卡洛馳 (CROX) 2012 Q2 法說會逐字稿

Welcome to the Crocs, Inc.

second-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.

We ask that in the interest of time, participants limit themselves to one question each.

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

Earlier this afternoon, Crocs announced it's second-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 the Federal Securities Law.

These statements 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 Harbors Provision of the Securities and Exchange Act of 1934.

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

The Company may refer to certain the non-GAAP metrics, regarding currency on this call.

An explanation of those metrics can be found on the earnings release filed earlier today.

Now, at this time, I would like to turn the call over to Mr. John McCarvel, Chief Executive Officer of Crocs.

Please go ahead, sir.

Thank you.

Thanks for joining us this afternoon as we discuss our second-quarter results.

I am joined by Jeff Lasher, our Chief Financial Officer.

After I share a few opening comments, Jeff will review our second-quarter financial results and provide further detail on our guidance.

Before we jump into a review of the quarter, I would like to review a few of the key points we shared with many of you during our Institutional Analyst Day in late May.

This was an opportunity for us to discuss in detail how the Crocs brand has evolved from one iconic product into a true casual lifestyle footwear brand by diversifying into other relevant categories, such as sneakers, slacks, boots, sandals, to name a few.

Critical to our global expansion as a casual lifestyle footwear brand is product innovation.

This will help drive balanced channel and geographic growth as we focus on the identical long-term growth drivers we discussed at last year's Analyst Day.

These four organic growth drivers are as follows -- one, sustained growth in all regions; two, product driven with ASP expansion; three wholesale expansion; and four, investment in our direct consumer channel in retail and the Internet.

We are halfway through the year, and we are very pleased with where we are today.

In a far more difficult environment than 2011, we are on track to deliver our third -straight solid year of top line growth driven by global omni-channel operations.

Our new products and marketing campaigns are driving new consumers to the brand.

All of this coupled with strong management of the business, we have exceeded our EPS target as we deliver on our commitment to profitable growth to our shareholders.

Now to the second quarter.

Sales increased 12% to and all-time record $331 million.

This is achieved through three of the four growth drivers I just listed.

New products with higher ASPs, wholesale growth and the expansion of our consumer-direct channel.

[Realized] sales fell short of our expectation, and this came primarily from the inability to drive growth in all regions with the European markets becoming increasingly more challenging over the past couple of months.

In addition, sales growth in our US retail stores fell short of our expectations in the second quarter.

While we were disappointed sales were slightly below planned, I am pleased with the restraint we showed in limiting discount, mark down in products in order to preserve margins.

That is not to say we won't be promotional at times.

We will continue to utilize this lever going forward; however, our plan is to be more strategic and float end-of-life product through our outlets not price channel markets in a manner that is the least impact of the bottom line and it doesn't damage the brand's image.

Getting back to what drove sales in the second quarter, starting with new products.

We continue to see our commitment to innovation pay off in newer collection of wedges, sandals, sneakers, boat shoes and flats.

Most of which in aggregate carry higher price points.

In the second quarter, more than 54% of the volume came from new styles and non-clog products, while less than 46% was generated by clogs.

This trend should continue in the back half of the year as boots and other new colder-weather products increase as a percentage of our overall mix.

Wholesale expansion came from a combination of higher pre-books and an increase in at-once sales driven by demand for a new spring/summer product line.

This year the breakdown between pre-books and at- once was approximately 80% and 20%, respectively, compared to 77% and 23%, respectively, last year.

In the US, we continued to gain momentum, shelf space in the family footwear channel and mid-tier department stores, which have emerged over the past two years as the brand's sweet spot.

In Asia, where acceptance of new styles has consistently outpaced by other regions, wholesale gains are primarily coming from Japan, China and throughout the Middle East where our distributor partners continue to aggressively open wholesale accounts, as well as their own stores.

Finally, the economic situation in Europe has made it more difficult to turn around as one sizable business, and in recent wet weather in several key markets has compounded our issues in the second quarter.

With that said we are optimistic that our current efforts to rebuild key wholesale relationships through more complete product offering and improved execution will yield positive gains beginning next year.

Turning to our Direct Consumer business.

Retail sales increased 23% over a year ago, fueled by the addition of 87 net new locations over the past 12 months.

Over this period, we have closed 21 kiosks, including three in the second quarter as we focused on opening larger, more productive stores formats.

Year to date we have opened a net of zero net retail locations in the United States, 35 in Asia and 19 in Europe, and remain on track to open 100 net new locations in 2012.

With regard to comps, as we expected our momentum slowed from the first quarter due to the Easter ship in the United States and the warm start to the season, which we believe pulled some sales forward out of Q2.

Versus our expectation comp sales were a little light in the Americas region, as I mentioned.

Looking at the Americas region's comps for the first six months, which we think is a more accurate picture of the channel's recent performance, we're up 3%.

