently in production for these licensed products and expect to begin shipping this summer.

Since the first of the year, we continued to add more schools to our collegiate program and starting soon we will be including our Athens model in the program. This spring, we will also begin shipping our NHL product in time for the playoffs and after selling out a limited run for NFL products for a handful of player teams, we will have footwear for all 32 teams on shelves this summer before the start of the 2007 football season. And just today, we announced a similar agreement with many of the top drivers and teams in NASCAR, including Daytona 500 champ Kevin Harvick.

On the international front, we see tremendous opportunity across all markets. As our early investments to build out a global operating platform have begun to show positive results. We just completed our first full year of distribution in the Canadian market and results have been very encouraging. The Crocs brand is well-established in over 2,000 doors, and we believe there is a significant potential in 2007, especially with the introduction of new models such as the NHL license products. And the fourth quarter, we have seen a very good response to the new Mary Jane model as well as the Disney products. Which helped offset the effect of seasonality. Canada introduced our new winter boot model this past fall, and the initial response is very positive as we sold out of our limited production run. We are increasing production capacity and adding a new distribution center in order to support our rapid growth in this market.

In Europe, the U.K. continues to be our best performing country. Yet, we believe we are still under penetrated there with significant door expansion opportunities. On the continent, Spain, Germany, Italy, and the Benelux have all shown meaningful growth over the last six months, while our initial entrance into Eastern Europe has been very promising. As a reminder, the majority of our international sales have been driven by our classics, with only a handful of countries outside the U.S. having received additional Crocs models until just recently. So not only do we have substantial door growth potential across Europe, we have tremendous opportunity for shelf space expansion as we now offer over 30 styles. In Israel, we have done a great job promoting and marketing the brand and we continue to generate strong growth levels, despite the limited size of this marketplace. In 2007, we will start shipping our spring line together with the Disney product to Israel as well as throughout the Middle East.

We just finished a very strong summer season in our southern hemisphere markets of Australia, New Zealand, Southeast Asia, and South Africa. And moving to northern Asia, spring season, with a lot of momentum in the region. This year, we will be significantly expanding our operations and increasing our investments throughout the area, especially India and China, in order to capture key market share and better position the company to capitalize on many long-term opportunities that exist in these highly-populated countries. We believe building a sound infrastructure in India and China will significantly benefit our company and brand beginning in 2008 and beyond. Turning to South America, we are very excited to announce that Crocs have landed in Brazil. And beginning this spring, we will begin manufacturing there and shipping product to retailers throughout South America. With its large population, vibrant culture, active lifestyle and warm climate, we believe Brazil represents a perfect fit for the Crocs brand and portfolio of products and we are very optimistic about our growth prospects in this market. Currently, as we enter the spring season, we have increased our international door count to more than 11,000 doors. And we expect this to continue to increase throughout the year.

Our growth strategy also includes expanding our nonfootwear businesses. Jibbitz, Fury, and our Crocs branded apparel line, as well as our recently acquired footwear brand Ocean Minded. For Jibbitz, we will increase the number of SKUs. Currently there are about 930. And take advantage of our retail relationships to increase distribution both in the U.S. and overseas. For Fury, we plan to further invest in this business, develop new products using our Crocs light material, and explore the many long-term opportunities we believe exist within the sports equipment and padding categories. We currently sell a very limited offering of apparel and accessories. In the second half of 2007, we will augment the line in order to further evolve the lifestyle nature of the Crocs brand and capitalize on the many opportunities we believe exist for our company outside of footwear. Lastly, with regard to Ocean Minded, we are very excited about this acquisition, as it provides Crocs with immediate entry into the core surf and skate marketplace, and we are confident that with our global marketing, manufacturing, and distribution platform, we can significantly expand the Ocean Minded brand in the U.S. and around the globe. In closing, we are proud of our recent accomplishments. However, we will remain focused on our long-term future and building a globally diversified business. And to that end we will continue to invest in our brand and our infrastructure system to support our aggressive growth profile. Thank you very much, and I'd like to -- there was a lot there, but I'd now like to open it up for questions. Operator?

