卡洛馳 (CROX) 2010 Q1 法說會逐字稿

Thank you for standing by everyone.

Welcome to the Crocs, Inc.

fiscal 2010 first quarter earnings conference call.

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

Following the presentation, we'll conduct a question and answer session.

Instructions will be provided at that time.

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

This call will end no later than 6 p.m.

Eastern time.

Earlier this afternoon, Crocs announced its first quarter 2010 financial results.

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

Reconciliations of the non-GAAP measures mentioned on the call can be found on the Investor Relations section of the Crocs website.

The Company would like 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.

The 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 the Company's 2009 annual report on Form 10K filed on February 25, 2010, with the Securities and Exchange Commission.

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

Those listening to the call are advised to refer to Crocs annual report on Form 10K 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.

Now, at this time I'd like to turn the call over to Mr.

John McCarvel, Chief Executive Officer of Crocs.

Please go ahead, sir.

Thank you.

Good afternoon and thank you for tuning in to our first quarter earnings conference call.

On the call with me today is Russ Hammer, Crocs Chief Financial Officer.

We are very happy with the performance of Crocs in the first quarter.

Our revenue growth reflects the market acceptance of our new products, and operating income is solidly ahead of our Q1 guidance we provided earlier.

In fact, this marks the fourth consecutive quarter we have exceeded expectations.

We are ahead of the multi-year strategy we laid out a year ago.

Today's earnings call will be a little more concise and more focused on key metrics and events in our business than our prior earnings calls.

When I wrapped up the Q4 earnings call, I left you with five key objectives from the Crocs management perspective.

They were first, to bring innovative products to market.

Second, to continue to find creative ways to engage our targeted customer base.

Three, to grow the top line, especially in wholesale.

To effectively manage the cost structure of our business.

And fifth, to continue to invest in future enterprise wide systems.

After all, we are a fairly young company with a significant global reach.

We are off to a good start in the first quarter, where our results were dramatically better than one year ago and above guidance highlighted by diluted earnings of $0.07 per share.

Improvement began at the top with sales of $167 million, up 24% from the last year and above high end of our forecasted range of $155 million to $160 million.

As a reminder, last year's first quarter included $19.3 million in sales of impaired footwear that we previously stated we would not expect to anniversary in 2010.

Excluding last year's impaired footwear sales, our growth in this quarter was 44%.

Importantly, our growth this quarter was driven by a strengthened wholesale, which up 26% in the first quarter versus last year.

As you saw in the press release, we experienced double digit revenue growth in every region this quarter.

Sales are benefiting from a much more focused product and marketing strategy.

We have invested in considerable time and resources over the past 12 to 18 months to bring to market innovative footwear collections that are appealing to a broader audience and better represent the fun and relaxed lifestyle nature of the Crocs brand.

Some of the initial efforts can be seen in our Spring 2010 line highlighted by the Crocband collection, our women's wedges and flats collections, and a wide range of new kids products.

We rolled out our new Feel the Love marketing and advertising campaign in the US in March and have started in Europe in early May.

Initial reactions have generally been very positive and we are encouraged by April sell through in both the US wholesale channel and our own retail stores.

Our customers already realize it's all about comfort, and our more consumer direct advertising strategy is about showing them we are much more than one ugly shoe.

With over 200 distinct models today, there's so much to love about Crocs.

We have made significant progress in restructuring the business operations in Crocs in 2009, and the results reflect many of our accomplishments.

We have benefited from stronger pre-book business in Q1, but will continue to offer our consumers a unique replenishment model in season for the summer on many of our core products.

We also realized we have a lot more work ahead of us to create a Company that can deliver consistent growth, enhance profitability over the long term, and our entire organization remains committed to this objective.

Russ will now review the numbers.

Thanks, John, and welcome to everyone for joining us on the call today and listening via webcast.

In an effort to reduce the length of our prepared remarks, and leave more time to take questions, we've condensed the financial disclosure section of today's call.

