卡洛馳 (CROX) 2012 Q4 法說會逐字稿

Welcome to the Crocs fourth-quarter and full-year 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 and 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 you that this conference is being recorded.

It is my pleasure to turn the conference over to Mr. William Kent, Senior Director of Investor Relations.

Mr. Kent, please go ahead.

Thank you.

Thank you all for joining us for fourth-quarter and year-end 2012 earnings conference call.

Participants from the Company include John McCarvel, President and Chief Executive Officer, and Jeff Lasher, Senior Vice President and Chief Financial Officer.

During today's call, John McCarvel will share some opening remarks, cover fourth quarter and full year highlights and talk briefly on Crocs' corporate strategy.

Jeff Lasher will review our fourth-quarter and full-year financial results in detail and cover guidance.

John McCarvel will then wrap up our prepared remarks with a few closing comments.

Earlier this afternoon, we announced our fourth-quarter and full-year 2012 financial results.

A copy of the press release can be found on our website at Crocs.com.

We 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 Laws.

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

We caution you that these statements are subject to a number of risks and uncertainties described in the Risk Factors section of the Company's 2011 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 these forward-looking statements to reflect the impact of future events.

The Company may refer to certain non-GAAP metrics on this call, including adjusted net income.

Explanation of these metrics can be found on the earnings release filed earlier today.

I will now turn the call over to John McCarvel.

Thanks Will.

Thanks for joining us this afternoon as we discuss our fourth-quarter and full-year 2012 results as well as a look forward into 2013.

2012 was another milestone year for Crocs.

We continued to expand the brand globally, executing on a multi-channel strategy, growing our revenue 14% on a currency neutral basis, and improving earnings per share by more than 16%.

Unit sales of nearly 50 million pairs were up 5% versus last year; improved ASPs, up 8% versus last year; and global same-store sales growth of 2% contributed to our full-year gains.

Our global multi-channel strategy continues to thrive as we sought year-over-year growth in all three channels on a currency neutral basis, with wholesale up 10%, retail up 23% and Internet up 9%.

We saw growth on a constant currency basis in all three operating regions.

The Americas grew 12%, Asia grew 20%, and Europe grew 6%.

Finally, we ended the year with 537 retail stores, up from 430 a year ago, as we continue to push into new markets and geographies and we continue to upgrade the format of our retail locations from kiosk to full price stores and outlets.

Turning to our fourth quarter results.

During the quarter, we experienced solid revenue growth of nearly 11% on a currency neutral basis.

Our revenue was about $5 million higher than our prior guidance, as we saw good acceptance of our fall/holiday products, and exited the quarter with lower than expected inventory.

Backlog at the end of the fourth quarter was up 15%.

Gross profit dollars for the quarter increased nearly 11%, adjusting for the contingency accruals highlighted in our press release.

Profitability was impacted during the quarter by the difficult holiday retail sales season we and other retailers experienced in the Americas, continued economic weakness in Europe, and softness in Asia, most specifically, Japan.

The fourth quarter, while challenging on some fronts, represented another important building block for Crocs.

We continue to expand our brand in the continental Europe, Russia and the Middle East.

We opened our retail stores in time for our prime spring/summer selling season.

We opened up 38 stores in the fourth quarter primarily in Europe, as we believe our current retail footprint positions us well going into the 2013 season.

Equally as important, our new seasonal products performed well, too.

The focus in 2013 will be to continue our global multi-channel approach to the business with an enhanced emphasis on the consumer.

Significant investment was made in marketing in 2012.

Building on our internal creative team, marketing analytics, including brand strength monitor and consumer feedback software and research analytics.

We believe we are now in a position to effectively invest in the brand and generate an effective return on our investment in marketing going forward.

We will be increasing our marketing investment in 2013 by about $15 million, or 33%, in order to expand consumer awareness around the brand.

Marketing investments will be spread globally across a number of consumer activation mediums, including print, outdoor and social media.

In addition, we began to leverage our customer database and shopper data for trends to improve our connection with our consumers, enhance customer service, and provide real-time feedback and analysis.

When we look at the business in 2013, we think it's important to consider the first half and back half growth drivers.

During the first half of the year, traditionally our strongest from a revenue perspective, we will continue to engage our customers through core products and new styles.

We will work to grow wholesale doors globally and strategically.

Wholesale doors grew by over 1,300 in 2012.

We will continue to grow our retail footprint in specific markets where we lacked presence and those that have a demand for the brand and expand our Internet presence through new local language sites and site enhancements.

In the back half of 2013, we will use our global footprint to our advantage, expanding into contra seasonal markets, increasing our back-to-school offering in the US markets, expanding our licensed products and new styles for the market for the fall/winter season.

As Management team, we firmly believe in the strategy that we are executing on and that through a product-driven approach with stronger marketing spend across multiple channels globally, we will continue to show topline growth and improved operating income.

With that, I will turn now the call over to Jeff Lasher.

Thank you, John.

Hello, everyone and thanks for joining us today.

Our business continues to experience positive results primarily from higher sales volume and higher average selling prices.

