卡洛馳 (CROX) 2011 Q1 法說會逐字稿

Welcome to the Crocs Incorporated Fiscal 2011 First 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 first quarter 2011 financial results.

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

The Company would like to remind everyone that some of the information provided on this call will be forward-looking and accordingly are subject to the Safe Harbor Provisions of the federal securities laws.

Those 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 2010 annual report on Form 10-K filed on February 25th, 2011 with the Securities and Exchange Commission.

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

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

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

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

And now at this time I would like to turn the conference over to Mr.

John McCarvel, Chief Executive Officer of Crocs.

Please go ahead, sir.

Thank you.

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

Before I begin with comments, I am pleased to announce that Jeff Lasher has been appointed Crocs' new Chief Financial Officer and he is with me again on the call today.

After an exhaustive search and lengthy interview process Jeff emerged as the most qualified candidate to fill this critical role.

Our business continues to expand in both size and complexity and I am very confident that Jeff's financial expertise, deep understanding of our global multi-channel business will serve us well into the future.

Now, to our results.

We are very pleased with our first quarter performance, which was highlighted by record revenues and earnings that were significantly better than a year ago.

The momentum that we created during the past 12 to 18 months with our compelling new products and effective marketing programs has carried over into 2011 and is driving important market share gains in the Americas, Europe and Asia, which were up 35%, 42% and 33% respectively in Q1.

Last year the spring 2010 season started off well with the launch of the Crocband Collection and we followed up with other new collections and products throughout the year that built on the aspects of the brand's original DNA.

Crocs continues to evolve from an iconic product to a lifestyle brand that appeals to a wider audience of consumers today.

This year for spring 2011 we launched fresh new ideas and collections like our translucents and our own take on sneakers and toning.

Our backlog at year-end and at March 31st underscored the confidence retailers have in Crocs and they are now being rewarded as early sell through rates in Q1 have been solid.

Where many companies today aspire to be global and grow their international presence, we continue to execute our plan on an already global business platform.

Our non-domestic U.S.

international revenue was 65% of total revenue for Q1.

In the Americas we experience solid growth across our diverse customer base of department stores, sporting goods, specialty retailers, independent shops and family footwear chains.

Shoppers are being presented with a much broader assortment of products than a year ago and in a much more appealing environment thanks to our investments in new visual merchandising and point of sales fixtures.

With a significant number of new, different styles spread across multiple collections, we now have the ability to segment our product within our distribution network.

This has created scarcity for select new products, something we weren't doing a couple of years ago, which I believe is good for the long-term health of our business.

In the first quarter we also launched our newest footwear collection, Jibbitz by Crocs.

We rolled out Jibbitz by Crocs initially in 550 doors that are now sold in many target locations.

The initial consumer response has been very encouraging.

We are currently in the process of increasing style count for fall holiday '11 and for spring/summer '12 for the comfortable, fun and affordable line of footwear.

The strength of the spring line is also driving growth in our retail locations throughout the United States.

Our translucent sneakers, sandals and core croc styles are all selling well, while the reaction to toning products has been mixed in the U.S.

As we discussed on last year's Q1 call, when we had delayed the launch of our new products into our direct-to-consumer channel, this year we transitioned our retail stores to the new spring/summer 2011 line earlier in the season.

This has provided a lift in revenue growth and our customers have reacted favorably.

We are seeing similar results in Europe with the exception of toning, which has been well received in several markets.

I was recently in Europe visiting with our retail team in stores and wholesale accounts and the toning market is clearly more active than in the U.S.

today.

We continue to diversify our product offering in the European market and are very pleased with the initial sell in of our new products in Q1.

The results of our work are evident in the 42% growth we posted in Europe from last year.

While we're still focused on growing the wholesale channel, we are also pushing ahead with expansion of our direct-to-consumer strategy in the European region.

In Asia, where consumer adoption of new products has historically been faster than the U.S.

and Europe, we had another very good quarter.

However, it could have been stronger had some shipments to Japan not been delayed and pushed into the second quarter.