Very good. [OPERATOR INSTRUCTIONS] Our first question will come from Jeffrey Klinefelter with Piper Jaffray.

Yes, congratulations everyone on the Crocs team on a fantastic year.

Thank you.

A few questions for you. Ron and Peter, Ron, first of all just to clarify on the international front I just want to make sure we have the numbers right. You said you ended the year about 8,000 doors but you also increased that to close to 11,000 now in the spring?

Correct.

Okay. Can you give any more color on how -- I mean with that acceleration of 3,000 doors, is that coming from one particular region? Or, you know, Europe versus Asia? Middle East? I mean can you give us a sense for how that breaks down? And also, when the bulk of the new spring styles will actually start shipping in to those doors?

Yes, you know, the -- the bulk of that number is the European market. The European market is expanding much more quickly than what we had anticipated. Still adding doors in Asia as well. Of course, we didn't add many in Canada during that period but we will continue adding some in the spring. The new model will begin -- we showed the new models at Bread and Butter, at [Hispo] and GDS over in Europe and they will begin shipping really in mid spring, let's say, they will be shipping by May, Q2. In Asia, probably a little bit earlier, maybe a couple of weeks earlier than that.

Okay. In terms of Jibbitz, can you give us a sense at this point for what level of contribution you are anticipating, as you gave us that fiscal '07 guidance? Do you want to get into any way of measuring what impact Jibbitz itself has on a stand-alone basis?

Since we gave you such good guidance, Jeff, I thought that that would be enough. [ Laughter ] We're not go be to break Jibbitz out at this time. It is a positive contributor to both margins and operating profits, but we're not going to break it out separately.

Okay. Just a couple other quick ones. Licensing, with the success you've had there and just adding up all of the new licenses that you've launched, is there any -- can you give us any sense there for what kind of incremental business this is generating and I know it was a relatively modest forecast for last year, you exceeded that, it sounds like. Can we think about any sort of incremental units that this is driving on top of your core styles and your new fashion styles?

Once again, we're not going to break down all of these different aspects of the business but just suffice it to say that both of the licensing initiatives, the character licenses, and the sports licenses, you know, will be a significant player in our portfolio, going forward.

Okay. In the fourth quarter, can you talk at all about the -- kind of the unit sales and pricing dynamics, as you kind of break that down? Were you seeing incremental pricing as a result of a greater mix of licensed product, or higher price product?

Yes, we had -- we did about 6 million, 7, 6.5 million, a little bit over that, in unit sales, and our unit price is trending up, a little bit over 16 now. But we are seeing some price increase.

Just a couple more quickly. And I will let someone else get on. In terms of store fixturing, as you expand this assortment, we saw at a lot of your trade show, the apparel, the accessories, we're seeing other categories that will start to grow, become a greater presence at retail. Any thought in terms of doing store level fixturing or more store level fixturing and what kind of an investment would this be for your retail partners?

We have an extensive fixturing program for this spring, so many of our retailers are adding some of the new fixturing. You can go into Dick's now and see us in the center spot in I believe most of their stores. We have invested significantly there, but you know, it is in the numbers for the year, and the quarter. In some cases, we are supplying the fixturing. In other cases, you know, the retailers are paying for it.

Lastly, segmenting and new styles, you talked about doing that strategically, with a lot of the new spring product and fall product coming up. Can you share with us some examples of how this is taking place for now spring, where we are going to see certain styles, which channels and where we're not going to see those?

You will see some of our more fashionable styles in our department store channels. We have other styles that are more sporty in nature that would be in our sporting good channel. Remember, we're about a third, a third, a third, with department store, sporting good, and shoe stores, with a whole bunch -- and then maybe another -- taking that third, a third, a third, being maybe 70% to the other 30% is specialty shops.

Okay. All right. Thank you very much. Good luck, everyone.

Thanks, Jeff.

Our next question is from Mitch Kummetz with Robert Baird.