Asian comps continue to outperform the Company average of 7%, while Europe was up 13%, which is a very encouraging trend under the current circumstances there.

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 second-quarter 2012 results, and I will start with some highlights before going into some details.

First, revenue for the quarter increased $35 million, or 12%, to $331 million.

This level represents a record volume for any quarter in the Company's history.

And constant currency basis revenue grew 15%.

Same-store sales on a constant currency basis increased 2% globally in our retail channel, and Internet grew 10%.

We also generated a record average selling price of $22.46 during the quarter.

Second, we were able to focus on enhanced profitability as we generated improvements in our operating margin driven by gross margins, which expanded 170 basis points to 59.3%, compared to Q2 last year.

Third, we continue to focus on building up a strong balance sheet as we ended the quarter with cash of $279 million, and inventory up just 6% on a year over year basis.

These factors combined contributed to the $0.07 increase in diluted EPS to $0.68 per share during the quarter, which exceeded our quarterly guidance.

Looking at the results in more detail.

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

The Direct-to-Consumer channel grew during the quarter with increased sales of 9% in retail.

We ended the quarter with a 197 locations, up from 192 locations last year.

At the end of the quarter, we operated 22 less kiosks than last year as we continue to open full-line and outlet locations.

Same-store sales in the Americas were down 1% on a constant currency basis compared to the same period last year.

As we said in our Q1 call, we anticipated an impact from the earlier Easter and early onset of warm weather.

For the six months of the year, our Americas same-store sales have increased 3%.

Internet sales in the Americas improved 13%, and wholesale revenue improved 12%.

Specific to the United States, revenue has increased 11% for the quarter and represented 33% of total global sales.

Sales in Asia were strong across all channels.

Japan grew 6% during the quarter and was our largest revenue-generating country in the region, representing 38% of sales in the Asia region and 17% of total global sales.

Recall that last year in results for Japan, last year, included $3 million of revenue shift from Q1 to Q2 after the tragedy last year.

Excluding this shift, sales would've been in the low-teens range.

Asia retail sales increased 39% during the quarter as we ended with 233 stores, up from 175 a year ago.

Same-store sales in Asia on a constant currency basis, increased 5% from 2011, with strength in same-store sales located in China and Korea.

Internet sales in Asia continue to experience strong sales generating a 44% increase off of a relatively small base.

Our China business grew 55% over last year, and are our Korean unit increased 53% over last year.

Turning to Europe, total sales increased 5% on a constant currency basis during the quarter.

A small decrease in our Wholesale channel and Internet channel was more than offset by growth from Retail.

With the addition of stores and a 10% constant currency, same-store sales increased driven by results in Germany and Russia.

In the Retail channel, we ended with 54 locations, up from 30 a year ago.

In the second half of 2012, we will acquire 10 stores from our former Benelux distributor, and we have plans to open the 20 to 30 additional locations throughout Europe.

Wholesale sales on a constant dollar basis were about flat.

Internet sales were down for the quarter as we decreased the promotional cadence and deeply discounted freight and returns.

The weakening Europe currencies, primarily led by euro, was offset by strength in the Asian currencies during the Q2 as compared to our expectations for the quarter.

Globally, Retail channel revenues in the second quarter increased 23% to $112 million.

While retail locations increased by 22%, as we end the quarter the total of 484 Company-owned retail locations globally, up from 397 last year.

This includes 220 full-price stores 108 store-in-stores, 111 factory-direct stores or outlets and 45 kiosks.

Globally, same-store sales the quarter increased 2% during the quarter on a FX-neutral basis.

On a year-to-date basis, same-store sales have increased 5% over last year, with Americas at 3%, Asia at 7% and Europe at 13%.

For the remainder of the year, we plan to open an additional 45 to 55 stores.

At present, we project our full-year store openings to be 100 to 110 net additions.

This is broken down by region with Americas net openings of about 10, Asia of about 40, Europe of about 50 to 60, including the 10 acquired partner stores.

Turning to product data, our percentage of second-quarter revenue derived from clogs silhouette fell from 49% to 46% in the quarter.

Also, our new product introductions globally represented about 35% of our Q2 unit sales.

As we highlighted at our Analyst Day earlier in the year, we continue to grow the clog silhouette while diversifying these other important categories.

A few product highlights during the quarter included strength from the Duet products, women's wedges and our Translucent Collection.

Average selling price in Q2 increased $2.50, or 13%, to $22.46 compared to last year in the same period.

Globally, footwear unit sales in the quarter were down 1%, to 14.1 million pairs, For the first six months, total unit sales were 27.7 million pairs, up 3% from 2011 first half.

Gross profit for Q2 2012 was $196 million, up from $170 million in the second quarter of 2011.