China was once again our fastest growing market in the region fueled by new products, new retail stores and new wholesale accounts.

Japan, our second largest market behind the U.S.

and one of our oldest, was up significantly year-over-year.

More wholesale accounts pre booked product for Q1 delivery than ever before.

I recently spent a week in Shanghai and Tokyo and met with two of our largest wholesale partners in Tokyo.

Each of them have over 100 retail stores in Japan.

Like them, we have a pretty significant presence throughout the country which, made with the tragic events of March 11th even more personal.

Thankfully all of our employees and their families survived.

We did lose one store, an outlet in Sendai while two others are temporarily closed due to damages and power outages.

Beyond the loss of those retail sales, it's hard to quantify the impact of the earthquake and Tsunami and what it will have on the market for 2011.

At this point we have not experienced any significant order cancellations.

The potential impact will more likely be felt in the level of replenishment orders in Q2 and Q3.

Crocs Japan has contributed time, money and 100,000 pairs of shoes to those affected in Japan.

Product isn't the only thing that's driving our improved results.

This has been a collective effort of our entire Company.

Our refined marketing, visual merchandising and brand building programs, which include more social and mobile strategies and new in-store merchandising, is creating a stronger connection with new consumers, while generating increased demand.

We continue to focus on internal programs to streamline our business globally and for SG&A for Q1 was for 40%.

Jeff will now review the financials, outline our guidance for the second quarter and then we'll be happy to take questions.

Thank you, John.

Hello, everyone, and thanks for joining us.

Today I'll be discussing Q1 results for 2011.

Revenue for the quarter increased by $60 million, or 36%, to $227 million, which exceeded our guidance of $215 million.

We saw sales increase in all three of our channels during the first quarter.

In wholesale revenue increased 37% to $165 million, as we saw broad acceptance of our key new styles and collections.

We ended the quarter with a backlog of $260 million, which represents a 27% increase over last year's backlog of $ 204 million and a slight increase from year-end.

Average selling prices in our backlog appear strong and they are in line with our expectation at over $16.50 per unit compared to first quarter average selling price in our wholesale channel of $15.45.

Retail sales for Q1 increased 32% to $45 million.

All three regions showed strong year-over-year growth.

We ended the quarter with 371 company owned retail locations globally, which is down slightly from 378 at the end of 2010.

We ended the quarter with 135 full-price stores, 90 store-in-stores, 80 factory direct stores or outlets and 66 kiosks.

In the quarter we closed 12 kiosks in North America but opened three stores and one outlet.

In Asia we opened five locations.

In Europe we opened two locations for the second quarter we plan on opening approximately 35 stores globally and an additional 50 to 70 stores by year-end.

While the store count was down on a sequential basis from year-end, compared to the first quarter in 2010 location count was up 11% from 333 to 371.

Retail sales increased in all regions as our average revenue per store grew by 18% through a combination of larger locations, product breadth and higher prices.

Internet sales increased 36% in the first quarter to $17 million.

We continue to view Internet sales as an essential part of our growth strategy, as it provides guaranteed direct access to our end customers.

Each of our three geographic regions saw strong revenue growth in Q1.

Sales in the Americas increased 35% to $100 million.

Asia increased 33% to $73 million and Europe increased 43% to $54 million.

In our largest region, Americas, we saw strong Q1 revenue increases in all three channels.

Retail sales in the Americas region increased 32%, while store count at the end of the quarter was only up 3% from prior year.

Sales from wholesale grew 40% for the quarter.

In the U.S.A.

revenue was up 33% and for the quarter represented 35% of total global sales.

Sales from our Asia segment were strong across all channels and up 33% overall.

As John mentioned, the devastation in Japan resulted in the temporary closure of three retail locations and the delay of delivery for some product.

We anticipate that most of the first quarter deliveries will roll into Q2 but there may be some impact on full-year sales pending the extent consumer demand returns later in the spring.

Following the Japan natural disaster, we donated a large amount of product to the region.

