卡洛馳 (CROX) 2010 Q3 法說會逐字稿

Thank you for standing by everyone.

Welcome to the Crocs Incorporated fiscal 2010 third quarter earnings conference call.

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

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

Instructions will be provided at that time.

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

Earlier this afternoon Crocs announced its third 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 today 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 Security laws.

This statement concerns plans, beliefs, forecast, 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 factors section of the Company's 2009 annual report on Form 10-K, 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 10-K.

As well as other documents filed with the SEC for additional discussion of these risks factors.

Crocs intends that all of it's 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 it's forward-looking statements to reflect the impact of future events.

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

John McCarvel Chief Executive Officer of Crocs.

Please go ahead, sir.

Thank you, operator.

Welcome to everyone joining us on our third-quarter earnings call.

With me today is Russ Hammer our Chief Financial Officer.

We are pleased to have delivered another quarter of solid results.

Our recent success has been broad-based and speaks to the progress we have made diversifying our business in terms of products and collections, distribution channels, and geographies.

All areas of the business are contributing to our growth.

With the performance of our new products fueling our current momentum.

Our results this past quarter and year to date have been very encouraging and we are ahead of where we thought we would be at this time.

While 2010 was about returning the Company to profitable growth, we did not plan to achieve these levels of sale and earnings at this point in the Company's development.

Importantly, the out-performance has been across the board with sales tracking ahead of expectations in each of our distribution channels.

Wholesale, retail, and Internet, and geographic regions in the Americas, Asia, and in Europe.

In the US this past quarter we had a productive Summer and back-to-school selling season.

Our wholesale partners reported very good weekly sell-through performances of our Spring-Summer collections throughout June and August.

And this trend was repeated with our new back-to-school line later in the quarter.

After a small test last year we doubled the number of SKUs for back-to-school and featured three of them in our TV ad campaign that ran on Cartoon Network, Nickelodeon, E-Network, amongst others.

We're very pleased with our first attempt to capitalize on this key selling period.

And we look to build on our performance with a broader assortment of products next year.

America's wholesale backlog for Spring 2011 has more than doubled.

With the growth spread across the broad cross-section of wholesale accounts.

These accounts include sporting goods, better department stores, family footwear and approximately 40% of our US wholesale business is still coming from independents.

This is a reflection of the hard work that has gone into restoring these key relationships and the success of our visual merchandising programs in 2009 and 2010.

Two additional areas of focus for Crocs in the Americas.

First, the development of a Crocs draft-ship program with some of our key customers.

This programs provides our customers with access to Crocs products on their Internet site.

Orders are then shipped direct from our distribution operation.

Our initial partners experiencing extraordinary demand for Crocs product and this model will exceed all projections over the traditional business model today.

We have two more draft-ship partners live in 2010 and will have an extensive roll-out in 2011.

Secondly, expansion of the brand into other markets in the Americas.

Specifically in Q3, revenue grew by 40% in Canada and nearly 120% in Central and South America.

The Central and South American markets are clearly growth opportunities for Crocs.

Asia's growth year-over-year in Q3 2010 has once again exceeded our expectations.

And is being fueled by the acceptance of new products and continued expansion in our wholesale business in Japan, Korea, and China.

We continue to expand our retail presence in key markets as well.

And this also assist us in building brand equity in the region.

Our new line of products preformed well in the quarter and our pre-bookings for the Spring-Summer '11 line have been very positive.

We anticipate growth will be steady and broad-based with China, Korea, and Taiwan being stronger markets.

We're embarking on an expanded strategy for India in 2011, that will allow us to tap on a broader demographic and open up more wholesale channels.

We're planning to launch new websites with enhanced functionality in Australia, Hong Kong, Taiwan, and Singapore in the fourth quarter.

Thus broadening our multichannel footprint in Asia.

Our resurgence in Europe continued throughout the summer.

With distribution in the UK, France, and Germany back under our control, our new products are beginning to gain important traction with consumers in those markets.

Thanks to a more cohesive marketing program, and brand messaging our recent investment in media advertising in key markets seems to have clearly resonated with consumers.