Gross margin was 59.3% in Q2 versus 57.6% in the prior year.

We benefited from key initiatives in controlling our cost of goods sold, lower promotional activity, improve economics from new product introduction and a continued [overweight] growth of our Asia business.

Second quarter 2012 SG&A increased 15%, to $125 million, compared to a $108 million in Q2 2011.

As a percentage of sales, SG&A was 37.7%.

The SG&A dollar increase was driven by investments in our Direct-to-Consumer channel as we continue to build a retail network globally.

Our indirect SG&A increased 5% compared to last year.

Overall, operating income increased 15% to $71 million, or 21.5% of sales, primarily driven by improved gross margin in increased revenue.

Additionally, gains on foreign currency transactions had a positive impact in Q2 results by $1.6 million.

These gains were comprised of foreign currency gains and losses from the re-measurement of certain balance sheet items and inter-company settlements.

That is an impact of foreign currency's derivative instrument.

Net income before taxes for Q2 2012 improved $9 million to $74 million, and $35 million of additional revenues.

Income tax expenses for the quarter was $12 million for an effective tax rate of 17%, slightly below our expectations, as our country profit shifted to lower-rate locations in the quarter.

Net income was $61.5 million, or $0.68 per diluted share on 91.1 million shares compared to 55.5 million, or $0.61 per dilute share, in the prior year.

Recall that last year we had a one-time $3.6 million tax benefit, or $0.04 per share.

Our balance sheet continues to be strong.

We ended Q2 with $279 million in cash, a 55% improvement from 2011 levels of $180 million.

Inventory was $166 million, up 6% from last year.

And, at the end of the quarter, we had essentially no bank debt.

Moving onto backlog, backlog at the end of the quarter increased 3% from the same period a year ago to $173 million with ASPs $20.21.

This is up, again, to 2011 backlog increase of 42% experienced last year.

Regionally, Americas' backlog increased 12%, Asia was flat and Europe was down 11%.

In constant currency, our backlog grew 6%.

In June, the Company made the decision to replace our current enterprise resource planning system.

We have selected SAP as our platform and anticipate the new system will launch in 2014.

The incremental costs in 2012 associated with this project are expected to be approximately $0.01 per diluted share per quarter and is included in our full-year guidance.

Moving on to guidance, for the third quarter of 2012, we expect to generate revenues of $300 million.

We estimate diluted EPS in the $0.42 to $0.44 per share range.

This compares to diluted EPS of $0.33 last year.

Currency estimates used for the quarter are $1.24 US dollar to euro, and JPY0.79 to the US dollar.

dollar.

Our guidance for Q3 2012 include an assumed effective tax rate of 19% to 20%.

We expect that in Q3, the relatively strong dollar compared to the same period in 2011 will represent a 5% headwind overall.

In Europe, we expect that the stronger dollar will represent a 14% headwind in Q3.

This stronger dollar will also impact our gross margin slightly, but we estimate that our comp controls and leverage will offset this impact.

Back in May, during our Analyst Day, we provided full-year guidance of $1.47 per share in earnings.

Our year-to-date EPS of $0.99, combined with these Q3 estimates, total $1.41 to $1.43 per share through the end of September.

For the full year, 2012, we project EPS to be between $1.50 and $1.54, which includes the benefit from Q2 and ongoing cost leverage that will offset our above-mentioned $0.02 per share from the new enterprise system.

This guidance assumes and effective tax rate at the low end of the19% to 21% for the full year and continued exchange rates, mentioned earlier.

We estimate the full-year growth in US dollars will be about14% over 2011, but in constant currency dollars, we estimate overall growth will be about 17.5%, right in the middle of the range we provided earlier this year.

Thanks, and now, I will turn the call back over to John.

Thanks, Jeff.

We are very pleased with our bottom-line performance year to date, as diluted earnings per share are up 16% compared with the first six months of 2011.

This is been driven by record revenue coupled with meaningful gross margin expansion from higher product margins and supply chain efficiencies.

Based on our revised guidance, we're expecting on improving our profitability trends to continue over the second six months of 2012.

With regard to top line trends, given the ongoing challenges in Europe, including currency headwinds, coupled with a tough selling climate for [sole] products, as a result of last winter's mild weather, we are encouraged by our backlog.

We are optimistic about a wider portfolio of new fall, winter products, and expect they will generate excitement at retail, help further establish Crocs as a four-season brand and give us good momentum adding into the year.

Early indications on our spring-summer '13 line and various markets around the world have been very positive.

We are just starting to take orders for spring-summer '13 now, and we will be able to give you more detail during the Q3 call.

Operator, we are now ready to take questions.

Thank you.

(Operator Instructions)

Erinn Murphy, Piper Jaffray.

Great.

Thanks for taking my question.

John, I just had a question for you, actually, at first.

