卡洛馳 (CROX) 2012 Q1 法說會逐字稿

Good day and welcome to the Crocs Incorporated first-quarter fiscal 2012 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 fiscal 2012 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 in this call will be forward-looking and accordingly, are subject to the Safe Harbor provisions of federal securities laws.

This statement include but are not limited to statements regarding future revenue and earnings, backlog and future orders, prospects and product pipeline.

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 2011 annual report on form 10-K filed on February 29, 2012 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 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.

Thank you for joining us this afternoon.

With me on the call is our Chief Financial Officer, Jeff Lasher.

In a moment, Jeff will go through our first-quarter financials in detail.

I would like to begin with a review of the highlights of our most recent quarter and then discuss some of the factors that we see impacting our business over the remainder of the year.

And then finally, having just spent a good deal of time on the road, I would like to give everyone more insight into our global operations and the state of our business in our international markets.

We're very pleased with the strength of our first-quarter results.

Retailer and consumer response to our expanded spring line is very positive, driving sales gains across our three distribution channels in Asia and the Americas, combined with increases in our European consumer direct business.

In total, sales increased 20% in the first quarter of 2012 on top of a 36% increase in the same quarter a year ago.

From a product perspective, sales continue to be very broad-based with new introductions representing approximately 38% of first-quarter sales, while non-clog silhouettes made up more than half of the quarterly volume.

Top performing styles included our A-Leigh collection, women's flats and wedges, including our new Springi product, Duet sport line, and our CrosMesh series of products.

As I just mentioned, our retail and e-commerce channels were up in all three regions.

We are pleased to share our retail store sales on a global basis in more detail starting this quarter.

Comp store sales increased 10% in Q1 and our direct consumer channel is providing an avenue to showcase our lifestyle products to new and existing consumers.

They are obviously voting yes.

Jeff will go into more detail in retail metrics in his portion of the presentation.

Our top-line results are certainly a good start to the year and where we expected to be when we developed and sold [Ian], our most comprehensive line of footwear ever.

In addition to securing more shelf space with several key wholesale partners and selectively expanding door count, we are confident that we are gaining important market share and mind share with consumers.

This is also being noticed by our wholesale partners.

Our new Crocs inside marketing campaign has been successful connecting with existing customers who are adding more Crocs styles to their closets and new consumers are being drawn to the brand for the first time by the wider selection of great-looking, casual lifestyle footwear.

As we move deeper into our business selling period, we're very comfortable with the overall pace of our business and very pleased with how the first half of the year is shaping up.

We have evolved our business model to be less at once, but still have the culture and ability to support our wholesale partners and direct consumer channel with additional products.

International expansion is on plan.

Some new product collections are exceeding expectations.

New stores are performing well and a global expansion of our Internet sites are almost complete, with Japan, Korea, Poland and Brazil slated for completion this year.

Looking to the back half of the year, we remain encouraged about our ability to expand of the brand's relevancy at retail in fall/winter.

We are cognizant of near-term challenges facing the footwear sector with the short selling season in the fall holiday '11 season and the carryover of high inventory levels in the wholesale channel.

We have continued to contend with the additional impact of a stronger US dollar.

With such a large percentage of our business in foreign markets, there will be an impact starting in Q2.

The dollar strengthening against the yen and the euro on a constant currency basis.

This impacts Q2 revenue growth by about $10 million, or 3%.

Jeff will further outline potential FX fluctuations and their impact on our results for the remainder of 2012 later in the presentation.

Let me take a few minutes and talk about our fall bookings.

Overall we are up 11% year-on-year.

We are up 12% in the Americas, 18% and Asia, while we are down 13% in Europe.

The warm winter in 2011 in both Europe and the US has created a tough selling environment for our fall 2012 line.

While feedback from accounts on our expanded selection of shoes and boots were very positive, it unfortunately has not translated into the level of bookings we anticipated.

We continue to hear that retailers in general have more limited, [opened] dollars for established cold weather brands, and even then, only top-performing styles.

We do expect our fall/winter collections will have improved presence with several key wholesale accounts versus last year.

Despite these external issues, nothing has changed with regard to how we're thinking about the full year.

We feel comfortable with the street consensus numbers for 2012 revenue and profitability.

We are confident that we are well-positioned to achieve our near and long-term goals based on our compelling product assortments and pipeline, our international growth and channel expansion strategies and the experience and strength of our global leadership teams.

With that I will turn the call over to Jeff.

Thank you, John.

Hello everyone and thanks for joining us.

This afternoon I will be discussing first-quarter 2012 results.

Revenue for the quarter increased $45 million, or 20% to $272 million.

This is against a 36% top line increase from a year ago.

Gross margins improved to 53.3%, up 70 basis points compared to Q1 last year.

Operating income grew 34.6% to $40 million, or 14.6% of [sales].