This performance has led to increased orders for Fall and holiday, and gained important shelf space with several retailers for next year and strong pre-bookings for Spring-Summer '11 product line.

Our new products have also performed very well in Company-owned retail stores.

A 14% increase in global retail locations coupled with a 9% comp store again in the US fueled a 35% increase in global retail sales in the third-quarter.

We're certainly pleased by our comp-store sales in the third quarter; however, I think an undue amount of attention has recently been focused on this one data point.

Our retail has to come from a larger percentage of our total business.

Approximately 28% year-to-date, we have thus far only been reporting comp-store sales results for the US.

Our retail footprint comprises of multiformats including carts and kiosks in malls.

Outlet stores, mall stores, shop-in-shops with major retailers, and high street stores globally.

As such providing comp results doesn't really provide a truly accurate picture of our overall retail performance.

We believe a better way to look at our retail business is the growth of retail locations coupled with our overall retail revenue growth.

Russ will now review the financials and I'll return to outline our growth initiatives for the next year.

Russ?

Thanks, John.

Good afternoon, ladies and gentlemen, and thank you for joining us.

Total revenues for the third quarter increased 30% to $215.6 million over adjusted revenue of $165.7 million we reported in the third quarter of last year.

Which excludes $11.5 million in previously impaired sales that we stated would be nonrecurring.

On a GAAP basis revenue increased 22% year-over-year.

By channel wholesale sales rose 16% to $123.9 million.

Retail sales were up 35% to $72.5 million and Internet sales increased 19% to $19.2 million.

We ended the third-quarter 2010 and 354 Company-operated retail locations compared to 310 this time to year ago.

Now by geographic region, sales in the Americas rose 31% to $104 million from $79.3 million a year ago.

Asia's sales increased 16% to $79 million compared to $68 million a year ago.

And sales in Europe increased 9% to $32.6 million versus $29.9 million a year ago.

For Q3 2010, 62% of our sales came from outside the United States.

This reflects the strong global reach of the Crocs brand.

Our average selling price for the third-quarter 2010 increased to $18.23 from $17.69 a year ago.

Our product mix continued to diversify over the same period last year, with 31% of Q3 sales coming from new 2010 products.

Including the popular Croc Band collection, Classic and Core represented 10% and 18% of Q3 2010 sales respectively.

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

Gross profit increased 32% to $118.8 million, compared to $89.9 million with the gross margin up 440 basis points.

To 55.1% from 50.7% a year ago.

The increase in gross profit is a result of our effective cost reduction actions.

Namely, the consolidation of our global warehouse footprint, a more efficient supply chain, including a greater degree of direct shipments to our customers, as well as the increased sales contribution from our consumer-direct division which carries higher gross margins than our wholesale channel.

SG&A expense for the quarter increased $10.5 million or 13% to $91.4 million compared to SG&A of $80.9 million a year ago.

As a percentage of sales Q3 2010 SG&A decreased to 42.4% from 45.7% versus Q3 2009.

Continuing to leverage down as a percent of sales.

The increase in SG&A dollar expenditures is primarily attributable to higher marketing, advertising, and costs associated with 44 new retail store locations that were not open a year ago.

As a reminder, all of our retail expenses including occupancy costs and store 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 $33.2 million up from $26.9 million a year ago.

But, remain fairly constant as percent of revenue.

Operating income in Q3 2010 was $27.4 million compared to $9 million in Q3 2009.

Our operating margin for the third quarter of 2010 improved to 12.7%.

On a GAAP basis the third-quarter net income improved to $25 million or $0.28 per diluted share.

Compared to $22.1 million or $0.25 per diluted share in the corresponding period last year.

For the third quarter, our effective tax rate was approximately 8% versus guidance of 22%.

Due to a one-time tax benefit totaling $3 million or $0.03 per diluted share.

This tax benefit was a result of a new international treaty which reduces certain taxes which accruals have previously been made.

The third-quarter 2009 net income included a one-time tax benefit of $14.4 million or $0.16 per diluted share, related to a change in the Company's corporate tax structure last year.