Additional information on our first quarter can be found in our 10Q, which was filed today after the close of the market.

Now to our results.

Total revenues for the first quarter increased 23.7% to $166.9 million, compared to $134.9 million a year ago.

By channel, our wholesale channel sales rose 26.1% to $120.2 million; our retail channel sales were up 23.3% to $34.4 million; and our internet channel sales increased 5% to $12.3 million.

We ended the first quarter of 2010 with 333 company operated retail locations compared to 290 this time a year ago.

This is an increase of 16 stores from 317 stores in Q4, 2009.

Compared to Q1, 2009, we have decreased the number of kiosks by 15 and have increased our full price and outlet stores by 58.

Our Americas same store sales increased 5% this quarter over first quarter last year.

Our second quarter is also off to a good start with North America same store sales up 4%, and global internet sales up 13% in April.

Now by geographic region, Asia sales increased 40% to $54.7 million compared to $39 million.

Sales in the Americas rose 10% to $74.2 million from $67.6 million.

And sales in Europe increased 34% to $37.9 million versus $28.3 million a year ago.

64% of our total Q1 sales were outside the United States.

Our other brands, Ocean Minded and Jibbitz combined represented 4.2% of our total revenue in the first quarter of 2010.

Combined these brands grew 12.2% this quarter compared to Q1 of last year.

Our average selling price for the 2009 first quarter, increased 9% or $1.30 to $16.41 from $15.11 one year ago.

The types of products we are selling as also diversified with 39% of our end quarter sales coming from our new 2010 products, including the Crocband collection.

As our mix shifts towards a higher percentage of new products with higher price points, we expect our ASPs will continue to increase in future periods.

Our successful cost reduction actions over the past year are clearly evident in the 52% gross margin we achieved in the first quarter this year, up 1,500 basis points over a year ago.

Gross profit for the first quarter improved to $86.7 million, compared to $49.7 million in Q1, 2009.

The dramatic year-over-year improvement is primarily attributable to favorable product mix shifts and the cost savings realized from the restructuring of our business model in the past 18 months.

As we have discussed in previous earnings calls, we decreased our distribution footprint and logistic costs and are more efficient with our pre-book and direct order processing.

SG&A increased to $74.8 million compared to SG&A of $68.7 million a year ago.

As a reminder, all of our retail expenses including occupancy costs and stored labor are in our SG&A, which now make up about one-third of our operating budget.

Retail related costs included in SG&A were $25.6 million, up from $20.4 million a year ago, but remain fairly constant as a percent of revenue.

Excluding retail related costs from SG&A, our SG&A as a percentage of non-retail revenue has leveraged down 800 basis points to 37.1%.

We continue to better leverage our cost base.

Our improved top line performance coupled with the benefits we reap over our cost saving initiatives help reverse negative operating results from a year ago in a very meaningful way.

We have recovered from a $22.6 million operating loss in Q1, 2009, to operating income of $9.4 million this quarter; and an operating margin of 5.6% or 7.1% excluding restructuring asset impairment effects and charitable contribution charges.

For the quarter, our effective tax rate was 37.2%, higher than the 30% we assumed in our guidance, but still on track to hit around 30% for the full year.

First quarter net income improved to $5.7 million or $0.07 per diluted share, compared to a net loss of $22.4 million or a loss of $0.27 per diluted share.

Now, turning to the balance sheet.

We ended the quarter with $53.8 million in cash, an increase of 5.7% over cash of $50.9 million at March 31, 2009.

Net cash, that is cash less bank debt, was up $22 million from a year ago.

At the end of Q1, 2010, the Company had no bank debt and we were in compliance with all of our covenants.

We're also pleased with our inventory performance compared to a year ago, which is down 18.3% to $107.2 million from $131.2 million in March 2009.

A significant portion of the reduction was due to our effectiveness in moving previously impaired and end of life footwear for our consumer direct channels in 2009.

And as a result, we began our prime 2010 selling season with a very healthy inventory mix.

Now to our guidance.

