卡洛馳 (CROX) 2010 Q4 法說會逐字稿

Welcome to the Crocs, Inc., fiscal 2010 fourth 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 given at that time.

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

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

A copy of the press release can be found on the company's web site 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 web site.

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.

This statement concerns 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 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 the Crocs' 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.

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

John McCarvel, Chief Executive Officer of Crocs.

Thank you.

And thank you for joining us on today's call.

With me is Jeff Lasher, our Chief Accounting Officer and Interim Principal Financial Officer.

I'll begin with a brief review of our fourth quarter operating performance, than Jeff will walk you through the financials and our outlook.

Then I'll recap the strategic highlights from 2010 and outline the key points of our 2011 growth strategy.

As you saw from our press release issued earlier today, our fourth quarter sales increased 32% from a year ago to $179 million, which was meaningfully better than what we had projected.

Our top line performance was once again driven primarily by global demand for our new products with several recent style introductions outperforming expectations.

The response to our Fall and holiday collections is very encouraging and speaks to the initial success we are having at evolving Crocs into an all-season brand.

Our fourth quarter profitability improved significantly over a year ago and was also above plan.

The earnings upside was the result of strong sales growth and meaningful expense leverage, partially offset by gross margins that were lower than anticipated due primarily from seasonal factors, but up more than 390 basis points from the fourth quarter of 2009.

Our wholesale business, particularly in Asia, proved to be much stronger in this fourth quarter versus internal projections.

At the same time, our direct-to-consumer channel did experience some softness in December after a strong start to the holidays.

Our overall performance in the fourth quarter demonstrates the progress we have made generating year-round excitement and demand for the brand, while also improving our operating platform.

In one of our seasonally slowest periods, we drove double-digit sales gains in all channels across all regions while returning the Company to fourth quarter profitability for the first time in three years.

This was a rewarding way to close out a productive year for the Company, and sets us up nicely with solid momentum as we transition into 2011.

Jeff will now review our fourth quarter and 2010 financial results and our outlook for the first quarter of 2011 in more detail.

Jeff?

Thank you, John.

Hello, everyone, and thanks for joining us.

Today I will be discussing both Q4 and full-year results for 2010.

Revenue for the quarter increased by $43 million or 32% to $179 million, which exceeded our guidance of $165 million.

Full-year 2010 revenue increased 22% over 2009 to $790 million.

We saw sales increase of over 25% in all three of our channels during the fourth quarter.

In wholesale, revenue increased 27% to $98 million, as we saw broad acceptance of key new styles and collections.

Our year end pre-books of $258 million are strong and represent a 57% increase over the prior year end.

Average selling prices in our backlog appear strong and are in line with our expectation at over $16.50 per unit.

For the full year, wholesale sales increased 19% to $482 million.

Retail sales for Q4 increased 36% to $60 million.

We ended the year with 378 company-owned retail locations globally which is up from 317 at the end of 2009.

Broken down into store type, we had 138 full-priced stores; 88 store-in-stores; 76 factory-direct stores or outlets; and 76 kiosks as of December 31, 2010.

As expected, this represents a decrease in kiosks from last year and an increase for all other store types.

For the year, retail sales increased 29% to $233 million.

We expect to increase retail stores in 2011 with plans to add 25 to 35 stores in Americas, 20 to 30 stores in both Europe and Asia.

Global internet sales increased 44% in the fourth quarter to $22 million.

During 2010, internet sales increased 24% to $75 million.

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

Accordingly, these channels are an essential part of our strategy going forward as they provide guaranteed direct access to the end consumer.

All of our three geographic regions saw strong revenue growth in Q4.

Sales in the Americas increased 36% to $94 million.

Asia increased 24% to $62 million, and Europe increased 37% to $22 million.

For the year, sales in the Americas increased 25% to $377 million.

Asia increased 20% to $285 million.

And Europe increased 20% to $128 million.

In our largest region, Americas, we saw strong Q4 revenue increase in all three channels.

In addition to the improving wholesale outlook in the Americas, we continue to see healthy growth from our consumer direct channels which represent 56% of total Q4 Americas segment sales.

Overall store comps were positive in the low single digits.