The impact of that donation was about $700,000 in the quarter, or approximately $0.01 per share.

Europe sales growth of 43% versus prior year was driven by stronger wholesale demand and the doubling of our Internet volume in the region.

We now operate our Europe Internet sites in eight languages and reach 25 countries.

Global footwear unit sales were 12.6 million during the first quarter, which compares to 9.8 million during Q1 of last year.

Our new products globally represented a third of our Q1 2011 unit sales.

Average selling price in Q1 was up 6% for the quarter.

Adjusted for changes in channel mix and geography, ASP was up 9%, representing a combination of higher content new products, favorable currency movements in efforts to raise prices.

For the quarter we saw Americas and Europe wholesale revenue grow faster in the quarter than overall revenue.

Gross profit for the first quarter of 2011 was $119 million, up from $87 million in the first quarter of 2010.

Gross margin was 53% in Q1 versus 52% in prior year.

This is the result of average product cost increasing about 6% more than offset by pricing, product mix and increased leverage in our supply chain costs.

First quarter of 2011 SG&A increased 18% to $91 million compared to $77 million in Q1 2010 or about 40% of revenue.

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

The first quarter 2011 yielded an operating profit of $28 million versus $9 million last year.

As reported earlier today, net income for the first quarter of 2011 improved to $21.5 million or $0.24 per diluted share on 90.3 million shares with an effective tax rate of 23% compared to $6 million or $0.07 per share in the first quarter of 2010.

We ended the first quarter with $115 million in cash, a 115% improvement from 2010 levels of $54 million.

Our accounts receivable balance was $123 million or 49 days sales outstanding, down from 53 days in the same period in 2010.

We ended the quarter with inventory of $154 million.

Our inventory increase from 2010 is broken down as follows; about $6 million of the $47 million increase is in direct support of our increased store count in larger location stores compared to last year.

Our average cost per pair was up 6% driven by slightly higher product costs and changes in product mix, which increased our inventory value by $16 million and the remaining increase is in unit count, which is up about 25% and in line with our backlog for the quarter compared to the same period last year.

We expect that our inventory will decline in the second quarter approximately 8% to 10% as we sell through our spring and early summer season.

For the second quarter of 2011 we expect to generate approximately $280 million in revenue and expect a diluted EPS of approximately $0.43.

With that, operator, we are now ready to take questions.

(Operator Instructions).

And we'll take our first question today from Jim Duffy at Stifel Nicolaus.

A couple of questions, first on the backlog is it fair to say that the transition to a greater pre-book model is now complete or now in an apples to apples situation with the backlog?

Jim, I think that that's probably directionally fair to say.

I am not sure we've reached a level of status quo where we won't see a growth in pre-books greater than our overall revenue growth in 2012.

I think that's a little too premature to say.

When we do look at our pre-books, the $260 million, about half of that is going to be delivered in the second quarter.

The other half will be delivered in Q3 and Q4 so we can already start to see the fall holiday 2011 results with $130 million already in the back half of the year for backlog it looks pretty strong.

Jeff, is there a way to isolate the fall holiday backlog growth on a year-to-year basis?

The $130 million of backlog for delivery in Q3 and Q4 predominantly is fall holiday product.

Those would be deliveries starting July 15th all the way out through the end of the third at which would predominantly be the fall holiday.

And then, as we look to the 2Q guidance for revenue growth, can you speak to this relative to the growth expectations for the different regions?

So the growth rates that we saw in the first quarter with Europe and Americas growing rapidly relative to the Asia growth, we anticipate more of a kind of a common growth rate across the board in Q2 versus Q1 and kind of different dynamics.

Asia will be adding additional stores in a greater pace than in the Americas, as in the Americas we have a map that's pretty well filled out but we have a lot of store opportunities that have identified themselves in Asia.

So for different reasons we should see approximately the same kind of growth rates, very similar to Q1 spread between regions.

Okay and then you saw great improvement in the European business.

