卡洛馳 (CROX) 0 Q0 法說會逐字稿

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

Welcome to the Crocs, Inc.

conference call to discuss the Company's revised guidance for the second quarter and full year of fiscal 2008.

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

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

Instructions will be provided at that time for you to queue up for questions.

(OPERATOR INSTRUCTIONS).

I would like to remind everyone that the conference today is being recorded.

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 forward-looking statements include statements related to our preliminary results, future prospects, inventory and strategic advances, and our expectations regarding our financial performance, growth, international expansion, bookings, worldwide popularity, and product development.

The Company cautions you that a number of risks and uncertainties good cause Crocs' actual results to differ materially with those described on this call.

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

Crocs intends that all of our 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 any of its forward-looking statements to reflect the impacted future events.

I would now like to turn the conference over to the President and Chief Executive officer, Mr.

Ron Snyder.

Please go ahead, sir.

Thank you, Operator, and thank you, everyone, for joining us this morning.

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

As you saw from our release yesterday after the close, we reported preliminary second quarter results and revised our outlook for the remainder of the year.

Second quarter revenues and profits were lower than we expected.

We now project sales to be in the approximate range of $218 million to $223 million versus our previous guidance of approximately $247 million to $258 million.

We also expect to report diluted earnings per share in the range of $0.03 to $0.07, which includes a $1.4 million or $0.01 charge associated with the shutdown of our Canadian manufacturing operations.

Similar to the first quarter, the shortfall in our top line was primarily attributed to lower-than-expected domestic sales.

While we continue to experience solid sell-through of our Crocs branded footwear throughout many of our US accounts, the combination of a very challenging economic environment, the sharp downturn in mall traffic, and retail is becoming more and more cautious with the frequency and quantity of their reorders, negatively impacted our business during the second quarter.

On the international front, Asian sales are expected to be up approximately 65%, while in Europe, revenues are expected to increase approximately 13% over last year.

Sales from our company-owned stores increased significantly, more than 75% over last year.

We would expect this trend to continue as that division grows in size over the next several years.

That said, it was not enough to offset the shortfall in wholesale sales this quarter.

With regard to earnings, our bottom line was impacted by a number of factors during the second quarter.

First, gross margins are now projected to be in the range of 41% to 43% versus our original guidance of 54% to 56%, and compared to 58.8% a year ago.

The shortfall in gross margin versus our guidance was primarily attributable to our lower-than-projected volumes.

While we have moved quickly to cut costs in manufacturing and distribution, our reduced revenue for the quarter negated a portion of the expected benefit.

We also made the decision to aggressively bring down inventory during the quarter, which resulted in our factories and warehouses running below optimal levels.

We continued to invest in our brand building initiatives, as we believe they are critical to future growth and success of the Company.

This included a network TV ad campaign, as well as a global print campaign highlighting our spring and summer products.

In addition, we incurred incremental SG&A spend associated with our retail roll-out, severance costs, and IP litigation.

Though not often publicized, we are having significant success enforcing our intellectual property in a number of markets around the world.

For example, more than 2.5 million pairs of infringing shoes have been seized and destroyed in the past year.

We continue to aggressively enforce our intellectual property around the world.

During the second quarter, we made meaningful progress strengthening our balance sheet.

Despite the shortfall in sales, our inventory reduction plan remains on track.

We still project inventories at June 30, '08 to be down approximately 10% to 15% compared to March 31 of this year.

DSO's and accounts receivable are projected to be 53 days, which represents approximately a 25% improvement compared to 71 days as of March 31.

We are actively managing our accounts receivable in order to lessen any potential impact from current economic conditions.

Capital expenditures for the period were approximately $20 million, in line with the recent capital budget reductions made in the spring.

We ended the quarter with approximately $37 million in outstanding borrowings on our $60 million line of credit, which is approximately a 14% decrease from the $43 million in outstanding as of March 31.

As a result, we generated net cash of over $26 million, and end the quarter with roughly $50 million in cash.

As we look ahead to the remainder of the year, we remain cautious due to the challenging retail environment and global economic climate.

For the third quarter, we now expect sales to range between $195 million and $205 million, with diluted earnings per share in the range of approximately $0.01 to $0.05.

This implies gross margins between 44% to 46%, and SG&A between 41% to 43%.

For the full year, we now expects sales to decrease modestly compared to fiscal 2007, and we anticipate earnings per share to be approximately breakeven.

This includes the one-time $20 million pretax charge or $0.16 per diluted share associated with the shutdown of our Canadian facilities.