Now, turning to the balance sheet.

We ended Q3 2010 with $143.1 million in cash, an increase of 88% over cash of $76 million at September 30, 2009.

At the end of Q3 2010 the Company had no bank debt.

We were in compliance with all of our covenants.

It's important to note that we amended this agreement on September 30, 2010, which extended the maturity date to September 2014, decrease our interest rate and fees, and amended certain restricted covenants to be more favorable to the Company.

Inventory grew 25% to $142.5 million at September 30, 2010, from $113.7 million at September 30, 2009.

The increase is a result of multiple factors including a 37% increase in backlog as of September 30, 2010, an increase of 44 retail locations over Q3 2009, strong new product sell-through, and the support of an anticipated 21% higher Q4 revenue.

For the quarter ended September 30, 2010, our inventory turnover was 3.0 on an annualized basis.

Another driver is the strategic expansion of our in-house manufacturing of hybrid-products.

In our NAFTA Mexico factory, which results in lower duty cost.

Our Q3 2010 inventory is significantly cleaner with no impaired products.

We are comfortable with this inventory growth when taken into context with our increased revenues and backlog.

We ended Q3 with accounts receivable of $81.3 million compared to $65.8 million a year ago.

Now, to our guidance.

For the fourth quarter of 2010 the Company expects revenue of approximately $165 million.

A 21% increase over fourth quarter 2009.

The Company expects Q4 inventory to decrease approximately 10% from Q3 2010.

The Company expects diluted earnings per share for the fourth quarter 2010 to increase to approximately $0.02 per diluted share versus the diluted loss per share of $0.13 for the fourth quarter of 2009.

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

Thanks, Russ.

As I stated earlier we are ahead of schedule in the multiyear turnaround we outlined back in the Spring of 2009.

While there is more work to be done and still a fair amount of seasonality in our business, based on out backlog of $228 million on September 30, we are expecting a better holiday selling season than a year ago as evidenced by our increased guidance for the fourth-quarter.

And our backlog as of October 31, is $262 million which is up 60% from 2009.

And we will begin 2011 with a good deal of momentum.

Our recently improved results combined with our future orders have bolstered our confidence that we have done the right things, we have the right pieces in place to drive this business forward over the long-term.

We will continue to invest in the things that have perpetuated our recovery, beginning with our product design and development.

Building on the many successes from our 2010 collection.

Our 2011 product portfolio will comprise several new styles and innovative collections that we believe will broaden the Brand's appeal and attract new consumers to Crocs.

We are also continuing to expand our customer direct business which has been a key component not only in invigorating our topline, but in creating a stronger, more emotional connection with consumers worldwide.

We anticipate ending 2010 with approximately 400 Company-owned retail locations.

And our initial plans for 2011 include roughly 25% location growth.

The majority of our new locations will be outside of the US.

And will include a combination of full-priced stores, shop in shops, and outlet stores.

At the same time we are preparing to increase the number of E-commerce sites in key markets around the world.

Finally, we remain committed to making ongoing investments to our systems and processes in order to provide the customer support and service that is expected of a world-class brand like Crocs.

Thank you.

(Operator Instructions) And we'll go first to Jeff Klinefelter with Piper Jaffray.

Yes thanks guys.

Congratulations, and sounds like a very encouraging outlook.

John, could you talk a little bit more about the bookings, the pre- book that you're looking at going into 2011.

Maybe putting into context that dollar value versus last year.

Should we think about this as 60% of your business being wholesale, that piece of your business running up roughly 60%, a majority of that shipping in the first quarter.

How should we think about that flowing into the first couple of quarters and into next year?

Okay, thanks Jeff.

So what we'd like you to think about is about $42 million of what we have in backlog at the end of October will ship in the fourth quarter.

What we have remaining in backlog about 60% will ship to our wholesale customers in Q1, 40% will ship to customers in Q2.

Keep in mind here to Jeff that the majority of our orders that we have announced they are from our major wholesale customers and we'll still continue to book orders for products for delivery in Q1 and Q2 with our smaller independent accounts.

Okay.