In the US we had same-store sales of 1%.

Within this our outlet stores were very strong with over 10% same-store sales growth.

Our full-price stores were relatively flat, and as we expected, our kiosk same-store sales were impacted by new store locations in the same malls and a constrained ability to merchandise our products.

Sales from our Asia segment were strong across all channels, demonstrating the strength in this market.

As an example, Japan grew over 40% in the fourth quarter and China grew over 35% for the same period.

We saw strong Q4 retail sales growth in Asia, up 47%, as all of our direct market focus on retail store opportunities.

Europe sales growth was bolstered by better than expected sell-through and an opening of additional store locations driving a consolidated direct channel improvement of over 75% in Q4.

Europe in particular benefited from our expanded boot lineup in 2010 with new products accounting for 40% of total unit sales in fourth quarter.

A few more notes.

Footwear unit sales were $9.3 million during the fourth quarter, bringing total global footwear sales to 42.6 million pairs for the full year 2010.

Our new products globally represented 31% of our Q4 '10 unit sales.

Total boot sales globally doubled in 2010 and we look for continued success in 2011 from boots and the rest of our strong Fall product line.

Core products represented 18% of our unit sales in Q4, and sales of our classics represented 9% in the same period.

These trends continue to indicate the consumer preference for both our new product portfolio as well as lasting support for our core and classic products.

Our average selling price in 2010 rose to $17.69 from $16.60 in 2009.

Finally, our kids portfolio expanded from 23% of revenue to 25% in 2010.

Gross profit for the fourth quarter of 2010 was $86 million, up from $60 million in the fourth quarter of 2009.

Gross margin was 48.2 in Q4 2010, versus 44.3% in Q4 2009.

Traditionally our Q4 results are impacted by seasonally lower standard margins on Fall-Winter product and unit volume deleveraging our supply chain.

This year we saw some additional discounting in retail and some closeout sales in wholesale that had an impact on our margins.

For the full year, gross profit increased to $424 million in 2010, up from $301 million in 2009.

Gross margin was 54% in 2010 versus 47% in 2009.

We expect similar gross margins in 2011, and Q1 margins should be 53% to 54%.

Our ASPs from our product expansions should improve in 2011.

However, that improvement is offset by higher product costs for increased content products, increases in commodity costs, and increases in manufacturing costs.

Fourth quarter 2010 SG&A increased 12% to $81 million, compared to $72 million in Q4 2009.

Our direct channel SG&A grew in line with revenue as we saw rent-related costs, salaries, and wages, and store selling costs increase.

Our nondirect channel SG&A was slightly down for the quarter as we had lower stock comp expense, partially offset by marketing expense.

We look forward to continued leverage of our SG&A spending in wholesale.

Compared to 2009, fiscal year 2010 SG&A increased 9% to $339 million.

As a percentage of sales, SG&A for fiscal 2010 declined to 43% of revenue from 48% in the prior year.

Included in our SG&A was $35 million and $125 million of retail-related costs for Q4 and the full-year respectively.

These costs include salary, rent, occupancy costs, and other retail-related costs.

As we look into 2011, our cost management initiatives will be focused on driving productivity in our retail group, back office efficiency, and revenue expansion on our existing cost infrastructure.

The fourth quarter 2010 yielded an operating profit of $6 million versus an operating loss of $13 million in the fourth quarter of 2009.

As reported earlier today, net income for the fourth quarter of 2010 improved to $5 million $0.05 per diluted share on 89 million shares with an effective tax rate of 16%, compared to a net loss of $11 million or $0.13 per share in the fourth quarter, 2009.

We reported net income of $68 million in full-year 2010 compared to a net loss of $42 million in full-year 2009.

For 2010, we were profitable in all four quarters for the first time since 2007.

Net income per diluted share for 2010 was $0.76 per share compared to a net loss of $0.49 per share for fiscal year 2009.

We executed strong asset management that resulted in a strengthening of our balance sheet.

We ended the year with $146 million in cash, a 90% improvement from 2009 levels of $77 million.

Cash generated from operations before investments was $105 million in 2010.

As of December 31, 2010, our accounts receivable balance was $64 million.

