卡洛馳 (CROX) 2009 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to the Crocs, Incorporated fiscal 2009 fourth quarter earnings call.

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

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

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

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

This call call will end no later than 6:00 PM Eastern time.

I would now like to turn the call over to Ms.

Jennifer Almquist, Crocs Director of Investor Relations

Thank you for turning into the fourth quarter earnings conference call.

On the call today with me today are John Duerden, Crocs President and Chief Executive Officer; John McCarvel, Crocs's Chief Operating Officer and newly designated Chief Executive Officer; and Russ Hammer, Crocs's Chief Financial Officer.

Earlier this afternoon, Crocs announced its fourth quarter 2009 financial results.

A copy of the press release can be found on the Company's website www.crocs.com.

Reconciliations of the non-GAAP measures mentioned in the Press Release and on the call today have been provided, and can be found on the Investor Relations section of the Crocs website and in this afternoon's press release.

Before we begin, I would hike to remind everyone that some of the information provided in this call will be forward-looking, and accordingly, are subject to the Safe Harbor provisions of federal securities laws.

These statements concern plans, beliefs, forecasts, guidance, projections, expectations, and estimates for future operations.

Crocs cautions you that these statements are subject to a number of risks and uncertainties described in the Risk Factor section of our 2009 annual report on Form 10-K, filed today with the Securities and Exchange Commission.

Accordingly, actual results could differ materially from those described on this call.

Those listening to this call are advised to refer to Crocs's annual report on Form 10-K, as well as other documents filed with the SEC for additional discussion of these risk factors.

Crocs intends that all of its forward-looking statements in this call will be protected by the Safe Harbor provisions of the Securities and Exchange Act of 1934.

Crocs is not obligated to update its forward-looking statements to reflect the impact of future events.

I would now like to turn the call over to John Duerden, Chief Executive Officer of Crocs.

Please go ahead, John.

Thank you, Jennifer, and welcome everyone.

I am sure by now you have probably read the announcement that I will be retiring from the Company and that John McCarvel, the Company's Chief Operating Officer will be replacing me as CEO.

Many of you already know John, who has been with the Company throughout its short history, and has played a key role in Crocs's recovery over the past 18 months.

John and I have work closely together during the past year, as we have completed the critical first stage of this turn around.

I believe that John's experience and history in the Company uniquely qualify him for this new appointment and provide the essential continuity to complete this next stage of the Company's development.

He also has the benefit of being somewhat younger than I am, and is well equipped for leading a truly global enterprise.

Congratulations, John, and good luck in your new appointment.

Before handing it over to Russ and John, I would like to briefly review the highlights of the last quarter and some of our 2009 accomplishments.

In our looking back, it's hard to believe, on one hand, that I have already been here a year.

On the other hand, when I think about where the Company has come from since that time, it is hard to believe that only one year has passed.

The Company has undergone, and is still undergoing, significant change, and some of the fruits of our labor have manifested themselves in our Q4 results.

Let me cover some of the highlights.

Our Q4 revenue was up 8% from the fourth quarter a year ago, demonstrating continued strength of the brand, despite a difficult economic environment and lingering legacy issues for the Company at wholesale.

I should add that we achieved this growth without making any significant new investments in marketing during the year.

The retail and internet channels worldwide were absolutely key in driving this growth.

And with these consumer direct channels growing at 24% this quarter, compared to quarter four the previous year.

This is an outstanding achievement, and those channels will play a key role in our strategy going forward, and John will speak more to this in a minute.

SG&A costs as a percentage of revenue declined significantly, even excluding foreign exchange and despite growing our retail operations during the year.

We have continued to reduce our fixed cost infrastructure, and we will continue to aim for industry best standards without compromising our ability to drive the top line and strengthen our brand and identity.

Our liquidity has improved.

Working capital has increased by $34 million.

Our cash is up 50% since a year ago, and we are better managing our receivables and inventory.

The reduction in inventory alone has had a very positive effect on the business.

With inventories down 65% from an historical high in March 2008, we are no longer incurring the carrying cost of that inventory.

And we are able to reduce our global warehouse footprint significantly, which had a favorable impact on our cost of goods.

Our GAAP reported loss was $0.13 a share, and our non-GAAP loss per share was $0.04, exceeding guidance -- our earlier guidance of a loss of $0.15 to $0.20 a share.

I am very pleased to say the going concern opinion has been lifted from our financial statements, and Russ will speak about that more in a minute.

As you saw in the news today, we received a favorable ruling from the US Courts of Appeal for the Federal Circuit related to our ITC litigation.

We are extremely pleased with the court's decision and are actively assessing our next steps.

These quarterly results, when compared with quarter four one year ago, demonstrate that the measures we took to stabilize the Company in 2009 are working.

But there's still much work to do, and as I explained in our earlier calls, our strategy was never meant to be a one-year strategy.

And 2009 as well as 2010 must be viewed as part of a continuum to first stabilize the Company, and then bring it back to profitability, before embarking upon a path of sustained profitable growth.

During the past year, we have put in place, many of the key building blocks to provide the foundation for that future growth.

We have strengthened the product line and the process by which with we bring product to market.

We have refocused the brand, reasserting its core values and opening up the possibilities for future extensions of the brand.

We have cleaned up our distribution, and taken the necessary steps to strengthen our wholesale business.

We have put in place, many of the processes and systems necessary to deliver world class service, and we have attacked the cost base.