So, in terms of retail in the retail side of the business.

You don't want to get too focused on comp, but what sort of promotional environment are you guys looking at as we go into the fourth quarter?

I know last year it was particularly promotional with some of the chain businesses that you sell to.

What is baked into this Q4 guidance at this point at this point in terms of that -- the retail direct business.

We're really not at this point in time anticipating the same discount levels that we saw last year.

In the retail environment.

Now, it's hard to tell what will transpire over the next eight weeks before the Christmas holiday.

But, right now it's not our expectation that we'll see discounting the way we did.

Our approach this season is a little different.

We have new products that we've introduced, more so than in previous years.

And we've also introduced into the market just this week our toning line of shoes, as well as our sneaker line of products that are sold in our retail outlets, starting next week and on our Internet sites starting earlier this week.

Okay.

Just a couple of other quick ones.

The gross margin rate for Q3 relative to, obviously a great year-over-year gain, down sequentially from Q2.

Could you put in context again, now you've got three quarters in for this year.

How we should think about modeling gross margin on forward?

Are we still thinking about, sort of -- -roughly the mid-50s level?

Is the retail mix changing that?

Q3 and Q4, I imagine, are more affected by Fall versus Spring margin rates within the product category?

So, we said on the last call that you should think about Q3 and Q4 kind of Q3 being in the mid-50s range, which is right where we came in at.

We guided to the lower end of the 50s for Q4.

Which is consistent with what we've seen in the business over time.

Last year Q4 2009 gross margins were about 44%.

And as I said we don't see the same level of discounting right now as we did before.

So, we felt comfortable on the low end of the 50s as we have discussed in the last call.

I think in the pre-books going forward for next year, we think that it returns to the seasonality that you would normally see.

With margins going up in Q1 and Q2, as we go into her prime selling season.

Okay.

That's terrific.

I'll let others jump on.

Congratulations.

Thanks Jeff.

And we'll move now to Jim Duffy with Stifel Nicolaus.

Thanks.

Good afternoon.

Very encouraging Spring quarter backlog.

Russ or John, could you help us on a go-forward basis think about how you think about your business -- the wholesale side of the business with respect to pre-book verses in-season business?

I think, Jim, as we touched on last quarter.

We have a desired comfort level that we would really like to see our pre-book business run in that 65% to 70% range.

And it remains our target with our sales force, and it's a comfort zone that we discussed on the last call that we feel that is best for the Crocs business.

Okay that's hopeful.

And then, John, the retail growth that you mentioned for 2011, is that unit growth number or should we think about that as square footage growth?

You mentioned a -- majority of the growth to come internationally those are smaller stores, correct?

What we said was we would expand our retail footprint by about 100 new locations next year in three or four different types of formats.

In Asia we'll see more Shop and Shop stores, some outlets this year, and some retail -- full-priced retail in the US.

That we're going to see varied investments, some conversion still, of carts and kiosks into full priced stores.

And then Europe it would be an investment across all three, really, spectrums.

Okay.

Ant then with respect to the backlog, what type of ASP increase did you see in the backlog?

You know Jim, at this time we're still in the middle of our planning session.

And we'll give you guys more color on 2011 on our February call.

But as I did mentioned our strategy is to continue to introduce new products at higher ASP levels.

So over time our strategy is to increase our ASP.

But we will give you more color on that after we finish our planning cycles here on the next call could.

Okay thank you so much.

Thanks Jim.

Will go to Jim Chartier with Monness, Crespi, Hardt & Co..

Good afternoon.

Hi Jim.

My first question, I was wondering if you could just talk a little more about the India strategy?

What you're doing there, will you see a big growth in India in 2011 or is it more 2012?

I think growth, Jim, in the brick countries a little bit more methodically, and India is no exception.

And so our India strategy has really been to take some of our older products -- products that sold well, that fit well into the Asian -- or into the Indian -- excuse me -- footwear marketplace.

And to actually manufacture some of those products, under what we call a Crocs Basics program.

Some of our old core product into that market, at a slightly lower price point and a slightly lower cost point.