Our total inventory balance decreased sequentially on a quarterly basis by 15% to end the year at $121 million.

In line with the 32% increase in year-over-year fourth-quarter sales and in support of the 57% increase in year-end backlog.

Inventory grew 30% on a fiscal year-over-year basis.

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 assets net of asset sales for 2010, was $43 million.

We currently expect 2011 capital expenditures to be in the range of $30 million to $40 million.

Turning to guidance, we expect to generate approximately $215 million in revenue during the first quarter of 2010.

An expected diluted EPS of approximately $0.19.

This guidance assumes a 27% tax rate which is our expected full-year tax rate and an estimated diluted shares of $91 million, reflecting the strengthening of our stock price.

As a reminder, our business has been historically been weighted more heavily toward Spring-Summer from a seasonality perspective.

Now I'd pass it back to John for closing comments.

Thanks, Jeff.

This past year was a success for us from a number of standpoints.

After stabilizing the business in 2009, we began 2010 with a solid foundation and the strength of financial resources to once again confidently pursue our growth strategies.

This past year, we reengaged the consumer through new products that combined the brand's original DNA with innovative new product designs.

The results were more appealing footwear collections that created renewed interest amongst existing consumers and brought new consumers to our brand.

We supported these product initiatives with new marketing strategies designed to broaden the awareness of the brand and re-create the fun emotional connection we have with our consumers.

These marketing initiatives included a sizable investment in television, print, and outdoor advertising, for our Feel the Love campaign in the United States and Europe.

The impact of our efforts could be witnessed across all three distribution channels, and our global markets where the brand momentum has been steadily building.

Our sell-through performance at wholesale in 2010 helped strengthen retailer confidence in Crocs and has fueled the acceleration in our backlog in 2011 through the past few quarters.

We experienced similar results in our consumer direct channels where our growing portfolio of company-owned retail stores and e-commerce sites provides us with the ideal platform to showcase the breadth and depth of our product line.

And each of our regions, Asia, the Americas, and Europe posted solid top line gains in all channels.

2010 was also about strengthening the company's infrastructure to ensure we have the ability to meet future demand.

For a company of our size and global reach, we require new and better systems to manage our business and to address the inefficiencies that affect our inability to grow.

We also upgraded the production capabilities of our in-house manufacturing.

Our facility in Mexico provides us with speed-to-market advantages in the United States and a more cost-effective way to grow our business in the rest of the Americas, namely Brazil.

After turning a corner in 2010, we believe the pieces are in place to profitably grow this business in 2011 and beyond.

The strategies that drove our recent resurgence are straightforward and will continue to serve as a blueprint for our future.

First and foremost, developing great products that further distinguish Crocs as a leader in fun, comfortable, and casual footwear.

Consumers have only recently begun to see the influences of the world-class design team that we have assembled here at Crocs.

In 2011, their impact is much more evident and can be seen in new, compelling collections such as our translucent sneakers, toning, and Winter boots.

We are optimistic that the strength of our new Spring, Summer, and Fall lines will lead to additional market share gains and further establish Crocs as a year-round brand at retail and in the minds of our consumers.

Next, connecting directly with consumers on a more individual and personal level, we refined our marketing strategies and will be redirecting much of our 2010 marketing spin toward visual merchandising programs in stores and with our wholesale partners, on our website as well as more social media, digital, and viral marketing.

We continue to expand our company-owned retail location.

As we have discussed, our stores do a great job of telling the entire Crocs story.

That's an environment where we can control product flow and directly engage with the consumer.

The majority of our new store openings will be overseas in Europe and Asia, while in the US we continue to invest in the right locations and execute our kiosks-to-store conversion strategies.

On the wholesale side, in the US, you will see the Crocs brand in some new accounts this year, mostly smaller independents.

However, our focus is primarily on growing within our existing network of sporting good chains, specialty retailers, department stores, and family footwear.

Now that we have the product portfolio to segment by channel, we believe we can service a more diverse channel strategy.

Finally, the international markets are poised for another strong performance this coming year.

With over 60% of revenues coming from outside the US and the presence in 129 countries, Crocs is truly a global company.

With that said, we still view the world markets as opportunities for meaningful expansion of our business.

