卡洛馳 (CROX) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by.

Welcome to the Crocs, Inc.

First Quarter Fiscal 2008 Earnings Conference Call.

At this time all participants are in a listen only mode.

Following the presentation we will conduct a question and answer session.

Before we begin I would like to also 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 concern plans, forecasts, guidance, projections, expectations and estimates or objectives for future operations including statements regarding economic trends, Eastern European and Brazilian operations, marketing spending, product debuts, retail store expansion, cash generation and inventory levels.

The company cautions you that a number of risks and uncertainties could cause Crocs's actual results to differ materially from those described on this call.

Crocs has explained some of those risks and uncertainties in the Risk Factor section of the annual report on Form 10-K and it's other documents filed with the SEC and you are encouraged to read that section, and all other disclosures appearing on our filings with the SEC.

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 its forward-looking statements to reflect the impact of future events.

In addition, certain non-GAAP financial measures relating to the expenses associated with the shutdown of the company's Canadian manufacturing facility will be discussed on the earnings call.

For a reconciliation of non-GAAP financial measures discussed in the earnings call, please refer to the table entitled "Reconciliation of non-GAAP Performance Measures" included at the end of the press release.

At this time I would like to turn the conference over to the President and Chief Executive Officer, Mr.

Ron Snyder.

Please go ahead, sir.

Good afternoon and thank you for joining us to discuss our actual first quarter results.

With me on the call today is Russ Hammer, our Chief Financial Officer.

As you know, we revised our first quarter fiscal 2008 guidance on April 14th.

This was primarily due to the challenging domestic retail environment and its negative effect on our projected level of at-once business.

Based on our first quarter results combined with the macro economic trends and a generally challenging marketplace, we believe it was prudent to adopt a more conservative outlook for the remainder of this year, and adjusted our fiscal 2008 projections accordingly.

As I discussed before, we have been building inventory and infrastructure to accommodate our projections at that time.

We have now taken immediate action to bring costs in line with the revised revenue forecast, and we expect this activity to be completed by the end of Q3 '08.

First quarter financials.

Sales were $198.5 million, compared to $142 million a year ago, an increase of 40%.

Albeit lower than original guidance, this is the ninth consecutive quarter of double-digit revenue increase since going public in February 2006.

EPS excluding the charges associated with the shutdown of our Canadian manufacturing facility, was $0.09.

Including a portion of the charges associated with the shutdown of our Canadian manufacturing operations, we reported a net loss of $4.5 million, or negative $0.05 per share.

First quarter international sales increased 79% to $105.9 million, versus $59 million a year ago, and represented 53% of our total business compared with 42% for the same period last year.

At the end of the first quarter, our international door count stood at approximately 21,000, up from 19,000 at year end.

As expected we continued to experience good growth internationally.

In Europe sales increased 109% to $55.3 million from $26.4 million last year, as a reminder, we are significantly increasing our product offering in Europe with new styles from both our spring '07 and spring '08 collections, including the Adara, the Baya, the Baja, the Patra, the Safari, and the Sobek.

We now offer more than 56 Crocs branded styles in Europe, compared with only a handful of styles this time last year.

During the first quarter, we experienced strong demand across the continent, lead by Germany, Spain, Benelux, and Italy to name a few.

We are pleased with our success in Western Europe, and we look forward to expanding our operations and increasing our presence in Eastern Europe, including Russia, where we will begin shipping products in the second quarter.

In Asia, first quarter sales increased 93% to $37 million, which is up from $19.2 million at the same time last year.

Japan continues to lead the way.

However, we are also seeing meaningful year-over-year increase in countries such as the Philippines, Malaysia, Indonesia, Australia, Hong Kong, and China.

Similar to Europe, we are broadening the product mix in this market to include more than 80 Crocs styles this spring versus less than half that number last year.

As the weather begins to warm across the northern part of Asia, we are seeing improved traction at our retailers.

Meanwhile down south in Australia and New Zealand we are benefiting from strong demand for the Mammoth as that hemisphere's winter season approaches.

Sales in other international markets increased 65% to $5.1 million versus $3.1 million in the first quarter last year.

In this category, Brazil has been a stand-out market for us, despite the fact that we only started selling there in the second quarter of last year.

As further indication of our earlier success in Brazil, we recently signed an agreement with the Sao Paolo Football Club to market and sell Crocs footwear with the club's colors and logo.

Sao Paolo's Club were the 2005 Club World Champions and the 2007 Brazilian National Champions, and have over 13 million supporters.

Importantly this agreement gives us great credibility in this soccer-crazed country, and provides us entree into many sporting goods retail doors across the country.