Operating margin improved 160 basis points, compared to the same quarter in 2011.

We also generated increases in both average selling prices and units sold during the quarter.

These factors contributed to the seventh increase in EPS to $0.31 during the quarter, an increase of 30% versus last year.

Strong sales growth in the Americas and Asia were partially offset by a slight decrease in Europe.

Sales in the Americas increased 17% to $117 million.

Asia increased 40% to $102 million and Europe decreased 3% to $52 million.

On our first-quarter earnings release, now includes a table that highlights both geographic as well as channel sales in each of our regions.

Importantly, on an FX-neutral basis, total sales were up 21% and up across all regions.

Sales in the Americas increased 18%, Asia increased 39% and Europe increased 2%.

Unless otherwise noted, the following data for the remainder of my prepared remarks are on an as incurred dollar basis.

With Americas region, we generated growth in each of our three channels.

Direct to consumer continue to drive growth during the quarter with increased sales of 25% and 28% per retail and Internet respectively.

Turning to store count in the Americas, we ended the quarter with 190 locations, up from 189 locations last year.

The 25% increase in retail sales in the Americas was up from a combination of larger locations, product reps, higher average footwear selling prices and same-store sales growth.

In the US, revenue increased 19% for the quarter and represented 34% of total global sales.

We announced earlier in the year our plan to close 20 to 25 kiosk locations in the US.

We remain on track with this plan as we closed 11 kiosks during the first quarter.

During the quarter, as impairment charges and other costs associated with retail closures, we resulted in a $1.3 million pre-tax expense, or about $0.01 negative impact to EPS.

For the full year 2012 we continue to expect to open about 25 to 50 stores in the Americas before the kiosk closures.

Sales from wholesale increased 12% as we fulfill deliveries from our backlog going into the quarter.

Sales in Asia were strong across all channels.

Japan, our second largest revenue generating country, grew 43% during the quarter.

For Q1 2012, the Japan year-over-year increase was significantly enhanced from the tragedy that struck the country last year when $3 million of revenue was delayed until Q2 2011.

Consequently, that comparable is expected to be reversed in Q2 2012.

Asia retail sales increased 46% during the quarter as we ended with 211 stores, up from 156 from a year ago.

In 2012 we are on track to open 25 to 50 stores in Asia.

Asia Internet sales increased 57% during the quarter off of a relatively small base.

In Europe, during the quarter, a 7% decrease in our wholesale channel was partially offset by growth from direct to consumer channels.

During the quarter, retail and Internet sales increased 52% and 3% respectively.

In the retail channel we ended the quarter with 38 locations, up from 26 from a year ago.

All of these new locations are in northern, more economically healthy countries.

Macroeconomic issues in Europe continued in the quarter and going forward, the region faces additional challenges of a weaker currency and more difficult selling conditions.

Globally, the retail channel revenues in the first quarter increased 33% to $61 million, while retail locations increased 18% as we ended the quarter with a total of 439 company owned retail locations globally, up from 371 last year.

This includes 198 full price stores, 99 store in stores, 96 factory direct stores or outlets, and 46 kiosks.

As disclosed in our press release, global same-store sales for the quarter increased 10% during the quarter on an FX-neutral basis.

Comps were positive across all regions with Americas up 9%, Asia up 9% and Europe up 21%.

Our comps were in part positively impacted from the shift of Easter to earlier in April and for the year we continue to execute on our plan to open 80 to 100 net stores during the year.

Turning to product data.

Our percentage of first-quarter revenue derived from the clog silhouette sale fell from 51% to 49%.

Also our new product introductions globally represented about 38% of our Q1 unit sales.

We continue to grow the iconic clog silhouette while diversifying into other important categories.

Average selling price in Q1 increased $1.84, or 11% to $19.22 compared to last year in the same period.

Global footwear unit sales in the quarter were up 8% to 30.6 million pairs.

Gross profit for the Q1 2012 was $145 million, up from $119 million in the first quarter of 2011.

Gross margins were 53.3% in Q1, versus 52.6% in the prior year.

We benefited from key initiatives in controlling our costs of goods sold, leveraging infrastructure costs, and approved economics from new product introductions.

First-quarter 2012 SG&A increased 18% to $104 million, compared to $89 million in Q1 2011.

As a percentage of sales, SG&A was 38.3%, down from 39.1%.

The SG&A dollar increase was driven by investments in our direct to consumer channel as we are able to leverage our non-direct portion of SG&A.

Consistent with prior commentary about disciplined growth in SG&A, the non-direct portion of SG&A dollars increased at about two-thirds the rate of wholesale revenue growth during the quarter.

Overall, Q1 operating income increased 35% to $40 million.

Losses on foreign currency transactions had a negative impact on Q1 results by $4.3 million.