Yes. Thank you. A few quick questions. First, Ron, you mentioned, you know, some of the new styles coming out this spring, and the importance of those styles in terms of the evolution of the company. Could you talk specifically about, you know, what has been working out there in terms of that introduction? Any particular styles in particular that have really sold through well, at least early in the season?

Yes. It is really early. A lot of our new styles are just hitting the shelves. We've heard really nice reports back from our initial launches of that, for the Cleo, which is a kind of a women's slide version. Really all of the products that we've shown and that we've now debuted are doing very well. It really is too early to say what the full impact would be, but they're better than we thought.

Okay. And I know that when you launch a lot of that new product, you start off with certain exclusives with certain key retailers. Have you opened up the distribution on the majority of that product now, so in other words it has been expanded into more accounts, more doors?

Yes, but still, you know, we still are tiering with certain types of accounts, more fashion accounts, or sporting accounts, getting one model or another.

Okay.

We start with -- because we only have limited production to start, we will start with one of the larger retailers maybe, or a number of small ones, and then we will launch it into the rest as the season progresses.

Okay. And then just a couple of other things. In terms of the kids' business, as its percentage of the total sales, I would imagine with Disney there would be a nice contribution there but maybe that is offset by some of the collegiate product or some of the other licenses that you're doing. Where has that percentage trended, you know, let's say Q4 versus what it had been in Q3?

It is about the same, it is up a little bit. With Disney, it is probably 80/20 kids, with collegiate, it is 80/20 adults. So that kind of offsets a bit. But kids is about 25% of our business, we think.

Okay. All right. 25%. And then lastly, where are you guys in terms of your capacity? I mean how many shoes are you able to produce now a month? Has that continued to trend up?

We're right close to the 4.2 million pairs a month now, as we're building for the spring, is our total global capacity.

Okay.

We will continue to monitor the market. We can add capacity now with so many manufacturing locations and you know, such a large locations, we can add capacity fairly quickly, even within season. We're adding capacity in Mexico right now, in order to hit, let's say even a bigger spring than we anticipate.

Okay. Great. Thanks a lot. Congratulations.

Thanks.

Our next question is from Angelique Dab with Nollenberger Capital.

Good afternoon. I have a couple of quick questions for you. Can you repeat the unit number for me?

It is 6.555.

Thank you. And then could you -- you gave us the revenues on the international side at $44 million. Could you break that down a bit further between international, other, and Canada?

Let's see. International -- you know, Canada was not overly good for the quarter. Are you talking about for the year?

For the quarter or the year. However you want to --

Well it [crosstalk] We had 7.7 million in Canadian.

Thank you. And then what about -- could you talk to us about the tax rate expectation for 2007?

Yes, I think it will be in and around about 33%. And it may come lower as our international sales continue to grow as a percentage of sales. It depends on which location it's at.

Great. And last question, on the kiosk side, how many did you end the year with? And have you no international kiosks, right?

We don't have any international kiosks. We have stores. We have two stores in Japan, a few in Taiwan, Hong Kong, a couple in Singapore and Australia, and we've added -- we've done some stores in partnership with some distributors in Mexico. We have about 9 or 10 in Vienna, Austria. We have a nice flag ship store. We have a store in Sweden. So those are all Crocs stores, not kiosks. With kiosks, we're a little bit over 80.

All right. Thank you very much, guys.

We will continue to monitor how the kiosks, the kiosk strategy was one of building our brand in region and it has done very well. Wherever we have kiosks, our brand has continued to expand. But we offer just primarily our standard classic models there, flip-flops.

Great. Thank you.

Your next question is from Elizabeth Montgomery with Cowen.

Hi, guys. Nice job on the quarter.

Thank you.

A couple of questions. The first one on the business intelligence program that I think you guys were implementing. I thought it was kind of towards the end of this year. Did that happen? And are you able to give a breakout of kind of this percentage of our business is driven by doors that do this much in revenue, and this percentage is driven by doors that do, you know, a smaller percentage, a smaller amount in revenue? Any breakout like that?