Finally, we have strengthened the management team.

John McCarvel will speak more about the forward strategy in a minute.

I would simply like to close by saying that this has been one with of the most rewarding, yet exhausting, experiences of my working life.

I feel privileged to have touched this great brand and to have helped steer it on a new course for the future.

This is a great team which will serve our customers and our investors well.

I will now let Russ walk through the Q4 and full-year numbers in detail.

Russ.

Thanks, John.

Good afternoon, everyone, and thanks for joining us.

Before I get started, as John mentioned, with the filing of the 10-K today, we officially no longer have a going concern opinion attached to our financial statements.

As you know, the auditors only [apine] once a year, and we are pleased that this year's opinion does not include that disclaimer.

We believe this to the the result of considerable efforts by the Crocs team to clean up the balance sheet, better align our costs, and stabilize the Company.

Because this quarter marks the end of our fiscal year, I will be providing both Q4 and full-year results during the call today.

As I have done in the past, I will provide year-over-year comparisons for context and where appropriate, I will provide some sequential comparisons as well as a channel break down to provide additional clarity.

You will note that we have begun breaking out our geographic segments beginning with the 10-K we filed today.

I will include some segment discussion today as well.

Now for a quick overview of our financials.

Revenue for the quarter came in ahead of expectations once again, at $136 million.

This is an increase of nearly $10 million, or 7.9%, over Q4 of last year.

Full-year 2009 revenue was $645.8 million, compared to $721.6 million for the full 2008 fiscal year.

To provide clarity and better understanding of our business, I will review both channel, and geographic revenue performance.

I will start my revenue discussion by first looking at revenue by channel, which includes Crocs's consumer direct retail, and internet channels as well as our wholesale channel.

On a consolidated basis, revenue generated by our Company-owned retail stores in the fourth quarter was $43.8 million, a 26% increase over fourth quarter of last year.

For the full 2009 fiscal year, revenue from our Company-owned retail stores increased 44% to over 2008 to $180.9 million.

As a matter of housekeeping, we ended the quarter with 317 Company-owned retail locations worldwide, up from 279 locations at the end of 2008, but only slightly higher than the 310 we reported in Q3 2009.

As we said previously, we are being very selective as to where we invest in new stores, and have established internal return hurdle rates,which require much shorter leases and significant CapEx to build out.

As we previously communicated, we have begun to close certain key assets that do not meet our financial hurdle rates and our location strategies and are selectively opening more branded stores.

As a result, we lowered the number of kiosk locations and added retail and outlet stores this quarter.

Broken down into store type, we had 96 kiosks, 74 store in stores, 63 outlet, or factory-direct stores, as we like to call them, and 84 full-priced retail locations as of December 31, 2009.

This represents a slight increase in full-price and factory-direct stores and a slight decrease in kiosk from Q3 2009.

Now, revenue generated from our internet channel was $15.3 million during the fourth quarter, a 20.6% increase from Q4 2008.

Full-year 2009 internet revenue was $60.4 million, up 35% from the full year of 2008.

Combined, our consumer direct retail and internet channels accounted for $59 million in Q4 sales, and represented 43% of Q4 revenue.

For fiscal 2009, consumer direct channels represented $241.3 million or 37% of total global revenue.

We are very pleased with the healthy growth we have seen from our consumer direct channels, as well as the guaranteed direct access to our consumers these channels have afforded us.

Accordingly these channels are an essential part of our strategy going forward.

Now revenue from our wholesale was basically flat, declining 2.1%, or $1.7 million, to $77 million during the fourth quarter of 2009, compared to Q4 of 2008.

This basically flat Q4 performance indicates an improving trend, however, in wholesale revenues, in comparison to earlier quarters this year, which saw declines of 45% in the first quarter, 28% in the second quarter, coming down to 15% and only 2% fourth quarter.

We see broad acceptance of key new styles and collections and our healthy prebooks are represented in our year-end backlog of $165 million, which represents a 46% increase over year-end 2008.

A few more housekeeping notes, footwear sales accounted for roughly 95%, and full year of 2009.

Footwear unit sales were 7.2 million during the fourth quarter of 2009, bringing total footwear sales to 36.8 million pairs sold globally for the full 2009 fiscal year.

Average selling price for Q4 2009 was $18.27, compared to $19.07 in Q4 2008.

Sequentially, our average selling price increased from $17.69 in Q3 2009 to $18.27 for Q4 2009.

For the full year, 2009 average selling price was $16.60, versus $18.35 for the 2008 fiscal year.

Excluding impaired units, full-year 2009 average selling price was $18.49.

Please note our new products represented 36% of our Q4 2009 units.

I will also provide the percentage of core and classic sales, but first I would like to note that Cayman will soon be renamed "Classic." I will use that vernacular here.

So core products, which include Beach, Classics, Kids Classics, Athens, Kids' Athens, Mary Jane, Girl's Mary Jane, Mammoth and Kids' Mammoth represented 28% of our unit sales and sales of Classics, which include our Beach and Classic models, represented 11%.

These trends continue to indicate the consumer preference for both our new product portfolio, as well as our Core and Classic products.

Gross profit for the fourth quarter of 2009 was $60.3 million, up from $56 million in the fourth quarter of 2008.

Gross margin was 44.3% in Q4 2009, versus 44.4% in Q4 of 2008.

Included in cost of sales, in Q4 2009, was $1.3 million in restructuring costs related to the closure of the warehouse space in Europe.