We have a great deal of confidence in the future of this Company and in this brand.

We've only been selling shoes for a little over six years, so we've really just started.

We have the capability to grow this business for many years to come.

All the growth vehicles we need are in place, and the management team to leverage them is here.

We're a special Company that has unique opportunities.

Finally, as always, I'd like to thank you, our employees and our partners and our shareholders around the world, for your continued support.

With that, I'd like to open the call to questions.

Thank you.

The question-and-answer session will be conducted electronically.

We'll pause for a moment to give everyone an opportunity to signal for questions.

Our first question will come from Jim Duffy with Stifel Nicolaus.

Thank you.

Hello, everyone, and congratulations on your progress in 2010.

Jeff, a question for you with respect to the first-quarter guidance.

Can you help us with margin direction to get to that $0.19 in earnings?

So in the prepared script, Jim, we said that we expect Q1 margins to be 53% to 54%.

Okay.

Sorry, I missed that.

I may have missed this, as well.

Was there any commentary around the -- your order book as you look into the back-to-school season and holiday next year as you pre-line products with retailers?

We did not discuss that.

At this point, we are happy with the progress that we're making.

It's a little bit too early to bring those numbers out as we are in the process of finalizing our pre-books for the second half of 2011.

Yes.

Jim, our order book process for really the Fall, back-to-school timeframe is really 2/25, so we won't start to see those final numbers for about another week yet.

Okay.

Very good.

And then the final thing, you did a great job exiting the year clean on inventories.

Are you doing anything different from an inventory management standpoint?

John, I think I heard you mention clearing some inventories on the wholesale business.

Are you working with any new channel partners in that respect?

We did.

And I think you see a slight impact to margins, about 1.2% of the margin degradation from what we had thought the fourth quarter would be to what the actuals -- where it came from that inventory clearing.

I think, Jim, you know, the big difference for us as we head into 2011 comes from the fact that such a large portion of our wholesale business is already pre-booked and a portion of our Q2 business for wholesale is also pre-booked.

The amount of auto replenishment business that we're required to support or that we're planning to support, will be less or lower from an inventory standpoint than it has in the past as we continue to evolve and change our business model here.

Okay, that's very helpful.

I'll let someone else jump in and perhaps jump back in the queue.

Thank you.

We'll take our next question from Jeff Klinefelter with Piper Jaffray.

Thank you.

Congratulations, everyone, strong finish to the year.

A couple things more generally first.

John, on thinking about manufacturing capacity.

I know you have your Mexican-owned facility,but factoring in your Chinese manufacturing and then some other third party that you have globally, as you ramp up next year again, at least what we're forecasting to be pretty substantial growth in dollars and units, what sort of capacity potential do you have at this point or flexibility with your -- both your owned capacity and then your third-party capacity?

And then the other would just be any insights into seasonality.

I'm thinking about your peak of Q2 and Q3.

At least your historic peak of Q2, Q3, and any color that you want to provide on Asia versus Europe versus North America for modeling purposes.

I think, Jeff, what we'll do is we'll break it into two questions.

Let me talk a little about the capacity piece.

Jeff will talk a little about the seasonality question that you asked.

On our internal capacity today, we have about 10 million pairs between our operations in Italy and Mexico that we can build to.

And there's really not a capital plan for us to expand that capacity much further.

We're comfortable with the amount of product that we build internally.

Our flexibility with our key partners in China allows us to build this year somewhere between 55 and 60 million pairs if required, if desired.

So we think we have good flexibility on the upside this year as we go through the year.

On the seasonality piece, maybe I'll let Jeff answer that question.

Yes, Jeff, from a seasonality perspective, we have seen an improvement from 2009 to 2010 as evidenced in our stronger than average growth rate for Q4.

So we're pretty happy with the curve flattening out over the course of the year.

Obviously part of that also has to do with our pre-book strategy as we have really grown our pre-books at a very healthy rate.

That will also help us on the seasonality curve to maximize our sales throughout the year.

And separately, we are focused, a lot of our management time, on the Southern Hemisphere and warmer markets -- Brazil, India, Southeast Asia, where we are focused on growing our products and our supply chain and our distribution throughout those markets to help with the seasonality that you discussed.

