卡洛馳 (CROX) 2013 Q1 法說會逐字稿

Welcome to the Crocs, Incorporated, First Quarter 2013 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 everyone that this conference is being recorded, and 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.

And thank you all for joining us for our First Quarter 2013 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.

Earlier this afternoon, we announced our first quarter 2013 financial results.

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

We'd 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 pipelines.

Let me caution you that these statements are subject to a number of risks and uncertainties described in the Risk Factor section of the Company's 2012 report on Form 10-K filed on February 26, 2013, 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 Croc's annual report on Form 10-K as well as other documents filed with the SEC for additional discussion of these risk factors.

Crocs intends that all of its forward-looking statements in this call will be protected by the Safe Harbor provisions of the Securities 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 and 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 on our first quarter earnings call.

With me today is Jeff Lasher, Croc's Chief Financial Officer.

To start, I will be reviewing the performance of our business in the first quarter.

Jeff will walk you through the financial elements of our business for the first quarter, and the financial projections of our business for the second quarter.

I will finish with some macro insights into the business for the coming quarter, and we will then take questions.

I would like to highlight that we will be splitting out Japan from Asia Pac in our analysis and commentary.

On the whole, we were very pleased with our first quarter results.

Revenue for the quarter was $312 million.

This is $2 million above the high end of our guidance and the highest first quarter in the history of the Company.

This business has been built on, first, a global platform; second, multi sales channels; and, third, product diversity.

The first quarter is indicative of our long-term vision.

There are four big callouts on the first quarter call today that we are going to focus on and discuss with you today.

They are retail comps; the FX impact on the business; our increased marketing spend for the first quarter and going forward; and, lastly, updating you on where we are in the SAP project.

To put this in perspective, for the first quarter the impact on EPS was $0.02 per share for FX and $0.02 per share for the SAP project.

In summary, revenue increased 17% on a constant currency basis, and EPS without these extraordinary events increased by 16% for Q1 2013.

So let's spend some time on wholesale.

Shipments of products to our wholesale channel were up significantly, up 15.5% from the first quarter of 2012 and up 17% on a constant currency basis.

This is very important to us as we have slowly and methodically rebuilt our wholesale business in the US market and continue to execute the same plan with our wholesale and distributor partners internationally.

Wholesale growth for the first quarter was a combination of new products in our core business.

New products accounted for 34% of wholesale revenue in the first quarter of 2013.

Moving on to retail -- retail grew 17% in the first quarter with 10 new retail locations and with retail comps at a negative 5% for the quarter.

Retail comps for the first quarter 2012 were 10%, thus creating a high hurdle for comparison in Q1 2013.

A slower March in 2013 impacted the normal seasonality of our retail sales.

As it's been well documented by other brands and retailers in the US, external factors have negatively impacted consumer demand in the quarter.

We have seen challenges in the US retail market with weather in many parts of the country.

For example, it snowed in Colorado here over the weekend and again yesterday.

The reimplementation of the payroll tax, the late refund of tax checks and the continued uncertainty in the unemployment market -- these factors all impact our consumers' buying decisions.

Moving to Europe -- European retail was slower; namely, in the UK, which drove negative comps of 7%.

Japan grew 22% in the face of significantly weaker yen, and we saw retail comps improve from the low levels of Q3 and Q4 in 2012.

Notwithstanding the pressures of lower traffic and weather, our new products were well accepted in warmer weather in tourist markets.

Saving the best for last, Asia Pac retail sales were up 24% for the quarter with retail comps up 7%.

New products have been key in the transformation of this brand from a simple injection molded footwear to a more well-rounded casual lifestyle footwear company.

We were pleased with the unit and ESP growth in the first quarter.

In the short term, the external pressures on retail performance will exist.

And internally, we continue to focus on building a strong retail leadership team globally, managing our retail store operations and growth carefully.

Significant investment in new management talent and retail systems will return the long-term benefit.

The long-term positioning of the brand through our own direct-to-consumer business coupled with an increased marketing spend is imperative to changing the perception and bringing new consumers to Crocs.

I'll now turn 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 volumes and higher average shoe prices.

Results for the first quarter of 2013 reflect increases in both consolidated revenues and earnings driven by a balanced international growth and customer focus.

To reiterate and expand on what John said, our first quarter EPS was $0.33, up $0.02 from prior year.

It was impacted by a $0.02 expense for SAP called out in our non-GAAP reconciliation in our press release this afternoon.

In addition, you should also consider that we incurred a $0.03 expense related to increased marketing and about a $0.02 negative impact from unfavorable currency headwinds.

This was slightly offset by a $0.01 impact from lower share count in 2013.

In total, we overcame $0.06 per share of items compared to last year to grow EPS in the first quarter.

Revenues increased to $40 million, up 17% on a cost and currency basis from Q1 2012.

Revenue growth was driven by increased volume as units increased 13% and increased average footwear selling prices by 4%.

Units were 15.3 million pairs, up from 13.6 million in the same period 2012.

ESP was $19.89, up $0.77 from 2012.