This had the effect of decreasing our gross margin, and thereby subduing the year-over-year increase during the fourth quarter of 2009.

For the full year, gross profit increased to $301 million in 2009 from $234 million in 2008.

As you will recall, during 2009 we executed on a strategic plan to thoughtfully reduce inventories, some of which had been written down.

Because we were able to sale much of this inventory at prices that were higher that what we had previously anticipated, primarily through our consumer direct channels, the effect of these sales was accretive to our gross profit during the three quarters of the year by $41.5 million.

Also, as you may recall from the Q3 earnings call, by the end of Q3 2009, we had disposed of more than 90% of our previously impaired units.

Because this brought our end-of-life and impaired units down to more normalized levels, we will not break out the effect of the sales of these units on the Q4 results, either in total or in the aggregate, as we believe the revenue margin from those sales in Q4 are substantially repeatable, and at normal levels.

In addition to the effect of the impaired units during the year, we realized some benefits from our cost savings resulting from the consolidation of our warehouse space in the US; supply chain rationalization, by sourcing higher import duty products from our Company-owned NAFTA duty-free manufacturing facility in Mexico; and favorable changes in product mix, primarily driven by our consumer direct channel.

Compared to Q4 2008, our Q4 2009 SG&A declined 27.4% to $70.9 million, compared to $97.6 million in Q4 of 2008.

In 2009, we experienced a slight gain in foreign currency exchange versus a $25.4 million loss on foreign currency exchange in 2008.

In addition, during Q4 2009, we discovered that Equity Edge, the software program with we use to calculate our stock-based compensation expense, was incorrectly accounting for forfeitures in its calculation of stock-based compensation expense, due to a bug in the software version we were using.

When we applied the patch that Equity Edge issued to correct the bug, we discovered that the timing for which we had recognized stock-based compensation expense was incorrect.

As a result, we recorded $3.9 million in additional compensation expense, in Q4 2009, to correct for these timing issues.

It is important to note that this was simply a timing issue, and did not affect our cash or the overall cost of stock-based compensation.

Likewise, we are not the only company being affected by this issue.

We have included this in our GAAP to non-GAAP reconciliations for Q4, since it was clearly not anticipated in our guidance.

Compared to the full year of 2008, full-year 2009 SG&A declined 15.7% to $310.9 million.

As a percentage of sales, SG&A for the full year of 2009 declined to 48.1% of revenue, to 51.1%.

Full-year SG&A included a favorable impact of $0.6 million foreign exchange gains, versus a $25.4 million loss for the full-year 2008.

Included in 2009 SG&A was $13 million in additional stock-based compensation expenses, resulting from our April 2009 tender offer, as well as the stock compensation adjustment discussed a moment ago.

Included in our SG&A was $25.3 million and $97.3 million of retail-related costs for Q4 and the full year of 2009, respectfully.

Please note our retail costs include salary, rent, occupancy costs, and other retail-related costs.

During Q4 of 2009, we also recognized an expense of $214,000, including operating income related to shoe donations we made to our Crocs Cares program, with the corresponding gain to this donation of $330,000.

For the full year, we recognized expense of $7.5 million with a corresponding gain of $3.2 million.

You can see from the tables in our earnings release that the related expense is reported as an item of operating income, but the gain is reported below (inaudible).

The spirit of giving back has carried over into 2010, when Crocs took the lead in local community giving efforts to Haiti, donating more than 100,000 pairs of shoes to those affected by the January quake.

We incurred a $639,000 impairment charge, related primarily to the closure of the warehouse facility in Rotterdam, the Netherlands, as we continue to look critically at our business assets and their future value to our ongoing business.

Impairment charges for the full year totaled $26.1 million.

The fourth quarter of 2009 yielded an operating loss of $13.4 million, versus an operating loss of $43.5 million in the fourth quarter of 2008.

For the full year, we reduced our operating loss from $189.5 million in 2008 to $48.6 million in 2009.

While the year-over-year comparison shows some improvement and are indicative of the improvements we made this year, we are obviously not satisfied with these results.

We're going to continue to attack our cost base, as we move into 2010, and maintain our longer-term goal of operating margins in the mid-teens.

Net loss for the fourth quarter of 2009 was $11.5 million, compared with a net loss of $34.7 million in Q4 2008.

Net loss per share was $0.13, and -- during Q4 2009, compared to a net loss of $0.42 in Q4 of 2008.

During Q4 of 2009, excluding the impact of foreign exchange losses, the stock-based compensation adjustments I had previously mentioned restructuring charges, asset impairments, and net charitable contributions, our non-GAAP loss per share of $3.5 million, or $0.04 per diluted share, exceeding guidance of a loss of $0.15 to $0.20 per diluted share.

For the full year, we reported a net loss of $42.1 million, compared to a net loss of $185.1 million for the full year of 2008.

Net loss per share for the full year of 2009 was $0.49, compared to a net loss per share of $2.24 for the full year in 2008.

As I mentioned previously, this quarter, we began reporting our operations by segment.

These segments report our operations geographically, similar to how we've broken out geographic revenue in the past.

However by having reportable segments, we also disclose operating margin measures for those segments in our 10-K.

Because the operating margins shown in the 10-K exclude corporate allocations, I will refrain from quoting margin numbers and stick to the business updates.

So, by operating segment, Q4 2009 sales in Europe increased 51.2%, to $16.5 million, over $10.9 million in Q4 of 2008.