Okay.

Just maybe one other clarification on that.

In terms of the core Europe, Asia, US, trying to get a better feel for where we're going to see the strongest growth in each of those markets.

Europe being more still wholesale; Asia being more direct, retail direct.

The US being a pretty healthy balance of the two.

Will we see the strongest growth in Europe maybe Q2, whereas we'll see the stronger growth in Asia, Q3?

Is there any consideration between the two quarters?

When we talk about growth, we're talking about in dollars, Jeff?Or in percentage --

Yes --

Dollars?

In percentages.

I think in pure dollar growth, just because of the size of both the Americas market and the Asian markets, your dollar growth is going to -- I think, going to continue to be what they have been.

I think the US market is gaining -- we're gaining a larger presence especially on the wholesale side of the business as we put a lot of time and effort, over two years, to rebuild relationships there, and as we said, more marketing dollars this year to support our wholesale partners here.

I think as a percentage basis because Europe did drop so low a year ago in 2009, I think the opportunity to grow from a percentage standpoint as we've now started to reopen those direct markets will be a higher percentage.

Okay.

That's helpful.

And then, Jim, just as a reminder, since we're dealing with the bookings number, you know, the booking visibility is very strong for Q1 because a majority of that revenue is booked, is pre-booked.

Q2, can you compare and contrast the pre-book percent of total that's sort of expected between Q1 and Q2 to help with some modeling thoughts?

Sure, Jeff.

It looks like right now that about 55% of our pre-books that we ended December 31, 2010 with will be shipped in Q1.

About 35% will ship in Q2, and the balance of that will ship out in the second half of 2010.

Or '11, sorry.

Okay, great.

That's very helpful.

Just one last thing here.

You said that your units last year came at an average of $16.50.

I believe that's what you said, Jeff.

I'm sorry, your bookings are sitting at about $16.50 in terms of AUR.

Last year you ended up at $17.69, terms out-the-door wholesale pricing.

Is that correct?

And could you provide some thoughts on the difference, on the delta between those?

Yes.

The $16.50 is our wholesale pre-book ASP.

The $17.69 is our blended ASP including retail, internet and wholesale for the year.

Okay.

So the $16.50 on a net -- on an apples-to-apples basis, that would be up --

So Jeff, maybe let me give you that number.

So we end 2010, our wholesale ASPs would be at about $14.67.

Okay.

Great.

For 2010.

Great.

Thank you.

Thank you very much.

We'll take our next question from Jim Chartier with Monness, Crespi, and Hardt.

Good afternoon.

Congratulations on another good quarter.

Just to clarify a previous question, what percentage of your backlog do you expect to ship in first quarter?

And is that different than the pre-book?

So what we said was the backlog on 12-31-2010 of $260 million, about 55% of that would ship in Q1.

The difference in this particular case between pre-book and backlog, pre-books are not -- are included in the $260 million but not the entire amount of the $260 million.

The $260 million does have -- add once orders that have yet to ship, as well.

So it's all of our order bank if you will.

Would you expect more than 55% of the backlog to be shipped in first quarter?

No.

The 55% number represents the delivery date as promised on 12-31.

So we expect that that amount or about $150 million will ship in Q1 with about 35% of the 12-31 backlog shipping in Q2.

Okay.

And then you mentioned some softness in the direct-to-consumer business in December.

Was that just weather related, and have you seen any improvement there in first quarter to date?

We think it is.

I mean, we -- I think you've seen with the number of the brands experiencing the same situation in December through Black Friday, through Cyber-Monday, I think we were significantly ahead of our plan and where we thought we would be.

December just became a difficult month, not only in the US but in the European markets.

Also they were also hit with severe weather that seemed to inhibit behavior.

And I think a number of brands decided to discount more than what we had originally thought we would see in the fourth quarter, in the December timeframe.

And we felt that was the right thing to do for us also, Jim.

To not carry that excess inventory for Fall-Winter products into 2011.

So we took a little more aggressive approach to pricing in December.

As far as the carryover into the first six weeks of 2011, I think we've seen that rebound for us in a number of markets.

We do not have a significant amount of our Spring-Summer '11 product into retail stores yet.