We now expect our gross margin to be between 42% and 45% for the year.

Margins have been negatively impacted by lower sales volume, underutilization in our factories and warehouses, and product mix, as we introduce more complex models of footwear, some of which carry lower margins and higher duties than molded product.

We are also revising our SG&A target for 2008, and now expect SG&A as a percentage of sales to be between 38% and 42%.

Our revised outlook system assumes that the US environment will remain challenging, and retailers will continue to operate more cautiously until visibility improves.

Therefore, we expect domestic sales to decrease approximately 20% for the full year; Asia's sales to be up approximately 30% with flat to moderate growth in Europe.

Our business is rapidly changing.

Over the past few years, we grew incredibly fast on a global basis with very few products.

Now, as we become a more mature company, we have a much broader selection of products, and it takes more sophisticated retailing to properly display our growing product line.

Looking at our second quarter results, we cam see some very clear trends.

Our own stores, which are able to display our entire line of products, have been doing quite well.

In addition, our larger retailers, who have the space to showcase more than just a handful of our core styles, also continue to do nicely.

Importantly, several of our new spring 2008 styles have performed very well since arriving at retail.

This includes the Malindi, the Cyprus, Santa Cruz and Yukon.

We have very strong product line-ups for the fall, as well as for spring '09.

Consumer and retail response to our new products has been encouraging.

However, the display of our products at retail has not been adequate.

Therefore, going forward, we will be increasing our own store count where we can merchandise the full range of products, while also focusing more on wholesale accounts that can more fully merchandise multiple styles year-round.

At the same time, we continue to cut costs, as we size our business to be profitable on lower expected future sales volumes.

As we announced in April, we have shut down our Canadian manufacturing facility, and we anticipate the expense associated with this event to be completely off our books by the start of the fourth quarter.

In addition, we have reduced our headcount by approximately 1,300 since the start of the year.

A majority of these reductions have been in our manufacturing and distribution platform, as we work towards rightsizing our operations to better align it with our revised projections.

We have also delayed or eliminated certain capital expenditures.

Over the remainder of the year, we look to further remove costs in all areas of our operations across the globe.

Our plan also includes continuing to reduce inventory, increasing our cash position, and paying back our borrowings.

In 2003, we did about $1 million in revenue.

Just four years later in 2007, we generated almost $850 million in revenues, which was up 140% from the previous year.

2008 has obviously been very tough, as we deal with one of the most challenging economic and retail environments in some time.

As mentioned, our business is transitioning from hyper growth to more normalized growth, as we recognize that we need to make the necessary adjustments.

And while we expect sales to be down modestly in 2008, this is still a substantial global business that is generating cash.

We now need to focus on rightsizing our infrastructure and driving efficiencies, while at the same time continue to expand our breadth and depth around the globe.

And while it's a bit early to be talking about next year, let me briefly tell you what we will be focused on and how we think about 2009.

Our priorities will be to continue to build our brands globally; continue to introduce compelling and innovative products; improve in-store merchandising; further implement cost reduction initiatives; and improve working capital.

As we execute these initiatives, we expect that modest sales growth would generate gross margins in the 46% to 48% range, and operating margins between 13% and 15% by mid-2009.

Despite the recent setbacks, our entire organization is committed to successfully managing this transition and returning this Company to one of growth and increased profitability.

Operator, we'll now open it up for a few questions.

(OPERATOR INSTRUCTIONS).

Jeff Klinefelter, Piper Jaffray.

I guess, Ron and Russ, a few questions for you.

Maybe as a starting point, Ron, you gave that preliminary '09, those thoughts on gross margin and op margin.

And there's a revenue assumption associated with that, which sort of gets to the underlying point of what is a sustainable run rate for revenue?

So, any thoughts on how to approach that?

I mean, what would -- to get to that op margin of 13% to 15%, what kind of revenue base are you assuming or what kind of ranges of revenue would you assume on a global basis?

We'd be looking, Jeff, at this point, at modest growth for '09 off of where we come in, in '08.

So it would be in the high-single digit range.

Okay.

And the composition, kind of by major global region, would it be continuing with strongest growth in Asia, then Europe and US contracting somewhat?

Or how does that shake out?

Yes, with -- our current outlook is to continue to grow internationally more quickly than domestically, probably approaching the -- we're going to be in the 58 or so percent international business this year.

So, 58% international, 42% domestic.

And we would anticipate that to continue to grow a bit as we go into next year.