This was driven by better-than-expected sell through, as well as easy comparisons from last year.

For the full year, sales in Europe declined 29% to $106.9 million, from $150.8 million the previous year.

We still face significant challenges in this region, expect recovery to be gradual, but are confident the strategic actions we're taking here will benefit the Company in the long run.

Revenue generated in Asia showed continued strength in Q4, increasing 15.5% over Q4 of 2008, to $50.5 million.

Notably, sales from our Asia segment were strong across all channels, demonstrating the strength and resilience in this market.

Japan represented 33% of the Asia market Q4 revenue.

For the full 2009 fiscal year, our Asia segment generated $237.5 million in revenue, an increase of 15.9% over the full year of 2008.

The Asia region continues to show tremendous promise, particularly as we consider additional possibilities in China.

Revenues from the Americas segment were down 3.5% from Q4 2008, to $68.8 million in Q4 of 2009.

America's Q4 2009 sales represented 51% of our global revenue.

In addition to the aforementioned improving wholesale outlook, we continue to see healthy growth from our consumer direct channels, which represented 58.7% of total Q4 America segment sales.

Notably our America same-store sales were up 4% during Q4 and were positive for the full year 2009, an encouraging sign as we look into this growing part of our business, which provides guaranteed direct access to our global customer base.

For the full year of 2009, revenues generated by the Americas segment declined 17.6% to $298 million, led by declining wholesale sales.

We continue to invest in those strategic initiatives we believe will benefit our relationship with our wholesale customers, including the in-store merchandising team we discussed last quarter, which has received a very favorable response from our wholesale customer base.

In 2009, our merchandising team has made 7,300 visits to the wholesale locations in the US and Canada.

We will also be launching our major consumer focus marketing campaign in the US market, in mid 2010, as well as some cooperate advertising campaigns beginning in April of 2010.

Now, turning to the balance sheet, we continue to execute strong asset management and leverage the strength of our balance sheet.

As John previously mentioned, 2009 was a year dedicated to stabilization, and one of our first priorities was to stabilize and better manage the balance sheet.

We were tremendously successful in these efforts this year, increasing our cash balance while paying off our bank debt, better managing our receivables, and dramatically bringing down our inventories on hand.

I will share some of these details with you.

We ended the year, with $77.3 million in cash, a 50% increase from the $51.7 million at December 31, 2008, even after paying off $22.4 million in bank debt during the year.

Cash generated from operations was $13.1 million, and $61.1 million in the fourth quarter and full-year 2009 respectfully.

As of December 31, 2009, our accounts receivable balance was $50.5 million, up slightly from December 31, 2008, due primarily to timing of sales.

Days sales outstanding is 34.1 days.

I am very happy to report today that our total inventory balance at the end of 2009 was $93.3 million, down 35%, from December 31, 2008, and down below the $100 million mark for the first time since March 2007.

Our dedication toward better managing has allowed us not only to reduce our holding cost, but it has also allowed us to bring down our global warehouse footprint, thereby increasing our future gross margin potential.

Please note inventory turns were 2.9 during Q4 2009.

As of the end of 2009 year end, our bank debt remained effectively at zero.

We were in compliance with all of our covenants.

Net capital expenditures, which includes cash paid for fixed and intangible asset, net of asset sales for the fourth quarter totaled $9.6 million, bringing 2009 total CapEx to $29.8 million.

Compared to the full year of 2008, we reduced expenditures in 2009 by more than 60%.

2010 capital expenditures will likely be marginally higher as we grow our global consumer direct business and invest in the IT process improvement necessary for us to more effectively provide quality and efficient customer service.

For these reasons, we expect 2010 CapEx to be in the range of $30 million to $40 million.

Now turning to guidance, we expect to generate between $155 million and $160 million of revenue during the first quarter of 2010, and expect diluted earnings per share of approximately breakeven, excluding any one-time charges, charitable contributions and FX changes.

Please note this guidance assumes a 30% tax rate, which is our expected full- year tax rate as well.

As an additional data point, we experienced an increase of 46% in our backlog from $113 million as of December 31, 2008, to $165 million as of December 31, 2009.

As a reminder, backlog consists of all prebook orders and outstanding at once orders, as of that date.

We consider this to be an encouraging sign for our Q1 revenue.

Our higher-than-consensus guidance is a reflection of the the strength of our backlog.

As a reminder, our business has, historically, been weighted more heavily toward spring and summer from a seasonality perspective, given design functionality of the majority of the footwear styles.

While some of our product ships during Q1, we expect the majority of the revenue from the spring-summer footwear line will be generated in the second and third quarters.

In summary, 2009 was a year of considerable progress.

We exceeded our sales expectations every quarter this year, due in large part to healthy growth in our consumer direct channels.

We made substantial improvements in cost of sales and SG&A, though we are far from done with those changes.

Our balance sheet is healthy with $0 bank debt, strong cash levels, and a track record of disciplined inventory and receivables management.

Our CapEx is down 60%, and our discipline and strategic approach to our global retail expansion is showing promise.

And last but not certainly least, our auditors lifted their going concern opinion on our Company.

Steps we took in 2009 will provide the basic building blocks for becoming profitable for the full 2010 fiscal year.

I will now turn the call over to John McCarvel, who will explain a little more of the Company's 2010 strategy and operational (inaudible).

John?

Thanks, Russ.