It sounds like unit sales were down about 1% in the quarter, in the second quarter.

I thought maybe it would be helpful if you can put this in context for us as with the comment you made earlier on in your prepared remarks about just restraining some of that discount product as you focus truly on the profitability and the margin.

It would be helpful if maybe to look at the unit sale in Q2 you commented on versus maybe the first half in aggregate, and then, potentially your plans for the second half as you really focus on driving that profitability.

Thank you.

I would be happy to.

The way that we look at our business in the first half of this year, Crocs, is that we sold 27.7 million pairs of shoes in the first six months versus 26.8 million pairs of shoes the previous year.

Our stated objective has been, and we have talked about this in prior calls and during the investor meeting, is that we would like to see 5% of our growth come from unit volume expansion.

In the first six months, on a comparative basis, we are up 900,000 pairs of shoes, or 3%.

There are two factors when you think about growth that are impacting that unifying growth, and that is is that in 2011, we sold 520,000 more pairs of shoes into the Discount channel, the TJ Maxxes, the Big Lots, into people to move our end-of-life product, which this year, as we've cleaned up our inventory and we continue to focus on our supply chain management systems, we have not taken product into the end-of-life kind of channel to dispose of that product.

That is 500,020 pairs of shoes that we did not carry over comp year over year.

If you look at the impact to our European business, we are down roughly 14% unit volume in Europe, or about 700,000 pairs of shoes.

Had Europe been neutral, had we sold the same amount of product into our Discount channel retailers, coupled with the 900,000 shoe growth, we would have actually seen a growth of 2.1 million pairs of shoes, which would be closer to about 8%, 9% growth in units.

What does that tell us?

It tell us that really, today, in our own existing channels, what we see at both wholesale globally, with the exception of probably some markets in Europe, and with our own products at retail is, our new products continue to resonate with consumers.

That this transition from what we once were in the clog space to truly being able to get new consumers to think about us for flats, for wedges, for other men's products, casual lifestyle space, are resonating, and we are growing actually unit volume with those consumers.

Thank you, that is very helpful.

Just a quick separate question, actually, on the European macro environment.

If you could just speak a little bit more to maybe some of the specific regional trends you're seeing.

You've started some company management specific -- excuse me, country-management structures in UK and Germany, how are you seeing those markets contrast potentially some of the other markets you are in?

Europe, like Asia for us, it is a wide diversity of ethnic cultures and weather.

When we look at the really northern European marketplace, from England, Holland and really above, we continue to see again a second season of really difficult weather.

Rainiest season on record in Scotland and England.

This clearly has an impact on both on the mood of the consumers as well as people shopping for summer products.

I think the good news has been that we have brought in additional management staff into Europe.

We are seeing better upsell this year in Germany as we place more products into a wider diversity of retailers in the warmer weather climate where you still have a high number of tourists; we are seeing good sell through in those markets.

The new stores that we have opened in France, two of the new stores that we've opened in France, the one in Nice that we've talked about as kind of a place where we need to be in Europe on a going-forward basis is up 50% over what our expectations were for that store when we opened it.

I think the diversity in the marketplace, the economics in different countries and just the ebb and flow of financial information also has tremendous impact on the people that live in those countries.

It is impacting consumer behavior, and it is impacting the amount of product we're selling this year.

Thank you guys very much, and best of luck.

Jim Duffy, Stifel Nicolaus.

Thanks, hello everyone.

John, I am hoping you can share some insights about the changing cadence of the business across the quarter and into the early part of third quarter specific to each of the different regions?

I will give it my best shot.

I think in our US business, we have kind of seen the ups and downs during the quarter with respect to retail.

We have had some good weeks in warmer-weather climates and it was clearly impacted by the early spring pull forward and the holidays.

As the quarter has gone on, I think we see a little bit more appetite for product leading into the third quarter.

For our wholesale accounts, I think across the board, and I was out at the end of June visiting six of our top 10 accounts, I don't think we have ever had a better working environment.

Sell-throughs have been good, all of our core wholesale partners are happy with the product line, the traffic that it's driving, and I think that all indications are that we are going to continue to expand a diverse presence in all of our major accounts going into '13.

Our model, as we touched on in both Jeff's presentation and mine, has changed a little bit again this year where we have not sold as much or chased as much affluent business as we did in the early days of the Company.

That has clearly impacted a little bit of our top line growth for Q2, just with the model change.

I think kind of building on a little bit with what I said to Erinn with respect to Europe.

It is a happy day there today in our Amsterdam office that they have actually had three straight days of sunshine, and with that, people get out and there's some pent up demand.

What will that look like in the third quarter coupled with the Olympics starting at the end of this week?

The psyche of the consumer will hopefully be in a more positive mode, and I think we are still waiting to see what the impact will be with more people in England, in the UK market, during these three, four weeks of the Olympics.