That we think that opens up the Indian market a little bit further to Crocs.

I don't take we anticipate in 2011 or 2012 significant or material growth in the Indian markets.

Okay.

Can you give us an idea of what the impact on third-quarter gross margin was from the higher labor costs?

The higher labor costs in terms of -- ?

In China on the manufacturing side.

I think you start to feel the impact in the third-quarter?

We saw nominal impact in third-quarter.

We're going to see more of it in the fourth quarter, as we said about 5% really with the Fall-Winter products being affected by the price increases.

Okay, and then what's a good go-forward tax rate to use?

So on taxes Jim, the go -forward tax rate that we gave you last time going into next year of 25% is a good rate to use.

But for fourth-quarter 15% is a good level to use.

Great, thank you.

You're welcome.

We'll move now to Sam Poser with Sterne Agee.

Good afternoon.

Just a few questions.

With the stores -- with the backlog first of all, you said to -- Jeff asked you about -- you mentioned $42 million will ship in the fourth quarter.

I didn't catch the rest of that, what is the total dollar amount of the backlog?

$262 million.

Alright, say that again?

Two-six-two.

Okay, and so -- break out is about $42 million is Q -- Q4 and then Q1 and Q2?

I'm sorry?

60% of that is scheduled to ship in Q1, roughly 40% to ship in Q2.

Of the balance?

Right.

Correct.

Okay.

And then just on the store opening.

I mean I know you don't give comps because you feels it's a moving target, but what about giving -- being able to give us some square footage and margin and some square footage information to be able to at least sort of gauge productivity, and so on?

As I said, Sam, it really does create a bit of a difficult model.

Because what revenue square footage looks like in the kiosk versus what it looks like in a full-retail store in Boston is just completely different.

And when we've tried to do this in the past, we just feel that the comp-data can be confusing.

I'm not looking for comp-data, I'm looking for just data.

I mean, if we know that you are growing stores and you were doing a $100 in square foot in the stores and you open up five new stores, and all of a sudden you're doing $95 a square foot in the store, it isn't as productive.

It doesn't matter the size or anything is the total square footage to productivity.

And the margin part of it.

I mean, I understand your opening and closing a lot of stores so the comp may not be the best judgment.

But a square footage number would be a gauge for productivity that would be pretty straightforward I would say.

Sam I think that while we are in the strategy that we been explaining of converting carts and kiosks to full-stores, it's a very misleading calculation because you're taking very high square footage comping carts and kiosks and converting.

So I think -- while were in that conversion mode, which a very long-term, we've been at it for two years, it will probably take us another couple year.

It's very misleading to look at that data.

As we said that did the right thing to do is to look at our store growth locations and our revenue which drives the higher-margin on the business, as John mentioned earlier.

While I mean then -- so you're going open 25% store-growth next year.

Does that mean you pick up 25% in revenue next year, on a flat comp.

Or, I mean, how should we be thinking about that?

That seems more like a shot in the dark, than having a square footage number.

I think the store growth that we mentioned and then as we said we're in the middle of our planning cycle right now, so as we come to our February call and we complete our planned cycle we will give you more color on our retail growth.

We want to communicate in the best possible way so that you can understand what's happening in our business.

And what we find is on a consistent methodology or metric we're going to communicate that to you.

Okay, and then one last question -- or a couple last questions.

Included in your backlog you have the vendor manage program going on for Sports Authority.

And then you're selling some other goods to some of the more mass-channel now.

Are those in the backlog or not?

Sports Authority is on a pay-on-hand basis that's not the backlog that's revenue recognized as product is sold.

So backlog is comprised of all of our major orders from our customers throughout the world.

Lastly, you said on the 10-Q you have broken out Classics Core and new on a year-over-year basis, saying that Classics are 10.4% versus 15.7% last year.

Core 17.9% versus 34.7%, and new 31.2% versus 27%.

Maybe I'm not all there but that doesn't add up to a 100.

What's the rest of the sales?

You're missing the rest of the in-line sales, Sam.

That are not Core or Classics.

So that's not new either.

That's not new either?

Not new 2010 product that was introduced Sam.