I will give a quick strategic and operational update, and then we will open up the call for questions.

2009 was a turning point for the Company.

We successfully executed the initial phases of our strategic turn-around plan, and we believe we stabilized many aspects of the Company.

Most notably, we strengthened the balance sheet, improved our liquidity position, attacked our cost structure, exited the marginal distribution.

We also made significant strides in expanding our product point, improving the process by which we bring products to market in growing our consumer direct business.

We ended the year ahead of schedule in our turn-around efforts, and in January, we announced that we expect to be profitable for the full year for fiscal 2010.

Solid progress and a critical first step in securing the solid foundation for the Crocs brand.

Our primary focus in 2010 will be restoring profitability.

I see five primary objectives in getting to that goal.

First, we must bring compelling new products to market.

Second, we must continue to find innovative ways to engage the customer.

Third, we must get the top line moving again, especially with our wholesale partners, and especially in the US and Europe.

Fourth, we will continue to focus on our business structure aiming to further improve margins and effectively manage our SG&A costs.

Finally, we will continue to invest in our enterprise-wide business system, technology and people necessary to become a leader in the casual comfort shoe market.

Success against these objectives hinges on our ability to manage four key elements.

Product design and development, channel development, regional development, and the operating model, through which we drive the Company.

Let's start with product development.

Crocs is clearly a product-driven company.

The vitality of the Crocs brand has always relied on us not just being a product Company, but a product Company with attitude.

This fall, the management team outlined a new mission for the Company, simply stated, it is to bring profound comfort, fun and innovation to the world's feet.

Executing that mission means reinforcing the brands core values, repositioning classic designs, and simultaneously introducing new products, which stem the brand and bring on the brand's unique DNA.

We have spent a considerable effort in attracting top designers, whose effect on the product is already apparent in the 2010 collection.

[Prealliance] with our key customers globally went very well, and our backlog number reflects the enthusiasm for our product.

The Crocband Clog, our latest reinvention of the clog, was prelaunched in limited quantities, and the sell-through at retail has been solid.

Additionally, we developed a Crocband collection around for spring-summer of 2010, the Crocband Flip and the women's Crocband Flat, primarily those two.

We have a strong portfolio of new designs for women, men, and children, a shoe for every occasion, a shoe for every you.

We also have begun designing around other key events, notably this being the World Cup event this year, we have designs intended to capitalize on the fever of soccer fans worldwide.

Our back-to-school and fall-winter (inaudible) collections have been well-received by key customers.

To play effectively in this market, we must move the Company progressively to a three seasons footwear company.

Augmenting our ability to develop successful home-run products, our million pair club has now grown to 21, with understandable and product- focused collections.

The key is not just to produce great products, but to combine great products with great merchandising and memorable advertising.

It is a combination of these three factors that will generate the energy in the marketplace for our consumers and our wholesalers.

We realize the opportunity to grow the brand is by simply educating our current, and new, customers -- consumer, about the breadth and depth of our line.

John Duerden spoke about our new marketing plan in our presentation at the ICR Exchange conference in January.

I won't repeat it here, except to say that our new Feel the Love campaign will be launched in the US in March to support the launch of our new spring/summer collection.

The campaign aims to reinforce the unique features of the Crocs products.

Comfort, color, and fun, and at the same time, educate the consumer on the benefits of our technology and on the breadth of the Crocs Line.

Considering we ended 2009 with revenue of $645 million, and less-than-desirable advertising and marketing spend, we believe this high-profile, strategic marketing plan will be a central ingredient in positioning the brand and achieving our 2010 sales targets.

Now, to channel development.

In each quarter in 2009, our retail and internet channel exhibited strong growth.

While we were very encouraged by our recent success in these channels, our long-term strategy is to have a balanced development across retail, internet and wholesale.

Consumer buying habits are changing rapidly, and this, in turn, is having a profound effect on global distribution channels also.

We continue to believe that the -- that maintaining the proper balance between these channels offers us flexibility, greater direct access to consumer, and an opportunity to try out new ideas and showcase the brand.

We will continue to make selective investments in retail world wide if support of this strategy.

In the short term, we are are taking advantage of lower costs, short-term retail leases in the US market, and using this tactic as a way to merchandise our full product portfolio.

Our internet business has the potential to become a greater portion of our business long term.

In 2009, we grew the number of sites worldwide to 23, and with recent technological upgrades, we are now capable of reaching new customers and new places, with consistent and powerful brands message.

The internet is a natural medium for Crocs, and it is already reflected in our 2009 sales growth in the channel.

2009 was a critical year for us for reengaging with our wholesale partners.

We made significant progress in this area and are introducing compelling product collections, offering improved service levels, cooperative advertising programs, direct merchandising systems, and improved segmentation in all global markets.

For retail development, one of the undeniable strengths of Crocs is our worldwide distribution, with more than 50% coming from outside the United States.

But while we continue to see tremendous potential from Asia and European business, we are mindful that the US business must remain a solid foundation for our brand.

We made significant progress in the US in 2009, and we will continue to focus on rebuilding our wholesale channels with key customers.

We are adjusting in those programs we see as being beneficial to our relationships with our customers and wholesale also.

We have strengthened our major account management, engaged the family channel, and have reengaged with the important independent channel, which help build the Crocs brand in the early years.

The European market is complex, but continues to present a significant opportunity for volume growth.