Can you isolate the wholesale growth versus the direct to consumer growth and speak to any improved traction you're getting there on a wholesale basis?

Sure.

On the wholesale business we saw a 36% increase, Jim Q1 2011 versus Q1 2010.

The Internet business, as I mentioned, doubled year-over-year so we're really satisfied with that as we reach further into the Europe region.

On the retail basis the absolute sales were up 60% as we've added some stores there.

Okay that's very helpful.

And then, Jeff, you broke up when you were outlining the-- go ahead.

I was going to say just recall that in Q1 of 2011 90% of the Europe business is wholesale.

We're still relatively immature or we don't have the map filled out for retail in the first quarter for Europe.

Okay that's great and then, Jeff, you broke up, at least on my end when you were talking about the factors contributing to the inventory growth.

Could I ask you to go through that again?

Yes no problem.

Sorry for the technical difficulties there, so what we said was about $6 million of the $47 million increase in inventory, Jim, was in direct support of increased store count in larger locations compared to last year.

Our average cost per pair was up 6% driven by slightly higher product costs and changes in product mix.

That increased our inventory by about $16 million and the remaining is in association with our backlog increase.

Our unit count is up about 25% versus prior year and, like we said, we anticipate some strong Q2 deliveries off of our backlog.

At the end of the second quarter we believe that our inventory will be down about 8% to 10% versus our Q1 2011 closing numbers.

Okay and then the last question and I'll let someone else jump in, what's a good tax rate to use for the year?

We said at the beginning of the year 25% to 27% and we think we'll be on the lower end of that 25% to 27% considering the first quarter came in at 23%.

I really kind of, as you know, we've discussed in calls in the past it really kind of depends on where we make the money.

Japan and U.S.A.

being relatively high tax rates compared to the rest of the world so -- but we're still estimating around that 25%, 26%, 27% tax rate.

I understand, very helpful.

Thanks.

Reed Anderson, D.A.

Davidson.

Good afternoon and congratulations, Jeff, on your promotion.

Say, I was going to a couple of things I want to follow up on; first on Jim's question on Europe.

In terms of the dynamics there that led to that being very fast growth but then you're saying that going forward it's more kind of a consistent growth rate across the regions.

I am just curious why Europe wouldn't grow faster.

It sounds like the things you articulated would lead that to be a little bit better performer on a relative basis.

Yes, Reed, that's relatively true and over time that should play out that way but in particular to Q2 we did see a shift in volume from Q2 to Q1 as we continued to grow our pre-books as a percentage of our overall wholesale business and Europe is a predominant wholesale play.

90% of our sales in Q1 were wholesale and still the vast majority of our unit sales in Europe are wholesale.

So we have identified some store opportunities in Europe.

We are very pleased with our Internet growth, like is said, that doubling in size.

But still on relative basis the direct-to-consumer model in Europe represents a lower percentage of overall sales than it does in the Americas and Asia region.

Over time, as we grow that percentage of direct-to-consumer closer to where we are in Asia and America, the growth rate for Europe will be more sustained and shift over to direct-to-consumer.

Okay good; that makes sense.

Another question was on gross margins, just kind of curious.

I mean, you probably don't want to get too precise on a forward basis but this was a quarter where margins were up a little bit but I think we were kind of talking more kind of consistent margins, at least for the full year.

What are the kind of the puts and takes as we think about the next couple quarters?

Just can you just revisit that and give us some color on things to remember with that?

Sure.

As we look forward, I'll take the forward first and then we'll go back on Q1.

As we look forward we continue to see product cost pressure.

We're always looking for ways to save costs, both in our supply chain and in our product cost to offset some of the raw material and labor cost challenges that we have in the macroeconomic world.

Certainly in the supply chain we continue to look forward to a leveraging of our structure there.

In addition, we're always looking for opportunities to save costs in the SG&A side of the ledger although you asked about margins and we're always looking for opportunities on the SG&A side.

The reality of the macroeconomic world is that we've got to find ways to offset those costs in order to maintain margins in our year-over-year basis comparable to 2010.