In addition, we were able to hold gross margins flat for the first quarter even as unfavorable currency markets pressured margins by about 30 basis points.

As the yen declined 14% in the quarter, it alone had an approximately 90 basis point impact on our overall gross margin and similar impact on our operating margins as a company.

This was offset by increased margins in the rest of our global business.

This pattern will present similar results over the year as the yen weakness is only partially offset by a slightly stronger euro.

We used 99 yen to the US dollar for our projections going forward in 2013, and that rate is 20% below last year's average rate of 79 yen to the dollar.

SG&A expenses increased $24 million, or 23% to $128 million, which consisted of $69 million in indirect expenses and $60 million in our direct channel expenses.

SG&A expenses will continue to increase as we grow global locations, retain and expand our distribution around the globe.

Some of the key items in the increased over 2012 are $11 million in retail-related SG&A; $3 million of additional marketing; and $2 million associated with the SAP project.

Notably, our support costs and other SG&A increased slightly over half the rate of revenue growth.

In the first quarter 2013 we repurchased approximately 800,000 shares at an average price of $14.99 for a total value of $12.5 million.

We benefited from our year-over-year -- sorry -- our year-end backlog going into the season and wholesale revenue grew 18 percent on a constant currency basis with strong performance from Asia, excluding Japan and Americas.

Americas wholesale business benefited from strong year-over-year sales, increases in the family channel and reflected our new product introductions and carryover products from last year.

Our Asia business was fueled by strong results in China, where our overall business increased 56% and in South Korea where our overall business grew 49% over 2012 levels.

Backlog at the end of the second quarter is up 5% over 2012 levels on a constant currency basis.

Our Japan wholesale business declined 6% in light of the recent slower growth in that region.

However, our Internet revenue in Japan grew.

For Q1 increased 33% giving us confidence that the Crocs product line is well positioned to expand our sales, going forward.

Overall, our retail revenue increased 19% over 2012 levels as we have added new locations in the quarter and have entered our peak selling season.

We are entering our 2013 Q2 with 547 locations around the globe, up 25% from last year.

Global retail same-store sales decreased 5% over last year with Americas down 10%, Asia Pacific up 7%, Japan down 6%, and Europe down 7%.

Notably, our outlet stores around the globe had a same-store sales increase of 1% while our full-price stores that converted to spring/summer new products early in the quarter suffered as weather patterns in Europe and Americas were slightly colder than 2012.

Our two-year comp is 5% in total and 12% in outlets.

Importantly, our first quarter retail revenue represents less than 16% of total annual retail revenue.

And as we comp in 2013 against easier comparisons for the remaining 84% of the year, we believe that in 2013 we will average around 1% to 3% global comp for same-store sales.

Net income increased 3% from $28 million in the first quarter of 2012 to $29 million in the first quarter of 2013 driving diluted earnings per share up $0.02 year-over-year.

Our tax rate in the quarter was less than 17%, but we did have a currency translation loss of $2.6 million.

Turning to product data, our percentage of first quarter revenue derived from the clog Silhouette, was down to 47% from 49%.

This was, in part, driven by the launch of our new spring products including the huarache, our molded boat shoe collection, and continued strength in our men's casual footwear.

Also, our new product introductions globally represented about 34% of our Q1 unit sales.

Looking out into the remaining quarters of 2013, we expect to expand on the positive trend set in the first quarter of the year as the warm weather months approach.

We plan to open approximately 80 more retail stores across the globe by the end of the year for a total increase of 90 for the year, as well as open new wholesale doors in order to attract new customers and retain [loyalists] to visual merchandising and product-driven expansions.

In summary, our Q2 2013 outlook, which takes into consideration the challenging spring in North America, the sustained currency headwinds from the yen, and macroeconomic issues in Europe is now as follows -- we expect revenue of $360 million to $370 million and EPS of $0.60 to $0.63 per share.

Global currency changes will impact revenue by about 2%, or $6 million in operating income, $4 million from the US dollar translation of our global business, and unfavorable purchasing power of local currencies.

We have projected more modest retail revenue growth in the US, which will impact the second quarter global growth rate by 1%, or $3.5 million from our prior estimate and operating income of $2 million.

As a reminder, we will have $2 million of SAP expense and $4 million of year-over-year marketing expense.

Currency expectations are now 99 for the yen and 1.30 for the euro, and an effective tax rate of 21%.

That said, we expect global revenue to grow on a constant currency basis, 11% to 13% for the quarter, and positions the company for continued growth around the globe to our multi-channel, geographically diverse revenue model.

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

Thanks, Jeff.

I would like to take this opportunity to talk further about the second quarter.

Having just returned from two weeks in Asia, I have a pretty good feel for the growth of the Company globally.

In the Americas, we like the relationships we have built in the wholesale space and continue to work closely with them on the growth and development of the brand through marketing and new products.

We've added a few additional key partners in 2013, the Rack Room being one of them.

Initial sell-through products have been similar to 2012, and we expect acceleration when spring/summer does actually arrive to the general US marketplace with an even more exciting product line for 2013.