We implemented that in December. It came up with some of our first reports. And we've been working with it every day since then. And we have to get more and more reports out of there. So we are able to segment out that information at this time.For the countries that we have E1 on, so --

Can you share that with us or --

No --

It is really good info. [ Laughter ]

No.

Can you give any indication of how many doors do, say more than half a million in sales?

We really aren't going to break out that information. You can obviously figure out what we can do on a macro basis, but you know, if you looked at it, I don't know, maybe 40% of the doors are large doors, and 60% would be smaller, it's just there are so many doors, there are 20 -- over 21,000 doors now.

Okay. I guess secondly, can you give me an indication of what the advertising spend as a percentage of revenue ended up in '06? And maybe talk about the SG&A outlook for '07? It seems like you have a lot of growth opportunities ahead of you and I'm wondering -- some of them seem like they will require investments, some of them don't. If you could give us an idea of what type of investments you might be undertaking in '07.

Well, on the advertising, it was a little bit under 5%, for marketing, 5% for '06, but as I think we said, we are increasing that to 6% for '07. Some of the other things, they're not huge investments required. We of course are continuing to build some capacity, that flex capacity that we think has been a large part of our success, so we're building some capacity in Canada. That market is going to have a very nice spring. We're building capacity in Mexico. We're building some capacity in Europe. As we expect that market, that has nice potential here moving into the spring and summer as well. So some capacity, internal capacity expansion. Of course our third party expansion doesn't cost us quite as much capital. Although we do retain the ownership of our molds, and we put in our own compounding operations. We're adding another compounding operation in Canada. We're bringing up compounding in Mexico. We brought up compounding last year in China. If we need to, we would add to that. We are still using the third party Italian company in Italy for compounding in the European market. Some other things that we would be spending money on this year is we will have some stores that we open, some concept stores, you know, brand building stores in -- they start in New York, a couple in New York, up in Boston, we are continuing to expand that. We opened up a couple of outlet stores late in the year, early January, but that wasn't a lot of money. We will continue to expand our I.T. systems, you know, but we think one of the competitive advantages that we would have going forward, to have a very sophisticated state of the art, you know, brand new ERP system that has been implemented on a global basis, that's something that we will continue to spend on.

Okay. In terms of of the retail stores, I know -- I think Ron was listing off the international ones. I'm thinking that internationally you guys used distributors? You don't operate those specifically yourself. Is that correct?

No, those are all, the ones that I talked about in Asia are all company-owned.

So you're selling on a retail basis there, not wholesale into a store that is owned by a partner?

Correct.

Okay.

Those are Crocs-owned stores. In Europe, we will have some Crocs-owned stores and some distributor partnerships sort of arrangements that we put together.

Can you give any indication of what the average size of those stores in Asia is currently?

An average size is probably 800 square feet.

Okay. And just a couple more. Sorry. How much compounding are you guys doing yourself at this point?

The lions share.

Okay. And then I guess my final question, you know, it seems like your operating margins are 5 or 600 basis points above the nearest footwear operator. I wondered, do you have a sense of where they might top out? Do you think there is more upside here in '07 given your sales momentum?

You know, one of the things that we're expanding in some areas which would probably impact margins for a short amount of time, as we expand. I would say that we're still probably pretty safe that where we've given guidance thus far, you know, we've got -- we're developing new products, we have -- we're putting money into this padding business that we talked about, Fury, so I would say that we're still comfortable in 56%, 57% range going forward.

For the gross margin?

Yes.

Okay. Thanks so much.

Thank you.

Our next question is a Jim Duffy, Thomas Weisel Partners.

Thanks a lot. Good job, guys.

Thank you, Jim.

Most of my questions have been answered. Let's see. I guess on the international front, a lot of momentum there. Do you still see that business as being comparable in size to the U.S. business, exiting the year? Or is the current thought process that it could be ahead of that?

