Deckers Outdoor Corp (DECK) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the Deckers Outdoor Corporation First Quarter Fiscal 2004 Earnings Release Conference Call.

At this time, all participants have been placed on a listen-only mode.

Following the presentation, we will conduct a question and answer session.

Instructions will be provided at that time for you to queue up for questions.

If anyone has any difficulties hearing the conference, please press *0 for operator assistance at any time.

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

I will now turn the conference over to Douglas Otto, Chairman and Chief Executive Officer.

Please go ahead, sir.

Before Doug begins, I'd just like to read the Safe Harbor language.

At the outset, we note that some of the information we provide in this call will be forward-looking statements within the meaning of the securities laws.

These statements concern Deckers' plans, expectations and objectives for future operations.

We caution you that a number of risks and uncertainties beyond our control could cause Deckers' actual results to differ materially from those we describe on this call.

We have explained some of these risks and uncertainties in the risk factors section of our annual report on form 10K and in other documents we file with the SEC.

Among these risks is the fact that our sales are highly sensitive to consumer preferences, to general economic conditions, to the weather and to the choices of our customers to carry and promote our products.

Deckers intends that all of its forward-looking statements in this call will be protected by the Safe Harbor provisions in the Securities Exchange Act of 1934.

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

With that out of the way, I'd like to turn the call over to Doug Otto.

Thank you, Brenden, and thank you all for joining us.

With me is Scott Ash, our CFO.

We are happy to announce that our sales for first quarter 2004 were a record $44.3m, up 22.6% from last year's $36.1m.

Teva sales for the quarter increased 18% to $37.4m, making it Teva's biggest quarter ever.

Earnings for the quarter were also a record, increasing 28.1% to $5.4m, and earnings per diluted share increased 32.4% to $0.49 versus $0.37 last year.

Scott will discuss the financials in more detail, then I'll give you an updated outlook for our brands.

For the first quarter, our net sales increased 23% to a record $44.3m versus $36.1m last year.

Including sales from the wholesale division, as well as the internet and catalog retailing business, our net sales of Teva increased 18% to $37.4m compared to $31.7m in 2003.

Ugg sales increased 226% to $5.1m in the first quarter compared to $1.6m for the first quarter of last year.

Simple sales were $1.7m for the quarter versus $2.8m last year.

Included in these numbers are the internet and catalog sales of $3.6m, up 226%, compared to $1.1m for the first quarter last year.

International sales for all brands increased 21% to $12.9m in the first quarter of 2004 versus $10.6m in the first quarter of 2003.

And our domestic sales also increased by 23% to $31.4m from $25.5m in 2003.

Gross margin for the quarter increased to 46.1% compared to the first quarter last year, when gross margin was 45.0%.

The increase in gross margin was largely due to an increase in the proportion of internet and catalog retail sales, which have higher gross margins than our wholesale sales, and a decrease in the volume of closeout sales during the quarter.

SG&A expenses for the quarter were $10.8m or 24.3% of sales, compared to $8.2m or 22.6% of sales in the first quarter of 2003.

The increase in SG&A expenses for the quarter was primarily due to increased costs of our growing internet and catalog retail business, increased payroll costs, higher legal costs associated with increased efforts to protect the company's intellectual property rights, and increased sales commissions on a higher sales volume.

Interest expense was approximately $1.1m in the first quarter, which was comparable to last year's first quarter interest expense of $1.1m.

This reflects two offsetting factors.

First, our interest costs were lower on the lower debt balances resulting from the continued repayment of debt.

However, this was offset by prepayment fees and a charge to write off previously capitalized loan costs associated with a $3m early retainment of subordinated debt in the first quarter of 2004.

The costs associated with this prepayment aggregated $335,000 in the first quarter.

Net earnings for the first quarter were $5.4m or $0.49 per diluted share, compared to $4.2m or $0.37 per diluted share in the first quarter of last year.

Turning now to our balance sheet, we continue to make improvements in our credit and collections area, where we were able to decrease our accounts receivable by 4% to $24.3m at March 31, 2004, compared to $25.4m last year, this at a time when sales increased 23% during the quarter.

Our inventory increased approximately $900,000, or 6%, to $17.7m at March 31, 2004, from $16.7m a year ago.

The inventory change included an increase in Teva inventory of $2.3m, a decrease in Simple inventory by $300,000, and a decrease in Ugg inventory by $1m.

Overall, we were able to decrease our debt net of cash by $15m at quarter end compared to a year ago.

And, at the same time, we repurchased all of the 5.5m of preferred stock since last year, bringing total repayments and repurchases to more than $20m during the last 12 months.

Thank you, Scott.

I'll now talk about each of our brands, how they're doing and what our future expectations are.

As I said, Teva sales for first quarter increased 18% to a record $37.4m, with domestic and international sales both growing.

Early Spring retail sell-through in the U.S. and in Europe is encouraging.