When you look back on Q1 we came in at 53% in line with where we thought.

John did mention that we lost some sales in Japan and our -- as we look at that we had all of the cost structure in place for those sales and yet we didn't have those sales so there was a slight change to our gross margin percentage on a percentage basis with those shift in units into Q2 so we're looking at our gross margin in total at 53%.

I think it's in line with where we wanted to be so we're not disappointed in our Q1 results.

And in EMEA as we think about the full year I mean is this a year though where, given everything that's a factor for gross margins that you would be flattish with, can would be a year that would be about okay?

Would that be fair?

No.

No I don't think so.

So I think when, as Jeff articulates through that, you also have to think, Reed, that with our business 30% roughly in Q1, 27% of our Q1 revenue comes from the direct channel and you see that shift in Q2, Q3, where the direct channel then becomes more 40%, 42% of our overall revenue projection today.

So with that shift in channel mix you will get that little bit of uplift that we've seen historically and we have in our guidance have built in for Q2 and we think that happens in Q3.

We go back to Q4 again and we think it's more like Q1 margins where our fall holiday products aren't at the same margin structure as our spring summer products so we get a little bit of a haircut for gross margins still in Q4, but much less dramatic maybe than in previous years.

That's very helpful.

Thank you and then my last question is just I think, Jeff, you had said that the retail stores I think the average volume is around 18%.

I mean would that -- do you want to give a comp number or do we not want to give a comp number?

I am just curious if you would translate that into a kind of a comp store sales number?

No what we said was that the average store went up by 18% year-over-year.

The reality is that average store is larger than it was last so it's a combination of both increased price, increased unit sales and larger stores.

We are trying to stay away from comps I think, as John mentioned a few times last year, we were going to move away from comps because it is difficult with our mixture of stores to really give you a comp store number that makes sense to you, given that the kiosks, as we've mentioned before, have a difficult time showing the breadth of our product line.

It's difficult for us to show you a relevant comp store and frankly the way we look at the business is more on a revenue per day than on a constant store basis.

Understood.

Thank you very much.

Best of luck.

Jeff Klinefelter, Piper Jaffray.

Congratulations, everyone, on a great start to the year and, Jeff, congrats on the promotion.

Backlog first, just revisiting, part of Jim's question, the approximately $130 million of that backlog number that is really a fall product or Q3, Q4 product.

I think part of his question and I think it would be helpful is to know this time last year how much is that up on a percentage basis, starting to get a feel for the kind of back half bookings trends year-over-year?

When we look at the backlog versus the prior year, we're pretty happy with the way the second quarter is rolling out and at this point last year we had pre-books for second quarter of about $80 million.

When we look at the Q3, Q4 combined number we had about $100 million this time last year versus that $130 million that we have so called in the bag today for Q3, Q4 delivery.

Okay and then just the $150 million roughly that we would be implying here for the Q2 I guess reorder business or at once business, just getting as sense for your visibility into that Q2 is much more about a reorder business and, given all the different factors in Q1 the way it ended with the direct business trends, the way it ended with wholesale, can you just give some sense, John or Jeff, on your comfort level with that reorder?

Obviously it's your guidance but I am just curious on how you get to that level of comfort with that volume.

Yes I think that the business model does clearly start to change this year and we'll have to work through it with you through the quarter.

Our current kind of expectation is that we're not going to see that same amount of dependency on at once business that we have in previous years and partly because of the mix of our wholesale partners today and the way that they order and the way that they go to market and so our feeling at this point time is that we're not going to see that level of reorder business that we would with the independents and some of the smaller retailers that we have dealt with in previous years.

It's a little bit different for the family channel and for other major retailers and I also think, as we've said repeatedly, that we are not going to maybe chase the business into the Q3 time frame and position inventory as we have in the past that there might be a certain amount of shortages for some of the key products that it will be healthy for us long term.

That's helpful, John.