Well, I'm hoping it is ahead of it, Jim. I mean, you know, we're seeing, we're seeing good success in -- as I said, in every market that we've entered. So far the slowest one that we saw earlier at the end of -- towards the end of the summer last year was France, had a little pushback there and even that market is really taken off this spring for us. So like I said, every market is doing well, and now we just have to get our people in there, and make sure we get the sell-through, you know, in each of the regions. I mean it is complex to be doing all of this stuff on a direct basis. Or a lot of it on a direct basis. And you know, trying to manage all of these distributors at once. But I think we're doing a pretty good job of it.

Yes, absolutely. And follow-up to one of Jeff's questions. On the channel mix, does your '07 guidance for domestic business include any moves downstream, like to the family footwear channel? Or you know, family department stores? Anything like that? Or is it all of the growth kind of within your existing realm of distribution?

Yes, there are going to be other things that we end up doing that might be a little bit in the numbers, but you know, for the most part, it is sticking with the strategy that we've presented to you all along, growing our, growing our domestic retail, you know, we still have some holes in the U.S. So we certainly have some holes in California. We've been adding accounts there. Some in the eastern seaboard as well. We will add -- we will be adding say probably different doors, potentially different doors for some of the new licensed products, potentially NASCAR and Disney and maybe even some of the sports -- other sports teams. So, but nothing in the guidance at this point.

Very good. Thanks. Keep it up.

Thanks, Jim.

[OPERATOR INSTRUCTIONS] We will next go then to Scott Kane with [Credence Capital[.

Hi, guys. Great, great quarter and guidance. I just had a few questions to tidy up some things. Can you give out the growth in your web sales, first? Second is some CapEx guidance, if you have any. And in your new guidance of 45% top line growth, how much of that -- how much are you thinking about, or how much of that is non-shoe, some of the newer products and other products that you rolled out, and then you also talked about gross margins staying up in 56%, 57%. Is that for maybe the next year, the short term or are you still thinking about 50% long term, or maybe we're thinking about upper 50s long term now, thanks.

First of all, our web sales have pretty much kept pace with the growth in the rest of the business, you know, our web sales continued to be -- to grow pretty well. You asked too many questions at once.

CapEx.

You're looking for CapEx for next year?

Yes.

About $35 million.

$35 million? Okay. And now that you've upped the growth to 45%, how much of that is going to be nonshoe?

That's not something that we're breaking out right now. Obviously, the shoe business is a good part of our growth, especially now that we've added yet another branded footwear company, Ocean Minded.

Sure. And then gross margin?

Gross margin is -- you know, I think we're pretty good now within the foreseeable future, maintaining, you know, mid-50s gross margin. As I said for this year, it is probably 56%, 57%. You know, if we sell more in a given season, as we hit Q2 and Q3, if Europe and Asia take off more quickly, you know, then there could be some upside in those numbers but I think long term, it is a mid-50s sort of number.

Okay. Great. Thanks.

Our next question is then from David Turner with BB&T.

Thanks. Good afternoon. I was curious about the style progression this year. I think you had said you ended the year with 27 styles, more than double a year ago, and now that you've got some design expertise, is it safe to assume it is going to follow a similar track it this year, you know, 27 to 50 or, you know, whatever a fair number -- what is a good number? And I guess when will that product ship? My guess is it will be various times throughout the year. And if there is going to be any impact on pricing dynamics or I guess just the dynamics overall behind the new styles this year.

You mean is there going to be increased ASPs or --

Well, yes, just how would it affect the unit -- I'm asking to you look in your crystal ball. You're in a better position to do it than me. So again, if you assume that the style count doubles, or you know, again, I guess that is a starting point, and then what impact will that have on the dynamics of the pricing and units as you -- as the year progresses?