So, for example the Santa Cruz was not a new product in 2010.

Got you.

Thank you very much.

Good luck.

Thanks Sam.

(Operator Instructions) We'll now go to Reed Anderson with D.A.

Davidson.

Hi Guys.

Hi Reed.

A couple questions.

I'm just going to ask kind of this a retail piece, a little different way, and we can move on if it doesn't work.

If you're looking at where your thinking is today and in positioning the various channels, et cetera.

Does it make sense to think that your retail business, based on what you pointed out, would probably grow may be at or above the overall company's growth?

And might be one of your faster growth channels next year, is that a fair assumption, or can we not make that at this point?

We think so.

There's a combination of factors that are driving the continued investment in retail, and what we think will drive retail growth.

That's why we're doing it.

I mean, we're very bullish on the product collections that we're bringing to market in 2011, are point-of-sale system and merchandise planning system that we worked on and installed in 2010.

Will give us what we think will be greater sales through numbers in 2011.

So yes, we think that we will see, in our own stores, an uplift just based on the enthusiasm for the product that we're able to bring to market next year.

Both in Spring-Summer '11.

As well as Fall-Winter.

We're equally excited about some of the new products that will bring for next year.

That's perfect, that's very helpful.

And then just shifting gears a little bit.

You talk about SKU count has been helpful here too.

But, you've done it in a thoughtful way with collections and et cetera.

Just where are we today John from a SKU count standpoint.

And what does that look like from a growth projector, maybe in to the next?

Just some ball-park thoughts.

Ball-park thoughts on kind of SKU count.

More so probably Reed, think about in terms of styles.

Today we are about a 250 different styles of products.

We do take certain styles and customize them for SMUs that go into different channels.

We are slowly and methodically returned some of the older products that have been in the line.

We have gone to a different methodology when it comes two building some of those products where consumers are still looking for their old favorites.

So, we still want to make those available through our retail stores and online.

But we think we'll see probably 20% growth in styles year-over-year.

Great.

I am curious if you look at your Internet business.

And it continues to grow nicely, as well.

And I'm just curious if -- the more established Internet platforms are also growing, obviously they probably wouldn't be growing at the higher rate.

Or if you're seeing those start to just kind of level off a little bit versus bringing on new platforms et cetera.

I think were really proud of where we are.

And we feel we're ahead of the market for most of the other foot-wear manufacturers today.

We've developed a sophisticated Internet for a digital marketing E-commerce, social marketing, integrated together.

And after all we believe that this is our largest and probably most sophisticated flagship store.

I think our marketing strategy starts to evolve and change a little bit next year as we have now about 2.5 million Crocs customers -- Crocofile in our database.

And were able to integrate those consumers via our Facebook pages.

We have a vitamin C program of brand ambassadors.

We have a fun program going on right now with Zoopa, which is if you go out there and do Zoopa and search for Crocs, there's some really fun advertising that people are doing creating their own advertisements for Crocs.

So, we think that Internet and E-commerce platforms really drives a very strong messaging, branding, marketing for products that is the only revenue-driven today.

Not revenue driven on the E-commerce side itself.

One more.

You know Russ, looking into next year my thought was that we wouldn't see a lot of gross margin moving around -- I mean you're kind of at where you wanted to be.

There's probably niches factors and cost factors that play in there.

But, generally speaking does that make sense -- if we look at year-over-year?

Or are there things I should be thinking about?

I think as we said in the past our long-range next one to three years is in that low-to-mid-50s on our margin.

And then as we get -- finish our planning process here we'll give you more color on that in the February call.

Thanks very much.

Good luck guys.

Thanks Reed.

Thanks Reed.

We'll go now to Steven Martin with Slater Capital Management.

Hi guys.

Congratulations, what a great turnaround.

Thanks Steve.

You mentioned that TSA isn't in the backlog.

How should we consider that business, they were very underripe resented this past year and you were catching up.

Would that business -- would you expect a business be up in mind with the rest of the backlog?

I don't know -- Steve.

That's a hard one for us to call at this point in time.