Results for 2012 reflect increases in both consolidated revenues and earnings driven by balanced international growth, operational efficiencies, and a customer focus.

The following are the more significant developments in our business during the year ended December 31, 2012.

Revenues increased $122 million, or 12% from 2011 to $1.123 billion in 2012.

On a constant currency basis, revenue increased 14%.

Revenue growth was driven by increased sales volume and focused improvements on average footwear selling prices with new product styles as we continue to transform Crocs' brand awareness into an all-season footwear brand.

We expect growth in 2013 to be 13% to 15% in the first half as we are excited about our new spring portfolio and expanded retail stores.

On a full-year basis, global retail same-store sales increased 2% over last year, with America, up 3%; Asia, down 1%; and Europe, up 5%.

In 2013, we are planning around a 3% to 4% global comp for same-store sales.

For the full year, 2012, ASP was $21.55, up $1.53 from 2011.

Units were just short of 50 million pairs, up from 47.7 million units in 2011.

Our gross margins improved 50 basis points in 2012 and we expect similar results in 2013, as our expectation is for balanced ASP and unit growth.

Selling, general and administrative expenses increased $56 million, or 14% from 2011, to $460 million in 2012.

SG&A expenses continue to increase as we expand our retail store locations.

Our direct-to-consumer channel SG&A spending grew in line with revenue in 2012.

Advertising, marketing and promotional costs, reflected in SG&A expenses for the Company, was $40 million in 2012, which was flat to 2011.

For 2013, we plan on increasing that amount by approximately 33% which is incorporated in our 2013 outlook.

In addition, 2013 SG&A expenses will be influenced by additional retail stores.

In total, we expect SG&A, as a percentage of revenue, to be about flat in 2013 compared to 2012.

Net income, excluding non-operating items and one-time tax benefits increased 17% from $109 million in 2011 to $128 million in 2012, driving adjusted diluted earnings per share up $0.20 for the year.

At the end of the year, backlog increased 15% on a constant currency basis from the same period a year ago to $354 million.

For the fourth quarter, our results were in line with our expectations with wholesale revenue offsetting a weaker than expected retail environment.

As previously discussed, we had some non-operating expenses that were recorded in the quarter, including $6 million for contingency accruals associated with certain legal proceedings.

In addition, we had ERP-related expenses of $2 million, which were included in our operating expenses and accelerated depreciation.

Adjusted for these non-operating issues, our gross margins would have been $4 million higher and our SG&A would have been $4 million lower.

In total, these non-operating expenses reduced our EPS by $0.08, from a $0.04 profit to a $0.04 loss.

Revenue for the quarter increased to a new record of $225 million, up $21 million, or 10%.

On a constant currency basis, revenue grew 11%.

Americas region was 8% higher than 2011, driven by a 17% increase in wholesale revenue.

We saw some changes in 2012 as e-commerce accounts grew faster than the overall space.

In the Asia region, notwithstanding the challenging retail market in Japan, our overall sales were up 12% versus prior year.

Outside of Japan and the region, China sales continued to show exceptional strength and increased 24%.

Our Korea business expanded 45%.

Overall, our Japan business declined 12% for the quarter.

In Europe, revenue increased 17% from 2011, driven by our retail channel, which increased 128% as new stores and high-traffic locations drove our revenue higher.

It is important to remember that we only had 29 stores in our fourth quarter comp base in 2012.

Turning to product data.

Our percentage of fourth quarter revenue derived from the Crocs Silhouette was up slightly to 48% from 47%.

This was, in part, driven by the return of the Mammoth during the fall/holiday season and the successful early launch of the retro clog.

Also, our new product introductions globally represented about 37% of our Q4 unit sales.

Fourth quarter 2012 SG&A expenses increased 17% to $111 million compared with $95 million in Q4 2011, as our global retail revenue increased 21%.

As noted above, $4 million was recorded for non-operating items and $2 million was recorded for the new ERP development.

The remaining SG&A dollar increase of $10 million was driven by investments in our direct-to-consumer channel as we continue to build our retail network globally.

We operated 107 additional stores as of 12/31/2013, and this investment sets us up for strong revenue and operating income growth in our peak second quarter retail selling season.

In 2013, we estimate that we will expand retail locations across the globe by 70 to 95 net new stores, of which 60 to 75 will be in the first half.

During 2013, we plan to make significant investments in the operational and technological efficiency of the Company as well as consumer marketing.

In 2012, we began the development and implementation of a new -- implementation process of a new ERP system from SAP, which is expected to launch in the first half of 2014.

The introduction of the new ERP to our current environment will allow for seamless, high-quality, our efficient data across the Company.

In 2012, SG&A costs were $2 million higher related to this project.

In 2013, we expect expenses related to SAP to increase SG&A by $6 million to $8 million and depreciation by $4 million.

We currently expect this investment in the future to reduce our 2013 earnings per share by $0.08 to $0.10 per diluted share.