Maybe one more clarification on that point so I think Q1 you mentioned in your opening comments that your -- you transitioned your U.S.

stores earlier than last year that provided a nice incremental lift to sales.

If we think about Q1 upside to revenue coming from that and maybe the European ecommerce business, in Q2 what would likely end up being an upside surprise to revenue if it transpired?

What would it be the direct channel selling through faster than expected?

Would it be reorders kicking in faster?

I think all of the above.

I don't think we are looking at one channel that could be totally accretive to top line growth.

I think we're positioned.

We do have sufficient inventory, as we've said.

We grew our inventory a little faster in Q1 than revenue and we expect it will be the inverse in Q2 as we sell through those core products that we have positioned for either retail or wholesale.

I would say also to the Q2 revenue projection, we've estimated what we think is a reasonable revenue flow in Japan for the quarter and if there's sell through and settling in that market then I think we're in position to take advantage of a potential uplift to guidance in Japan if things materialize in a positive way.

One last thing and on Europe, any particular markets that you can call out within Europe that are driving that strength of sell through and then also where do you stand currently on kind of your store opening plans for the year?

How many do you anticipate and how many have been already negotiated?

I'll do the revenue piece.

Jeff can go through the retail store piece with you.

I think, again, one of the things that we're most proud of is this continued balanced growth in all markets and we said today that we're now at 65% non-U.S.

revenue.

In the past it was about 62%, 63% so again we see nice growth across all regions and all channels.

The same thing is true in Europe, Jeff.

We see a nice balanced growth in the Nordics, in Russia, in all of the Western European more developed countries.

Distributors have taken good inventory positions for Q1 and into early Q2 for key core products and so I think the nice thing about that is that we're not having a predominance of one market is kind of out stripping the other there.

On the retail question I'll let Jeff answer that.

Yes thanks, Jeff, so when we look at the retail business in Europe in the first quarter we were open we opened two locations in the markets that we go direct to.

As you know, the primary location is the UK, France and Germany.

Finland and Russia are the areas that we have direct influence on and we have the rights to open our directly owned retail stores.

So, as we look into Q2, Q3 and Q4, we are actively in negotiations with a number of stores in the southern part of France along the Mediterranean coast, the cities of Leone, Marseille, other large metropolitan areas on the south side of France.

We are looking at locations in Paris for opportunities within the metropolitan area of Paris.

Now, in the UK we're actively looking and negotiating on properties throughout the island.

We also are looking for opportunities within the Moscow area of Russia, Helsinki and in parts of Germany.

So we're actively looking for locations.

I am hesitant to give you kind of expectation of where we think we can get stores open because we're still negotiating with those landlords and trying to finalize those deals and make them make sense for both us and the landlord.

So that gives you a kind of a flavor of where we're looking and how aggressively we are looking for store opportunities.

Okay great.

Thank you very much.

Good luck.

(Operator Instructions).

Jim Chartier, Monness, Crespi, Hardt.

My first question, could you tell us how much you've haircut your expectation for Japan?

What kind of impact do you expect it will have on sales and earnings for second quarter?

So I think, as Jeff touched on in his portion of the presentation, Jim, we rolled over about $3 million of orders from March into April on variety of different reasons, transportation, logistics, customer readiness, that are being delivered and I think next week is going to be a tell tale sign as we see what the appetite is in the Japanese market when we go into golden week and we'll see what the retail market looks like.

Having just been there and spent time over 4.5 days talking to two large retailers plus a lot of our own people and there's a big difference between East and West, east being Tokyo and everything east of Tokyo and North.

And to the west and what you see in the Tokyo marketplace and the first two months of the year as everybody is comping up retail environment was pretty positive.

After 3/11 you saw a significant degradation in the buying patterns of consumers, especially in the Tokyo market, so what would that look like?

We would be in the western region Osaka, Kyoto, Hiroshima, Nagasaki, that would be seven of the top ten cities in Japan accounting for about 65% of the buying power and that's 100% on par year-over-year where Tokyo everything east is at about 75%, 76% of what they've purchased a year ago.