We are increasing our investment in marketing in the US marketplace in the second quarter.

Our marketing focus is to drive traffic into our wholesale and direct-to-consumer channels, attracting new consumers to the brand and, lastly, increasing our conversion rate.

We believe the incremental investment in Q2 will be about $4 million in 2013 versus 2012 and will be beneficial to the brand long term.

It should also be beneficial to our wholesale and direct-to-consumer business in the second quarter, but we haven't built any impact into our revenue projection at this point.

In addition, we have hired a new general manager for our growing expanding business in Brazil, and the LATAM market continues to provide a very good growth opportunity for Crocs.

The European market continues to develop and grow in 2013.

In a tough fiscal and retail environment, and with a fairly defined product that defines the brand, our original clog, the European management team grew our wholesale business 9.2% in the first quarter, and retail increased 21.9%.

We know that there is concern with our investment in retail in Europe, but there was equal concern with our investment in retail in Asia Pac.

Japan and the Americas in prior years, too.

We need the retail stores to assist in the evolution and perception of the brand in Europe, and we believe our retail stores are more efficient use of pure marketing spend at this point to bring new consumers to the brand.

The same dynamic in the US and Asia markets led to stronger wholesale partnerships with us and led to the growth and development of the Crocs brands in those markets.

We have the right leadership experience and talent in the European business to manage the larger store base that we developed in 2012, and we plan to continue to add a modest number of new stores in the first nine months of 2013.

Site selection and investments are done through a deliberate and thoughtful process in an effort to take advantage of the existing soft retail market there.

In Japan we think the market is stabilizing for us after a challenging second half of 2012.

We normally experience strong demand for new products during April and May, which are key retail months ahead of and during [Golden Week].

So we have answered a key consumer period in Japan.

Our direct-to-consumer business is a smaller percentage of revenue in Japan but our retail sales were up 42% in Q1 in our new Internet platform was operational in January, and e-commerce revenue increased 33% on a constant currency basis.

Consumer interest in the demand for the brand remains healthy.

Last, but certainly not least, our overall Asia Pac business continues to grow and develop.

Asia Pac grew 34% for the quarter on a broad range of initiatives in the region with countries, namely, China, Korea, and the Middle East.

All channels showed strong growth in the quarter, strong pre-books into wholesale coupled with new products and a better weather pattern assisted the region in the first quarter.

Sell in and sell through on a number of our core new products gives us confidence that we will see a strong second quarter in the business.

I had the opportunity to meet and talk with three of our larger distributor partners in the region, and all are experiencing a strong start to the year.

In closing, I think it's important to reflect on the positive events for the first quarter, and those that have enabled us to exceed and achieve our first quarter guidance.

Even in the face of less-than-normal retail environment here in the US and in Europe, the strength of this brand comes through global diversity, our product portfolio, and a dedicated Crocs team.

Given the same environmental factors early in the second part of Q2, we have given a broader range of guidance for the second quarter.

Hopefully, Jeff has provided you with a clear bridge on the changes for revenue and earnings for the second quarter.

With that, I'd now like to turn the call back over to the operator, and we'll take our first call.

Thank you.

(Operator Instructions) Taposh Bari, Goldman Sachs.

Hi, nice job.

I had a question on -- first of all, I appreciate the added disclosures on the Japanese business.

I wanted some more clarity, though -- so you no longer break out Asia in aggregate, which is where the history lies in our model.

So -- looking back, I guess, either for Asia total or Asia Pac ex Japan, it seems clear that Japan as stabilizer.

The comps are getting less negative.

But can you give us some context around the plus 7.3% comps in Asia Pac and just try to back into the 3Q and 4Q comps for that region.

It seems like that region is also markedly improved.

If you could just provide some color there.

You know, in think, in total, when you look at the Asia Pac region, what we incorporate in that basket of countries is create a China, Taiwan, Hong Kong, Singapore, Australia, out to the Middle East.

And I think what we have seen in the first quarter of this year is kind of a general overall uptick in the brand.

Korea and China have done well in the first quarter -- the Middle East has also done well for us in the first quarter.

Markets that did struggle a little bit in the back half of last year that we talked about -- Taiwan, Hong Kong, Singapore -- have all normalized back and actually some of them are comping up slightly with new products rolling into warmer weather climates like those three markets.

Okay, thank you.

I guess a question on the backlog of 5% constant currency -- can you break out the composition of that?

How much of that is second quarter, how much of that is the back half of the year?

So if you look at our backlog as of today, we're up 5% in a constant currency basis.

The predominant, the first half of the year, the spring/summer, is up about 3% to 5%, and the second half is running in that same 3% to 5%.

The first half is a little bit stronger than 5% on a constant currency basis -- on a nominal basis like 3% to 5%.

Erinn Murphy, Piper Jaffray.

Great, thank you and congrats on a solid first quarter.

Jeff, it was really helpful for some of those comments in terms of the second quarter guidance.