For the second quarter of 2010, we expect to generate sales between $210 million to $220 million.

For comparison purposes, this represents 6% to 12% growth over the GAAP sales number of $197 million; and 20% to 26% sales growth over the non-GAAP sales number of $174 million we reported in Q2, '09.

As a reminder, last year's second quarter included $23.7 million in sales of impaired footwear that we have previously stated we would not expect to reoccur in 2010.

We have excluded the $23.7 million in our non-GAAP growth guidance.

For the second quarter, we expect to report diluted earnings per share in the range of $0.18 to $0.22.

This guidance assumes an effective tax rate of 30%.

For the full year 2010, we are projecting capital expenditures to be about $30 million.

And as I mentioned earlier, we still expect our annual tax rate to be 30%.

I'll now turn the call back to John for some closing comments.

Thanks, Russ.

You are starting to see a clear picture of Crocs.

We are a global brand with a global consumer who understands our products.

They look for comfort, innovation, and surprisingly good design and value.

To reiterate the management team's plan, our priorities are clear and straight forward.

First, we understand the importance of bringing compelling new products to the market.

We are capitalizing on the brand's worldwide popularity and evolving our product line into balanced footwear collections that incorporate updated versions of our original iconic classics, styles.

As well as new creations that appeal to a broader audience and extend our selling seasons.

We are very proud to say that at last check yesterday, we had six of the top seven best selling styles on Amazon.com.

Our fall bookings are strong with global pre-bookings for the Fall/Winter season up 82% from a year ago.

Backlog as of March 31st, was up 74% from last year to $204 million.

Fall/Holiday pre-book is led by our Crocband Winter collection.

Also booking well are women's and kids boots, demonstrating our ability to truly become a three season footwear company.

And finally, we are having success with our limited back to school line of kids footwear.

In fact, two of our top ten Fall/Winter pre-books are back to school products.

Second, our new marketing campaign in the US and Europe is aimed at getting consumers to look at Crocs in a new light and draw attention to our broad, deep line of products for men, women, and children.

Our advertising campaign, Feel the Love featuring our Croslite character is about reinforcing the unique combination of comfort, color, and fun that the brand has come to stand for with our consumer.

To reiterate, this is a fundamental shift in our marketing strategy from sponsorship, event driven marketing to a more consumer direct marketing approach.

Third, we continue to improve our wholesale channel so that business can grow in conjunction with our consumer direct division.

This provides us with well balanced distribution strategy that allows us to reach consumers in different channels in which they shop.

In Asia, we continue to grow our wholesale channel in a number of key countries in the region.

In the Americas this quarter, we were certainly helped by a strengthening economy; but more importantly, we successfully expanded our presence with major customers in the wholesale channel.

And in Europe, we've seen encouraging progress towards strengthening our wholesale distribution channel as revenues increased 31% over the first quarter of last year.

As an aside, to be excited about our potential--we continue, excuse me, to be excited about our potential of company owned retail locations; and plan to open 39 new retail locations globally in Q2.

Roughly two-thirds of these new retail locations will be in Asia with the remainder primarily in North America.

We anticipate growing our global retail locations to over 400 locations by the end of the year.

Four, we continue to focus on our business structure, aiming to further improve margins and effectively manage down our SG&A cost.

As a percentage of revenue, SG&A costs went down this quarter, even as our retail presence expanded globally due to our ability to better leverage our cost space.

We will continue to focus on cost savings initiatives and exercise discipline as we seek out future investments.

And finally, we continue to invest in our enterprise wide business system, technology, and people necessary to become a leader in casual comfort shoe market.

We are working towards the completion on our major systems implementations and order management and retail point of sales systems, as well as global internet and e-commerce platforms.

We anticipate completing a majority of these system implementations by the fourth quarter of this year.

It is amazing to sit here and talk about Crocs in Q1 of 2010.

It's a big change from 12 months ago.

Our products continue to resonate with our consumers worldwide, and we are gaining traction in sales channels across all regions.