Additional technological projects in 2013, include retail store operating analytics systems, the launch of new region-specific web design, complemented by suggestive selling tactics, and mobile point of sales systems to better serve retail customers, and propel the convergence of retail bricks-and-mortar sites with a capability to a fully-integrated consumer fulfillment center.

In 2012, approximately 1.9 million shares were repurchased at an average price of $13.27 for a total of $25 million.

In 2013, we will look for similar opportunities to return cash to the shareholders in the form of share repurchase activity.

For the first half of 2013, the Company expects revenue and income adjusted for expenses, related to the ERP system, to grow 13% to 15% over 2011 level -- 2012 levels in US dollars.

In the first quarter, we expect revenue of $305 million to $310 million and EPS of $0.32 to $0.34 per share.

In summary, our 2013 outlook looks as follows -- we expect revenue to grow 13% to 15% in US dollars.

We estimate that we will have modest gross margin expansion through some leverage on our infrastructure even with the additional SG&A related to brand investments, additional retail locations, and normalized variable compensation.

This leverage, on average, should allow for a 25 to 50 basis point improvement in our operating margins.

These gains will be partially offset by a 21% tax rate in 2013 and the $0.08 to $0.10 investment in ERP-related costs.

All told, 2013 represents a continued growth of Crocs around the globe through a multi-channel, geographically diverse, revenue model.

Thanks.

I will now turn the call back over to John for some closing comments before taking questions.

Thanks Jeff.

Before we open the lines for questions, I want to provide some high level color on how we believe the regions will perform in 2013.

Starting with Japan.

Japan may be the most challenging market for Crocs in 2013.

The macroeconomic and political climate is the most dynamic for us globally.

The impact of significantly weaker yen can be seen in our business in the short term.

While the macro situation exists, pre-books are up and we still have a large market opportunity for Crocs.

Asia will continue to be driven by the growth of the China market, ASEAN countries, Korea and the emerging Middle East market.

We will continue to see double-digit growth in the region in 2013.

For us, Europe has turned the corner in 2012.

We have a stronger and more experienced management team in place entering the year.

Most recently in Munich and Amsterdam, attending the ISPO Trade Fair, in our regional sales meeting.

Sales of our new products for fall/winter 2012 have done well in key markets like Russia, Austria and the Nordics, proving to us that we are developing the right products for fall/winter for the long term.

The team is upbeat for 2013, and our investment in retail will drive double-digit growth in the European market, and is a key to the evolution of our brand from clogs to lifestyle footwear with clogs.

America's wholesale business continues to grow and build nicely in the mid-tier family channel.

This is our space.

This is our consumer, moderately priced, high quality, on trend.

The brand has performed very well with our key partners in 2012 like DSW, Famous Footwear, Shoe Carnival, Belks, Bells, Rack Room, Academy and many other premier retailers.

We are growing our footprint in collections with our existing partners and investing in more marketing with them in 2013.

We see double-digit growth continuing into the year in the Americas.

With that, I would like to turn the call back over to the operator and we will take our first call for now.

(Operator Instructions)

Erinn Murphy with Piper Jaffray.

I just wanted to follow up, John, with you.

It's helpful to have some of that regional detail broken out at the end.

Just on the Japanese market, you talking about it being down 12% in the quarter, was that first on a constant currency basis or reported basis?

Then how should we think about, at least in the quarter, and then going forward on an underlying basis, the retail comp trend versus the wholesale trend?

To that end, as we're thinking about an underlying trend for this market in 2013, should we be thinking about new retail door growth?

Can a deeper penetration within existing accounts or is this just trying to recover situation in 2013?

Thank you.

Thanks, Erinn.

You asked a lot of different questions.

I'll [try] and so I'm going to try to do the best I can in talking about the Japan market.

If I missed something, just come back to me.

Our business in Japan grew rapidly, mainly on the basis of our connection with the consumers from a lifestyle space.

With that said, this has really only been our fifth full year of operation in Japan and to have a business of this size, we're very proud of it.

I think that what we have seen at the consumer level in the last half of 2012 leading into '13, has been one of a very conservative consumer.

I think that for our business in Japan, we do have a number of stores that we operate.

The majority of our stores do operate outside of the Tokyo Yokohama marketplace with partners who will continue to expand retail doors into 2013.

Our initial read on wholesale business right now is up in terms of backlog year-over-year for the first half of the year.

I think it's really going to depend upon what the appetite of the consumer is in the Japan market as we get closer into the primetime selling season leading up April into Golden Week there.

Okay.

Just a clarification then, John.

So that down 12% in the quarter, was that a retail comp or was that the overall market in general?

Overall market in general and the numbers we gave you were on a constant currency basis.

Okay.

Do you care to provide where that comp -- I'm thinking the third quarter had been down 15%.

I'm just trying to see if it's been inflecting from a retail basis in Japan?

We don't normally go through and breakout detail to that level, country by country market.

Okay.

No, that's fair.

And then just going forward from a guidance perspective, from -- where should we put the Yen/US comparison and then the Euro/US dollar comparison in our models as we think about the puts and takes of that topline guidance and bottom line guidance for this year?