We are currently exploring similar opportunities with other teams in both South and Central America where soccer is just as popular.

Now turning to our domestic performance.

First quarter domestic sales increased 12% to $92.6 million, driven by the demand for both our core styles coupled with strong demand for new styles.

We now offer more than 130 of Crocs's branded footwear in the U.S., and as I mentioned on our call in mid-April, we booked over 50,000 units of at least 48 of these styles globally at that time.

That number is now up to 57 models year to date.

We are getting nice traction with the new models.

This spring we have introduced several new styles and incorporate materials, such as canvas and suede, as well as shoes that feature higher heels.

The reaction has been very positive.

In addition to further diversifying our portfolio, these new products allow us to open up new channels of distribution and attract new consumers to the brand.

Some of the key styles include the Malindi, the Cyprus, the Yukon, the Santa Cruz, Tikali, the Adara, and the Otter for kids.

The Yukon, Santa Cruz, and other men's casuals will be available at Dick's, Journeys, Macy's and Dillards, while the Malindi and the Adara are being sold at Dick's, Macy's, Dillards, and Sports Authority to name just a few.

Of course all styles are available on our website at Crocs.com.

Interestingly, for the past six weeks, the Cyprus, which is the new $50 price point model, with a three-inch heel for women, has been the number one booking item on our website.

Not to be overlooked, our core styles performed well during the quarter, led by our classics, the Mary Jane, Girl's Mary Jane and the Mammoth.

We ended the quarter with a domestic door count of approximately 13,500, compared to roughly 13,000 at year end.

Turning to our licensing business, as you saw from our recent release, we are extending our Disney by Crocs collection to include an all-new collection inspired by Hanna Montana.

This line will debut in retail in May with the Hanna Montana Mary Jane style Crocs for Girls, followed by the cozier Hannah Montana-themed Mammoth Crocs for the back-to-school season.

In addition this collection extension will also include Disney's High School Musical, and the upcoming Disney Pixar animated film Wally, with footwear and Jibbitz hitting the shelf later this summer.

We also recently announced that we have expanded our sports licensing business with an agreement covering the National Basketball Association, which will allow us to license logos from all 30 NBA teams for both Crocs footwear and Jibbitz charms.

NBA branded shoes, including the Mammoth model, created for cold weather wear, will be available prior to the start of the 2008-2009 basketball season.

Also worth mentioning, as a result of our strong relationship that we have developed with Major League Baseball, we have been granted the right to extend our product offerings beyond just classics into other styles such as the Santa Cruz, the Venture and some additional flip flop categories.

Lastly, we signed a licensing agreement with Monte Oak, for their break-up cool camo pattern and now offer that rugged look and feel on several of our Crocs styles.

We have been very pleased with the response to this new line, which is proving to be very popular with the Outdoor Channel and consumer, where we have historically been underpenetrated.

I would like to now quickly touch on some of our recent and upcoming retail initiatives, as that division is becoming more meaningful to our overall results.

During the first quarter we opened three company-owned stores in Europe, 1 in Hamburg Germany, and 2 in Finland.

Additionally 3 Crocs stores were opened in India, as well as 2 outlets in the U.S.

We ended the first quarter with 214 company-owned locations worldwide, including 4 domestic full priced stores, 8 outlet stores, 62 international full priced stores, 6 in Europe, 55 in Asia, and 1 in Canada.

133 domestic kiosks and 7 international kiosks.

And 66 licensed stores with 10 locations in Europe, 34 locations in Asia, 6 locations in Mexico, and an additional 16 licensed kiosks in the U.S.

Over the remainder of this year we will be opening full price retail stores in Honolulu, Chicago, San Francisco, Portland and Los Angeles as well as more than 10 outlet stores here in the U.S.

Additionally we will be opening 4 full price and 1 outlet stores in Canada, an additional 10 stores in Europe, and about 15 stores in Asia.

In fact in Q1 our Asian stores were about 16% of that region's total business.

We expect to end 2008 with approximately 118 stores and 150 kiosks worldwide.

Again, our stores do a great job of highlighting the diversity of our product line, while providing us real time sales information that we can track and use to help forecast future demand levels, not to mention the margins are extremely favorable.

Turning to some of our other brands and categories.

We are very excited about the recent launch of the Jibbitz-o-dial, our cell phone carrier that looks like a miniature Crocs Beach.

We think this will be a huge hit with young consumers, including the follow-up version based on the Mammoth that will be introduced later this year.

These create a nice business opportunity for Jibbitz, as both carriers have thirteen holes to fill.

With regard to Ocean Minded, we are launching the brand in Europe and we'll be opening the first ever Ocean Minded store in The Hague.