I was just hoping you could just -- I was writing things down pretty quickly -- just kind of rephrase, kind of bracketing where we have been in terms of the older expectations versus where we're at right now in the second quarter from a top-line perspective.

And then, I guess, tied to that, how shall we think about, as we get through the second quarter, the at-once business, or the reorder business just given the later start to the spring?

I'll break this into the two buckets, and I'll answer the first one, and John will answer the at-once one.

I think when we look at our Q2 guidance today versus where we were a while back, you know, the number-one issue is the currency change that we've seen, or the sustained currency headwinds that we've seen since that estimate was given out.

So our global currency changes in Q2 will be about 2%.

Headwinds were about $6 million.

That translates into about $4 million of operating income as you have the effect of both the translation of the business and the purchasing power of the local currency.

And then, second, we are anticipating a slightly more modest growth rate in our same-store sales base and specifically in the US we're expecting flat comps.

And as we make that change, we're expecting the US to drop our revenue forecast by about $3.5 million or $2 million of operating income in the quarter compared to where we were before.

And I'll let John answer the at-once question.

Yes, so with -- we see, so far, through the first 14, 15 weeks of the year is the trend of sell through at our key core accounts to be online consistent with last year's sell through, which was pretty brisk.

So I think the question kind of comes around -- backlog earlier from Taposh -- around where we're at from a backlog standpoint.

We think we're equal to or maybe slightly ahead of where we were last year at this point in time on a relative basis.

We see some markets where backlog is already at 100% of order demand for the quarter.

But we think it's going to be very -- I hate to say this -- weather-driven from this point forward for the next 10 weeks of the quarter.

If the sun comes out, and we truly do experience spring going into summer, maybe we don't even have spring, I mean, it just goes right into summer in some markets, and then we think that there's some latent demand that's there.

But their sell through has been indicative of what we have seen with new products, and the uptick has been pretty brisk.

Inventory-wise, we're prepared to support that demand in the second quarter, so hopefully what we'll see is a lot more sunshine and something that plays to this [brand shrink] a little bit better.

Okay, no, that's helpful.

And I guess in terms of the second half, you didn't comment about the top line.

I think previously it was looking at about high single digits.

Should we think about the second half just given kind of a new expectation for both the yen at 99 and the euro at $1.30.

Should we just think about discounting that high single digit by the incremental kind of planned headwind for the currencies?

Or how should we think about the cadence of that?

Maybe, Erinn, I'll start and then Jeff can add on to that.

I think when we look at the overall year, we still look at the first half of the year, as Jeff talked about, to be in that range that we had discussed before in the 13% or so range with our business being slightly bigger in the first half of the year.

In the back half of the year we still think, given the strength of some of the other markets and from a product standpoint where we're at.

We still see that high single digit from the back half of the year.

So we're still looking at top line being in that 10%, 11% growth range for the year.

Maybe Jeff would like to add to that.

Yes, just as far as the headwinds from currency adjustments, you know, as we look out and for the rest of the year, the headwinds will be about 2% in Q2.

It will go up a little bit in the second half as we kind of lap some stronger currency numbers in the second half.

I know those headwinds will be around about 2.5% to 3% headwinds in the second half, Erinn.

Okay, that's helpful.

And then just last -- could you just maybe share a little bit more?

You talked about the new styles and being pleased with some of those.

Just maybe more specifically on how you're seeing the huaraches -- that has started to come through both the wholesale and retail and now globally and boat shoe versus the expanded retro collection.

What product are you most excited about and where are you seeing the consumer gravitate towards or what products?

We love all our children equally.

You know, I think earlier in the retro -- we launched a little bit earlier and so put some of that into the fourth quarter.

That's done well.

It's a little bit different consumer that's going to buy that product.

Launching behind that, first was the boat line series of products that we've launched there with the molded boat being probably the most predominant product.

Women's Walu has done extremely well, also, which is kind of an espadrille kind of like product, but in the same kind of family of casual footwear for women.

That has come out earlier.

We're only starting to flow huarache out now, late March and now into the April timeframe.

And you're going to see that kind of flow -- we think it will run all the way through the summer season.

In warmer markets, we're going to continue to sell that all the way into the late third and fourth quarter timeframe.

So -- huarache is a little bit behind, but I can't leave out a-leigh, which is our whole new series of women's wedges that has also done extremely well.

So the early products out -- boat line and a-leigh have done really well.

Now we think we're going to catch a second wave here with huarache flowing into most markets, really, at the beginning here of the second quarter.

Jim Duffy, Stifel Nicolaus.

Thanks, good afternoon.

John, can you speak some about the marketing spend?

It sounds like maybe that's incremental to previous plans.

Is that accurate?

And can you elaborate on where the dollars will be spent?

Thanks.

Yes.

So, Jim, we talked about this before, and I think we think it's really important that we keep reiterating this plan as we kind of go through the year.

We said that, really, for the past three years, 2010, 2011, 2012, our marketing spend stayed in about that $45 million range, that mid-40s range, and we have just felt that with the products that we have, there's still a lot of, "Gee, I didn't know you made that product" and, "Wow, that's pretty cool," "Wow, that's Crocs," and we have really felt that this year, given the retail footprint that we have, the e-commerce CRM database that we have, and just the number of products that our own wholesale partners continue to take into the line that it's a win-win proposition for us to get out behind this a little bit more.