We - in our present model, we use an average of JPY91 to $1, which is a little below where it's at today.

But on average, considering where it started the quarter, that's where we have it for our forecast basis.

And then for the Euro, we have it as EUR135 to the $1, which again, is a little higher than the US dollar/Euro relationship now, but on an average basis, we think it will end up being roundabout there.

Okay.

That's helpful.

And then perhaps just a follow-up on the backlog, if you think about first quarter, second quarter.

Can you just provide some context of how we should think about the movement there as we think about that 15.3% for the first half?

It's going to flow out pretty much equally over the two quarters.

So it's going to be roundabout the same for both quarters as you think about it.

Okay.

And then for the Huarache launch, is that still set for mid-April shift?

Actually, you are starting to see Huarache hit some of the markets here at the end of February going into early March.

Okay.

And that will be in the US wholesale first or US retail?

Where we see if first if we're thinking about that?

You're going to see it both fairly simultaneously just depending upon how fast retail partners put that on their own shelves.

But the initial delivery of the core products is on time because this is new product and new technology, we are going to see a little bit of product roll from 3/15 into a 4/1, 4/15 delivery window but we don't expect it to impact the quarter.

Thank you.

Jim Duffy with Stifel Nicolaus.

No real questions, guys.

First, I hope you're well.

The contingency accruals, Jeff, can you provide a little more color around those?

Is it -- what are specifically the legal proceedings?

Are you done the accruing for that?

What's the probability of a cash expense associated with that, et cetera?

Yes, these contingency accruals, Jim, relate to legal proceedings dating back to 2007 timeframe, up until 2009 or so.

One relates to the termination of an agency relationship in Europe.

And the other relates to an ongoing legal proceeding associated with customs audits for that time period.

As far as cash payments go, that's probably not something that is a near-term cash outlay for us.

As far as additional expenses associated with this, we try to make the best estimate that we can.

We use our management view in the view of the case in total to making a judgment call on what to accrue.

Got you.

Okay.

And then, there's a number of adjustments in both '12 and '13.

I just want to be clear on what the basis for the guidance is.

What's the operating margin based upon which you plan that 25 to 50 bips of operating margin expansion?

When you exclude all of the contingency accruals and the effect of certain legal proceedings that we have in our results for 2012, we are looking at about 25 to 50 basis points improvement in our operating income.

So we will be in that high 13%s range and the SAP expenses are an additional $0.08 to $0.10 per share for 2013 and that's what we put in the script and the assumptions to give you the guidance for 2013.

Okay.

So the 25 to 50 basis points is before the exclusions for the SAP investments; correct?

That's correct.

And then --

We're going to be quoting in 2013, the business as it performs excluding those non-operating activities and SAP.

Okay.

Those SAP investments, are those isolated to 2013 or is there a lingering effect from those looking beyond '13 into '14, et cetera?

We launch the new ERP system in the first half of 2014, at which point, we will then move into a normalized operating environment associated with the ERP.

Got you.

Okay.

And then, the 3% to 4% comp implied in the guidance, can you speak to some of the factors given the recent comp trajectory that give you the confidence that we can see a rebound in the comps at that level?

Yes, Jim.

This is John.

I think over a period of the year, we have learned, as we continue to grow and develop our retail system, a lot about consumer behavior, products in different channels in different geographies.

Jeff alluded to the fact that we're continuing to make investments this year in addition to the ERP system with SAP, additional tools for retail team that will allow us to replenish faster, to understand consumer behavior better.

So I think we feel with better products, the better systems and tools, another year with our retail management team in most locations, we think that this is going to deliver better results into '13.

Got you.

Last question, John, implied in that 3% to 4% comp, are you assuming Japan comps remain in negative territory?

They're flat to slightly down, depending upon the different quarters that we are looking at, at this point in time.

I don't think that we think we are going to have as considerable down retail in Q3 and Q4 in Japan as we did this year.

I think you have to weigh both halves of the year.

Taposh Bari with Goldman Sachs.

I wanted to ask you guys to follow-up on the 3% to 4% comp assumption for next year.

How does that shake out throughout the year in light of the trajectory?

Should we expect a stronger trend in the back half of the year versus the first half?

Well, I think, Taposh, it's actually the reverse.

We've always been a stronger brand in the first half of the year.

We think with the new products that are coming to market, especially in the first half of the year that we're going to have pretty good selling season based on what we've seen in terms of the enthusiasm with our consumers and with our retail partners for the new product.

So I would think that we're going to have, again, a little bit stronger first half of the year than we would back half of the year.

Okay, so if I can ask a follow-up to that, we're pretty deep into the first quarter.

Can you -- do you have any visibility into how that plan has played out thus far?

We do.

For us, new products are hitting retail stores really over the last 7 to 10 days.

It's never been our practice to comment on performance within the current quarter.

So I think this is really the time when you see new products hitting customer acceptance.

It's an interesting dynamic, I think, also in the United States, specifically, where the East Coast has had very difficult weather.

For us in Colorado, we have no snow on the ground.

We've had many 50 and 60-degree days in January and February, so I think it depends a little bit, too, where you're at in the US on what retail looks like today.