It's a little bit early for us to tell there.

Across our Asian business, you have a good summer going on in the Middle East.

We continue to see that extend and expand from what we've talked about before.

More stores openings with our partners in the region and additional new products going into all of the Middle East countries for the third and fourth quarter.

A lot of conversation with respect to China and Hong Kong.

I don't know that we are in the same realm when we're a casual lifestyle product in that $25 to $50 price point space.

We continue to see good traffic across the board.

Our business in China and Korea has been very solid this year.

Early indications for pre-books for spring '13 are very strong, and whereas we don't have final numbers into the system yet, we think we are going to see solid growth in those markets.

But, we are at a different price point.

We are an aspirational brand for the middle class.

We still have a lot of room to grow in China with the amount of wholesale and retail doors that we have in that country.

So, we are going a little counter direction, Jim there, than maybe what other people have said, and our Hong Kong business has flattened out year over year because of the same issues that people have seen that less -- they are seeing less footfall traffic in our Hong Kong stores.

But nothing dramatic and not it's really impacting the overall business, just we are comping at a more neutral level year over year.

That is very helpful, thank you.

Then, in the context of the revenue trends you've seen in Asia during second quarter, I was surprised by the Asian backlog numbers.

Is there anything unique with respect to the comparison on those?

I think that the northern Asian marketplace is seeing the same kind of challenges weather-wise that we saw in both the Americas and Europe.

We still see a little bit of growth with our Chinese wholesale partners.

We see a little bit of flatness with our Japanese accounts when it comes to what the appetite for fall-winter products are going to be at this point in time because they also had a short winter there last year.

Backlog growth in the Americas was up about 10%, Europe was down about 10% year over year and our Asian business, in total, is flat right now with a lot of that still waiting to see what happens weather-wise in this market.

I think the other thing that happens for us, is we go to the back half of this year, and we are going to have a 100 to 110 additional stores, retail locations online this year, and our back half of the year does shift to being a little bit more direct business than it has been wholesale, as it is a little bit harder still for us to convince wholesalers to take Crocs as a fall holiday brand.

Okay.

Last question, and I'll let someone else jump in.

Your inventory management looks really sharp, particularly in light of a sales number which came in short of what you had previously thought.

How did you manage to keep the inventory so tight?

What do you see from inventory levels in the channel into the third quarter?

Jim, this is Jeff.

When you look at our inventory levels in the balance sheet, we are up about 6%.

Sales are up 12%.

So, the team has done a good job of managing that growth in our total dollars of inventory.

As far as the channel health of our inventory, we are pretty happy with the levels in the inventory channel.

We don't really see any big surprises on either side, but I think that the real key for us from an organization perspective is the focus that this group has put on inventory over the past couple of years and a commitment that we all have to manage our inventory very conservatively and prudently.

Great.

Well done.

Thanks.

(Operator Instructions)

Corinna Freedman, Wedbush Securities.

Hi there, guys.

Just wondering if you give us an update on your plans for fall in the family footwear channel and how you have been increasing shelf space and increasing your marketing/POS initiatives there?

So, If you could just give us an update for fall that would be great, thanks.

I think to the US wholesale market, a lot of conversation when we are out of the end of June with them with respect to three key stories, three key new product collections that we are launching this year plus one extension to last year's Cobbler collection of products.

It is a little bit harder for us on the sell-in there given the inventory positions that most of our key wholesale accounts have in the mid-channel, and in that kind of mid-tier department store arena.

So, I think we are going to get a little more placement based on our conversation out there, that we are going to see some of those key stories show up in locations that will either end up in end-caps, on tabletops, that will give us better feeling for whether these new selection of products do resonate with their consumers and if their consumers would truly shop Crocs on a fall holiday, fall-winter kind of basis.

So, the backlog is there.

We are getting some additional space and orders going into third and fourth quarters, and now, we are going to see what the weather is like and how that executes.

If I can ask a follow-up, do you have an update on your licensing initiatives and what we could expect for fall or holiday?

Licensing has continue to be with the primary key partners that we have had in the past, with Disney, with some of the other properties that we have had.

I don't see any change really on licensed products.

When it comes to some of the licensing initiatives that we have had around accessories and kids apparel and some other small pieces of apparel, we never thought that it would be a meaningful piece of business this year.

It is really something that is in our three- to five-year growth initiative, and I think you're going to continue to hear more about that as that continues to grow in be meaningful really over the next 6 to 12 months.

Okay.

Thank you.

Sam Poser, Sterne, Agee.

Good afternoon, thanks for taking my call.

Can you talk a little bit about the longer-term growth plans specifically in South America and Brazil and how you are looking at that and timing of Latin America really?

I think our Latin American market, we'd consider everything from the Caribbean and Mexico really, and south, as part of that discussion equation.