Our growth and operating margins are expanding, we've returned to profitability.

We appreciate everyone who had faith in the brand and worked with us during the past year.

We appreciate the extraordinary efforts of all Crocs employees globally.

The hard work we've put into recreating Crocs is starting to pay off.

You could say we've taken a note from our name sake, the crocodile.

Its relentless will to survive, to thrive, even when conditions weren't exactly ideal.

First quarter has positioned us well to execute in our long term plans and we look forward to updating you on future growth.

We'll now open the call to questions.

Thank you very much, sir.

(Operator Instructions) We'll take as many questions as time permits and take them in the order that you signal us.

And we'll go to Jeff Klinefelter of Piper Jaffray.

Congratulations to the whole team.

It's a great, great start to the year.

Wanted to talk to you about the matrix of revenue in Q1 in a little bit more detail if possible.

Could you give a sense for the direct growth rates by channel in--excuse me?

Can you ask the question again?

Sure.

Just in terms of Q1 revenue, in terms of wholesale, retail, internet, Americas, Europe, and Asia, can you give a little bit more color on; for example, America is up 10%, how much of that was wholesale versus retail?

And a little bit more color on Asia and Europe that way as well.

Sure, Jeff.

It's Russ.

So Americas wholesale was up 7%.

But keep in mind that we had a significant amount of impaired product in that number last year.

So if you look at an apples-to-apples basis, our wholesale growth would have been up in the mid- 20s.

Our retail growth in the Americas was up 26%.

In Asia our wholesale growth was up 50%, and our retail growth was up 18%.

And in Europe our wholesale growth was up 31%, and our retail growth was up 27%.

So we saw healthy growth in both channels in all markets.

Okay.

And, Russ, when you give those retail numbers, do those include internet as well?

They did not.

So internet was in addition to that?

Correct.

Do you have those numbers?

I do.

The internet business was slightly down in the Americas.

In Asia, same.

And it was up in the Europe market.

Okay.

Total US internet was up.

The non-US piece of the Americas were down a little as we're starting up.

Okay.

Just noticing in your 10Q, there's a little text in there about running a little lighter with e-commerce inventory.

Was that one of the contributors to that slowing down?

I think, Jeff, our strategy for the first quarter was to bring new products into our own direct channels at the beginning of March to give our wholesale partners some advance on selling new products.

So part of why we see a little bit slower sales in both retail and in internet was just when we launched products.

And that's why, I think one of the things that we noted in the call was just to give you a data point on now that we're fully loaded with new products in our direct channels what the growth rates look like for April.

That's helpful.

Russ, just to clarify.

If you go non-GAAP from the last year in Q2, wholesale revenue was up mid-20's in Americas, 31% Europe and 50% Asia?

I only excluded the impaired out of the US number, Jeff.

Okay.

So those numbers would have been higher?

That's what most of the impaired was though.

Okay, great.

That's helpful.

Thank you.

And in terms of Q2 guidance, how should we think about that revenue guidance range in terms of the channels and the geographies?

Is there anything we should be aware of relative to how it performed in Q1 heading into Q2?

Are you looking fro any changes, deviations in that pattern?

I think right now the US market is growing solidly, and we don't see that to be much of a change from Q1 and similarly for Asia.

I think the one area where there could be a little bit of softness is in Europe, where they just don't use the auto replenishment model the same way that the US and Asian markets do.

We do see a little bit of a dropoff in Q2 with Europe.

Could you just also, John, repeat those fall bookings numbers that you shared with us again?

Fall bookings for--Fall/Winter up 82% from a year ago.

That's from one year ago.

Then backlog from March 31st was up 74% to $204 million.

Jeff, we think the way we want you to think about that is about half of what we're carrying in backlog going into Q2 will be shipped in Q2, and about half of that backlog will be shipped in Q3 and early Q4.

Okay.

Great.

And then you shared some numbers on store growth, that is a step up from your last quarter, correct?

The total number of stores you expect to have?

It is.