These losses are comprised of foreign currency gains and losses from the remeasurement of certain balance sheet items, and inter company settlements net of the impact of foreign currency derivative instruments.

Losses on foreign currency transactions increased by $2.9 million, compared to the same period in 2011.

Net income for Q1 2012 improved to $28.3 million, or $0.31 per diluted share on 91 million shares, compared to $21.5 million or $0.24 per share in the prior year.

Our balance sheet continues to be strong.

We ended Q1 with $207 million in cash, a 79% improvement from 2011 levels of $115 million.

We end the quarter with inventory of $169 million, up 10% from last year.

As of March 31, 2012, potentially all of the cash reported on our balance sheet was held in international locations and is subject to certain restrictions that constrain our ability to move cash back to the US without tax expenses and payments.

We ended the quarter with backlog of $289 million, which represents about 11% growth over last year.

The consolidated 11% increase is against a 27% increase from a year ago.

Of the backlog, orders for Q2 deliveries are up about 11% to $151 million.

Orders for second half deliveries are also up about 11% to $138 million.

ASPs in our backlog are up $4 to $20.50, compared to $16.50 last year.

Also keep in mind that the events in Japan last year caused us to shift $3 million of orders from March into April.

Moving on to guidance for the second quarter 2012, we expect to generate revenues in the range of $335 million to $340 million.

We estimate EPS in this $0.61 to $0.63 per share range.

Currency estimates used for the quarter are $1.31 US dollars to euro and 82.5 yen to the US dollar.

We estimate currency swings will negatively impact sales by 3% during Q2 compared to last year.

As a reminder, Q2 2011 earnings results included a one-time tax benefit of $3.6 million and an effective tax rate of 14%.

Our guidance for 2012 second quarter includes and assumes effective tax rate of 22%.

Now I will turn the call back over to John.

Thanks, Jeff.

I recently spent about three weeks visiting our various international operations and I'd like to share of some of my thoughts and observations with you today.

After meeting with country managers, visiting with our own stores as well as partner stores, wholesale accounts and speaking with consumers, I came away with an even greater sense of optimism about how our global business plan is being executed and our long-term prospects.

In Europe, which is now under the direction of Vince Gunn and a new management team, we are making positive progress regaining the market share we once enjoyed.

The difference now is that we are developing a more sustainable business through the distribution of a more comprehensive product line and cohesive brand message, which wasn't feasible through our original distributor model.

Today, we work through distributors only in Spain, Italy, Greece and Eastern European markets.

Our wholesale growth is being impeded by the overall economic issues in Europe, we believe the investments we are making in building new wholesale relationships, targeting new consumers and expanding our retail infrastructure will be even more beneficial once recovery takes place.

As I said on our last earnings call, one of the benefits from the week European economies today was the increased availability of affordable retail locations.

We're taking advantage of this opportunity to significantly expand our modest retail footprint throughout the continent with plans to open approximately 25 to 35 stores in 2012.

Asia remains our best-performing region.

Since being launched in Asia in 2005, the growth of the business in Asia has been managed methodically with new products and new distribution steadily added each year to support the ongoing evolution of the brand.

The spring 2012 collection has been very well received by consumers this year.

With our more comprehensive product lines in recent years, we have added more retail locations in key markets like Japan and China to complement our established wholesale business.

And the expansion of partner retail stores in the region has out paced our own internal store development.

Brand marketing has been strengthened in 2012 with our New Crocs, New You campaign.

In the Middle East, I had the opportunity to visit Dubai, Abu Dhabi, Kuwait, Istanbul and Israel.

In every market we are growing the brand through new wholesale accounts, building stores directly or with our partners in the region.

We opened our first store in Saudi Arabia a little over two weeks ago in Riyadh.

I also spent four days in Israel with our distributor partners there that have been with us for seven years.

In contrast to our European distribution partners, they have 59 stores in Israel and have made a major personal investment in building a world-class organization there.

It was amazing to feel the energy and the excitement in the region when I was there.

Here in the US, the brand continues to rapidly evolve from legacy stylings to new casual lifestyle products -- flats, wedges, sandals and the more trendy styles we have introduced this year.

The channel mix is weighted more towards wholesale in Q1 and by all reports the sell in and sell through has been very strong.

We have built solid relationships with our key wholesale partners over the past three years.

This year we are working more closely with them to educate consumers on the casual lifestyle products in our line.

Some examples of active marketing programs include we launched the Chameleon line of shoes with Dick's in Q1.

We're currently operating a store takeover program with Famous Footwear that will run two more weeks.

New shop in shop concepts were launched with Dillard's in 82 stores.

And next month with Zappos at the Denver international Airport.

This year we have launched our Get Crocs inside brand program aimed at changing the perception of Crocs from one shoe company to a four-season, everyday lifestyle footwear brand for multiple wearing occasions.