Okay.

This year, on the SG&A front, you have -- SG&A obviously has grown substantially along with your business the last couple of years.

Of that, and then also your facilities, distribution and manufacturing that are running through gross margin, can you give us a sense for how quickly you can bring that down?

And what are the major buckets that you're attempting to reduce?

Because there was a projection to get back to a higher gross margin after the first quarter; obviously the revenue shortfall hit that.

But maybe give a sense for, with all the third party manufacturing you have, why is it taking longer to bring that leverage point down with manufacturing?

And then what else can you meaningfully cut in SG&A?

Yes, so, as I talked about in the last call, we put infrastructure in to meet a much larger projected volume.

And we've been taking that out and downsizing to our current level of business.

However, that was somewhat difficult to do in the most busy season that we have.

Spring and summer is a very active time for us.

We're shipping a lot of product.

So it was difficult to do that extremely quickly in Q2.

We're taking some cost-cutting measures right now, but it takes time to weed out some of those costs in our operations platform around the world.

Some of our markets are still growing very quickly, so we're adding costs; where others are not going as quickly and we're cutting back.

And we expect that to really take now through the end of the year to really become fully utilized.

Okay.

Inventory is down close to your target or at your target.

How are you doing that in this current sales environment?

I mean, how -- there is a component of this going to the off-price channel, I'd imagine?

And how else are you accomplishing that when revenue is dropping at the rate it's dropping?

Yes, you know, a very small amount has gone to the off-price channel.

We have cut production and been very accurate with our planning.

We're making product that's selling at once that we don't have an inventory already.

We're making that in our manufacturing facilities around the world.

We're also, obviously, very busy manufacturing our fall/winter line-up right now that will begin shipping here this quarter.

And we're going to continue to bring inventory down.

We should hit the higher end of the range that we gave this quarter in Q2.

And in Q3, we'll continue to bring inventory down more than 10%, even on lower sales volumes that we projected.

Okay.

And then just one last question -- how should we look at cash flow, free cash flow for the balance of the year?

What would be the projections for that, given this new guidance?

Jeff, it's Russ.

We're going to continue generating cash.

We're also going to continue paying down our small debt line that we have.

We're still generating significant cash in this business, and third quarter, we will also generate significant cash and throughout the end of the year.

Okay.

And any more specific targets, Russ?

We'll give some more color on that on the actual earnings call.

But third quarter, we expect to be very strong.

This is the strongest cash position the Company has been in, right now, at the end of this quarter.

And it's also the first time we've actually brought down our inventory; our receivable performance on DSO, as we mentioned on the call, improved significantly.

And we're going to continue that focus.

So, you'll see our free cash flow continuing to improve here in third quarter and fourth.

Okay, great.

Thank you.

Jim Duffy, Thomas Weisel Partners.

Russ, can you kind of compartmentalize the SG&A spending for us?

How much of it is fixed?

How much is personnel-related?

What are you doing in marketing this year -- so forth?

Our marketing spend is pretty flat second quarter over first quarter as a percent of our total.

Let's talk on an annual basis, kind of looking out with the SG&A as a percent of revenue, as you've talked about it for the year.

So, on the year, we mentioned that our SG&A is going to be in the 42% to 43% -- 40% to 43% range.

We are going to be taking some pretty significant actions on our SG&A and bringing that down.

As Ron said, that does take some time to do as we're investing in certain areas, such as our retail expansion in Asia.

And we are de-investing in other areas that have slowed significantly.

We will continue our brand spend.

We think it's very important to be investing, especially in our Asian market, which -- in our international markets that are growing quickly.

Our brand continues to gain in popularity.

And we're going to continue that spend.

We're going to decrease in many of our areas in the administrative areas.

That's kind of where I'm taking you with the question, is -- where is the opportunity to trim spending, should the sales line weaken further?

Can we speak about some of the buckets?

How much of it's fixed SG&A?

How much of it's associated to the personnel?

And can you speak to marketing as a percent of revenue?

Jim, it looks like right now, marketing is in the -- between 8% and 10% range, because sales have decreased to a level that was lower than what we had expected.

And we decided to maintain our marketing spend, obviously, as Ron said, to continue to grow the brand.

We are looking at -- I mean, some of the expenses in SG&A are somewhat variable; obviously, commissions are variable.

Those come down.

There are some projects that we have that we can delay or even not do, that are very variable costs that we'll be eliminating or have already eliminated, even going into Q3, coming out of Q2.