A little bit more marketing spend around products, and it goes across fully integrated campaigns that start with print advertising that run into social and digital campaigns tied to that.

About two-thirds of that incremental spend will be here at the Americas marketplace, one-third of that rolls into our international marketplace.

So -- building a strong brand here at home, getting behind some of these key stories is something that we just felt this is the right year given where we're at.

The marketing analytics that we have, we can get a better feel for what that spend looks like as we go through the year.

So as we talked about incremental spend in Q1, you know, we talked about that earlier.

We just want to make sure that you guys think about that versus Q1 of 2012; that you keep that in mind that had we not spent that incremental $0.02 per share in marketing, which you would have actually seen as about a 19 -- 18%, 19% increase in EPS added to what Jeff talked about earlier in the Q1 numbers.

And we expect about $4 million to go into our global market -- incremental marketing spend in the second quarter, which, again, will be spread heavily to the US but also global drive around kind of this whole idea of us as a more holistic casual lifestyle footwear brand.

That's helpful perspective, thanks.

And then a follow-up to that, Jeff, one of the things I've struggled with in modeling, looking forward, would be incremental SG&A from additional retail stores with the additional marketing spend.

What would you think about as an appropriate growth rate for SG&A for the business in 2013?

When we look at our SG&A spending internally, we do separate it, like we said on the call today, there's an indirect expenditure that is for marketing and for the corporate headquarters, the regional offices, the sales organization for the wholesale business.

And then there's the direct-to-consumer marketing, which includes the Google advertising, other online advertising in addition to running our retail stores around the globe.

So when we kind of think of it that way, we have had a line of sight for a long time of keeping our expenses running at about half the rate of revenue growth for the indirect channel excluding the marketing piece.

And we did that in the first quarter, and we maintained that as division as we go forward.

And then the direct-to-consumer channel tends to be closer to the rate of revenue growth except for the leverage that we get on the same-store sales base for the existing cost structure.

So -- that's kind of how we think about it internally between SG&A, indirect, and direct.

And what's the split between direct and indirect?

We gave that in the call.

It was $69 million for indirect, and it was $60 million for direct channel.

Scott Krasik, BB&T Capital Markets.

Yes, hi, everyone, thanks.

It looks like your European wholesale sales were up for the first time in about four or five quarters.

Does that have to do with taking in the distributors you did last year, or was there just growth in organic markets?

We're just growth, Scott, in organic markets.

So, as an example, I think, we have been really shut out of a lot of different retail channels in the UK, for example.

And this is the first year in probably four or five years that we're in places like (inaudible), House of Fraser.

So we're opening up more of the department stores, less of the sporting goods, more specialty retail.

And to do this, just like it was in the US, it takes seasons.

It takes a year, it takes two years, to kind of get buyers to rethink about you in a different way.

And I think the retail stores in the UK have helped change that brand perception of buyers in that marketplace, and I also think that they get to see the brand in their travels globally or when they come to the US.

And so what we're starting to see is more wholesale type of retailers starting to re-engage with us in the marketplace.

It has very little to do with -- the Benelux marketplace is really the only marketplace that we took back.

I see you took Spain.

Isn't Spain -- ?

Spain is with the distributor in Spain, and Italy is also with a distributor in wholesale.

We took back our retail rates in those marketplaces.

Okay.

In terms of the profitability, you took a big step back last year, I assume, because of the shift from wholesale to retail.

Do you expect the European operating margins, then, to start increasing year-over-year?

I think that right now when we look at the business, it's going to be flat -- flattish -- year-over-year.

We haven't built into our forecast that kind of improvement yet.

But I do think that the stores that we've taken out that were there from 2006, 2007, 2008, and some of those we've gotten out of leases and move on from store locations that just weren't really good for the brand into more outlets and into more tourist destinations.

There will be a transformation in those margins, but I don't think we're (inaudible) -- we're not building that into this year's plans at this point in time, but I think it's a pretty good management team there.

And I think that these people have a lot of retail experience, and I think we're seeing improvement quarter over quarter in the overall business and in retail, and so we'll see.

Okay.

And then -- thank you -- and then just last -- I think you shipped over 100 percent of your backlog in the first quarter relative to the constant currency backlog you had reported.

So when you look at replenishment, I think you alluded to it a little bit, but are there changes in the replenishment amounts that you would expect versus, let's say, last year, even though your sell through rates are similar?

No.

I think when you add additional door count and especially with independents, we book 5%, 7%, 8% in Q1, and ship in Q1 orders -- so we take inventory positions knowing full well that some independents are going to flow through.

I think, again, the strength of the brand, I think what people have seen from us from a product standpoint they like, and so we had more early independent orders.

Sell-throughs with those accounts we've seen have been solid and have been good, especially in warmer weather areas.