In addition we are launching Ocean Minded at select retailers in China, Malaysia, Hong Kong and the Middle East.

We have expanded the collection to roughly 40-plus styles and broadened the brand's distribution.

Now to our Bite collection.

During the current quarter, we will debut our first-ever golf shoe, the Crocs Eight at sporting goods, retailers, pro shops nationally .

The feedback from golfers who have worn and tested this product on the course have been very positive.

Soon we'll be introducing the Ace boat shoe, designed for boating and casual wear.

Later this fall we're launch the Trail Break, a light-weight outdoor walking scandal, based on Crocs's light technology and injected rubber.

There are currently more than 50 Bite footwear styles available through selected Crocs dealers, Crocs retail stores and the Crocs website.

Before I turn the call over to Russ, I want to talk through our marketing and advertising strategy, which we believe is very important, particularly in a tough retail environment like the one we are currently experiencing.

During the first quarter, we executed several new initiatives aimed at heightening awareness of our brand, and increasing demand for our products while at the same time giving something back to the community.

This included launching the first of its kind recycling and humanitarian footwear donation program, called Soles United on the NBC hit series Celebrity Apprentice.

During this two hour program, teams competed to develop consumer education and in Crocs collection programs that will be activated in Crocs retailers across the U.S..

We also introduced a new expressive advertising campaign, What A Croc, to support the debut of our colorful and stylish new spring models in popular publications such as O, InStyle, New York Times Style magazine, Cookie and Rolling Stone.

This diverse collection of spring styles also received prominent mention throughout our ongoing PR efforts in Outside, InStyle, Redbook, and People magazine amongst others.

We continue our successful experiential marketing efforts in order to directly reach consumers, interact with our target market and feed products in key markets.

Notable events we sponsored and attended included the Sony/Ericsson Tennis Open, the AVP Crocs Hot Winter Nights Tour, South Beach Food and Wine Festival, NASCAR, and numerous collegiate and pro sports events.

Another positive note, we were recently informed that Crocs was selected as a finalist in the fashion-style category at the up-coming EFFIE awards for our Crocs advertising campaign.

This premier honor is awarded to creative advertising campaigns that deliver results.

We believe it is critical to the lifestyle development and long-term potential of the Crocs brand that we maintain our marketing and advertising spend this year.

We will continue to invest in developing an influential brand in the active life-style space, including our title sponsorship of the AVP Crocs Professional Beach Volleyball Tour that prominently features our brand in 18 tour stops across the country, and a global TV reach including NBC and Fox SportsNet in the U.S.

We believe this will be a tremendous opportunity for us this year as Beach Volleyball was one of the most popular sports in the last summer Olympics.

Now I'll turn it over to Russ for the financial

Thank you, Ron.

Sales for the first quarter increased 40% to $198.5 million compared to sales of $142 million in the first quarter of 2007.

For the quarter, international sales increased 79% to $105.9 million from $59 million a year ago.

Revenue for Canada and Mexico was $8.5 million.

Revenue for Europe was $55.3 million.

Revenue for Asia was $37 million, and the balance of $5.1 million was from the other international locations.

Domestic sales rose 12% to $92.6 million.

Footwear sales accounted for approximately 95% of revenue, and represented 11.1 million units, for an average selling price of $16.33.

Sales of our classics, represented 29% of footwear sales.

Gross profit for the first quarter of fiscal 2008 was $85.2 million or 43% of sales compared to $84.5 million or 60% of sales in the first quarter of 2007.

This decrease in margin was primarily attributable to lower sales volumes than planned and higher costs associated with underutilized capacity and our company-owned manufacturing facilities and distribution centers.

SG&A for the first quarter was $77 million compared to $47.3 million in the corresponding period last year.

This increase was primarily the result of higher costs required to support increased sales volumes, including increases in selling and marketing expenses for global brand building, heavy trade show season activity and international personnel and infrastructure additions to support our growth.

As a percentage of revenues, Selling, General and Administrative expenses increased to 39% in the three months ended March 31st 2008, from 33% in three months ended March 31st, 2007.

Excluding the portion of the restructuring charges associated with the shutdown of our Canadian manufacturing facility, equals $17.3 million that we incurred during the first quarter, we reported a pre-tax operating income of $10.9 million in the first quarter, compared to pre-tax operating income of $37.2 million a year ago.

Including the shutdown charges, we reported a pre-tax operating loss of $6.4 million in the first quarter.

Excluding the charges, net earnings were $7.6 million, or $0.09 per diluted share.