We have worked through channel issues that have affected our business in 2009, and we see some real opportunities to grow in the UK, France, Germany and other key markets in the region in 2010.

Asia has embraced the Crocs brand and continues to be a solid market for us.

We believe the large Asian market continues to offer significant potential growth.

Latin America, especially Brazil has emerged as a key-growth opportunity in 2009, and we foresee this will continue into 2010 and beyond.

We will play an important role -- and it will in play an important role in our global strategy.

On our operating model, as we said before, at the end of the day, this is a product and marketing business.

In my view, this means that the primary focus of this Company should be on design, development of great product, brand development, and servicing our customers.

The Company needs to move progressively to the three-season footwear company model, capable of providing full service at the wholesale business and to our own direct retail business.

As we transition this Company toward the new business model, we need to preserve those critical elements of low cost, fast to-market production, which underpinned the Company's spectacular growth in the early years.

The artful combination of these two business models will, I believe, provide Crocs with the unique, competitive advantage.

The key strategic challenge in 2010 is to reinforce and refresh the character of the brand with our core consumers, while simultaneously extending the appeal of the brand to a broader base of consumers.

We are making good progress on this task from a design perspective, to our marketing program and direct to consumer channels.

As we have shown you, we believe Crocs is well positioned for global growth in 2010.

Based on consumer reaction to our new products globally, we are confident the momentum that began in 2009, will continue through 2010 and beyond.

We are positioned for top line growth, full-year profitability, we look forward to updating you through the the year as we progress toward this goal.

With that, John, Russ and I will be happy to answer your questions.

(Operator Instructions).

We will take our first question from Reed Anderson of D.

A.

Davidson.

Hello.

A couple of questions.

Russ, on the gross margin piece, we saw last quarter certainly a much better margin, obviously this is a different quarter seasonally.

Just give where the mix went in terms of direct business, I was struck that it wasn't higher gross margin.

I am just wondering what other factors were at play in there?

And then secondly, how should we think about 2010 gross margins, relative to what we have seen here recently?

As I said, we had some impairment, particularly the Europe warehouse in the fourth quarter, and we still have some inefficiencies that were hurting us as we were closing down those warehouse facilities.

As we think about 2010, I think that we will continue to see progress from all of the actions that we took in 2009.

And you will continue to see improving margins as we move toward our longer-term goal of the low fifties in our margins.

And I think we all saw a very competitive landscape in the US for retail in fourth quarter.

Okay.

That was probably a contributing factor, versus maybe what we might have thought a few months back.

Okay.

Related to that, just, obviously, when you look at the perfect mix, you talk about the direct piece of your business, it should look like this on a normalized basis going forward.

But it does continue to grow every quarter.

And I guess, is it your thought that at some point in 2010, we hit an inflection and that will then start to level off?

Or should we think about that based on what you are doing for initiatives will continue to grow as a piece of the, of the mix in 2010 as well.

Reed, we think that our retail business, as we said, will continue to selectively grow globally.

Primarily in the US,, a little bit in Europe, and in Asia.

We are being pretty selective there, so we are not going after extremely high growth there.

But we also see our wholesale business recovering, as we mentioned.

We have a very strong backlog as we enter into first quarter and second quarter here, from our wholesale customers as a result of our prebook program.

So we think that mix on average will stay in that 60/40 range, where our global business, and will be around that 40% mix, and our wholesale business will be about 60%.

That's a little bit but that should be the right mix.

Okay.

Good just a couple of more.

I know you don't want to give the exact numbers again in the third quarter, Russ, but was there discontinued products -- sorry impaired product sales in fourth quarter?

Was there any of that?

There was a little bit, but very small.

Then if terms of the store base, moving away from the kiosk.

et cetera.

I think last quarter you talked about roughly maybe 40 or 50 kiosks, probably at some point, should be shuttered maybe in the next 12 to 18 months.

Where are we, what is the update there?Have we done much on that, or is that still kind of out there?

So our kiosks have gone -- just to give you a flavor on that, Reed, from 116 at the end of Q3 2009 to 96 at the end of Q4 2009.

So we made progress on it, and we are, again, going to keep watching each location globally, whether it's a strategic geographic location, whether we are putting a branded store in there or an outlet store, and continue on the focus of having our own branded store in front of the consumer.

Okay.

One last one, I promise.

Everyone mentioned that advertising, marketing, you're going to invest more there this year.

I'm just curious, what was -- if you looked at, however you want to classify it, whether it's marketing or advertising.

Year over year, what was the decline you saw in 2009, and what's a reasonable expectation as we look at 2010 in terms of that going up?

Our advertising in 2009 came down about $15 million, advertising and promotion over 2008.

And our advertising should be pretty flat to slightly up in 2009, in dollars.

In dollars.

But I think, Reed, what you are seeing is is that it's a major shift in how we spend that money.

So in 2009, we still had the final year of the ADP sponsorship, and so there was a significant spend in sponsorship.

Most of that goes away in 2010, and it shifts all to pure advertising, brand building, co-op marketing dollars with our key wholesale partners.

So in dollars it's roughly the same, slightly up.

But it is a shift in spend.

Yes, I think Reed, that's an important point John brings up.

As we said on the last call and at ICR, our focus is to shift that investment more to consumer direct marketing.

Okay.

I will stop there and let somebody else jump in.

Good luck.

Thanks.

Thanks, Reed.

Next, we'll go to Jeff Klinefelter from Piper Jaffray.

Yes, thank you.