And so, as I said to the question earlier, what we look at in terms of sell through with our major accounts, where we have a lot of visibility, is that their (inaudible) positions aren't higher this year than they were last year.

We do have more space in most of the key retailers that we work with -- wholesalers that we work with.

And what we see is that the sell through percentages through the first 14, 15 weeks of the year is constant with last year.

So there's not an inventory buildup from our perception of what they have today.

And, like we say, the sun is shining here today in Boulder, and we hope that that kind of continues.

It's going to continue through the weekend here.

We hope it starts to continue on a more consistent basis throughout the US and then I think we're prepared to hopefully have a good second quarter.

Corinna Freedman, Wedbush Securities.

Hi, there, good evening, guys.

I'm just wondering if you could talk about what promotions might be baked into what sounds like flat comp guidance for the second quarter?

We've seen a couple of retail promotions that were two for $40 or two for $30.

Are you factoring in getting more promotional both at retail and then also there's a $3.5 million for top-line impact from the US.

Does that already include potential markdown support?

Lots of different questions, Corinna, to that.

Sorry.

Let me see if I can -- I'll try to parse it out and then if I miss something just tell me.

So -- we were less promotional in the first quarter than we were in the first quarter 2012.

And I think what you've seen in the numbers is that our Internet business was down about 7% for the first quarter, but partly because the competitive environment out there in that space is one that really kind of induces you to give constant discounts or free freight.

And we've let that kind of work for the wholesale accounts that we sell products to.

I think going forward into the second quarter, it's all going to be about strength of product at this point in time.

If we think that we've got three, four runners in addition to our core product, and that's moving briskly, then I don't think that we're going to be as promotional as maybe what you've seen in prior quarters or what you even see from other people today.

Of course, like any brand, we have EOL inventory that builds up, and we do go run programs where we want to match different products together or move kind of end-of-life products with those discounted kinds of rates on colors even in core products.

So we're going to continue to do that as any brand does to move inventory that we want to move.

But I don't see us being more promotional year-over-year in the second quarter.

I think, as Jeff said, and I touched on this briefly, too, we've taken down our overall expectations in the plan for the quarter, and just being flat comp growth for the retail business.

Some markets will be up, some markets will probably be down still, depending upon the overall macroeconomics.

But I think we expected a much stronger March in both Europe and the US.

But in both cases, whether kind of we think more weather-related issues, we just didn't see that materialize in our retail stores.

So we've taken a little bit more conservative view in our guidance for the second quarter.

Okay, and could you -- I might have missed it, but did you give inventory plans for the second quarter?

Is there an update there?

When we look at our inventory at the end of the first quarter, inventory for the first quarter levels was down versus the rate of revenue growth, so we were up on an absolute dollar basis.

When we look out into inventory into the future quarters, our inventory management capabilities continue to improve both at retail and in the distribution centers that support the wholesale business.

So we consider internally the opportunity to continue to manage our inventory better than last year.

Okay.

And tax rate guidance for the second quarter?

It looks like it was a little bit lower than I think we were all expecting.

Is there an update there?

21%.

21%, okay.

And then, lastly, on the product side, I know you guys I think we're working on an athletic product.

Is there anything you can share with us about expectations for that in the fall or for the second half?

How do you define an athletic product?

I did see, at the [FANI], the last FANI, something with laces, I'll say.

(chuckles) Yes.

There are products, I mean, we do -- we have built sneaker Silhouettes in the past that -- super lightweight, super comfortable, and we have also just kind of on trend more of a very lightweight-looking, casual walking but not a performance type product or Silhouette.

But, yes, for people that are looking for kind of a casual sneaker to walk in, yes, we do have that coming for the second half for fall/winter 2013.

I want to make sure there's no misunderstandings that we were becoming a performance brand.

Okay, I understand, thanks.

Sam Poser, Sterne Agee.

Thanks for taking my question.

Good afternoon.

I've got a few.

Number one, you talked about the same-store sales getting -- improving somewhat in the second quarter so far to date.

Can you give us some idea of the number, where it's running exactly, since you talked about it -- since you sort of brought it up, can you tell us where you are?

You know, Sam, we don't comment on where we're at in a current quarter, you know, relative to performance.

We kind of gave you what we think is -- what we think the quarter is going to look like.

All right, number two -- you talked about -- Jeff, I think you talked about the additional marketing spend, and without it you would have a few cents of earnings there.

Can you tell us what kind of incremental sales you think you drove with that incremental marketing spend?

I think in my comments, Sam, I said that it was not really our intention to make that investment and see an immediate return within the quarter.

So we didn't see any incremental uptick in revenue based on that marketing spend.

A lot of that came late in March, and you'll see a lot from us, really starting late March all the way through April and into early May in the US marketplace.

Now, in the Asian marketplace we've been running a digital social campaign through our retail stores.

It started back in January.

So different markets have different cadence.

But, as we said, we didn't build into this year any idea from a revenue standpoint that that was going to have to drive or would drive incremental revenue.

So a bit of a haircut year-over-year.