Get Crocs inside embraces our signature heritage and celebrates the fact that every pair of shoes we make has our DNA.

We continue to focus on consumer targeting and reaching the markets that we are excited about in our new product styles and core offerings.

We are investing in reaching consumers through new marketing campaigns that feature national print campaigns in the United States in publications such as O magazine, InStyle, Real Simple, and Shape, combined with market activation through direct mail, out of home, experiential and social efforts.

As I remarked earlier, our business fundamentals remains strong.

Our first-quarter results ended up slightly better than projected due primarily to improved comp store sale performance and the second quarter is tracking pretty much on the plan, even when we incorporate the year-over-year changes in FX.

At this point, we are being somewhat conservative about the second half of the year given what appears to be a further slowing in the EU economy and the volatility of the foreign currency market.

With that said, we look at our business holistically.

We still expect full-year sales on a currency-neutral basis to increase 15% to 20% over 2011.

We are pleased with the increased backlog growth in the Americas and Asia.

Based on where we are today, we feel comfortable that we will exceed the current first call diluted earnings per share consensus of $1.43 for 2012.

Operator we are now ready for questions.

(Operator Instructions).

Jeff Klinefelter, Piper Jaffray

John, I wanted to start off with a general question.

You finished your comments here with your outlook for the year, your confidence in exceeding the EPS consensus estimate.

That is despite the fact that you are getting some pushback from the channel on second half bookings.

Can you talk a little bit more about where that confidence comes from in terms of your ability to drive profit growth even with those headwinds?

Is it efficiencies in the business?

Is it more Q3, Q4?

Any more color on the line items in the income statement that you see opportunities for, for the year.

I think when we break that year down in halves, our feeling is that we had a very good first quarter.

A little bit of crossover year over year between Q1 and Q2, which Jeff alluded to and I think we try to bring everyone's attention to.

When we look at the complete first half of the year, we are going to be on plan for top line revenue growth.

We like how new products are selling in and selling through.

What is happening in our own retail stores is we have launched the product out globally, building a more solid retail foundation allows us to grow the perception, the brand perception with consumers as well as revenue growth.

As you can see, our retail direct to consumer channel is outstripping growth in the wholesale.

That is an important factor for the back half of the year.

We like the way the first half of the or is rolling up to date.

We think this puts us bottom line anywhere between $0.01 and $0.03 ahead of guidance estimates coming out of the first half of the year.

I come back to the fact that when we try to grow a brand like this where we are so strong in three quarters, in the back half of Q3, and then into Q4 is a difficult timing, it is not going to come in large pieces.

The fact that we are placing rain boots and we are building on some good product collections from 2011 that sold well that will be picked up with a broader distribution, it gives us a lot of confidence that there is a place for the brand to play in.

As I said, with more of our revenue being driven by the direct channel in the back half of the year, we have shown the ability to be able to merchandise lines into more effective way and engage with consumers that will carryover overseas as it has from a fall, winter, '10 to '11 and now into '12.

In terms of a little bit more in the backlog.

Up 11%.

It sounds like the real shortfall, if there is any relative to expectations in that backlog, would be really the second half.

Last year about this time I think you said about half and half, first half versus the second half.

Jeff, you gave us a little bit more clarity on that $151 million for Q2, up 11%.

$138 million, up 11% for the second half.

Would you say that the second quarter bookings are essentially where you expected them to be?

And you would have expected the second half to be up a more meaningfully?

Well I think on the second quarter, we are above where we were last year and so we feel that we are in a position to really be able to execute on the outline business for the last two months of Q2.

When we look at Q3 quarter-by-quarter, both Q3 and Q4 deliveries are up.

It is a little bit lighter on the Q4 deliveries at this point in time, only given the fact that we think that not all orders have been placed.

We know in some markets right now that we have not actually booked orders for November and December deliveries.

We are still expecting that we are going to see orders come in for the fourth quarter.

We will give you an update when we do the next earnings call or when we have the investor day here in Colorado in late May.

As a recap, I know this gets somewhat confusing by quarter, but how bookings should be reflected in the following quarters growth rates.

In the first quarter, bookings should align very closely with actual wholesale growth given that the vast majority is pre-booked.

Whereas the second quarter about 70% or 75% of second quarter wholesale revenue would be reflected in your book?

I think it is important to remember a couple of things when you look at the backlog.

Number one, when we do the backlog we are actually doing it at the spot rate.

The average rate during the quarter last year actually increased the revenue that came from those pre-books that were recorded in the call and were translated out at the spot rates at that point in time.

The second thing is it is important to remember that the second quarter and the fourth quarter for that matter, are traditionally more at one quarter and a higher percentage of direct to consumer.

It is not as reliant upon pre-books as we head into those particular quarters.