Okay.

And then the last question I had was, as we look at your new 2013 revenue guidance, you've taken down the first half by 2 points.

You've taken down the back half.

I just want to clarify, are you saying that the back half of the year is going to go slightly above 9%?

Is that what that means in the prepared remarks?

I think when we look at the year right now, we are saying that we anticipate revenue in the first half 13% to 15% and that should carry us over for the year.

When we look at it on a constant currency basis, we are facing about 2% headwinds on a year-over-year basis in the currency markets as of today versus the average rate last year.

That currency headwind will have an impact on our revenue performance for the year, so if you think about it on a constant currency basis, those numbers are better.

We predict that the revenue impact of the currency will be approximately $17 million, with a Japanese Yen decline versus the US dollar offset by a better year-over-year performance in Euros and other currencies.

But it's important to remember the Yen decline will have an adverse impact on our operating income for the Company as Japan has higher operating margins than other countries.

The net result is the foreign currency shifts, altogether, is about $0.08 a share on a year-over-year basis when we compare the headwinds that we have in the currency markets to last year's rates.

Got it.

The question I had for you guys was you brought down your guidance in light of currency, obviously, more so in the back half than the front half of the year.

The back half has historically been the obstacle for Crocs, at least for the last two years.

Just trying to get a better sense of what confidence you have in your ability to perform the back half of this year in light of the marketing investments that you are making?

And then also the new expectation?

Thank you.

So, I have been here long time.

I think in looking at this business, we've always said, as it's just been the last couple years, we've always said that the back half of the year is going to be a work in process.

I look at 10% growth for the quarter in what would normally be a difficult market for us.

I look at 49% gross margin in the quarter, consistent year-over-year, when you take out the extraordinary item that Jeff talked about.

Growing $20 million and 10% is pretty good growth when you think about the type of Spring/Summer brand we are versus three quarters of the year are generally higher growth times of the year.

So I think we've tried to be pragmatic, looking at 2013.

First half of the year was a pretty good understanding about products in markets.

I think we're being a little bit more conservative thinking about what Fall/Winter will be.

But as you asked the question before, yes, we are thinking high single-digit growth in the back half of the year, especially with fourth quarter.

But I think we're all pretty proud of what we've been able to carve out over the last three years in terms of new collections of products, new products that did well at retail this year with a lot of our key customer, wholesale customers also taking those products.

And it's a building process in the back half of the year.

I think we see just a wide disparity sometimes in how people look at our business over the next 12 months.

I think what we're trying to do is give a little bit better guidance and you will have more information when the K is filed early next week, when it comes to what that should look like.

Thank you very much.

Good luck in the spring.

Reed Anderson with Northland Securities.

A couple questions.

Jeff, on your comments on gross margin expansion that you were talking there.

Is it -- would that be, if you look good at it on a quarterly basis or throughout the year, would that be fairly balanced?

And then secondly, is that expansion just primarily a function of the profile of new products as well as the mix at retail?

We have a lot of different headwinds and tailwinds in our gross margins that we're assuming as we put these numbers together.

One of them is a shift into retail.

One of them is a downward headwind associated with currency, Reed, so you have to factor that into our gross margin numbers as we have to experience that since we buy in US dollars and sell in local currency.

And then there's other product costs which we think we've got under control as we go into 2013, so we factor all of those in.

On an annualized or seasonal pattern by quarter, we've got some tough comps in the numbers as we roll out the year, but I think in general, that 25 to 50 basis point improvement that we talked about in the script will be relatively equal across the quarters.

You may have said this but what did you -- you are planning ASP growth as -- in low single-digits number for '13, is that correct?

That's fair.

Yes, we actually are anticipating unit growth to be a little bit higher on a percentage basis than ASP.

I think this year that it was a little bit reversed where the ASP grew $1, or a little bit more than 7%, I think, and then units were a little bit less than the 7% growth rate.

Next year, we see, basically about 10% increase in units, 8% to 10% increase in units and roundabout 5%, or about a $1 per unit for ASP.

So that's what our early predictions are.

Okay.

And then from an inventory standpoint, I know it was, I think, actually a little bit better than you had been planning or thinking but just as you think about that, working through some of the timing things, when would we see that normalize throughout this year with a cadence of sales growth?

I think when you think about inventory, we had a 25% increase in retail doors compared to last year, Reed, so you've got to factor that in as we go through, especially the first half of the year where you've got a large increase in inventory associated at our retail channel.

We also have 35 to 50 -- sorry, 35 to 40 more stores opening in Q1.

We also had that accounting treatment that we talked about at the Analyst Day back in April of this year.

So that was -- that affected us in the Q4.

When we think about it, Reed, as we make our planning for the year and set our targets for the year, we are trying to hit a range of turns as a Company in that 3.5 to 3.7 turns basis and that's how we think about our inventory targets internally.

That makes sense.

And then lastly, John, I know it's a real small piece of business, et cetera, but just I'm curious to what your thoughts are on the golf rollout, et cetera, because obviously, last year for that industry was a nice, long season and you've got a lot of product.