You know, as we've -- as you've just witnessed, our ASPs have gone up marginally here in Q4, and we will probably see that continue to increase slightly as we move through the year. And what we plan on doing going forward is we've got a nice spring collection coming out. Very nice. It is spring oriented. Spring and summer oriented. We've followed that up with, that we just showed at the various shows all over the world actually our fall collection. Initial response from that was also quite good. Some surprised retailers that we've come up with some really exciting new styles with -- and some uniquely comfortable products, which I think has always been our forte. But now, we've come out with really, really comfortable products in say more conventional looking footwear. We will try to make it not totally conventional but more conventional. What we plan to have launched, our spring launches, our fall launches every year, like normal footwear companies would have. However, what we do intend to have is always be able to take advantage of upsides and if one of our spring style, like we've seen with one of them in particular now, is really taken off, we can up the production on that immediately and have stuff on the shelves before really the spring buying starts. The real spring buying.

Fair enough. The -- and I guess just on the guidance, my guess is that the first half is still going to be, the first half of the year I should say will still be the peak shipping season, or sell-in season, I guess, but the seasonality has been smoothed out given the new license, I guess if you could just maybe put a finer pencil on that as to what the split will be between the halves or at least help me with the top line, how it is going to progress throughout the year.

We will still see -- we would expect, just like I said this last year, to see some seasonality in Q4. Because we have so many popular products for the spring and summer. But, you know, we've got a lot of launches for new college stuff, and pro teams and we're doing some of the same things in other markets around the world. So we're trying to not make it seasonal though I would still model it that way.

And very impressive quarter. Congratulations.

Thank you.

Our next question is from Brad [Lynnnert] from BMO Capital Management.

Hi. This is probably seems like a silly question considering your numbers are so robust but are you seeing any impact from competition from increased knockoffs in Target or Walgreens or some of your competitors may have similar styles. I know Sketchers is coming out with a bunch of styles that, you know, kind of look like your shoes, and do you see any impact from that? Or do you expect any impact from that?

You know, we don't really see any impact from it. I think that what we've created here is a new category, which has just -- the whole category has tremendous growth potential. We feel and our consumers and retailers feel that our, the Crocs light resin is unique, and we have some advantages there, consumers aren't looking for necessarily a rubber shoe. They're looking for Crocs like Crocs in most cases. Every day, we have consumers apologizing for buying a shoe that is either not comfortable or that they slipped in or that they've wore out in a couple of week, so we're not seeing a lot of impact there, but it is a good category, and I'm sure there will be good competitors in it over time.

Okay. Great. Thank you. What's the revenue guidance?

Our next question is from a Danielle Bloomgarden with Sigma Capital.

Hi this is [June Lee Maxwell] actually on the phone. The questions, given where your production capacity is that you just went through, why your revenue guidance isn't substantially higher,since I guess just basic math suggests a much higher number?

Yes, you know, so capacity is one thing. And sales are another. What we do is, just like we did last year, we stay ahead of our projections, if you will, in capacity, and so we've added capacity to hit any potential uptick in demand and we would see that probably more so in international markets this year. We would still see the U.S. continuing to grow. But we want to, this capacity is not a lot for us to add, it is not a big capital expenditures, we think it is a good investment. And it is there, and it is ready to meet uptick in demand. We can't hit these international markets, you know, you guys probably heard reports over the last year that we missed some -- we missed some deliveries. Well, we missed deliveries because our sales doubled quarter over quarter so that was a -- you know, a pretty big impact on our production. So this quarter, this quarter and next quarter, we're more ready for that, if it takes off in Europe, the way it could, and maybe we won't be, but we're trying to get there.

And if it takes off is, there a reason why your revenue couldn't be substantially higher?

If people buy more, our revenue will be higher.

That's what we're hoping for.

Our next question is from Margaret Vitrenna with Coleridge.

Hi, just asking anyone. I think I missed the U.S. stores at the end of the fourth quarter. Could you just give me that?

Yes. We finished off at 10,000.

Thank you.

And with, that there are no further questions. I would like to turn the conference back to Management for any additional or closing comments.

All right, thank you all very much for attending the call. We all were very proud of the results here. But, as I've said all along, you know we just rounded first base so, we've got a long way to go with this company. Again, thank you very much, and we will talk to you soon, I'm sure.