Last quarter we said 30 to 50.

And for the first half of the year, we now expect to be at 55 stores.

Maybe to give you a little bit of color on that.

Some of the stores that are in the growth for Q2 will be seasonal stores in some locations where they'll be open for six to eight months.

So there will be a little bit of growth that will then retract in the fourth quarter.

Last question and I'll let someone else get on.

In terms of global trends, both import cost to goods is a topic of discussion these days with everything going on in the foreign markets.

And then also, sales as it relates to Europe.

You commented Europe is not an auto replenishment market.

There's also just obvious concern right now about the European markets in general and what's happening there realtime.

Can you share a perspective, John, on input costs and any inflation that you're expecting to see there, and then also any dynamics kind of real time you can point to as it affects your business?

Okay.

Maybe on the first question.

We look at the efficiencies that we can drive within our manufacturing model today.

And we talked about some of the things on the last call that we were doing in manufacturing operations.

We're bringing on second generation material.

So we think we're cost neutral going forward this year from a manufacturing standpoint.

Because of some of the things that we're doing, but I think as everybody knows, capacity is getting a little bit tighter, especially in China with all the footwear companies doing so well; and also, with the cost structure changing in China with direct cost for most of the manufacturers going up.

But we think our own internal efficiencies will offset that.

I think for us the visibility in the European market right now with the number of markets having been cleaned up from an inventory standpoint last year, is a little bit of a potential upside, depending on what sell through looks like.

We don't have a lot of product in channel, and we don't have a lot of product that is sitting with our distributor partners.

So sell through is good, and there's a potential to do auto replenishment in quarter.

Okay.

Great.

Thank you very much.

Thanks, Jeff.

We'll next take a question from Jim Duffy of Thomas of Weisel Partners.

Mr.

Duffy, your line is open.

Sorry.

Nice start to the year.

I had a question on the restructuring charges, Russ.

Seems to be somewhat of a change of convention in that first quarter those were not excluded from reported results.

Will the reported numbers and guidance from here forth reflect GAAP expectations?

Jim, we reported the GAAP number and then we identified the restructuring so you guys can back it in or out, whichever way you want to do your model.

Okay.

And with respect to the guidance for the second quarter, does that include or exclude any restructuring charges?

There's no restructuring charges in that guidance.

Okay.

We don't anticipate any, Jim.

Okay, good.

And then with respect to the 52% gross margin, a really nice number.

Do you see that to be a sustainable number?

Or given the increase in replenishment orders, do you expect there to be some seasonality with that?

When we think about our margins, we were very pleased with our first quarter margin.

I think it's important to note that in the first quarter when we have pre-books, in the third quarter, we run a more efficient model.

Where we're doing more direct ships and we're not utilizing the replenishment model where we're touching it more in the distribution center.

We were pleased with our first quarter performance, but our second and fourth quarters have more touch points with pre-books are our first and third quarters as we've said on the previous earnings calls.

That being said, we still are projecting our gross margins to recover meaningfully over 2009 and be in the low 50s for the full year.

Okay.

That's great to hear.

Then John, a very nice lift in the European wholesale numbers.

You gave some commentary there.

Can you speak more specifically to some of the progress, maybe mention specific accounts or types of accounts where you're getting increased traction in the European business.

Jim, I'd be happy to.

In 2008--at the end of 2008, we took back our distribution rate in three major markets: in France, Germany, and the UK.

And so what I think we start to see this year is the first full year in operations of running those countries is enough lift of having direct control in those channels.

Most notably this year, in both Germany and in France where the product maybe was constrained in a distribution environment, we now feel we can invest direct sales.

In France, (inaudible) some of the major department store chains have picked up the brand this year, where we were not there in previous years.

So this is giving us a huge lift in distribution.

And as I said, I think in the UK market, last year was a very difficult year both from an economic standpoint with the recession, but also with the backlog of old product that we had in channel.

And a lot of our independent retailers in the UK have come back to us this year to re-embrace the brand on new products.