One on Europe.

John, can you provide a little bit more color there?

Your bookings were down 9% in Q1 in Europe, down 13% now.

I know your retail performed well on a small base.

What is happening there in terms of the anticipation for at once business?

Seasonally, any sort of weather factors?

You have inventory availability to chase if the demand does materialize?

The first half of the year, yes.

We are positioned to provide inventory for at once orders.

We see it, given the weakened and given what the economic thinking is and how retailers are responding to that, we see some good weeks in terms of at once orders today.

Like I said, I think rebuilding relationships there is also going to take some time, but it starts with some opportunistic things that we are doing right now there in the first quarter, second quarter working with new retailers or retailers the we had working with us that had dropped the product a couple years ago.

For the back half of the year, I think as we said, we have pretty solid pre-book numbers for Q3, we don't really see a significant decrease year over year.

I think Q4 is still yet to be determined.

Jeff, I think people are still looking and trying to make those final determinations on what additional products they are going to carry or what additional orders that they're going to place later into the season.

Lastly, you are giving us comps now at retail.

Does this suggest that the majority of your conversions by format are complete or nearly complete?

Do you feel confident now that, that is a metric that makes sense for the business globally?

If you could add some color on the timing of releasing the data?

We do.

I think as Jeff outlined in his portion of the presentation, we are still going to exceed and conversion probably 50% of the remaining 46 kiosks that we have this year, either into full priced stores or just eliminating the kiosk location.

Hopefully that is not going to cause much turbulence in the numbers.

But I think we feel that we are at a place right now where it is more meaningful to share that with you.

Jim Duffy, Stifel Nicholas.

A good quarter and thanks for the additional detail on the press release.

I think I heard you say that you're comfortable with the '12 revenue estimates, yet to 2Q revenue guidance is below the consensus estimate which seemingly implies a more optimistic view than consensus for the second half.

Is that coming from the direct to consumer side?

Or is some view of the at once business?

Or is there some combination of both?

I think when you look at Q1 and Q2 together, we are pretty close to the top line guidance that we have given you and what the street estimates were for revenue.

When we look at the first half of the year, the first two quarters together, we are feeling that is relatively close.

The back half of the year, with backlog up and with a larger retail footprint that will continue to build in Q2 and into Q3, we think we are in a better place to execute in the back half of the year than we have been before.

I think it is a combination of factors, but I think you have to look at the first half of the year together from a revenue and EPS standpoint.

John, how are the inventory positions that you have to execute that once opportunities, particularly in the Q2 and early Q3?

Inventory is up about 10% quarter-on-quarter, year over year.

I think we feel we have worked through a lot of the inventory issues of the past.

We have adequate outlet channels now built up to be able to work through inventory levels that we do have a bolder product.

We feel that the quality of inventory that we have and where it is positioned today in Asia, in Europe and here in the US and also in our manufacturing facility in Mexico, we are well-positioned to capitalize for Q2.

Jeff, I think you gave the Q2 pre-book growth and back half of the year pre-book growth.

Is there a way that you can split the back half to orders for delivery in Q3 versus orders for delivery in Q4?

Seemingly retailers are placing those Q4 quarters a bit later this year?

I think when you look at the Q4 component of the second half, it is really not as important to us on a quarterly basis as Q3 is.

At this point in time, versus last year, Q4 only makes up about 20% of the backlog that is in our system right now.

It is well over 180 days out for the delivery cycle.

At this point, it is still a little too early to break out the Q4 numbers for you from the Q3.

But in general, it represents about 20% of our backlog as of March 31.

On the income statement, the tax rate in Q1 came in at little better than you had expected.

You're talking about 22% for the second quarter.

Is that a good number to use on a go forward basis for the remainder of '12?

We are comfortable with the original projections for the year at the 22% to 24% rate.

It looks as if you moved the FX gains and losses in the income statement, apparently below the EBIT line.

Am I correct in my interpretation of that?

Yes, we did that to be more consistent with our peer group.

We moved that FX out of the SG&A line down into other income.

We think that is more consistent with the peer group.

We think it also gives you better visibility and it helps these conversations when people are looking at the business trying to understand what is happening, it is a more clear call out with so much of our business being international and FX being a larger component for many global companies today.

We also think that, that increases visibility and transparency.

I think it also important to note that in Q1, we did see that loss, but in April the reversal of the yen and other currencies compared to the end of March has opened up a window for us to settle our hedge positions already this quarter.

That has been a benefit to us as we look into the second quarter.

Mitch Kummetz, Robert W.

Baird.

First of all, I was hoping you could tell us how many stores were in the comp base for the quarter.

I was hoping you could address what the comparison was to a year ago.

How you are thinking about comp in terms of your second quarter guidance and maybe what the compare is there.

Is it tougher or easier than Q1?