Including the charge we reported a net loss of $4.5 million or $0.05 per diluted share, compared to net income of $24.9 million or $0.31 per diluted share in the first quarter of 2007.

Now turning to the balance sheet, as of March 31st, 2008, we had $29.6 million in cash and cash equivalents and short-term investments, compared to $36.3 million as of December 31st, 2007.

This decrease quarter-over-quarter is primarily due to investments in our inventory, global infrastructure, and property, plant and equipment, such as molds, tooling and manufacturing equipment, in order continue to broadening our product offering in footwear and accessories.

Our election to invest in these areas combined with a tough economy domestically has contributed to the decline in cash and cash equivalents available.

As we decreased inventory, and our day sales outstanding coupled with our profit increases over the next few quarters, we expect to generate significant cash by year end.

Our net accounts receivable balance as of March 31st, 2008 was $154.6 million, an increase of $1.7 million or 1% since last quarter.

Our inventories increased $265.5 million at March 31st 2008 from $248.4 million as of December 31st, 2007.

During the quarter ended March 31st, 2008, the expected slight increase was primarily due to our sales shortfall during the quarter.

Our inventories aligned geographically to meet our forecasted sales in each region.

Since April 1st, our inventories are already down $10 million, and we expect that our inventory levels will continue to decrease over the remaining quarters of the year.

Our net fixed assets increased to $90.9 million on March 31st 2008, up from $88.2 million reported December 31st, 2007.

Now for the outlook for the remainder of the year.

As we stated on the April 15th conference call, we expect second quarter sales to increase approximately 15% on the same period last year, with (inaudible) earnings per share in the range of $0.45 to $0.50 for the quarter, excluding the restructuring charges.

This guidance assumes gross margin of approximately 45% to 56%, and SG&A as a percentage of sales in the low 30%.

For the full year we continue to expect sales to increase 15% to 20% over 2007, and diluted earnings per share to be $1.70 to $1.80, excluding any charges, including total pre-tax charges associated with the shutdown, we expect diluted earnings per share to be the range of $1.54 to $1.64.

I will now turn the call back to Ron for some closing remarks.

Thanks, Russ.

Before we turn the call over to questions, I just want to touch on a few items.

As I mentioned previously, we are working hard to bring inventory and cost in to line with our current forecast, and that effort will continue over the next couple of quarters.

By the end of Q3, we would expect these figures to return to historical averages with the potential exception that we may increase advertising and marketing to a higher percentage than we have historically used to both promote new products and build the brand globally.

We have historically targeted 5% to 6% for this activity, which is below what many similar companies do, so we may increase that slightly, in the coming quarters to 7% to 8%, as long as we are executing to our plans.

Sometimes it's easy to lose perspective during difficult economic times in the U.S.

This continues to be a very strong growth business.

People love our products in every market we sell to, and this is evidenced our continued revenue growth.

More importantly, we continue to see growth opportunities in all of our markets, and we remain very encouraged about our long term prospects and the potential for this business.

Now, operator, I'd like to now turn it over to questions.

(OPERATOR INSTRUCTIONS.) And our first question of the afternoon we'll go to Jeff Klinefelter at Piper Jaffray.

Yes, hey guys, couple of questions for you.

Hitting the domestic market, Ron, if I missed this at the beginning I apologize, do you have the average selling prices, the number of units sold during the quarter?

In the domestic market you are asking?

You can just give in total, then I have a follow-up for the domestic market.

We'll get that, Jeff.

Okay.

While you are looking for that --

The average selling --

Go ahead.

$6.33, I'm sorry $16.33, and we sold 11.1 million units.

Okay.

Children's, men's, women's, do you have that split?

Give us a second, Jeff, we'll get that.

Okay.

That's fine.

Men's and women's is still, pretty tough to --

Yes.

To come to an exact number as many of our shoes are unisex, so we still feel that it's in about the 60/35 level.

We're seeing nice sell-through in some of the newer women's models, and like we said, we're having good sell-through with men now, approaching our brand or buying the Yukons, the Santa Cruz are just coming out.

Of course, flip plop flops are very popular with men, as well as the classic Crocs style.

With kids it's still in the high 20% range.

Okay.

So just to put this in perspective, the domestic market grows 12% year-over-year, doors are up, what, it looks like about 30% year-over-year?

Yes.

Could you help us put that in context?

Is it doors growing faster that are smaller doors?

Like the Foot Locker doors, and that's taking down the overall sales growth?

Or how should we think about the potential dilution here that you appear to be having in the domestic market in terms of productivity?

Yes, we have added some smaller doors, and I would say we're still relatively early in the season, so some of the smaller doors wouldn't be coming on quite as quickly yet.