Maybe, lastly, in Germany, we opened up our first outlet store there.

And it has done extremely well.

And again, a number of our major retail partners in Germany have also started to give us additional shelf space and have taken additional styles for 2010.

That's very encouraging.

And then, John, could I ask you to speak about some of the progress you're making in terms of service levels, and doing a better job of keeping retailers in stock, kind of rebuilding the Crocs brand with your channel partners?

I think mainly in the U.S., we have taken--as you can see inventory position going up a little bit this quarter, a deeper position to support inventory on core products that we feel will sell through throughout the season.

And I think our Crocband clogs and Crocband flips have done extremely well in family channel; and even for the kids channel, we've seen double digit up to 20% weekly sell through on product.

And we're in a much better position to support them this year.

Very good, thank you.

We'll next take a question from Mitch Kummetz of Robert W.

Baird.

Yes, thanks.

And congratulations on the quarter.

A few questions.

First off, on the new Feel the Love marketing campaign.

Can you just remind us, John, I think you said it started up in the US in March and in Europe starting in May.

Could you remind us on the TV side, when did you kick that off?

Are you done with it now?

Or how much do you have left?

Was there any impact specifically on the quarter, both in terms of any spike in sales, or any impact on the SG&A?

And what are you seeing through the first month of the second quarter as far as that?

Is there any TV tied to the European side of that campaign?

Okay.

A number of questions.

Let me see if I can work through that.

On the US side, Mitch, it started in late March, it ran for six weeks.

The television piece of this on the initial launch finished last Sunday.

And then we have options now to add onto television advertising going into Q3.

Print advertising, bus advertising that we did is spread across really four major markets to start with.

We think right now the early indications are 1.2 billion to 1.5 billion impressions came out of the marketing campaign on this initial launch.

From a product standpoint, launching in late March, we don't get much uplift per se, but we do think part of our sell through at the end of April that we alluded to is due to the marketing campaign here in the US.

On the European side, yes, we will do both print and media.

The European market, and that just starts this week.

Okay.

And the how about the impact to the SG&A?

I'm guessing more so in the second quarter than the first quarter, although your anniversarying some things, some promotional strategies that you had in place last year at this time.

I'll start and let Russ add a little bit of color to the end.

I think as we've talked before, the majority of the marketing cost and campaign will fall into Q2 and then some in Q1 as we first started and some into Q3.

So we do want you to kind of think about SG&A costs going up in the quarter.

And what we've said is that as the brand requires, we will put more dollars into marketing provided that we're on target with our financial--

Mitch, I was just going to add.

In the second quarter, John mentioned that our SG&A will be up, so we have the 39 retail stores that we mentioned earlier.

So that will cause SG&A; but obviously, we have sales and incremental margin and profit go through.

And we also have the bulk of our advertising spend in the second quarter, so that's an increase as well.

But as a total way to think about SG&A, Mitch, as a percentage of sales, it's improving as evidenced by our first quarter.

We continue to identify areas in the business where we've got the ability to take out costs and at the same time make those important investments seem to be improving efficiency and accelerating the topline in the business systems that John mentioned earlier.

So we remain comfortable with our expectation for SG&A be in that mid-to high 30s over the long term.

And we expect to continue to make additional progress towards that goal over the balance of it.

All right.

That's helpful.

And then on the US wholesale business, which is actually pretty strong if you stripped out the impaired product last year.

Could you talk a little bit about your performance in the quarter as well as what you're seeing on your back log and Fall/Winter pre-books on a by channel basis?

How is that shaping up?

Or how did it perform family footwear versus sporting goods versus any mall-based specialty and independents?

It's an interesting dynamic for us because across all channels, we're slowly rebuilding confidence.

And so we--you look at major (inaudible) that we've partnered with sales are up year-over-year double digit in April as we've rolled the products out, and as they start to gain traction.

And as we've said before, this is our focus to rebuild the brand in multichannel, with (technical difficulties), styles in the line and growing.