It's just going into our retail stores in the first half of February, so we don't have a good read on how much of the sell-through impact is because of new products yet.

But we're also bullish about what we think new products can mean to us in 2011.

And then for a large portion of last year, your own retail stores seemed to be a little starved for inventory.

So how is the inventory position in fourth quarter, and how is it for first quarter?

It's a good problem to have, I think, when we see the demand that we have with products.

At times some of our fast-selling products, we have had gaps in inventory availability at some of our own retail stores.

As we've said earlier in the presentation, we made investments toward better planning systems for retail for 2011.

We're going to continue to invest in additional systems and capabilities to plan and merchandise in our own retail stores.

And we're tightening up the line a little bit when it comes to what we are offering in the retail.

We're going to be a little bit tighter and a little bit deeper for 2011 than as broad as we were in many of our stores in 2010.

Great.

Thank you.

Thanks, Jim.

Our next question comes from Jessica Bourne with Sterne Agee.

Hello, it's Sam Poser.

Sorry.

Just a quick question, John.

Have you -- we spoke before you said you were delivering about, call it 20% of the goods for Spring, probably already shipped and delivered.

Is that about right?

That's correct, Sam.

So most of our customers will take product 2/15 and 3/15.

But you're right, up until 2/15 maybe only 20% of our customers have taken new Spring-Summer products.

And that would be more southern tiers -- retailers, I would assume?

Generally, yes.

Have you seen any read out of that little bit of delivery in the southern tier, so you have so much new product coming in.

I don't, Sam, today.

And even in our own retail stores in those southern markets in Florida and in the southeast, we don't have a read yet in the first seven to 10 days yet on kind of what the sell-through is.

And so I guess I'll ask a forward question.

On the Q1 call which, we're pretty far into the quarter already, when we get to the Q1 call, is that a point where you're going to be able to have a better lookout for the balance of the year once you've seen some selling and so on and so forth?

I don't know if I'd say for the year.

We're definitely going to have a much better read when we do the Q1 earnings call on what the sell-through of the new product is.

What we think reorder points are going to be.

That should take us through the summer months.

But as far as back to school and our Fall-Winter line of products, I'm not sure by April we'll have a strong read on that.

We will have our pre-books in for products, but we'll have to wait and see when we get there.

And coming out of outdoor retail or the New York Shoe Show and platform, I mean, how -- what did you learn, I guess, from those -- from the various trade shows of late and consumer response?

You know, retailers' response, excuse me.

I think two things and the sales in Q4 of 2010 also add substance, to our belief that we do have a product offering that resonates with consumers in a close toed environment and that we can participate in the boot marketplace, the Winter marketplace, with certain types of products.

Obviously we're not going to be at the high end competing with the likes of an Uggs, but we clearly can resonate with consumers with rain boots and some fun products in the boot space at the right price points for our brand.

And just one last question.

You probably already talked about this, but I hopped on late.

When you look at the gross margin for Q1 and how you're thinking about it for the year, I got the impression that the -- are you still looking in mid-50s?

Is that sort of the way you're thinking about it overall?

Sam, what we said was in Q1 we expected that the gross margin would be 53% to 54%, and, at this point we think Q1 gross margins will be about the same as what we saw in -- I'm sorry, 2011 gross margins will be about the same as what we saw in 2010 as our expanding product line and potentially higher ASPs will be offset by increased manufacturing costs, higher content in our products, and other supply chain costs that will be incorporated into our gross margin.

And we would assume, though -- and what is your forecast I guess -- again, this is a Q2 question, I'm sorry.

What is your forecast for the percent of at-once business looking for the first half of the year right now?

Because I would assume your at-once business runs a higher gross margin than your futures business.

Well, for the first quarter we are where we are.

As we had talked about before, our pre-book business really with our wholesale customers consumes most of that at-once capacity.

Yes, we do have some inventory that is available for at-once sales.

But it will change.

When we go into Q2, then, you know, we see a much larger portion of our revenue come from sell-through and at-once business.

And I think as Jeff talked earlier, you know, right now in our wholesale business, about 35% of our backlog will ship for Q2 orders for second and third drops to meet your wholesale accounts.