You know, just in a difficult economic environment, we have had some dilution in our doors, in our U.S.

doors.

However, we feel very confident that going forward that doors in the stores are very excited about the new products that they are seeing, they are just getting them out on the shelves now, really late March, early April, and even in to May in some cases, so we're expecting some good things.

Okay.

Couple of other questions.

One, just in general, how has your sales process or strategy in terms of working with your sales force using systems and technology to better forecast demand given the challenges of all of this reorder business, in season reorder?

Clearly things have changed since Q3 through Q4 and now in terms of the demand outlook, has anything changed in terms of how you are working with your sales force?

People you have added?

How you are better leveraging technology?

Yeah, we have expanded and improved our sales force over the last few quarters.

We feel very confident, we have a very solid sales force out on the streets right now.

We have an analytics team that we brought in over last year, they are very active with forecasting, working with all of our customers, even some of the smaller ones, to get better information, better forecasts.

We are having a lot of luck with getting prebooks, more prebooks than we have in the past.

In fact, our prebook situation right now for Q3, Q4, and the fall is up significantly over where it was last year.

So the strategy is working.

It's working in the U.S.

We're also getting better visibility in Europe.

Asia is still largely an at-once business, and we are working with our sales force over in Asia to try to get more visibility.

We have got a lot of products now, and not all of them will be available in much higher volumes as the Mammoth was in Q4, unless we get some visibility on prebooks.

Okay.

And then just two last quick questions, Ron, for you on gross margin.

Again, can you help explain in a little bit more detail in terms of the gross margin line items or inputs, how you are going from the Q1 performance back to what you are forecasting for Q2, back to a more normalized kind of mid-50% range?

I mean, what was the big drag in Q1?

And then how are you getting that leverage back in this still challenging environment?

Sure, Jeff.

Let me take that.

This is Russ.

Our margin in Q1 was 44.2% before the restructuring charge and $42.9% after restructuring charge.

The primary issue that hits us, our fixed cost base versus our volume, so our sales volume was about half the issue that contributed to our unfavorable gross margin as we fell short with a fixed cost base that was higher.

And second issue, just our overhead capacity was impacted by the underutilization of our company-owned factory capacity.

Another issue that impacted us in Q1 is retail sales were significantly lower than expected, about 20% lower in Q1 versus the fourth quarter '07.

We did have, (inaudible) late in the quarter.

And duties were slightly higher due to the mix of product that we were shipping.

So that's the first quarter, and then how do we intend to go from the GAAP reported 42.9% gross margin in Q1 '08 to the 54% to 56% gross margin expected in the second quarter?

Three things.

One, we have implemented cost reduction programs in CapEX, SG&A and operations to offset the impact of any underutilization of our factory capacity.

We expect retail sales will be higher a percentage of our overall business in second quarter than they were in first quarter.

Significantly higher.

And we expect our air freight cost to be much lower than in previous periods.

One example is, we took out over 1,000 people out of our distribution and manufacturing company-owned cost structure by the end of the first quarter.

We will see that start to leverage in the second and third quarters as we go forward significantly.

That's helpful.

Thanks Russ.

And Russ, the stock buyback, does it look like you bought back about 3 million shares back in the first quarter.

Is that right?

No, we did not buy back any stock.

You were not in the market in the first quarter?

We were not.

No.

Okay.

CapEx for the year projection?

So CapEx, as I mentioned, we have a significant cost reduction, full-court press on, and we think we're going to have our CapEx come in around $85 million.

Significantly down from what we had projected before.

All right.

Thanks, guys, good luck.

Thanks.

We'll go next to Mitch Kummetz at Robert W.

Baird.

Yes, thank you.

Let me follow-up on Jeff's gross margin question.

Because it looks like the cost of sales in the first quarter came in about $10 million higher than what your initial Q1 guidance would have implied, when you were guiding to $225 million in sales.

And I'm wondering is that difference, the higher cost of sales, is that essentially explained by the air freight and the duties?

Two things.

Thanks for the question.

Our fix costs were slightly higher than what we had anticipated in our guidance, and we were also adversely impacted by the timing of some of our marketing and advertising brand spins with our magazine and brand marketing campaigns.

Those were primarily the two factors versus our guidance.

Okay.

That's helpful.

And then, Ron, you mentioned earlier in your prepared remarks that you are taking actions to bring costs in line?

Could you just detail some of those actions?

Does this have to do with headcount reduction?

It doesn't sound like you are really doing too much on the marketing side at least?

Yes as Russ said we have looked at really ever corner of our business making sure we are properly sized now for the current demand for our products.