First off just a congratulations to John Duerden for your accomplishment here, your leadership in helping the Organization accomplish a lot in the first year.

So, congratulations on that.

Second would be, Russ, maybe digging in a little more to the backlog.

Again can you share the numbers again, the backlog this year versus last year?

And then could you provide a little bit more context on how we should differentiate the two numbers, because I believe there was a pretty healthy increase in the amount of prebooking as you mentioned.

So, it's not necessarily directly comparable to last year.

But, can you help put that in context in how we should view the two?

Sure.

And thanks for your kind words to John, Jeff.

Our backlog at the end of 2009 was $165 million, versus -- that's about a 46% increase over 2008.

If you think about our backlog, which is, as you said, primarily a reflection of our prebook program in 2009, for our spring and summer deliveries in the first half, you -- I think you can think of backlog maybe to help you guys with your model, is about 70% of that is first quarter, and 30% of that is second quarter.

As far as how it is scheduled to ship to our customers.

Okay.

Then in terms of, again Russ I think this one is for you.

But in terms of Q1, been talking a lot about break even points, as you have been marking your way across this recovery path.

I thought that around $150ish million was a break-even point.

Is there something else going on in Q1 that would prevent you from delivering a little higher earnings per share?

No, Jeff.

So we think that we will have pretax operating profit in the quarter.

As you know, our tax rate is dependent on the countries where we make our profit in, as well as provisions where we have loss carry backs.

So when you get into small profit dollars in millions by country, you can have a pre-tax profit and a tax expense which could exceed it, depending on where your profits are made.

So for modeling purpose, we said use a 30% tax rate.

That could be different by 10 points, depending on where our profit's made.

So we do see that we will probably have an operational profit in the quarter.

And then the tax rate could swing that close to a break even.

But our break even point is within the range of what you were talking about there, maybe a little higher.

Okay.

In terms of a couple of more things.

In terms of a full-year outlook, maybe for Russ and John, how do you want us to be thinking about this in terms of a top-line growth rate.

You have a healthy, high-teens growth rate here in top line, if you take the upper end of your guide for Q1, with a healthy prebook.

Profitable for the year, as you mentioned, John.

But also we talked about trying to achieve profitability for all four quarters.

At this point, given what's happened even in Q1 so far to date, how do you feel about a top line rate of growth for the year, and potential leverage points in your op margin for the year?

Jeff, I will take that.

It is Russ.

I think John and I have discussed this.

And we believe right now we we will see a modest top-line growth, probably mid to single digit top line growth.

We see our gross margin continuing to recover as we benefit from our cost action, which will bring us closer to our long-term goal of the low fifties in our margin, as I mentioned previously.

In SG&A as a percent of sales, it will continue to come down.

We still have work to do to achieve our long-term target of that mid to upper 30s, as John mentioned.

And in their SG&A, obviously, the mix of our retail coming into there where we have all of the occupancy costs, etc.

but higher margins, will come into play, there.

And I guess for full year, for modeling purposes, we're expecting a tax rate of approximately 30%, if that helps.

Okay.

Then, for John McCarvel as well, congratulations to you, too, taking on the new role.

In terms of your view of having run Asia really from the start, how do you view that market in terms of ongoing growth potential, pockets of growth.

And then how will you attempt to translate some of that momentum into the rest of the global regions?

That spend is based on the first half of the year and maybe we will spend more money in SG&A Q1 and Q2 than in the back half of year to energize the brand.

Thanks, Jeff.

Maybe I'd make one comment first on Q1 just to think about as you view our business.

And that's something that I think John and Russ have talked about in the past.

We do believe that as we transition from sponsorship-based marketing into more advertising and consumer-based marketing, that spend is going to come more in the first half of the year.

Maybe we'll spend more money in SG&A Q1 and Q2 than we may in the back half of the year to really energize the brand.

We think we have a very good marketing campaign coming in conjunction with very good new products, that as I said in my portion, have been very well accepted.

So I think our break even point is, as you alluded to and Russ talked to, stays in that range from --could be better going forward.

The variable aspect of that is going to be what John's worked on heavily in the last year and really rebuilding the marketing and advertising vision for the brand.

So maybe to come back to your second question series, is that I think over the last year, I've run all our regional businesses, from sales all the way through profitability.

And we have taken a lot of lessons that we have learned in Asia about the brand and some of the good things that we have in other markets, and we have built a very good business strategy in how we go to market and how we take products to market.

And I think that will impact our businesses in each region more accretively.

On the Asian piece of our business, as you know, and you have seen some of the things that we are doing, we continue to be aggressive with our distributer partners.

They continue to build out retail stores in their markets in Indonesia, Malaysia, Thailand, you see a number of Crocs franchise-type stores that have sprung up and they will continue to invest in the brand.

So we think that the brand portion of Crocs [nature] will continue to expand, both through our own investment in some internet growth in the region this year, which we haven't built in the past, and with our distributors, really continuing to get behind and build the brand.

Great.

Thank you.

Congratulations to the whole team on your progress.

(Operator Instructions).

Next we will go to Jim Duffy with Thomas Weisel Partners.

Thank you.

Let me start by complimenting you on the progress made on the balance sheet and expense structure over the course of the year, a big year of accomplishments.

Thanks.

Speaking to this CEO transition, question, is the business plan for 2010, at this juncture, baked?

Or John, given some of your own personal biases, John McCarvel, that is, do you see some elements of the business plan which you consider to be in flux?