So you see a significant difference in the different regions in Japan.

It's a little bit -- our April for most retailers bounced back and showed a positive comp gain in the first month of the quarter there and so it's a little bit hard to truly determine what that might be.

Internally we have haircut our expectations in Japan between $3 million to $5 million in the forecast and guidance that we've given today.

Okay that's helpful.

And then can you talk about your, the new marketing that you're doing to shift away from TV, how that's performing for you?

Sure.

So I think last year the feeling really with the brand was is that consumers had kind of lost track with where we are and I think that's true sometimes when we listen to some of the financial pundits.

We have moved far away from what the iconic shoes are into being a much larger lifestyle brand so the push last year was to put a lot of marketing dollars, especially in the U.S.

into mainstream media on prime time television and bus ads and a few billboards.

This year we can see the brand strength in some of our marketing index so now it's really how do we build new consumers and there's a variety of different ways we do that socially, today to reach out and touch consumers so that they see and that we evolve in their mind as a lifestyle brand and so there's a variety of different things that we do there in the U.S.

marketplace today, a little bit in Europe and Japan but it's much more how we engage with the consumer as they go about buying and as they go about looking at potential purchases, especially footwear.

And then the Jibbitz by Crocs sub brand, did you say how many doors you would be in for fall and holiday?

I didn't give you a door count and partially because I think that when we did the initial launch with target with the Jibbitz by croc shoes I don't think that they thought the sell through was going to be as significant as what they experienced and so what they bought and what they sold through was a significant mismatch.

So they have about 1,785 doors they could put Crocs in.

They haven't bought sufficient product to put them in all 1,785 doors but they've been very pleased with the sell through and so there I think we'll see a change maybe in what their thinking is for the back half of the year.

And then any thoughts on extending that brand outside of target?

Yes there's stuff about that but I do think, as we've said before, it's not really our desire to build a significant revenue stream in that sub channel.

It's more opportunistic on our part.

We continue to focus really on designing and building really state of the art fun lifestyle products that go to the essence of color and comfort and that's where the main focus is.

I think in Q1 this accounts for about 3%, 3.5 % of our overall revenue for the U.S.

marketplace.

This is not a significant play or strategy but it's much more opportunistic on our part to be able to do that.

Great thank you.

[Corbin Ware], Robert W.

Baird & Company.

This is Corbin Ware calling in for Mitch Kummetz.

A couple questions, I just want to quickly go back just for confirmation, did you guys say that you now expect gross margin to be slightly up for the year versus compared to last year?

Yes we don't come in on full year guidance.

I think we were talking in that conversation more about Q2.

Okay so it's Q2 slightly higher than last year?

No that's not what we said.

Okay that would be down then?

And that's just more of a product of the fact that it's slightly more at once and versus the pre-book model?

I know we didn't really comment on overall gross margin.

We talked about kind of the puts and takes around gross margin and SG&A and gave guidance to $0.43.

Okay and then I think going back to marketing you guys talked about how getting away from kind of the television campaign.

Was there specifically big impact that you saw in terms of first quarter, whether it be on sales or SG&A in terms of the new marketing?

I wouldn't say that we see a big hit per se based on marketing.

I think it's always hard to separate a little bit in the consumers' mind what drives them to point of purchase so you've got great marketing around great products so what actually sold and that targeted marketing to be able to take the translucent line into consumers that are looking for and influencing other buyers for something fun, something different for the season is the way we look at that direct marketing channel.

Sure and with these new channels for marketing do we -- do you still expect marketing levels would come in similar to what we saw last year?

Yes we remain committed to marketing spend being a consistent flat year-over-year.

Great and I appreciate it.

That's all I've got.

Thanks, guys.

Good luck.

(Operator Instructions).

[Jessica Bourne], Sterne, Agee.

It's Sam Poser at Sterne, Agee.

Just -- I just want to follow up on the question about Japan in your guidance.

What are you -- are you presuming in the guidance that the $3 million moves from Q1 to Q2 or are you thinking that that position will be down in the quarter?