Okay, and then -- thank you -- and then, lastly, you talked about -- this is on the tax rate, Jeff.

Could you walk us through why there should be a difference between the tax rate in Q1 and the tax rate in Q2?

Because I think a lot of those headwinds still exist, if I heard you correctly.

Or advantages exist that would be there again?

Yes.

The tax rate fluctuates, most importantly, by the amount of operating income that we see in the United States, which is where one of our highest global tax rates are.

So as the year goes on, the earnings in the US have a seasonal impact to our tax rate.

And so that's why we're guiding the 21% in Q2 whereas we ran a little bit under that in Q1.

All right.

I'm sorry, I'll give one more then.

You continue to open the stores.

You went to the high -- close to the high end of your original range -- of the adjusted range of store openings.

What are you doing with the existing stores to get them -- I mean, to get the existing stores starting to comp and being more efficient?

And how is that -- the focus -- adjusting?

To start getting some -- to getting the comp and the productivity going?

I know there were some weather issues in the quarter, but comps weren't great in the fourth quarter either.

So -- can you give us some indication of what you're doing to drive stores on existing store sales to grow business?

Yes, I think we do a number of different things to drive traffic into stores.

I think our fundamental belief in what we have seen is that we've had a broad portfolio of products to kind of show the consumers the different products that we're selling and, unfortunately, what happens is we're a little too wide and a little too thin.

And so as we continue to kind of dial in the store performance -- you know, in the old days you could just stack them high and let them fly.

You had a nominal number of styles that you were moving, and so that dynamic was a little bit easier.

So dialing in a new (inaudible) planning system, adding in the additional merchants and buyers into the organization that we need to have.

We think it's much more of an assortment issue and a depth of product in the stores than it is from a pure traffic standpoint.

We think we have good traffic.

We're changing up a little bit of the visual merchandising in the windows.

If anybody comes we have -- kind of test out what we think is that final new format of a store in Boulder that we really like the look and feel to it.

And it just gives a lot more love to the products that we have designed and developed, and it actually makes them look a little bit more valuable than the pure hung approach that we've taken in the past.

So there's a lot of things that, as you know, having come from this business, that goes into making retail work.

We don't necessarily think it's always the traffic issue.

We think it's an assortment planning challenge also.

Mitch Kummetz, Robert Baird.

Yes, thanks for taking my questions.

A few quick ones -- Jeff, gross margin outlook for the year.

I think on the last call you were talking about sort of 25 to 50 basis points of improvement, and you were expecting that to be kind of consistent across quarters.

Where does that stand now?

Well, I think as we said in the script, the impact of the Japanese yen is really highly impacting our gross margins overall for the year.

And just to give you an example, the Japanese business for that quarter had a 90 basis points overall impact on our global gross margin.

So as we look out into the year, we'll see some gross margin improvement in the rest of the world, but that will be offset by the Japanese gross margins going down in relationship to the conversion of both their operating income and their gross profit dollars as well as the purchasing power issue.

So Q1 gross margin was flattish.

Does that mean you kind of expect gross margin to run flattish on the year then?

Just based on the impact that the yen had on Q1 and expected to continue to impact over the balance of the year?

Yes, I would give you -- right now I would say the gross margins for the year will be running at about the same rate as last year.

Okay.

And then on your comp outlook, I know you ticked that down a little bit based on the first quarter and then also you were expecting for Q2, you're saying up 1% to 3% on the year.

I was just starting to try to do the math to sort of figure out what's embedded in the back half, but maybe if you could spare me that hassle and just let me know what you're thinking in the back half or maybe Q3 versus Q4?

I think comparisons get easier as we go through the back half.

That's exactly right, Mitch.

So we think that we had a 10% comp in the first quarter, 2% comp in the second quarter, and then looking at negative comps in the back half of the year.

We think that there's going to be a little bit of an improvement in the back half of the year.

As Sam just said, our planning system is better, merchants in the business, better products flowing into Q3 and Q4.

Okay, and then lastly just housekeeping -- what was the average diluted share count on the quarter for Q1?

I know you bought back stock in the quarter, but what was the share count that you got you that EPS?

It's on the press release.

Oh, it is?

Yes, so it was 88.1 outstanding at the end of the quarter.

Sorry, didn't see it.

Thank you, good luck.

Mike Swartz, Suntrust.

Hey, good afternoon, everyone.

I just wanted to take some time and touch on maybe the marketing spend and how you think about that longer term?

And I think in the previous call you said you were increasing kind of marketing dollars for the year would be about $15 million, and it looks like you're going to spend about $6 million, $7 million in the first half of the year.

But as we look out kind of 2014 and beyond, I mean, is this kind of the new normal for marketing or do we expect maybe to pull back on some of that as maybe we move into 2014?

Yes, Mike, I think what we said was that we were going to kind of balance this out from a spend standpoint, so you're exactly right.

When you look at where dollars are flowing in the first half of the year versus the last half of the year, and we never have really put in -- "never" being the last four or five years, put in a significant amount of spend in the back half of the year.

And so guess what?