I'm just curious here, your thoughts on that in this year?

I think it was a great start for us in the golf side of the business, relaunching the Bite brand that we had bought years ago and reinvigorating that new design team, a little bit late, honestly, when you think about us launching at the Golf Show in January, the product wasn't available until April and May.

We've got eight, nine months.

We've got good traction.

We had very good sell-through, great in some markets and so we are really encouraged.

This will be a full year of selling into the green grass into the pro shops and into some of the major sporting goods retailers that will carry that product.

We're really happy that new golf shoe that we are launching that is more waterproof won another award in the Golf Show in January.

Just adds to this credibility that we can play in this marketplace.

Never going to be a huge portion of what we do, but it's a great little niche for us to bring comfort and color and that fun factor into the golf business.

So we are really happy with where we're at the end of the first year and as we head into the second year.

So you will see more products in that space, and it's not a lot, but some more products this year that are more water resistant, waterproof and a few more for women.

Great.

Well, super.

Best of luck.

Thanks guys.

Corinna Freedman with Wedbush Securities.

Just a quick question on share count.

What share count should we be using and are there additional plans for further buybacks?

As far as the share count, we are going to be in that mid-89 range for the quarter.

So it depends on what decisions we make as far as the buybacks.

We have authorization still underneath the Board approval to repurchase an additional shares and we will make decisions as we go here.

There's really nothing else to talk about on the share repurchase other than that the diluted share base should be in that mid-89 range for the quarter.

And then could you remind us what currency assumptions are embedded into the guidance for the Euro and the Yen?

JPY91 for the Yen and $1.35 for the Euro.

Mike Swartz with SunTrust.

Just quickly, the -- with the first quarter, second quarter revenue flow, should we see any discernible impact from the Easter shift this year, being one week earlier?

It's always hard to tell.

We are not building in any major shift in our assumptions for the first quarter in terms of pull through on the US marketplace.

With such a large amount of our business outside the US, the impact isn't as great as it would be for a heavily US-centric group.

But we are not planning any major pull forward with the one week.

We all hope that, that's going to occur and drive consumer demand but nothing in the plan.

Okay.

With just the Internet channel during the quarter, I'm looking for a little more color around why that was down.

You continued to see just some softness as you pulled back on some of the discounting on that channel or is there anything else behind that?

You know what?

I think there's going to be a lot of conversation about brands on a going forward basis with Amazon and some of the e-tailers and how you work with them and how you operate with them.

But today, just as a reminder, when we sell product to e-tailers, or companies that also have e-tailing operation, that's all shown as wholesale revenue.

So wholesale revenue for the quarter was up double digits relative to us selling to those customers in the fourth quarter.

I think in return, what happens is, is that drives the different dynamic from a custom standpoint, it drives a longer-term conversation about what brands want to look like in that space.

So, I think they did very well.

They sold a lot of product, they had a more even heavily discounted price and for our US marketplace, we just chose not to chase down free freight and chase down those dynamics.

So what you see is a little bit of a shift in the fourth quarter, where Internet is down a little bit for us, but our wholesale is up and many of them had very good sell-through through the fourth quarter.

So this will be more related to your own Internet or website properties?

That's correct.

Scott Krasik with BB&T Capital Markets.

So a few questions on retail.

What is the breakdown, the regional breakdown for store openings both in Q1 and for the full year, Jeff?

We said about 30 or so for Q1 and the rest will be primarily going to be opening new stores in the first half of the year, 70 to 95 is what we target right now and 60 or so of those or more will be in the first half.

I think when we think about store openings and what really drives our overall operating performance, getting those stores open roundabout that May, June timeline is really important to us.

There were some locations around the globe that we had to get open in the fourth quarter.

We made some decisions as a management team to take those additions and get those open so we didn't lose sight.

I think to follow-up on that, I think your question specifically around geography, and about 0.50 of those stores, Scott, will open in Europe, and the other 25% will open in the US and the 25% -- or in the Americas and the other 25% will open in Asia in that early '13 timeframe.

Okay.

Thanks John.

And then so just following up on that, anything different about the model for opening new stores, new store productivity?

If you are assuming positive comps in the first quarter or first half, just my math shows maybe a little bit lower productivity out of the new stores given all the new stores in Q4 and Q1 but maybe I'm not doing it right?

I think that normally, retailers think that your first year of opening a store is going to get you to be 85% of what the second year revenue is going to be.

For us, historically, if we open in tourist locations or high densities and the opening is well promoted, we run above that 85% range on that first year.

I think that for the early part of '13, you're not going to see a lot of comp store performance out of Europe just because those stores weren't open at this point in time.

So what we are thinking about that is what our business model looks like relative to what that first year should be.

Right now we feel like we're on trend.

Okay.

Thanks.

I'm sorry, Jeff, just happened to notice your allowance for doubtful accounts went down at the end of the year versus receivables were up and sales were up.

Any reason for that?

Scott, our normal business activity as we assess our likely collections on the receivables that are outstanding, so --

So maybe you felt better about collecting some (inaudible) release some reserves?