We have taken costs out on the operations side, we have closed the Canadian facility, we have taken out heads to have the proper amount of personnel in our Mexican and Brazilian factories and the support people that we need for our third-party facilities.

We have sized our distribution locations properly.

Some needing maybe more people, and some needing less.

Also, on the SG&A side we just took a look at everything.

We had planned, obviously at a higher level as we were coming in to this year, and we needed to have enough infrastructure people and expenses, really, to support the pretty high uptick in sales.

So now we have taken a look, given the current conditions, we have taken a look at it, and we have gotten into every part of our business.

Okay.

And then Ron, could you comment a little bit on current business.

We're one month into the second quarter, obviously on the U.S.

side there was some softness in Q1, and if you want to look at sales per average door basis that was down.

I assume the guidance for Q2 would indicate down on a sales per average store in the U.S.

as well.

But I don't know if you guys have seen any improvement in the business in the U.S.

in the last month, maybe as weather has warmed up a little bit at least?

A I will just make a couple of comments there, really our sell-through is now improving in all regions as weather improves.

In the U.S., early April was down year-over-year.

However, we're seeing an uptick now in sell-through as weather improves throughout the country.

Our largest sporting good retailer is presently about 15% above last year to date.

And the industry sell-through data that we get from a couple of the channels that report, report that Crocs is about 10% higher than the footwear averages in those channels, so about 10% above what average footwear is.

So sell-through, while less than expectations, remains encouraging as we go right into our strong selling season.

In Europe, they have had a tough early season, weather- wise in the UK.

However, sell-through has accelerated in the rest of Europe, as we get to into the spring.

We're very encouraged with the early indications we're getting especially from the German market.

In Asia we get the best read in Asia because we have so many Crocs stores and Crocs franchise stores there that we get daily data on, and we're very encouraged by the quarter-to-date numbers coming out of the Asian retail stores.

We're having especially strong sales in Asia, right now in early May as much of Asia is off on holiday, for either Golden Week in Japan or Labor Day in the Chinese areas.

A particular standout has been China here recently where sales over the Labor Day this past week, there have been very strong, we think this bodes pretty well for us as we continue to launch and develop our brand in the Chinese market.

Also our retail stores in Japan are showing significant increases, so, you know, we're encouraged, guardedly encouraged as we go into the spring and summer selling season for our product.

Okay.

And then Russ you mentioned in your comments that classics were 29% of the business in the quarter.

Could you address how the business performed in the quarter by the kind of buckets that you broke it out on your Q4 call, you talked about, classics, core, and other.

Is there any way to comment on the performance of those three buckets in the quarter in terms of percentage increases?

We probably don't have that right at hand, Mitch.

Okay.

Fair enough.

Couple of other questions.

You gave, Ron, door counts at quarter end.

Could you update us on your expectations by full year?

And could you speak a little bit to some of these developing markets?

China, you still have a fairly low door count, South America, South East Asia and you mentioned that you are going into Russia in Q2.

Could you also speak a little bit about what you think the potential for those markets are long term, in terms of doors?

Yes, we're not actively adding doors quickly in the U.S.

market.

Certainly as we add new styles and we have some new collections we broken our business down into a number of collections, we've got sports collections, we've got work collections, we have medical, we have standard Crocs, we have more fashion-oriented Crocs now.

So as we do that and our development teams have been very active with all of the styles we have.

All of our entertainment licensed properties, and sports license properties, so we have a lot of products out there that we will have to open some more channels over time most likely.

We're even doing some more special makeup-type products for some of our, I would say more exclusive retailers.

So that's more of a U.S.

story.

With the international markets, we're still fairly underpenetrated on a door basis in many markets.

Now in Asia, while we are adding doors there, we think that the our retail presence there is having a tremendous amount of success where we can show our styles show our new stuff, we can show our accessories.

We can really expose our brand in those markets.

Just as an example, in Japan the Crocs logo is the number one selling Jibbitz.

So the brand means something there and is resonating.

We won't have as accelerated a door growth in Asia, but we will in Europe.

We're just expanding now.

We just launched in the Ukraine recently, of course we talked about the Baltics, and our head of Europe right now, this week is in Russia, and we just have our first shipments going in to Russia, so that market will continue to see nice growth.

Let me go back to Europe for a minute.

We were very underpenetrated last year in Germany.

That will probably be one of the highest growth markets for us this year, a large growth market anyway, and we're seeing nice early indications from Italy, Spain, France, Switzerland, and Austria, which was a good market last year as well.

And then when we go down to South America, like I said we have had a nice launch in Brazil.

We're now up to about a thousand doors there.

And we'll be extremely well positioned as we hit their spring and summer season later this year.