How are you thinking in terms of a pull forward?

Was there any pull forward that benefited the first quarter in expense of the second quarter?

Let me see if I can go through those much.

If I missed one of those questions, follow-up.

Last portion first.

I think yes all retailers with the March 31 cut off benefited this year by having Easter earlier, two weeks earlier this year than last year.

I think the comp performance in conjunction also for our brand for spring break and people getting away clearly was a benefit for Q3.

Exactly how many of the stores are in the comp base, I cannot tell you what the total comp base was.

It is something that we can do when everyone is here for the investor meeting at the end of May, maybe give some more granularity about what is exactly included there.

As far as how we think about second quarter in terms of comp store growth.

Right now we think it is about the strength of the new products, what we are seeing in locations globally with new styles and making sure that we stay as merchants fully in stock, on product in our retail stores that meet the demand of the customers is going to be key to that comp store growth.

It is easy to come out of the chute fully loaded with all styles and colors.

As the quarter goes on, we have to really focus and be really good merchants at keeping product available real time to consumers.

A follow-up on the comps.

Is Q2 a tougher or easier comparison than Q1?

I think when you look back at Q1 of 2011, as we mentioned in the script, there was the tragedy in Japan that had an effect on our sales in Q1.

Last year Easter was later in the month of April.

This year it was earlier in the month of April.

That allowed us to have a little bit of a ramp-up during Q1 towards the closing days of that quarter.

There are some calendar and macro issues as to why things are going to move around.

Q2 is still going to be a good retail quarter for us.

It represents a very large percentage of our sales in Q2.

On the at once for Q2, could you address what you're at once a trend is quarter to date for Q2?

What kind of outlook is embedded in your guidance that you're talking up 5%, up 10%, up something in terms of your wholesale projections?

Could just talk about how the at once trended last year?

I'm guessing you are in a better at once position this year given that the early start to spring and maybe retailers being a little lean on inventory and starting to fall into chase mode, so maybe you could talk a little bit about that.

Yes, I think primarily Q1 and Q3 are delivery quarters based on the pre-books that we enter into the season with.

Q2 and Q4 are traditionally more at once quarters.

As you mentioned, they're more heavily weighted towards direct to consumer.

We are optimistic because of the NPD data that you are seeing that we will see some additional demand in Q2.

At this time, I think it is important to note that this is primarily a DTC and at once quarter for us.

I think the other thing I mentioned earlier in this call was we do get the benefit last year of revenue growth of about $10 million of revenue last year versus this year as associated with the stronger local currencies last year.

All of that -- a lot of that I should say -- is associated with the pre-books as well.

One other point there to what you are asking.

When we look at revenue for Q2 for 2012, we are depending less on at once business than we were last year at this point in time.

Hopefully that gives a little bit of context around the quarter.

There may be potential upside if product sales well and we're able to work closely with our wholesale accounts to provide additional at once business for them.

It is just that time will tell.

One last question on the gross margins.

Jeff, could you run us through what the puts and takes were in terms of the big buckets on the quarter that resulted in that 70 basis point year over year improvement?

How you are thinking about those puts and takes for Q2?

Sure I think we benefited from the expansion of our new products and the strong new product introductions that we had.

We benefited from controlling our infrastructure cost of goods sold and leveraging the additional ASP on that existing infrastructure that we have.

We also benefited from controlling our product costs during the quarter and we worked really hard with our factory partners into controlling both their labor and their production costs and working with them on how to design the products more efficiently.

We have also improved our overall economics on the new product introduction.

Those are going smoothly.

In general, we have seen a little bit less on the discounting in the retail and Internet side as well.

We also have the strong reception of our March mailer for our spring product line, which all of that was at full price.

We have done a lot of good things on the cost of goods sold line.

Sam Poser, Sterne Agee

You talked about the first two quarters being basically around the expectations.

The back half of the year now, you sort of gave guidance for the full year.

Could you walk through the specifics of that guidance as far as the overall tax rate, as far as the gross margin and how we should think about that, and so on and so forth, especially given the impact of the currency and so forth?

I think specifically on the tax rate, again it is about 23% or 24%.

We did benefit last year in the Q3 as we talked about in the script, from some tax favorability that got us to a 14% tax rate last year.

This year we think it is going to be margin in the 22% to 24% range.

The other particulars as far as the margin, I think we are optimistic that we will have nominal favorability in our gross margin line and that will continue throughout the year.

As we mentioned in the backlog to the ASP are strong relative to last year, up $4.

Those are some insightful numbers for you.

A follow-up on that and ask the same question again.

If 80% of the backlog is Q3, can you tell us what Q3 is currently up as far as the backlog goes?

Do you have less on a percent to -- at a 20% run rate, do you have less in hand for the Q4 backlog than you did at this time last year?