We both kind of took a step back at the beginning of 2010 with each other.

We've started to re-engage, we put select products in to select stores in 2010.

And it's little bit hard to read the data right now.

Sometimes I think when people don't feel like they can find Crocs in TSA they stop looking for them there.

And so that has a little bit of an impact on where the consumer shops.

So, I think in all of our channels and we talked about this on calls before -- and each channel which is nice for Crocs business, each channel is only 10% to 15% of our overall wholesale business.

And so yes, TSA as an important customer of ours in a relationship that we want to build.

But it's not really impact full to the overall US wholesale business or to our overall business.

Okay in talking about customers, you discussed with us all, the possibility of a Target-like deal or somebody in that channel.

Is there anything further to discuss or is that still in the works?

No.

We actually will provide Target with a Jibbitz branded shoe that will replace similar flip-flop and clogg-type products that they were selling from no-name type of manufactures.

So, it's nice merchandising of a Jibbitz with all of the Jibbitz accessories.

Those shoes will be sold at a lower price point and are not made with our core-Croslite material.

But still have the same softness and durability that we think you get from Crocs products today.

Those will be available in some Target stores started in the first-quarter.

Will that come through as gross margin or is that going to blend down your gross margin?

No.

It should blend at an equal rate.

These are products that are purchased and shipped X- factory in China.

Okay and one last question.

The Croslite too, you started producing with it.

Actually, we will build the products starting in the first part of next year now.

Based on kind of our output use of material.

Okay, because I was going to ask how you were experiencing it, but I guess we'll have to wait until next quarter.

You know there's really no difference to the product.

We've built lots of prototypes and we've worn them and tested them.

And the attributes of the material are equally as good, or they're even better in some cases.

We don't want to protect and we've one of the tested a and the attributes of the material are equally as good or even better in some cases.

Alright, one last one.

Unless I missed it, did you say anything about what you were thinking about what the $140 million in cash?

We didn't say anything but our idea is to build it.

For any particular purpose in mind?

Not at this point in time.

I think when you look at us relative to the other brands in the space, that we weather these ups and downs with the consumer market.

We feel that we would be better positioned to have additional cash.

So, it's really our intention right now just to continue to do the things that were doing with the business and invest in capital as required.

And ultimately discontinued to build cash for a short period of time here.

Thanks a lot guys.

Thanks.

Thanks, Steve.

(Operator Instructions)

We'll take a follow-up question Jeff Klinefelter with Piper Jaffray.

Yes, just a couple of quick follow-ups.

On that pre- book, John, the 60% -- or backlog rather -- the 60% increase going into next year.

Can you give a little color on how that's what's between your major three major geographic region?

Sure, Russ will give that to you.

So, the $260 million that John mentioned it's roughly about $95 million America's and about $45 million Europe and about $125 million in Asia.

And just for -- we can go back and dig this up -- what -- percentage-wise if it's 60% in total, can you give it the rate increase across those three?

Year-over-year?

Sure,so the Americas last year was around $47 million, Europe was about $36 million, in Asia was about $83 million.

I think it's important to note, that this is the first year where we've had the two-book program over the three-book program, so it's apples and apples.

And in that $260 million backlog 42% --

I'm sorry, I missed that last point ,

42% of the backlog is for Spring-Summer '11 (inaudible - background noise) products for Spring-Summer.

And just one last thing on inventory for planning purposes or expectations going forward, would you see running your inventory -- once you adjust for this owned a manufactured in Mexico balancing that facility.

Would you expect inventory to grow in line with -- like -- future sales growth?

Or would you keep it below to your sales growth?

How should we think about that going into next year?

We think it's getting a relative to sales growth jeff.

And our internal target is to continue to turn inventory of 3.5 times or better.

We're working on it and planning for, for 2011.

Okay great.

Thank you.

Thank you.

And we no other questions this time Mr.

McCarvel I'll turn the conference back to you.

Okay, thank you operator.

Well, clearly this has but another good quarter, and we appreciate your support and we look for to talking to you on the next call.

Again, that does conclude our conference for today, we do thank you for joining us.