Exactly.

Jim Chartier with Monness, Crespi, Hardt.

My first question, I was wondering if you could provide the backlog by region?

We typically don't do that.

We've made the backlog more of a leading indicator.

I think when you look at the backlog around the globe, we're pretty excited about our backlog in Asia and the Americas.

Europe has been under pressure and we continue to see that just like other footwear retailers and marketers.

So it's nothing that we are really ready to break out on a region basis but that gives you some color behind the numbers.

Okay.

And then, are you guys doing anything differently this year in trying to get wholesale accounts to take Fall/Holiday product versus what you've done in the past?

Jim, I think on the US side of this, yes.

We are clearly working with them in a more collaborative way for Fall '13.

I think, surprisingly, they had better Fall '12 with products that they took from us.

In certain cases, we did.

I personally reached out and asked a few of our major retail partners to give us a chance to see if products would resonate with their consumers, especially the Cobbler Collection, where maybe that's not a traditional style or Silhouette that they would take from us.

Sell-through was good.

So yes, we're going to continue to work with them in a collaborative manner.

Me, personally, also with them to try to build on the brand strength that we see in our own retail on specific products that would resonate with their consumers.

But, also just on an ongoing basis, I think the brand carries a little more weight year-over-year.

This has been four years for us rebuilding -- we're building, in some cases, these relationships with our US wholesale customers.

This is the same thing that's happening in Europe.

This will be our third year of working closely with some of our major European partners where we went through the same damaged relationship of over-distributed, all clogs, sameness everywhere.

I think you, as investors, understand that it does take a certain number of seasons and a certain number of years to rebuild that.

I think for us building confidence for Fall/Winter is what we are starting to see with them.

so Hopefully, that carries forward into traditional products for Fall/Winter '13.

On the marketing spend, is that growth equally weighted across all quarters this year?

And then can you tell us if there is a heavier emphasis on driving retail sales versus wholesale sales?

I don't think you're going to see much change first quarter, you won't see much change between the direct and wholesale channel.

We are trying to grow the wholesale business methodically with key accounts globally.

We are adding in certain channels where we don't have certain product distribution today.

But it should be relative backlog is indicative of where we are at from a wholesale standpoint.

I think you're going to continue to see that balance between DTC and wholesale into '13.

Finally, you mentioned that some countercyclical markets that you're pursuing for second half of '13.

Are those existing markets or are those new markets?

Can you give us a little more color on that?

I don't know if there is a new market for us anymore.

You'd think after all the years and such a penchant in the early years to really get out there and try to be the original when it came to the clog in so many countries.

When we talk about that counter, we're really talking about more of the (inaudible) South American market.

Here in the Americas and Asia, it's really more around building up Middle East market up in a more meaningful way.

I think it's also with some of the newer emerging markets and we talked a little bit about Russia on the call earlier, we've had another really good Fall/Winter in a pretty miserably cold marketplace.

So here's this summer brand that is doing pretty well in the Russian marketplace with a combination of our own retail stores, partner stores with probably less wholesale in that marketplace.

We've done really well.

That just adds confidence to the belief that if we market this in the right way, we get consumers to think about us in some of those countermarkets, or new markets like that, even for Fall/Winter, we can show some meaningful growth.

Corbin Weyer with Robert W Baird.

I just had a quick one on the wholesale growth of 2013.

You talked about growing doors globally.

Where -- can you talk about where the big opportunities are?

Is there a region where you are putting a better emphasis on?

Should that be evenly distributed or on top of that, are there any big accounts you guys picking up that should incrementally help in 2013?

I think we get into the whole door count conversation and drivers years ago in the business.

I think as we have taken our wholesale down globally, three or four years ago, and now having rebuilt it, it's not -- I don't think 1,300 doors and about 560 really new accounts isn't meaningful door growth in '12.

I think it's strategic; I think it's accretive.

I think you're going to continue to see that from us.

I don't think in any major market right now, we would say that we're adding a new retailer that's going to add 100's of doors in one particular region.

So, no, it's pretty evenly balanced and pretty methodical in how we're trying to continue to add retail to -- or wholesale, excuse me, to our overall base.

That's helpful.

That's all I have.

Thank you.

Sam Poser with Sterne, Agee.

Just a couple questions.

Number one, in the guidance that you gave for -- implied for the fourth quarter, that included the SAP number, correct?

When we said that we thought the operations were going to breakeven, yes.

So when you think about the fourth quarter for us, the operations were about a $0.04 profit as a standalone basis and that's excluding the SAP (inaudible).

But you included the SAP in the 3Q guidance and you're including it in your guidance for Q1; is that correct?

The $0.32 to $0.34 includes the $0.02 from SAP; am I thinking about that correctly?

That's correct; that's what we said.

But it would be $0.34 to $0.36 ex SAP?

Yes.

So if you are including it -- it seems like you want it both ways.

You gave the guidance include -- it sounded like in the beginning, you gave it including it.

Now you're saying you're excluding it when you give your results, and then you're including it again when you give guidance.