Is Q4 down as of this date or as of the end of the quarter and what is Q3 up, even though it is a smaller percentage?

Q3 is up about 8% on a relatively larger number.

Q4 is up 26% in Q4 relative to backlog on a much smaller number.

Like we said, we think that the backlog in whole, the product portfolio that we have, the accounts that are booking and taking product today with opportunity for us to grow the brand and establish ourselves in this rain boot, casual indoor footwear space and the fact that we are we introducing the mammoth product, which we sold over 10 million pairs in the first five years of selling a product that we took out of the line last year, is going to give us some kind of lift in the back half of the year.

I think the other point I would make about the Q4 versus Q3 is to recall that in Q4, 37% of our revenue comes from retail, 12% or 13% of our revenue comes from Internet.

The wholesale business in Q4 only represents about 50% of our sales in Q4 versus 60% for the average year.

It is significantly underweight in Q4 period.

The success of Q4 will really be determined by the success of our retail and Internet channels.

As far as other growth opportunities, we're coming up on some big stuff going to happen down in Brazil in the next couple of years.

I know you are doing some production out of your Mexican facilities there, but do you have anything in the works right now to crank up that business and then it could be an endless summer situation?

I think we have talked about this in other meetings and on other calls.

We continue to believe the Latin market, including Brazil, offers significant opportunity for us.

We not only build product in Mexico but we also have a partner that assembles shoes with us in Brazil today.

We have an organization on the ground for almost 5 years now in Sao Paulo.

We have opened our own retail stores in Brazil now, we will open shortly and Chile and Argentina.

We look at the South American market as an opportunity, as we did China and Vietnam and Korea and Japan, all those other markets in Asia five years ago.

We think it is a significant opportunity.

We're pretty excited about the Olympics this year in London.

We have some pretty cool marketing ideas for the upcoming games there.

A lot of that learning will be transferred over and there will be some large events, World Cup and the Olympics in Brazil over the next four years also.

Yes, we agree with you that the opportunity is there and we continue to focus on growing our business globally in all international markets.

Lastly, you said you are happy with the street estimates, you think you can beat them by a little bit, if I'm not misquoting you, for the full year.

Does that include the revenue number, not only the earnings?

Does that 15% revenue number take into account the full impact of the full year currency?

As a follow-up to that, how would you look at the currency impact in the back half of the year from what you know right now?

I think what John said was that on an FX neutral basis, 15% to 20% is still where we are going.

As you know, there's a lot of fluctuations in variability in the currency markets right now.

Those need to be factored into any model that you use for the business, that is 65% plus international business.

That is important to remember.

I understand, but the street right now is looking for just under $1.2 billion in sales.

Is that a reasonable number from what you know right now given all the puts and takes that you know right now on the currency and so on and so forth?

What we said was that we expect top line growth to be in that 15% to 20% range, which would be close to where consensus is at.

If you think about the FX impact on revenue growth, which maybe isn't factored into everyone's models, there is a complete year, it is close to $20 million.

When we think about achieving $1.18 billion for '12 and we have a $20 million, or 2% shortfall in investors minds, on a relative basis, in terms of units and ASP, it is year over year being impacted adversely with the stronger dollar.

We believe, as Jeff said, given what we know today with FX rates and where we think we are going to be through gross margins and SG&A, we think we are close on the top line and we think we are going to exceed the bottom line EPS guidance.

Reed Anderson, Northland Securities.

Back to the discussions on revenue.

I'm looking more at the Europe piece or looking at near-term growth expectations on a geographic basis.

But in Europe specifically, if you look at the first quarter, the weakness you saw on the wholesale side obviously the direct was the nice offset there.

Over the near term, is that what we might see play out, whether it is due to the Web business or comps or new store growth timing where a lot of the direct mitigates the weakness you see in wholesale?

Does that mix sense or is it probably going to get a little bit worse for what we saw in the first quarter?

It would be consistent we think for Q2 and for Q3.

Where there is a give and take.

I think it is going to be little bit hard to tell where Q4 falls yet for Europe.

We're going to have, as we said on the call today, 25 to 35 new stores.

If you think about the fact that we only had roughly 30 stores there at the end of last year, this is a pretty significant investment in growth in our retail business in Europe.

What kind of impact that that is going to have when we get to the fourth quarter and having not gone through that yet, will be a little bit hard to tell.

Plus, the amount of wholesale revenue that right now looks like it has not materialized, it is going to have more of an impact on us.

I think we will give you more updates on what that looks like in future calls.

Store openings, that 25 to 35, those would be second quarter, third quarter most of those open?

Right.

Three opened in Q1, but a number of those also opened in the early part of April.

You will see a significant uptick in retail store openings when we do the Q2 call, and yes, it'll be more of a Q2, Q3 launch of new stores.