We feel that the business is continuing to grow nicely in many of the markets there.

Today, we sell into Ecuador, Venezuela, Chile, Argentina.

We have our own operations in Brazil that allows us to open retail stores, and we bring on our Crocs website here in the coming quarter.

I think we feel like we have all the pieces in place.

I think Jeff can talk to this a little bit.

What we have seen, really, over the last 12 months, is the just impact of the dollar to the real and what is happening there.

We see a huge amount of Latin American consumers, both in our Florida business as well as in our California business, as people that are buying the brand, taking it back with them because a) we don't have enough distribution and b) just because of the arbitrage in pricing and the cost to sell products there.

It is more beneficial for them to buy it when they are in the US.

So, we see a real connection with the consumers there, and I think we have said that we think we are going to continue to grow that business at a rate of about $25 million, $30 million per year for the next two years.

So, we think that there is a good market there for -- across the board for Mexico, Caribbean all the way down to South America.

Let me just a follow-up, specifically on Brazil and Chile, and then in Europe, in the Latin American countries there, and Spain and Portugal as well, if you are seeing any improvement in those markets yet?

I think we were going to see, with the real, what I said and what is going to happen with their spring-summer coming forward here in the next six months, we are going to see what that looks like and what kind of impact we are going to have on the FX side of that end in the larger markets like that.

I think for the European market, I mean a couple of things is going to happen for us there.

One, we, as Jeff said, have taken back our distribution rights now in the Benelux in a smooth transition with our distributor partner there for the past seven years.

So, we have been working at this for last few years, making sure that as we then take on both their retail and wholesale accounts, that this is something that we feel we can leverage going forward.

We've done the same thing in Spain relative to retail.

Now, there is not a whole lot of retail in Spain today that the distributor have, only two stores.

One in Madrid, and one in Barcelona.

That is that nominal impact, but again, it is a place where we think when we talk about opening locations in the back half of the year, those would be more outlet-type centers in a warm weather, tourist-type climate where we just don't have enough distribution today for our product.

Does that cover what you want in both areas?

Scott Krasik, BB&TCapital Markets.

Hi, thank you.

John, you sort of alluded to it, but it sounded like the comps are positive so far in the third quarter, and are there any opportunities given your merchandising missteps in the outlet stores in the third quarter -- how good could the comps recover in Q3?

And then I have a follow up.

I think what we feel is that we have built in the same growth rates in our business in the back half of year for retails as we had in the first half of the year.

We don't see anything meaningfully changing year over year.

I know last year we had some difficulties in the third quarter in our US retail business.

I think its a little early to tell how that will affect our overall comp performance for the quarter, but the way that we have built our guidance, and the way that we are looking at our business today, is similar growth rates in retail comp level performance in retail from the first half of the year to the second half of the year.

Okay.

Thank you.

Then, a question on backlog.

Are spring bookings in these numbers yet?

I know that Japan, for instance, had a very cold, wet early summer.

What impact is that really having on a point basis on the backlog?

For the specific backlog total as of June 30, 2012, you'd have a very nominal amount of business beyond 2012, so it doesn't really represent the strong belief that we have that our spring-summer '13 product line is the strongest that we have ever had as a Company.

So, we haven't seen those financial numbers come in, but we are looking forward to those this quarter and have a little bit more color for you in 90 days when we do the Q3 call, and we will be able to provide additional backlog color at that point.

To your question about Japan and the backlog there, It think it is also important to recognize that last year, they had a very strong year in Japan, and we grew substantially in the Japan market last year.

So, they do have some tough comps, and in fact, on a global basis, our backlog at the end of Q2 2012 was up 45% compared to Q2 2010.

If you look at it from a two-year growth perspective, the global backlog is up significantly, 45% over a two-year period.

Okay.

Thank you.

Mitch Kummetz, Robert W. Baird.

Thanks.

Along those lines Jeff, on the backlog, in the past, you've broken it out by the next couple of quarters.

I was hoping you might be able to do that, break that out Q3 and Q4.

Yes, sure.

Q3 represents about a flat year-over-year growth.

A lot of the growth in the backlog on a nominal basis is in Q4, about $46 million versus last year's $41 million.

Again, those are in nominal basis.

As far as the constant currency with the growth would be stronger.

So, about 12% on a nominal basis in Q4.

Again, in Q3 about flat.

Okay.

Just as a follow-up, on the gross margin, obviously very strong in the quarter.

You mentioned a number of drivers there.

As you look out into the back half, I guess I am going to be starting with Q3 given your overall sales earnings guidance.

What are you expecting for gross margin, or do expect some of the similar drivers to be in place?

I know your gross margin was a little tough last year given some of the issues you had in Q3.

Yes, Mitch, we are anticipating about the same kind of trends going forward.