Couldn't you -- which way should we be thinking about this?

Is there a question in here somewhere?

Because I think --

Which way -- I'm serious, which way should we think about it?

You include it in the guidance and then you exclude it from the results, so which way should it be?

It's -- (multiple speakers) how should we think about it?

With SAP or without SAP?

I think the way that you just summarized is correct and for '13, we'll give it without SAP -- with SAP included in the guidance.

Okay.

So then when you look out and I might have missed this in the prepared remarks, when you look out for the full year, do we have a range of -- do you have an EPS number that you can give us for the full year right now?

Sam, what we did was we gave a goalpost on what we think where revenue is going to grow and what's going to happen to our operating income and tax rates.

We didn't do the calculations for you on EPS and no EPS.

So we're just moving forward with the guidance as is.

Thank you.

And add in $0.08 to $0.10 because that's the way you're going to report it; am I thinking about that correctly?

Yes, that's correct.

We are going to report GAAP and then we'll [do guidance].

Okay, thanks very much.

Good luck.

Steve Marotta with CL King and Associates.

Two quick questions.

Jeff, you alluded earlier to the inventory growth as it relates to the retail stores and also in the press release, it mentions terms and conditions with vendors.

Again, there was -- you alluded to something at the Investor Day.

Is that the same thing?

Could you please go over that very quickly and is that something that is expected to continue to occur over the next couple of quarters?

Steve, what we did back in 2011, which we had some agreements with the vendors associated with our terms and conditions at year end.

For ease and simplicity purposes, we've gone through the same terms and conditions, whether it's year end or not.

So from now on, you're not going to have that issue; it's just going forward, the inventory numbers will not be affected by the terms and condition change.

Okay.

That's great.

And, John, you mentioned, I believe in you prepared remarks about marketing your several systems.

Again, forgive me if I misinterpreted this.

There are several systems that have been implemented that's going to allow you to market better and that was one of the reasons that gives you confidence to increase your marketing budget dramatically in 2013 versus 2012?

Can you go over those in a tiny bit more detail and what underpins your confidence that the increased marketing spend will be justified?

Sure.

I gave a number of different things that we've done in addition to building a more creative internal organization, so we hardly outsource any creative development today as a Company.

Most of the stuff is done internally and they've done an excellent job over the last couple of years in bringing the brand really to light from an emotive standpoint.

I think the two major investments that we've made is really with the brand strength monitor with a long-term partner in Seattle that helps us look at the brand strength as many footwear brands do, as many apparel companies do, on a global basis.

I think that work that's been done over the last two years has really helped us in understanding products that we're designing, how customers think about our products.

The second piece of that is our ongoing relationship with ForeSee not only here in the United States but globally, now in Europe and five different countries in Asia where we get real-time feedback from consumers who have either touched our retail stores or Internet sites or who have actually bought product, what their feedback is in terms of that brand experience.

All of that, together, really gives us a lot of additional data when it comes to how consumers, how customers think about our brand, where we do well.

It helps us in navigating where we want to spend marketing dollars to really engage with new consumers.

One of the things that has happened, having been here now eight years is that you go through this cyclical stage of, you're like Apple, everybody wants you, you're new, you are unique, you are different.

And all of a sudden, just like Apple today now, people don't want to have the iPhone or don't want to have iPAD.

Everybody has it so I want to go to a Samsung.

Liz [Claman] was on today, this morning, I was listening to the radio driving, and talking about how a lot of people are now going to Samsung because that's new, that's cool, that's different.

We went through that same cyclical process.

I think now we see less haters, less people who think about the brand adversely.

We see a lot more neutrals in the consumer space where people now would be open to advertising or promotion from us.

They would be somebody who now would maybe think about this brand differently, be a considered for new product.

So long-winded answer gives you a lot of thinking around how we have built the internal marketing such that we're now ready to start to make some investments in '13 to convert those neutrals and considereds into consumers.

Taposh Bari with Goldman Sachs.

Just a quick follow-up.

I just wanted to get more some more clarification on this '13 guidance because I think it's worth repeating.

So in 2012, you did $1.40 of adjusted EPS.

The operating margin for 2012 adjusted that you are working off, is it 13.7%?

Yes.

Okay.

In part two of that, you're saying 20 to 50 basis points of growth on top of that for 2013?

Correct?

Yes.

Does that include SAP or exclude SAP?

Excludes.

Okay, and then the last question I had was, in the third quarter call, to follow up on Sam's question, on the third quarter call in October, when you gave breakeven guidance for the fourth quarter, did that include or exclude SAP?

It excluded -- well, it included that from a GAAP perspective, right?

We did end up -- spent a little bit more money on SAP than we anticipated originally, but all told, that's an immaterial amount of spending associated with that in the Q4 period.

At this time, I will turn the conference back over to our moderators for any additional or closing remarks.

We would just like to thank everyone for joining us today on the call.

We appreciate your continued interest in Crocs.

We look forward to talking to you again in April.

Thank you.

This does conclude today's conference.

Thank you for your participation.