So I don't have full clarity right now for you on the buckets on each percentage, but I mean, another area that we've decided to continue to spend in is legal.

We're very aggressive in protecting our intellectual property.

We filed a recent suit against someone we feel has infringed on our IP, and we'll continue to be quite aggressive there.

And we think that's money well spent.

And that really is something happening around the globe.

There's knock-offs showing up; showing up everywhere.

Europe has been very active with bringing in knock-offs, counterfeit products.

So, our Legal Department has been quite busy, and that's something that we've spent more than what we anticipated.

And we're going to try to manage that and bring that down.

Okay.

And then kind of looking within your account base, are you seeing door attrition at this point in time?

You mentioned the product spectrum expanding and larger retailers being able to represent that.

Are you seeing some of the smaller retailers go a different direction?

We are going to actually create some attrition.

We feel that -- we've been analyzing our doors very actively here over the last few months.

And the doors that are performing extremely well are the ones that are carrying our new products.

Our new products during the season here have been around 30% of our sales.

And some of the doors that don't carry them aren't enjoying that increase in revenue, and so neither are we.

So we're going to focus very, very heavily on in-store merchandising, more square footage in retailers; more attention to the retailers that are doing a good job for us.

And we would expect to see some door attrition in the US, and probably Europe to some extent, in that many of those retailers have only carried our core product.

Now, many of them were brand-new this year in Europe, so they wanted to start with something that they understood and what their consumers wanted.

But unless they can work with us on better and more in-store merchandising, we're going to cut back.

In Asia, we have less stores, and we've done a much better job of getting a full collection into the doors there.

So we're seeing that market grow nicely.

Okay.

If you look at your US revenue run rate, what percentage of that is with mom-and-pops or single door-type opportunities versus some of these larger chains that can represent the full product spectrum?

Yes, it's still been about 50%.

So -- and while some of those mom-and-pops do a very good job of merchandising, probably better then anyone, some just don't have the wherewithal or the space or the backstocks ability to carry much of our product line.

And so we'd be weeding out some of those that aren't selling a heck of a lot now, anyway.

Okay.

And then Ron, I'm going to ask you to provide a little bit more color on Europe, and the European results was disappointing, given some of the door growth we're seeing there.

Any perspective on that?

And any thoughts on where you see that market going?

Yes.

We, as I said, we had many, many new doors this year.

And so we primarily got into much of the market there.

We brought in our Caymans in some of our -- just core products.

What we've seen over there, we've seen an influx of knock-offs and even some counterfeit product that we feel has damaged our brand a bit there.

Some of my retailers have not been happy about seeing products show up.

So we've been, as I said, very active on the legal front to stop that.

And we've made a lot of seizures.

We also -- we've been impacted by the economic condition in the UK.

Just this last month, I just read that the retail business there is down in footwear, and apparel is down 7% for the month, year-over-year.

So that's impacted us as well.

Sure.

We have -- we're still very bullish on the European market, but some of the factors that hit us -- you know, there was some inventory in channel as we went into the season.

And the knock-offs and some of the economic climate there have impacted that market.

Also, as we go through the rest of the year, that is the most seasonal business that we have.

There's still more of a pre-book business.

So what we don't have the visibility there that we would like in the at-once part of our business, so we've been cautious in how we've guided Europe for the rest of the year.

Very good.

I'll let someone else jump in.

Mitch Kummetz, Robert Baird.

Just wanted to follow up on Jim's question about doors.

Could you tell us what your door count was at the end of the quarter?

Was it comparable to the end of last quarter?

Or did you actually see some attrition over the course of the quarter?

We'll have more clarity on that in the earnings call in a few weeks.

We wouldn't look -- we're not looking to be adding doors right now just in general.

We're becoming very active with the doors that we have, getting them better fixture and better displays, working with them on -- even getting in more product in season.

So that's been more of our focus than adding doors.

Okay.

And then for the second quarter, could you talk a little bit about your performance in terms of kid's product versus men's and women's?

I know that, at times, that can be a little difficult to differentiate, but just kind of give us a general sense as to how those buckets are trending.

And then also, you mentioned strength in new styles; can you talk a little bit about the performance of the core product in the quarter?

Yes.

We don't see a big difference right now in our kid's business.

It's still in the high 20's percentage total.

We did see a bit of a decline in our Jibbitz business in the US; however, that business is growing nicely in our international markets, especially in Asia.

So that would say that the kids are still behind the brand.

And we still tend to sell quite a bit of adult products.