Like we said in the script earlier, we have benefited from improvements in our supply chain costs, a shift towards new product, the strength of our retail in Asia business, all of those trends continue into the back half.

I think we said back in May that we anticipated, I don't know, zero to 150 basis points of improvement in margins, and we should be at the high end of that range as we look out for the end of the year.

Sorry, zero to 100 basis points, what we said in May.

Okay.

That's helpful.

Good luck.

Reed Anderson, Northland.

Good afternoon.

Most of my questions have been answered.

I was curious, if you kind of look at the retail business and in the Americas, you continue to grow, even though store count is flat and comps are kind of flat, and that obviously reflects a transition from kiosks to stores.

How long can that go on?

Where do we anniversary that where you don't have the benefit of a bigger footprint?

Just trying to get a sense of where the timing of that would be?

Reid, I think one of the things that gets lost, sometimes, when we just look at the numbers is how much we have changed from a product portfolio presentation standpoint connection with the consumer overall marketing aspect.

I think when we think about any business, of this is a 10-year-old business and a 20-year-old business and you had very established lines of product that consumers were shopping you for, then I think you are going to draw certain conclusions from that.

The fact that we are getting more new consumers to come into our stores and come to the website and look at us like they have never looked at us before.

Our consumer data that we have been building now for the last 18 months, really shows that the negative element of our brand is dissipating at a pretty good rate.

That consumers today do look at us in a different way, that people who never considered us before from a product standpoint, from a consumer standpoint, now look at us at both the mom level and as well as the dad level when it comes to products.

Our male and female consumers are considering us in ways that they never have before.

In the meantime, as we've talked about this, the clog business, it is slowly starting to find a level that we are going to be happy with and that I think is going to be sustainable, we all feel is going to be sustainable on an ongoing basis, the core foundation for the brand.

So, when I think about the impact and when we look at our retail business today, the fact that our revenue per square foot is still pretty significant relative to many of the other people in the marketplace.

Our operating income, obviously, from our numbers, as you can all see today, has been pretty solid again this quarter even with our nominal comp growth and even a negative comp growth in the Americas.

I think you can see what is happening.

We can see what's happening.

How does that look 12, 18, 24 months from now?

I think the optimistic view of this is that we are going to continue to convert and attract new consumers to the branded stores.

They are going to perform better in the long term as people consider us in a different way.

I think the negative aspect of that is that you are comping off of some pretty good revenue bases in a number of stores, and you might be, you might think about that in a way that can they really sustain that level of business?

Okay.

Fair enough.

I completely understand.

So, okay, good.

Then, I guess, Jeff, just relative to store growth, the remaining stores we have got left to open, timing for that would likely be -- most of those in front of the holiday, or do you think there'd be some that would slip further back into the fourth quarter?

I'd expect a, I think, 20/20 split, Q3, Q4.

So, the goal would be get any of the Americas stores open in advance of Christmas, but the European ones will come in, the Asia ones will come in throughout the Q4 period.

Not a whole lot of stores open in the month of December.

Okay.

Great.

Thank you.

Best of luck.

Jonathon Grassi, Longbow Research.

Good afternoon.

Thank you for taking my calls.

Just looking at the SG&A, I believe the initial expectation going into the year was to be flat, to lever it.

With these top line headwinds, is that still possible?

Or should we expect a similar amount of deleverage that we saw in 2Q over the balance of the year?

I don't think it is going to be a similar amount of Q2 leverage because we did have a lot of additional stores on a year-over-year basis in Q2 versus the revenue generated last year, so I don't think it is necessarily an indication of the full year being deleveraging to the same extent.

I think we said back in May that we anticipate a little bit of leverage.

Now, it is going to be close to a flat on the SG&A.

I think the more important thing is for the operating income leverage that we see all over the overall organization not necessarily the [binning] of the cost of good sold versus this, you know.

Okay.

Fair.

Can you guys just talk real quick about how your products at the highest price point level have performed and how it is shaping your approach to spring 2013?

We had a sub-brand called YOU by Crocs that sold anywhere from $100 up to $200.

More traditional footwear, leather, at base trying to build comfort cushioning into the foot bed.

It is something that we have shuttled this year in the first half of the year.

What that teaches us about the brand is really on the higher price, when its getting into that $100 range, we are still earning our way into those categories.

It has to bring enough innovation to the consumer that they feel that Crocs plays in that space.

I think probably one of the best places to see that is that the innovation that's built into the golf shoe.

These are anywhere from $90 to $110.

More than that in our Asian marketplace.

Consumers are willing to pay for that, for comfort, for a true product in that space.

I think we look at the majority of our products being that $25 to $50, $25 to $60 price point.

I think our wholesale partners feel that that is also the place where we play where we can bring enough comfort, fun, innovation and color, and not much of our product goes above those price points.

So, we are pretty comfortable where we play today.