We believe we're now in a position where we can do proper market segmentation of our products and we think that's going to be even more so true for 2011.

I think we focus a lot on the US marketplace.

And I've said this before, 60% of our business comes internationally.

And I think we do an excellent job in international markets in segmenting our products there already also.

Okay.

And then on the ASP, just looking in the Q.

It looks like they're up about 9% year-over-year in the quarter, which is a nice increase; and when you look at your backlog and your pre-books for the back half of the year, where could you see that number going?

I think it was $16.50 for the third quarter.

Are we talking high teens by the back half of the year given, John, I think you were talking about women's and kids' boots, and I would think that's probably on the women's side at least, that's a higher price point?

I think two questions in there.

The first is that we think that ASP growth over the year is somewhere in the 10% to 15% range as we lead through these periods where we sold their product at a slightly lower price last year.

Second piece is, yes, we think that by the end of the year, we're in the $19 to $20 ASP range when you (technical difficulties) third quarter winter products.

Okay.

Great.

Thanks, good luck.

Thanks, Mitch.

(Operator Instructions)

We'll take the next question from Reed Anderson of D.A.

Davidson.

Hi everyone.

Nice quarter.

A couple of questions.

Getting back to the kind of the question, actually back to your closing remarks, John.

You were talking about bringing some newer distribution online or some newer retail partners, etc.

I was just curious if you would just give a little more color there.

Was it more family specialty that came online in the first quarter, and what else should we be looking at?

If you want to give names, great, but just want to get a sense by channel.

What's been newer over the last few months?

As I said, I think that in our US wholesale business, it's really been across all channels with major partners and then smaller retailers in each of the categories.

And it's really what we have worked hard to do--our US sales force has really worked hard to build a lifestyle brand sale across multiple channels with the portfolio of products that we have today.

We talked about last time, I think we've started in the family channel now with Famous Footwear, DSW, Shoe Show, a number of retailers that we think really fit well with the brand and then with our consumer.

I think the sell through at Famous has been excellent for the first two quarters, as we have now expanded the number of doors with them, and the number SKUs that they're carrying for us.

Okay.

Good.

That's helpful.

Thank you.

And moving on to the margins.

This may be obvious, but I'm going to ask it anyway.

If you look at your margins going up the way they did at the same time that the wholesale mix moved in a different direction, I mean it went up.

Is it the wholesale margins that were actually that much better?

Is that the right conclusion there, or am I missing something?

Well, I think if you look at--and Russ talked to this earlier.

If you looked at wholesale margins in Q1 of last year, some of it was impacted by the amount of impaired product we sold through those channels and at the discount that we did sell some of the core products that we were a bit long in the tooth in.

And so I think we have explained through the call that really by going to a pre-book, and by some of the innovative things we've done from a logistic standpoint, and being able to pack product by store, in the factory, and even ship to our own retail location, it's taken a significant cost.

Even more, better than what we expected and we're very happy with the progress that we've made there this quarter.

Okay.

And on ASPs, circling back to that as well.

If you looked at ASPs and you didn't think--you just looked at the classic and core product, would they be, on an ASP basis, flatish or would they actually be down a little bit year-over-year.

They're flat.

In our core products, we haven't reduced prices.

It's a great product at a great price.

Perfect.

Good.

And then last one.

Russ, on inventory, does it make sense now that you really rationalize that to where I think you want it?

Sales are picking up, that we start to see inventory levels build year-over-year, or is there still opportunity to take some out of the channel?

We think they're going to be flat, Reed.

We've got the inventory moving at a nice clip now.

We're getting the efficiencies that we want so we see a flat inventory right now.

That's it for me.

Thanks a lot.

Good luck.

We'll next take a question from [Jim Shartier] of (inaudible).

Good afternoon.

The first question back on to the ASPs.

Last year I believe you estimated excluding the impaired units, the ASPs were about $18.65.

And so just curious what drove lower ASPs to reverse that number in the first quarter?

Jim, our ASPs in the first quarter without impaired are about flat.