Talking about some of the emerging markets, China, our brand we think is also beginning to mean something there.

The last couple of weeks, sales in our retail stores is stunning.

So we have done very well there in early launch of our brand, and we have got a few stores now -- three stores in India, and we're beginning to add more stores there, so we have a lot of activity going all over the world, so our door growth internationally will continue at a fairly fast clip.

I think at one point you said 15 to 20% growth year-over-year this year, is that still within the ballpark?

Yes, that's about what our target was, would be.

Okay.

And then lastly, two real quick housekeeping items.

Russ, what would the diluted share count have been in order to get to the $0.09 of earnings?

That is --

82 --

82.4 million.

And we'll go to our next question, and that's from Robert Samuels at JP Morgan.

Hi, good afternoon, guys.

Just with respect to the longer term guidance, do you still feel comfortable with the 20% to 30% sales and EPS growth that you gave at the end of last quarter?

You know, given the current state of the U.S.

economy and the retail environment, it's really too early to project now, our long-term growth targets.

As we execute for '08, we feel that we'll be extremely well-positioned for a strong '09 with the gaining strength of our brand and brands around the world.

We'll also have many new categories, products, successful retail business, and of course, as we just talked about, we're increasing our door count around the world that will continue to help drive sales.

Given that, we expect that we'll continue to experience above industry standard growth rates for '09 and beyond, but due to the uncertainty now in the markets, we're not projecting specific numbers at this time.

Okay.

Great.

And just with regards to the domestic business, can you break down for us what performance was like between your big box retailers, versus your smaller mom-and-pop type of stores?

You know, it was was relatively similar.

We get a little more of an uptick in the small independents as we go in to the spring and summer season, because a lot of them are seasonal businesses.

A lot are only open for six to maybe eight months of the year, so we probably would have seen a little bit more in the first quarter from our big box department stores, sporting goods, some of our larger shoe stores, but now the independents start coming on more heavily now.

Just in terms of the cost pressures, what are you guys seeing, Russ?

I think as Ron mentioned in the beginning of the call, we have a very aggressive cost action on right now on all fronts on capital, on our operating cost, and our SG&A, but as Ron said, you know, we're going to get those cost structures in line over the next two quarters.

As far as cost pressures, you know, we're not really seeing much movement in material price yet.

We expect that there will be some there.

We'll also see over time, all of the footwear and apparel companies that are manufacturing in China are going to have cost pressures.

We're a little bit luckier there in that we've already launched activities in Vietnam.

We actually have lower cost structures in Vietnam and Bosnia, and ultimately our Mexican manufacturer will be lower too, because it's lower freight coming here, as we bring them up to more capacity utilization.

So as labor costs go up there, which they are doing, we think we are pretty well positioned for the long term.

Great.

Do you have any sense of repeat business this year versus last year?

I mean, can you tell whether customer X bought 3 pairs of Crocs last year, and this year has bought another 3 pairs?

Is there any way to determine that?

We do see a lot of repeat customers on our internet, where we can measure it, but some of our larger retailers really do a good job of displaying our products or even our own stores.

We see a lot of repeat customers coming back in wanting to look at this, see the new stuff, try it on, and as I said early indications on some of our new products are very strong, and then they'll typically buy another pair of Beaches or Mary Janes or Athens whatever they liked of our prior models.

Thanks a bunch.

(OPERATOR INSTRUCTIONS.) Our next question goes to Jeff Mintz at Wedbush Morgan Securities, Inc.

Thanks, a couple of questions.

On the inventory, Russ, I think you said it was down about $10 million quarter to date so far.

Can you give us some sense of where you expect it to be at the end of Q2?

We expect that our inventory is going to be down about 15% by the end of the second quarter.

And can you just talk a little bit about the makeup of the inventory in terms of , is it primarily classics, it is more of the new product, what is in that

The inventory that we're coming out, as we have said before, is it's 75% of our core products, and about 30% of our new products coming out.

And again, as we see the new product, as Ron mentioned, on the internet, we see the demand, that's when we start ramping up production on the new products.

We don't build those in inventory until we see the demand there.

Obviously a lot of our production now is focused on filling in holes with some of the core new colors and some of our core products, but primarily it's the spring '07 products that are selling through, selling in very well now, and our spring '08, certainly we're starting here soon to build out our fall '08 lineup.

Our inventory we're actually targeting to be down between 10% and 15% by the end of the quarter, and we'll continue to take it down through Q3.

Okay.

Great.

Ron, can you just talk a little bit about your initiatives with Finish Line and Foot Locker and how the product is doing in more of the athletic specialty in the mall?