We think that there's a lot of opportunity to grow just within that space.

Okay.

Thank you.

Jim Chartier, Monness, Crespi and Hardt.

Hi, thanks for taking my call.

You talked at the Investor Day and I think last quarter about bringing back the Mammoth for fourth quarter.

Can you just tell us why that has performed better than the similar products like the Blitzen, and what channels and regions is this going to be most important for you?

Jim, what we said there was that we really had three major pushes for the fall holiday season this year, which was a continuation of building on the Cobbler collection of products that we came out with last year, which fell into those price points I just talked about, but getting, in some cases, up to the $80 price point.

It's a place where its [safe], not an indoor product, per se.

So, that opens up, again, our product to new consumers.

Same thing with the [Rainflow] Boots, which is really a nice new technology innovation-based rain boot.

We think, again, this puts us in a place where we don't have other people with similar kinds of products.

And lastly to the point that you raised, which is the Mammoth product, which was wildly successful in its early stages.

Personally, Jim, I just think the product looks a lot better.

The design of the Blitzen was a little bit more masculine than it was a unisex.

This kind of goes back to our core heritage of the original clog and of the original Mammoth, and it brings a new liner [story to it].

It's a nicer looking, more comfortable product, and it is a place where consumers do look for products from Crocs in this space.

I think it will be a good hit for the upcoming fall-winter season for us.

Are you going to keep that in your retail stores?

I know you said it was used as a discounted product in some wholesale accounts in the past?

No, the Mammoth was one that as it got old and aged a little bit, it did end up other channels.

It will be front and center in our retail stores for this fall-winter globally, as well as some of our key independents and other wholesale accounts.

Great.

Thank you.

Mike Swartz, SunTrust.

Good evening, everyone.

Just wanted to kind of dig into the inventory position at your Company-owned stores a little more.

Maybe you can provide a little more granularity around those levels.

Your full-price stores versus at some of the outlet channels?

We didn't really break down inventory by store.

Maybe is there something specific I can answer for you?

Directionally, maybe year-over-year, what does it look like?

What does the inventory levels look like?

Are you carrying a lot more inventory at your full-price outlets this year versus last year, and a similar question on the outlets?

Across the board in Q1, we did cleanup in our US business with respect to the amount of product that we have, the type of product that we have, where it was positioned, and it reduced our inventory level in stores and in back rooms by about 30%.

With that product, we are able, then, to bring it back and redirect it into the right channels, consolidate what might have been broken product in the marketplace.

So, all of that was done in the first quarter of 2012 on the US side of the business.

side.

Okay.

So nothing materially different in the second quarter, then?

Nothing materially different in the second quarter, and we are just starting to start to phase in certain markets, into back-to-school and then back into the fall time of the year, so what you will see is inventory starting to change over depending upon location of the retail stores.

A significant focus here in our business to be able to do auto-replenishment quick and retail replenishment programs to our stores, so we stay as best we can in stock on core colors, sizes and products.

Great.

Very helpful.

Just maybe jumping over to the European business, can you maybe provide some more color on your distributor, wholesale distributor, base over there.

I know you guys use a lot of smaller, independent distributors.

Maybe you could flush out some more color there?

Actually, we are at a point now where we don't have a large number of distributors in that market actually at all anymore.

We have a partner for wholesale in both Italy and Spain.

We are direct in Portugal.

We are direct in almost every other major Western European country.

We are at direct in the Nordic, in Sweden and Finland, agents in the other Nordic countries.

We are direct in Russia, with our own office in Moscow.

We do use distributor partners in the Balkans.

We do use distributors and partners in Eastern Bloc countries and CIS countries, but the major markets today are all direct.

The Benelux market was really the last key market to come to be direct for us.

Okay.

Thank you.

Steven Marotta, of CL King & Associates.

Good evening, everyone.

Most of my questions were asked and answered.

Very quickly, your ASPs were up about 13% in Q2.

What are your expectations quantitatively for the back half of the year, please?

Could you say that one more time.

I am sorry.

No worries.

Your ASPs were up 13% in 2Q.

I am wondering quantitatively what your expectations are for ASPs in the back half of the current year.

What we say is the ASPs is in the backlog were $20.21, up from $19.79 last year.

We saw a big improvement in our ASPs last year in the back half of 2011.

We saw $22.18 and $21.09, respectively, in Q3 and Q4.

So, we already saw some pretty big increases, and I think you will see that kind of percentage increase in ASP, but probably not to the same extent you saw in the first half of the year where we were up against some lower ASP numbers.

Sure, great.

Thank you.

At this time, we have no further questions.

I will turn it back over to Management for closing remarks.

Thank you.

Thanks to everyone for joining us for today's conference call, and we will talk to you again at the end of the third quarter.

Once again, that concludes our conference.

Thank you all for your participation.