Okay.

And then on the back logs, is most of that--how is that growth being driven between new door growth, SKU expansion within existing doors, and just as part of your greater emphasis on pre-booking?

So the back log is all of our wholesale accounts, and we saw that growth in all markets across the board, as John mentioned earlier.

Right.

Is it being driven primarily by increasing the door counts that you're selling in, expanding your assortment within existing doors?

It's expansion within existing doors.

I think, as we've talked, our plan really for 2010 is not to expand door growth greatly in existing markets.

It's to more efficiently sell the products that we have in the channels that we're already in.

Great.

And then co-op advertising dollars, have your partners starting spending that?

And if so, what kind of lift are you seeing?

We do some co-op marketing with a number of our major partners.

And we think part of the lift that they're seeing in their doors is that visibility to new Crocs products that they haven't been exposed to before.

Great thanks a lot.

We'll now move back to Piper Jaffray's Jeff Klinefelter.

Thanks, guys.

Just a couple of follow-up questions.

Russ, on the DNA, what are your expectations for that as kind of a run rate quarterly through the balance of the year, relative to what you did in Q1?

On the SG&A, we will see an increase in second quarter in both the retail stores as I just mentioned.

No, I meant DNA.

DNA.

Our CapEx, which is coming down as we mentioned, from our earlier expectations was 30 to 40.

And we're looking at $30 million, we'll be coming down slightly.

Okay.

Okay.

So we would see a moderation in the DNA charge through the year?

That's correct.

A slight moderation?

Okay.

And then actually I did have that other question on SG&A.

Before, you were talking about an SG&A dollar figure that would be slightly up year-over-year in total, and it sounds like two things are changing slightly.

Slightly higher expansion or faster expansion of company-owned doors, and then a little bit more being allocated to marketing with the momentum that you have in wholesale.

Would that be accurate?

That would be accurate.

I think as we've talked before, Jeff, it's a major shift in marketing spend year-over-year from the AVP tour and the event marketing that we did in 2009 to the consumer direct marketing that we're doing in '10, and overall marketing spend year-over-year is up.

But it's also the focus of the marketing dollars also.

Okay.

So are you comfortable giving just a general sense for what the total dollar range would be up for the year?

It's a flat year.

SG&A cost total is flat year-over-year.

SG&A total dollars flat year-over-year?

Yes.

So after being up 7%, it's going to come down pretty quickly after Q2?

That's the plan.

Okay.

And then the break point for quarterly profit at this point?

I know you've been working hard getting your leverage points down.

Is that something you feel comfortable talking about, Russ, in terms of your general revenue range that is required on a quarterly basis for break even.

Last call, I think, Jeff, we spoke about that.

In that 150ish range, a little above that, and we're in that ballpark, maybe a little lower at this point in time with the cost (inaudible).

Okay.

And then just lastly, anything John or Russ that you could provide.

I know you don't want to give full year guidance yet, but you're off to a very good start with a strong forecast in Q2.

How--is there any way that you can have us start thinking about the topline environment for the balance of the year in the context of these bookings, this backlog that you have?

A general direction.

Jeff, I think that 10% growth on a GAAP basis is the right way to look at it, or with all the impaired product sales in 2009.

If you're carving that out in your model, we think that it's 20% non-GAAP without the impaired sales.

Okay.

Okay.

So 20% , low 50's gross margin, you think you'll be directionally going toward a flat SG&A number by year

That's correct.

Okay.

Thank you very much.

Thanks, Jeff.

There appear to be no further questions at this point.

I'd like to turn things back to our speakers for any additional or closing remarks.

On behalf of all of us at Crocs, we would like to thank everyone on the call today.

We try to keep ourselves light, and we think we've proven ourselves to be a successful global brand that knows how to float even from the beginning.

We have a loyal customer base that has kept us afloat through tough times, and are still there to buoy us during the next phase of our journey.

We thank you all for joining us today.

That concludes today's conference call.

Thank you all for joining us.