We're experiencing good sell-through across the board, especially in our core Terra-Fi, Pretty Rugged and Hurricane sports sandals and our Mush and Ulani casual sandals.

Other newer model standout performers are our just introduced women's Terra-Fi sports sandal and our Ventura Habit and Olowahu after sport sandals.

While our sandal business remains strong and growing, we are also experiencing success in some of our new closed footwear.

The Gamma Amphibious shoe is retailing well and our new Romero Trail Runner is experiencing double-digit sell-throughs at some of our important retail partners.

For Fall, we are pleased with the acceptance of our casual Nomadic offering and the bookings for the Sawtooth hiker, our first footwear model that uses Gortex.

We are also getting great early reaction to some of our Spring '05 models, such as our lightweight Amphibious Trail Runner, the X1, which has our Wraptor light technology, and our Steep XTR low-cut hiker with our patented liquid frame technology and Gortex XER, as well as good reaction to our new group of waterproof leather sandals.

This is helping to solidify our leadership position in sports sandals and to drive our expansion into leisure sandals and the rugged closed-toe footwear category.

Now that we own the Teva brand, we are able to take a longer term approach to our product development and marketing initiatives as we expand Teva into new footwear categories.

Over the next few years, we will be launching innovative new products and using proprietary technologies, not only in our sports sandals, but also in leisure and after sport sandals, light hikers, trail runners, amphibious and casual footwear.

We are now addressing the entire rugged outdoor footwear market, a market that is over seven times the size of the sports sandal market.

We are also selectively licensing other non-footwear products.

We've signed licenses for men's sportswear, headwear, eyewear and time pieces in the United States.

We are also looking to license bags and packs, socks and other apparel and accessory categories in both the U.S. and international markets.

Most of this product is planned for introduction of 2005 and later.

To support this expansion, we have continued to focus our marketing efforts on owning White Water and Canyon Sport, our premier events at Teva Mountain Games at Vale will be held in June this year, and includes white water, climbing, trail running and mountain biking events.

[Hawk] Sport Net provided coverage of last year's Teva Mountain Games, which also received further exposure on CNN, [Olaland], Adventure TV, and in a multitude of newspapers and magazines.

This year, we expect additional coverage, including network coverage by NBC.

We expect this combination of authenticity, great sports marketing and innovative and proprietary products to drive Teva's growth over the next few years.

Teva is the leading performance brand in the outdoor market and we're excited about our prospects as we move forward with our mission to be the brand of choice for the new outdoor athlete.

Although Simple sales for the quarter are below that of last year, gross margin for the brand expanded to 31% and we are experiencing an increase in future bookings.

Over the last few months, we've modified our Simple growth strategy to better take advantage of our corporate strengths and market opportunities.

We feel confident that this new strategy will give us the growth we want from Simple.

Our strategy for Simple is first to build on its retail successes and icon status as the old school sneaker and the original clog by launching new versions of these classic, simple styles.

Retailer excitement was very evident at recent trade shows where we debuted the new clog product for Fall delivery.

Bookings have been strong, including all store placement in Nordstrom.

Next, we are broadening the Simple sandal offering.

This takes advantage of one of our core competencies and is something we could not do prior to owning Teva.

It also opens up new distribution we may not reach with Teva.

Finally, we are expanding our Simple sheet program, where we offer more moderately priced shearling boot and slippers to distribution that we don't service with our Ugg brand.

We believe these product and distribution initiatives will give us the growth we want from Simple.

Turning now to Ugg, we again find that Ugg continues to outperform our expectations.

Fueled by editorial and celebrity exposure, Ugg experienced sales growth of almost 55% to $36.9m in 2003, marking its 6th consecutive year of double-digit growth.

Sales for the first quarter of 2004 more than tripled.

Retailer sell-through over the holidays was very strong throughout the country as Ugg has been discovered by many people outside of California.

Sales continue to increase in established retail partners like Nordstrom and Sports Chalet, as well as in newer ones like Neiman-Marcus and David Z.

All categories, boots, slippers and casuals sold well and strong sell-through has continued since the holidays.

Neiman-Marcus featured Ugg in its Spring catalog and sold out within four hours of its release.

The pent up demand for Ugg has resulted in retailers placing larger orders earlier this year than in previous years.

Even though we have secured more top quality sheepskin and more manufacturing capacity, we continue to offer certain styles on an allocation basis so that we can better control the distribution and enhance the image of the brand.

We are also seeing demand for Ugg in Europe, Canada and other international markets and expect international sales to grow dramatically this year and over the next few years.

The collection offered by our handbag licensee has been received exceptionally well and bookings are strong We view this as a positive sign as we look to selectively license other non-footwear products, such as outerwear and cold weather accessories.

Over the next few years, we expect to continue to expand Ugg's product categories, its selling season and its geographic penetration.

As the leader in the luxury sheepskin market and Footwear News' brand of the year, Ugg is well on its way to becoming a global luxury lifestyle brand.