Back to the margin, specifically gross margin comments, you talked about product cost and cost of goods.

Is that piece, that component of that, does that actually get easier for you as the year goes on?

You have the worst piece of the cost impact or whatever might be early on and then you actually get more benefit as the year goes on?

Or would it be fairly even throughout the year?

I think when you look at our major cost savings, it is going to come out evenly throughout the year.

We have some comps that are easier than others during the four quarters.

But for the most part, the leverage on our infrastructure with the benefit of selling higher-priced products and the work that we have been doing with our factories to reduce our product costs, that is going to benefit us all year long.

Lastly on the comments you had on SG&A.

I think you said two-thirds -- on the non-direct piece, the growth rate was two-thirds of that of the wholesale growth.

Is that a sustainable type of number?

Is that where the business is positioned now?

Or was that some anomaly to the first quarter?

I think what we said in the script was that at the end of Q4 we said we wanted to hold our SG&A for indirect about two-thirds the rate of the revenue growth.

We were able to achieve that in Q1 and there's no reason to believe that we cannot continue to drive our leverage on our existing cost base going forward.

Scott Krasik, BB&T Capital.

A couple questions on the comps.

If you look at the comps in America and Asia, how much of that was unit versus price?

One-third is unit and about two-thirds is price.

In terms of the comp expectations for the rest of the year, especially Q3, are you going to continue to be able to price the way you have been for the last couple years?

I think the only real challenge in our business really comes in the fourth quarter when it comes to pricing and especially in the US and to a lesser extent in Europe when it becomes far more promotional.

Our communication, our internal directive is really -- we'd like to see 50% unit growth this year, 50% ASP growth as we continue to innovate and create more lifestyle products that are a little bit more sophisticated than the early, legacy 100% injection mold shoes that we get.

That has been our stated objective when it comes to growth.

A couple on the backlog.

Is there possibly anything in last year's backlog as of March 31 that had to do with Europe that may have never shipped or should not have been in there to begin with that makes the comparisons look less impressive?

No.

You have an 18% backlog at the end of Q4 and you probably pulled a little business forward as you said, which might explain the Q2 backlog coming in below where people were looking for it, but were there any cancellations relative to what you saw a couple of months ago for Q3?

We had no meaningful or material cancellations.

I think more hesitation with most of our key wholesale customers, but we have not seen cancellations anywhere.

Remind me, how much did you benefit from the warm weather in Q4, at least relative to the comps in your own stores?

Or because you were set up for cold weather and it didn't happen, you were dinged as well?

I don't know that there would be anything, Scott, per se that we pointed to or identified for Q4.

I think a lot of the questions that was asked earlier too, with Easter coming earlier and the US having such a mild winter, as did Europe and as did for that matter, Japan and China, so in a lot of our larger markets, we saw a much shorter winter period.

Does that mean that consumer buying preferences shifted more or are we going to continue to see people buy at the rates that they have been for footwear into Q2?

I think our opinion today and early indications are that this will be another good year for footwear, for especially spring/summer brands like us.

What is your comp implied in your Q2 revenue guidance?

We didn't break that out.

Something below Q1 though I would assume?

We didn't break it out for the comp.

Corinna Freedman, Wedbush Securities.

Congratulations on a nice beat.

Just following on Scott's question, what was the comparison last year for first quarter?

Could you give us the last year numbers for second quarter, third quarter and fourth quarter just so we know what we are going up against?

Secondly, if you could talk a little bit about the mailer that went out to 1.7 million households.

What was the ROI or the response rate?

Is there anything planned for second quarter or for the balance of the year that would also drive traffic similarly?

On the catalog that you are referring to that we mailed out, we were really happy with the ROI and the response rate of that particular mailer.

We did send it out to a broader audience, including some names that traditionally were not in our e-mail or mailing list before.

We used it as a piece to generate long-term demand, rather than just measuring it off of one catalog, we would like to measure it off of the overall success of the brand going forward.

We were individually happy with that particular catalog.

As far as the retail comps from last year, I don't know if you need the specific retail numbers.

Last year in the second quarter of 2011 we did $91.7 million of US dollars in retail.

What we didn't have provided was the comp number that is coming off of that $91.7 million going into Q2 2012.

Is that what you were referring to?

Yes, if you have the percentage comp.

We don't have that.

We'll have to get that you off-line or include something in our May 23 investor day.

That does conclude the question-and-answer session.

I will now turn the conference back over to you.

Thanks, everyone for dialing in today.

Just as a reminder, we will be hosting an investor day here at our campus in Niwot, Colorado on May 23.

If you did not receive an invitation, please contact Kevin Kim, or one of the other contacts that are listed on our press release.

Thank you all for joining today.

Have a pleasurable evening.

That does conclude today's conference.

Thank you for your participation today.