Some of the best products that we have for this spring were all adult products -- the Malindi; the Yukon is a men's version that has done quite well in the male market.

Also the Cyprus and the Sassari are heeled products, which are two of our highest selling products for this season.

So those would all be adult products; where our kid's products are the kid's Caymans and some of the off -- and a lot of the entertainment offerings that we've got.

Well, one of the areas that is doing quite well is our license business.

We continue to grow that -- our sports license, entertainment license -- as well as our work products.

I mean, that's a big growth area for us.

We've gotten our work products now into new doors.

So even though we're not adding doors in our standard product line, we've added some work doors, probably more than 1,000 of those for this last quarter.

And our work products, some of the newer products we have in work, are selling through quite well.

We're going to continue to expand that.

Also, we recently announced that our shoes, a medical shoe that we've got has been approved for Medicare reimbursement, which is somewhat significant.

Croslite has been recognized as an important material for people that have diabetes.

So that's a very good win for us.

And now our shoes can be sold through doctor's offices for people that have medical -- have foot problems.

Okay.

And then with regard to your retail business, I think you made a comment, the sales rep, around 75%.

Sounds like that was probably driven by new doors.

Can you talk about just comp performance in those stores and the profitability of that business overall?

And then you talked about accelerating the door growth there.

Can you just remind us where you're at in terms of those doors?

And what exactly do you mean by accelerating that retail business in terms of planned store openings?

We're going to be -- what we're looking at is we're going to be selective, obviously, in opening the right sort of doors in the right regions.

We've been extremely successful in Asia, where we have about 100 of our company-owned stores and about close to 50 partner stores, which look exactly like our company-owned stores.

You couldn't tell the difference, although they're run by, say, one of our distributors or we license the store name to someone else, but we still control it.

So Asia, we're continuing to grow that.

We've got stores in many countries throughout the entire region.

Some of those stores are selling more than them -- as we go through the summer months, are selling more than maybe 7,000 -- 8,000 pairs per month.

So that is -- that's something that we're looking at, we're monitoring, and we're going to make sure we put stores in the right regions.

In the US, we are expanding our outlet store strategy.

We've got at least 13 now.

We're going to continue to grow that to close to 20 by year-end.

We think that's a good strategy.

We've also opened outlet stores now, a couple in Asia.

We have plans to open a couple in Europe.

Our stores in the US are still going to be about brand building.

We've got stores in regions that are all doing very well.

When you talk about comps, most of them haven't been open for a year, so we can't give comps yet.

I will say that the comps in many of our kiosks are down, because we only sell core products there.

But what we're going to start doing is offering some collection sort of activities there; whereas we, say, go into the fall, we'll have a collection of new products on our kiosks.

And we expect to increase those comps here as we go through Q3 and really into Q4, holiday season.

Okay.

And then lastly, could you just speak to the visibility that you have in the back half, particularly in the US?

I mean, the Mammoth was such a strong shoe for you last year.

How are you projecting that particular business into the back half of the year?

We are expecting the Mammoth to once again be strong and a whole collection of (inaudible) products that we've got.

Right now, our -- the pre-books that we have as a percentage of the total bookings, say, for Q3 are a little over 40%, those products.

And it's two-thirds of the bookings -- more than two-thirds of the bookings that we have for Q4.

And some of our international markets have been cautious there.

And we expect those products to really pick up in Asia, primarily, as we go through the quarter, because they don't do a lot of pre-booking, as we do in the US and Europe.

Okay.

All right.

Thanks.

Good luck.

(OPERATOR INSTRUCTIONS).

We'll just take a couple more, Operator.

Thank you.

Reed Anderson, D.A.

Davidson.

Most of my questions have been answered, but just a couple follow-ons.

First of all, Ron, I'm just curious -- to what extent, if you could comment, to what extent you might have to be now or have been more accommodating with major accounts, with either returns or discounts, you know, that sort of thing.

How is that playing out?

We have been accommodating in some areas in refreshing product.

Where they're getting out of sizes or they have slow moving colors, we've brought some of those back and shipped those to others that wanted a particular color.

So, we've done some re-balancing of inventory in some accounts, primarily in the US and maybe just a small amount in Europe.

Okay.

And then secondly, I'm just curious if you have a sense or what you think -- if you looked again at kind of your major US accounts, whether it's a sporting goods retailer, department store, whatever -- what their comparable store inventory level might be in your product today versus what it might be a year ago?

I can tell you that they started the season with more, on purpose.