So clearly there's much greater risk in the upside at wholesale in Q2 based on what the consumers' opinion is going to be of our new product offerings.

But from a gross margin perspective when you're doing futures, I assume you give discounts.

And when you're doing at-once, those are -- those should be higher margin orders.Theoretically, your margins, if it works, should be higher in the second and fourth quarters than they would be in the first and third just because of the mix of futures to at once?

Yes.

A little bit.

You do have that dynamic.

The other side of that is our co-op dollars around marketing and spending through the summer periods, as those products are being merchandised, is going to be a little bit higher.

So you're trading a little bit of that margin back into higher marketing spend in conjunction with the seasonality.

All right.

So thank you very much.

Continued success.

We'll move on to Stephen Martin with Slater Capital.

Hi, guys.

Great quarter.

John, you recently -- you talked about marketing spend for '11, and you recently made comments about you didn't expect marketing spend in '11 to exceed '10.

It would just redistributed, which I guess you commented on.

Is that still a true statement?

Yes, that's our plan today.

So in worst case scenario, marketing spend is flat, and maybe a little better?

I would think so.

I would think that we don't have the major dollar spends around media, media-buy television, but as we redistribute those dollars, I think we can get more in the marketing area to build the brand and to be able to showcase the wide portfolio of products that we have in more cost-effective ways.

But I think as you said, worst case scenario, we would spend about the same amount in marketing in 2010 as we do in 2011.

Great.

And Jeff, in -- from an SG&A standpoint, leaving out the " S," what is the G&A look like, corporate and otherwise for '11?

So we don't really -- we don't typically break out the S from the G&A.

However we would break out the corporate spend and give a little bit of clarity to that that we do expect our corporate spend to be flat or certainly up much less than our revenue in total for 2011 as we go out.

We did say in the prepared remarks that we are looking for opportunities to leverage our indirect SG&A in 2011 through efficiencies, increased cost control on the corporate and region expenses.

Okay.

Let me add just a little bit more color to this so all of you have a perspective of what we see internally.

In 2009, our SG&A spend, not including retail, was around $210 million.

And in 2010, that same group, excluding retail, is about $200 million.

So we had a reduction in real dollars in SG&A year-over-year, and a 7% increase -- decrease, improvement in SG&A.

And so, as Jeff said, we're going to continue to focus on the opportunities that we have there.

Leverage the investments that we're making in systems, and try to control that SG&A spend appropriately.

Okay.

One last one.

What are you seeing as you're signing leases for new stores this year?

How do they look, and what do the pro formas look like in those stores?

We haven't seen quite the opportunistic availability of stores that we saw this time last year or in 2009 where we really saw some great deals.

We're seeing some opportunities that we're going after and chasing.

We are selective about mall locations.

We're selective about location within the mall.

So we often are not quite the first to take the available space.

And we're pretty happy with where the rents are in the US market and how we've been able to capitalize on the weakness in that market.

However, as you look outside of the US, the opportunities have not been as awesome as they were in 2009.

With that said, I think that's just kind of the market realities, and we are finding some good stores throughout the world.

And we are opportunistically entering into those marketplaces.

Thanks a lot, guys.

We have a followup question from Jim Chartier.

Your internet business accelerated pretty nicely in fourth quarter.

I was wondering if you could tell us what the drivers were, and if you see this as an inflection point for that business?

Jim, we've talked through our investments with demand ware and the platform that we have rolled out with them globally.

I think we're starting to see the benefit of that investment with a much better focus in 2010 with our digital marketing group, with our social marketing group, especially in Europe and the United States.

And we think that that starts to resonate with the right consumers to drive that kind of internet behavior.

And I think also we're benefiting a little bit with the bad weather in December with the uptick in business there, in both markets.

Just because people weren't going out as much to shop.

But I think we have a great digital marketing, social marketing, and e-commerce group here.

And I think you can see the benefits of the hard work that they've done.

Great.

Thanks.

We have no further questions at this time.

I'd like to turn the conference back over to Mr.

McCarvel for any additional or closing remarks.

Thank you very much for listening with us today.

And we look forward to talking to you again in April.

Thanks.

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

Thank you for your participation.