Yeah, you know, regarding Finish Line, you know, we're still relatively new there, and we're just getting into the season.

They're going to be doing some promotions in windows and things like that, so it's probably too early to tell.

Probably the same story for Foot Locker we're just in tests, probably close to 500 stores now, and Foot Locker, Lady Foot Locker, Kids Foot Locker and Champs, they are just now getting in to the season.

We're being careful with that channel, and I think they are too, to make sure that we get the people trained properly, we get the right displays, we tell the right story, we do have some specific products that are coming out for our next year's line that more specifically target actually that more sport market, which is part of the Crocs sports collection, so we'll continue to get momentum from those guys as we go forward.

Okay.

And then just couple of quick questions.

Did you give the number of international doors at the end of Q1?

Yes.

21,000.

21,000.

And also the CapEx for the quarter?

It was 18 million.

Okay.

And then finally, do you have a headcount number for the end of the quarter.

I think you said you were down a thousand people.

Is that the actual end of quarter number?

The ending headcount is around 4300.

It has continued to come down, obviously that number still had the Canadian operation in it.

Okay.

Great.

Thanks very much.

And we'll go now to Jim Duffy at Thomas Weisel Partners.

Thanks, hello everyone.

Ron, question for you.

In the U.S.

market you have yet to really go down market in terms of distribution.

This is like DSW, or Shoe Pavilion or things like that.

What is the current thought process on that as you balance building the brand versus volume and inventory management objective?

You know, we haven't hit the off-priced yet as we talked about.

We're always considering all alternatives.

As I said before it kind of fits with having so many different products now and a lot of product in development.

It could be more appropriate for the family channel.

We have done very well, by the way with just in the last month, really a few weeks, really, in Famous Footwear with our work line, and we're actually going to be delivering our Mamba's line into Famous here this quarter, and its in DSW already.

So we're considering some expansion there are some of our older models, but we haven't done anything yet.

Okay.

And then Russ, what was the gross margin guidance for the year?

I think I wrote it down incorrectly.

One moment.

54% to 56%.

Okay.

I did indeed.

In the first quarter at the bottom of the press release, in the reconciliation of the GAAP and non-GAAP, there's an inventory charge of $0.02.

What was that?

I don't think you guys spoke to that.

Let me get back to you with that one.

Okay.

And let's see, the expenses you mentioned that you intend to have them aligned with planned revenue run rate by Q3 '08.

Help me understand the dynamic there, is it just kind of a lag effect in terms of when you take action as to when it is manifested in the SG&A line?

Correct.

There's timing issues, there's some severance issues when we're laying off people.

So, there's timing as it rolls out.

As Ron said in the beginning of the call, our actions in Q2 and Q3 you'll see them substantially completed as we get in to the Q3, and you'll see the full benefit of those actions then.

Makes a lot of sense.

And then can you speak to your relationship with your third-party capacity?

As you slow down production, shift more of, in an attempt to keep your own production utilized, has this caused any disruption with relationship with third-party capacity?

Or put you in any kind of challenging situations with regards to that?

You know, we have had a pretty good relationship with those guys for quite sometime now and become a pretty sizable important customer for them.

They are certainly disappointed that our volumes aren't higher right now.

I'll say that, but, we have a lot of new products coming on, they have worked with us in the development of these new products, they can see our growth, really, all over the world still moving in the right direction, and they are still very important for us.

They are primarily a couple, maybe three over in China, that we're talking about here.

But yes, it's been a little strained, but they are still working with us very well.

Is that affecting your lead times at all?

No.

Okay.

It helps them because they can be very flexible now with moving manufacturing lines around to, let's say make more Cyprus that are selling like crazy.

So they have been very flexible with us.

Okay.

And then a question on Jibbitz, can you comment as to whether that's growing faster or slower than the footwear business?

How penetrated are you with that?

It has probably gone a little bit slower in the U.S., but overall faster, because we're now bringing the Jibbitz products, we're really launching Jibbitz in our markets around the world, which we hadn't done last year, so our Asian and European and even South American Jibbitz sales are up quite significantly.

We have some plans there.

We have some new products, a lot of interesting types of Jibbitz, the ones that light up, and, all sorts of different gizmos like compasses and watches and things we can put into Jibbitz, so we're pretty excited about a bunch of stuff we have, and then we're launching a fairly major campaign for the second half of the year that we expect to drive sales in that division.

Very good.

I'll let someone else jump in.

Mr.

Snyder, we have no other questions in the queue at this time, so I would like to turn the call back over to you for any closing comments.

All right.

Well, thank you very much.

Russ and I will be available for questions.

Thanks again.