I think that because John and Russ and I, Dan, have worked very closely on the strategic plans for 2009 into 2010, 2011 and how we see it executing in 2010, I think there will be different variables that can help the business grow at a more rapid manner than what we have projected.

And it is really, as we talked around, around the acceptance of our new products and the power of the new advertising campaign that we launch first in the US in March, and very closely behind that in April, in Europe.

So, I think that will really help us look at some kind of growth or development in 2010 above what we talked about.

Okay.

And then, maybe this is for Russ, or John, speaking specific to the SG&A line across 2010, can you speak to some of the puts and takes, some of the areas for further savings and some of the areas where you see increased investment?

Sure, Jim.

We do see that we've leveraged down, as I mentioned before, both legal and in corporate sponsorship, trade show expense.

And we've tightened up on some other areas, consulting, agency fees, et cetera, et cetera.

I think some of the areas we're going to be focused on going forward are in the back office area as we look at more efficiencies, back office opportunities to get more best-in-class service at best cost quality and service.

So, those are some of our other opportunities.

Okay.

As you kind of net the two against each other, looking at the SG&A line for 2010, is that a line item that can be down on a dollar basis year to year?

Or is there incremental investments which you will make as you chase it growing top line?

So, Jim, what we are going to see is we are going to see a reduction in our nonconsumer direct support costs.

So as I said on back office, that can be in finance, accounting IT, order entry, et cetera, et cetera.

On the retail side of the house, we are going to be making some more selective investments.

So overall, it will be pretty flat to up, as a percent, and -- as a dollar amount, and then we will leverage that down with our growth and volume.

Okay, that's helpful.

Thanks.

John, you mentioned a shift in timing of the advertising spend, more towards the front half of the year.

As you evolve the business toward a three season, business model, are there any other notable changes in timing of shipments or seasonal influences that we should be considering as we model?

No.

We have just finished the prebooking process for our fall-winter, 2010 line.

And we don't see, in our prebooking, any significant shift from are what we would ship for Q3 and in Q4 for 2010 over 2008 or 2009.

Very helpful.

Thank you.

Thanks, Jim.

Our final question will come from (inaudible).

Good evening.

A few questions, following up on the last question, can you tell us what the prebooks are looking like for fall and winter so far?

Sure.

So our fall winter prebooks, I will give you a little bit of flavor.

In the US, our prebooks are up about 70% for the third quarter, which is primarily our wholesale business in the US.

It is looking very strong.

We are quite pleased with the progress we made on our prebooks there.

That's great.

And then the backlog for the first half of yea can you give us a break out by REIT?

By region.

We don't have that to break out right now, but we will provide color for that on our future calls.

And then, can you discuss comp sales in the fourth quarter?

Sure.

That's a great question, thanks.

Our US comps, as I mentioned on the call, were up 4%.

And we were very, very pleased with that performance.

And also, I think on a down year, we comped up 1% for the year, overall, and on our retail business.

I think that's a reflection of in a difficult environment, the consumer still sees a great value and quality in Crocs product, which is why we have seen the comp up in our retail operations.

And then in terms of store growth, can you give us an idea of where you expect to end 2010 in terms of number of kiosks, full price store, shop-in-shops and outlets?

So, as we've said, we are going to not see -- we are going to see modest growth in our retail business in all three markets in the US, in Europe and in Asia.

We continue to evaluate all of our existing stores.

It was a very rigorous process.

And we will continue our shift down on the kiosks, and a little more shift towards our branded stores, and a little bit to outlets as well.

So I think the shift that you saw in the third quarter you should continue to see that shift as we go forward.

Okay.

And then the expected growth in retail, is that primarily from comp sales or from new stores?

Combination.

Yes, about half and half to be honest.

I think our expectation to grow retail this year is somewhere between 40 and 50 stores globally for 2010.

Great.

That's helpful.

Then finally, can you give us an idea, of in terms of rebuilding a domestic wholesale business, have you added any major new accounts that maybe you had lost last year?

Or how, how many independent stores you have added year-over-year, just to give us a flavor there.

Yes.

I think maybe the way to look at this, from our perspective is that we have worked diligently to rebuild our relationships with all of our key customers in all different channels, whether it's department stores, sporting goods or other channels.

We have gone back really to the independent store that started with the brand.

Not gifting, but more of the trend-forward type of retailers that would have carried our products back in 2007, 2008, then maybe left us during the time when we were a little more less discriminating about where we put our product.

And then, I think the other way to look at this is we look at the family channel with the type of key retailers there, the Famous Footwear, DFW and others, that are really the perfect market channel for us to sell product.

And so we are building ,I think good relationships there, emerging relationships there, that will help us as we go into 2011 and 2012.

Great.

Thanks a lot.

Thank you.

At this time I would like to turn the call back to Company management for any additional or closing remarks.

I will just sign off, I guess, in more ways than one.

I think that we have had a good year, a really interesting year.

The management team has come together.

I really believe that the handover should be smooth.

I see absolutely no reason, we're committed to the plan here, and I think the entire management team developed the plan, is committed to the plan, and we all worked closely on putting that together.

And I am confident, frankly, that Crocs is going to be successful this year, and I am looking forward to observing that from afar.

So, John, I wish you congratulations and all the best of luck.

Thank you all, and thank you for calling us.

Ladies and gentlemen, that does conclude today's call.

Thank you all for your participation.