They had ordered more than what they had the prior year.

But many of them -- I don't know exactly what they are today -- many of them have brought that down as we've hit the -- we hit stride in the selling season now.

And I think you can see some of the industry data from many of the reports out, that the Crocs sales have continued to increase here as we've gone through the season.

So, their inventories are now becoming more balanced.

And we're continuing to sell in the at-once products, some of the new products that I mentioned earlier that are doing quite well, including the Santa Cruz and the others that I mentioned.

Okay.

That's helpful.

And then lastly, just getting back to the question on Europe.

Because I think your guidance or your comments, prepared comment, was that for the year, you think that will be flat.

And it's been up -- certainly the first quarter was up strong; up a little bit here in the second quarter.

And so it implies pretty dramatic slowdown in the second half.

And so my presumption would be that that's actually already gone negative here late in the second quarter.

Is that the case?

Or is that something you're just anticipating as you look out at the next few weeks or months?

It's not yet gone that way.

What we anticipate that that is quite a seasonal business.

I don't know if you watched, but if you watched the British open the other day, the weather over there hasn't been very good either.

And that's impacted their middle-of-season sales, they feel a little bit.

We expect that they will be the most seasonal business that we have really every year.

As we come out with more of our fall and winter products, many of those are targeted into that market.

And we expect some success this year, but we don't have as much visibility as we'd like.

And we don't have as much visibility on how much at-once business we'll get there in Q3 or Q4.

Okay, great.

That's helpful.

Thank you.

All right.

We'll take one more, Operator.

That will come from Sam Poser, Sterne, Agee.

Just a follow-up.

Can you look at the -- the owned factory base that you have, can you talk about if you're going to go more third party going forward, as you've closed Canada?

How many do you still have and are you going to go to more third party?

We have already gone to more third party.

We've -- what we have now is our Mexican facility, a small amount of production in Brazil; it's still a very small market for us, but growing.

And we have some production in Italy, but that's mostly for doing prototypes and fast-run stuff.

So it's really our Mexican facility.

What we're going to focus on is making sure that the Mexican facility can bring in the right sorts of products for the US market and we have the right capabilities there.

We have a third party in Bosnia, which takes care of that at-once business in Europe.

And we'll continue to really focus on our Asian suppliers in both China and Vietnam.

And how much further does the infrastructure have to go down?

You said you reduced your staff by 1,300 and so -- I mean, how much more reductions or cuts [to] have to come out of it?

Yes, we think we're right-sized at our factories now, at this point, for the current level of business that we've got.

And what we'll be doing -- we decided to bring down inventory and make sure that we're building product that's ordered right now, product for the fall.

So that's what we've got our factories focused on.

But we were not fully utilized in our company-owned factories in Q2 and won't be yet in Q3 either.

We would expect those to become more fully utilized really, as we begin making spring product for next year.

Okay.

And then one last question.

With your inventories down 10% to 15% off of the Q1 numbers, so that would, on the high end -- I mean, at the 15% level, to put us around $225 million.

Based on your -- based on the revenue guidance and margins, it still looks to me like you have about five months supply of goods on hand as of the end of the quarter.

What would be an optimum inventory level, sort of on average, to run with, based on what you're seeing -- on what's going on out there?

We have a target to get back to, say, four turns, so maybe three to four months worth of inventory of our footwear products.

We take inventory positions in materials and we think they're going up or we have inventory of other products as well.

But talking footwear, we're looking at getting back to four turns here by next year.

So, you really want to be carrying about -- I mean, so your inventory still has to come down fairly significantly to get there?

Yes, it has to come down some and increased sales helps as well.

Of course.

Okay, well, thank you.

Good luck.

All right.

(multiple speakers) Go ahead, Operator?

I was just going to say that is all the time we have for questions.

I'll turn it back over to you for closing remarks, sir.

Okay, thank you.

One of the things we're happy with is our new product sales.

I think those have done very well.

We've continued to become a brand in many of the markets that we've got.

We have hit economic slowdown in the US and parts of Europe, which has impacted our business, but we are -- and have become -- a brand in those markets.

The level of sell-through where we are merchandised well has been quite good.

And we're very happy with that and that's something we're focused on.

We're learning from the things we're doing well and we're going to expand on those.

And obviously, we're focused on returning this business back to higher levels of sales and profitability.

Thank you.

And for those of you that will be at WSI next week, we can talk more there.

Thank you.

And that concludes today's conference.

We do appreciate your participation.

Have a great day.