Well, it's both so let me make sure I am clear.

So we are shipping that backlog that we shifted from Q1 into Q2.

Now the question really, Sam, will be is what the appetite will be for Q2 consumption.

Will we miss a turn in the retail cycle in Japan with the activities that are ongoing there?

And, if that's the case then we think as I said that will take a haircut, which we've factored into our guidance of $3 million to $5 million out of our plan.

So that's already reflected in the $0.43 for the quarter.

Yes that's correct.

And in Q1 there was a $0.01 for the charitable contributions and are you expecting that kind of thing to repeat once again in the second quarter?

No we're not.

Actually with all natural disasters like this it takes a little bit of time for products that are being donated to be consumed in the process so just being there a couple of weeks ago myself I can tell you that it will take them through I think the second and maybe even into the early part of Q3 to actually distribute all that product.

Today through the almost the end of April we have distributed about half of the 100,000 pairs of shoes that we have committed.

The other half are still sitting with agencies waiting to be able to get logistics and people on the ground up in those affected regions to get product up and distributed so no it's not our expectation that we'll do that again in Q2 or probably even Q3 for that matter.

Thank you and then with the U.S.

when you look at the initial reads both -- and you might have answered this already; I hopped on in the middle.

The initial reads for spring selling in both the U.S., sort of the rate of fill ins outside of the Japanese issue that you're starting to see, is it living up to your expectations?

Are those sneakers, those translucents, toning and the new products in general, are they selling at or where are they selling relative to your expectations?

Yes I touched on that briefly at the beginning of my section but we think yes for translucents and sneakers sell through has been solid.

Replenishment has been solid.

When it comes to the toning shoes what we really see in the U.S.

market is not a disinterest almost by consumers on the toning products.

It's selling in okay but we didn't take a big position.

As we've said before, on toning it rounded out our portfolio.

The shoes are extremely comfortable, give you some additional muscle activity and so we like the products we developed in that space but it wasn't a big play on our part.

I did travel in Europe for a week and then in the Far East for a week and being in Shanghai and Tokyo and the interesting part was I saw a lot more toning products from most of the major players in those markets and I saw a lot more interest by consumers in those markets to buy toning products so I think globally we see different things in different markets.

Okay I have two more real quick, the share count for the quarter was what and what is the tax rate that you're using for the rest of the year?

Sure, Sam.

Share count for the quarter was 90.3 million and what we said was the tax rate, 25%, 27% is what we're trying to guide everyone to on the tax rate.

It kind of depends on where we make the money for the quarter.

For the first quarter we made -- we had a tax rate of 23% so that would bring us down to kind of the lower end of that 25% to 27% range as we look forward into the rest of the year as the first quarter was only 23%.

Okay well thank you very much.

Good luck.

And we have time for one final question and it will be a follow-up from Jim Chartier.

Can you remind us when you're going to start manufacturing with Croslite 2.0 and when you'll start to see that benefit in gross margin?

We have started building with the next generation Croslite 2 material and you're going to see that slow impact to gross margin really over the year as we phase it into more and more products going forward.

And what kind of impact would you expect it to have on gross margin?

Is the 100 basis point benefit over the course of the year or can you quantify it to any extent?

I think it just depends upon the volume of products, Jim, that we put it into.

I don't know that we've quantified it.

Maybe that would be a good topic for us to go into further when we do the Investor and Analyst Meeting here in about two weeks time.

Okay thank you.

Good luck.

And that is all the questions we have today.

I would like to turn the conference back over to management for any additional or closing comments.

Thank you and thank you again for joining us today.

We look forward to speaking with you in about 90 days when we report our second quarter results.

In the meantime we will be hosting an institutional Investor and Analyst Meeting here at our headquarters in Boulder on Monday, May 9th.

If you are interested in attending please contact us and we'll provide you more details.

With that, have a good evening.

Thanks again.

Again, that does conclude today's conference.

We thank you all for joining us.