We don't maybe always sell our fall/winter products as effectively as we could or should.

Putting the right marketing dollars behind it this year, we do think it's going to help and get consumers to think about us in different wearing occasions.

No, I think what we've said pretty clearly is that this was a year where we were going to take up our overall marketing spend for the business.

It was not going to be built into the sustained run rate of the business.

It will come down.

I think we're going to see how effective that it is, what it really does to the long term psyche of the buyers out there.

We're going to have a lot of analytical data where consumers have moved much more to the neutral and considering space for Crocs than where they were three or four years ago.

And if we're pushing them up to change then we don't think we're going to need to prime the pump with as much marketing spend next year.

And I think you said you really didn't see any impact of the marketing, per se, in the first quarter just because it came so late in March, I guess.

When would you expect to see maybe the benefits of the marketing spend?

In the second quarter?

Third quarter?

You sound like me.

(inaudible) Where are we going to see this?

I think that there's a certain part of this that where you spend money on Google or Yahoo or Bing, and you're looking for convert.

I don't think that we're necessarily going to -- looking for convert in this kind of spend.

What we're looking for is when, for example, people receive the new brochure that we sent out in March.

What we saw was, by getting that home flyer kind of a fourth channel to open up a way that we connect with and talk to consumers, we saw the uptick being 23%, 25% higher convert on that in-home mailer.

Plus we're getting people to think about us in a different way.

So our convert this year was up 23%, 25%, but what we also saw was that people were looking through the magazine buying a lot of new products and, on average, they were buying three pairs per order.

So what we have to do is we have to continue to change people's perception of us as a clog, and we have a hard enough time with the financial community getting you to think about us as a clog.

Now we've got hundreds of million people out here globally that we're trying to get them to see us in a different way.

And I think we all think that that may occur -- some of that may occur this year.

We may see that uplift with some new consumers coming into the brand.

But it may take six months, it may take a year to kind of continue to change that consumers thinking.

So, hopefully, we see it start to pan out in Q2 and Q3 on new products, but it's so early to make that call right now.

I mean, I guess it's safe to say then you wouldn't have any kind of benefit baked into the second quarter based on some kind of return on that marketing?

That's right, we don't.

And we tried to say that in my portion of the script.

(Operator Instructions) Lee Giordano, Imperial Capital.

Thank you.

Can you talk a little bit about the long term retail store growth opportunity by region?

And then, secondly, you anticipate opening at a similar pace over the next few years or at what point do you see it slow down in your retail growth?

Thanks.

Yes, I think, Lee, it kind of depends up on the market that you're asking.

So I think what we've said is that for this year we're kind of on the same basic growth rate in the Americas and in Asia that we have for the last two, three years; that we're adding in incrementally 25 to 35 stores.

When you spread that across two or three stores in Hong Kong, two or three stores in Singapore, two or three more stores in Australia, and then you're adding 10 or 15 stores in China, five, 10 stores in Korea, all of a sudden, that number seems awfully small relative to the market that we're servicing.

And then, of course, in that market, too, we have a lot of distributors and sub-distributor partners that open up retail stores.

We think we have in excess of 650 partner stores that are open globally.

So we have our own retail store investment plus we're partnering with a lot of people in different geographies to continue to grow the brand.

I think our purview right now is over the next two years, for 2013 and 2014; that we have a pipeline that we've identified in certain locations with the right demographics, now maybe we don't have the right locations exactly pinpointed at this point in time.

But that that should continue in that same range of growth into 2014 with the US market having some good opportunities and outlets [interspersed] to continue to expand in a few certain other locations outside of outlets.

And we're opening up more outlets in Europe.

We're still at about 100-plus stores in Europe.

So -- we're going to see how that grows and what the financials look like there, and then how the overall European economy is developing, over time, too.

So what we have a view on really right now is what that looks like over the next two years.

But, at the end of the day, if we had 700 stores globally, I don't think we're over penetrated by any stretch of the imagination.

Steve Marotta, C.L. King & Associates.

Good evening, everyone.

Just one question as it relates to the increase in marketing spend in the back half of the year.

Can you talk a little bit about new products that might be going along with that?

I know that your, obviously, desires to get tractions in fall/winter product, can you talk about what's new and what can be expected in the back half of this year?

Steve, there's a number of products that are a little bit more wearing the occasion friendly when it gets colder, when it gets wet, whether it be in women's heels that look a little bit nicer but still have that soft, lightweight comfort of Crocs products on the kind of build on the a-leigh that we're selling to that same consumer for the spring/summer timeframe.

And we've continued to niche out spaces in boots and kids' boots and men's casual shoes that flow nicely into the back half of the year.

So it's building that idea that we don't build products with holes in it, and were not only relevant to the spring/summer timeframe.

You know, this push about wearing occasions plays into this idea that you can wear Crocs for winter days or for days that are wet also.

We have no further questions at this time.

I'd like to turn the call back to our speaker.

Thank you, Operator, and thanks, everyone, for joining us today on our first quarter earnings call.

This concludes today's conference.

We thank you for your participation.