Now let me discuss our guidance.

Based on our strong first quarter performance, anticipated Spring re-order business, the positive reaction to both Teva's and Simple's Fall lines, the continuing momentum of Ugg, the early positive response to Teva's Spring '04 line, the restructuring of our international operations and our continuing repayment of long-term debt, we are introducing guidance for Second Quarter 2004 and increasing both our sales and earnings guidance for 2004.

We now expect sales for the year of 2004 to be $166m to $174m, up from our previous guidance of $153m to $162m.

This includes Teva sales of $85m to $87m, Simple sales of $9m to $11m, and Ugg sales of $72m to $76m.

Assuming the successful conclusion of our announced offering, which would result in 12.2m average diluted common shares outstanding, we now expect 2004 earnings to be in the range of $1.42 to $1.51 per diluted share, up from our previous guidance of $1.25 to $1.35.

For the second quarter of 2004, we expect sales of between $34m and $35m and earnings per diluted share of $0.32 to $0.34.

In summary, we are pleased about our first quarter performance and expect solid momentum to continue throughout this year and into the next year.

We own strong brands that are leaders in their niche categories and we are very encouraged about our prospects for 2004 and beyond.

Thank you for your support and we'd now be happy to answer any questions you may have.

Thank you.

The floor is now open for questions.

If you do have a question, please press *1 on your touchtone telephone at this time.

If at any point your question is answered, you may remove yourself from the queue by pressing the # key.

We do ask that, while posing your question, you please pick up your handset to insure proper sound quality.

Once again, to ask question, please press *1 on your touchtone telephone.

Please hold the line while we poll for questions.

Our first question today is coming from Sam Poser [ph] of Mosaic Research.

Please pose your question, sir.

Good morning.

Congratulations.

Thank you, Sam.

On the Ugg business, when you announced the increase of-- you went up to $65m on the last call, you said there were some material issues and now you're up in the $70m range.

What percentage of that business is the natural two-sided shearling versus other shearling materials?

We have been able to secure additional top quality shearling over the last few months, as well as--.

I don't know the exact percentage.

Still most of it in the Ugg line is twin-faced, top quality shearling.

And as you know, we've been very aggressive in taking a strong position on this, starting from a year ago and we continue to do it.

All I can say is it's numerous trips of our staff to New Zealand, to Australia, to Asia and we've just kind of really taken an aggressive position based on the reaction and the bookings, the early bookings we've gotten from our retailers.

And we plan to season out.

With the guidance we have, we expect to end the year with some inventory to support our expected first quarter sales in Ugg.

And I just feel really good that our team has been able to pull it all together.

Great.

And then one other question on Teva.

It sounds-- you mentioned in your remarks that the closed footwear business was growing.

What percentage of your total business is that now and where do you see that evolving over the next couple of years?

The total percentage on it now I would say is in the 12%, 13% range.

We see it evolving over the next few years-- Our target in our strategic plan is to get it to be 30% of our business.

Good reaction on our Fall line, which is the first time we're doing anything with Gortex and we're getting very good response in all channels of distribution.

We're going to expand that for next year in Spring.

We're coming out with a low top version.

We're also, as I mentioned, our spring '05 line has the new Wraptor Light technology that we're using in an amphibious trail running.

That has been getting great early read.

So, you'll see us continue to put more effort on that.

In fact, we're just now starting to see that product come out.

Another thing we have for Spring '05 is we've developed an amphibious shoe that-- I think it's called the Ricochet II now.

I don't know what name it'll eventually be.

But, we've developed in conjunction with 510 and they're stealth rubber - and we've developed a new stealth rubber is really what it is - to put on this new amphibious shoe.

And we're really excited about that.

That'll be launched for Spring '05.

Great.

Thank you.

Thank you.

The next question is coming from Ralph McClusky [ph] of Passport Capital.

Please pose your question, sir.

Hi, Doug.

Congratulations with the good quarter.

Thanks a lot.

Couple of non-financial related questions, but could you talk a little bit about the major use of proceeds on this secondary offering that you're doing?

And then I have two other questions.

One is, how is [Kean] and other sort of new competitors impacting your Teva business?

And what should we expect in terms of Ugg sourcing and are you going to have enough product to sell in the coming quarters?

OK.

Number one, use of proceeds.

The key thing is pay off the debt.

I think we've got in the vicinity of $30m in debt, so that's primary.

The second thing is really to support our growth initiatives that we're outlining here in each of the brands and basic corporate needs.

The second thing is competitors and how it's working-- were you talking just specifically Teva or do you want to know in all brands?

Specifically in Teva.

OK.

Specifically in Teva, what we're finding is the sandals themselves as a category are growing.

There are lots of competitors out there in the outdoor area. [Chocko] has been a competitor.

I think, as you mentioned, [Kean] has actually taken some of that business from them, probably more than from us.

We also see on the other end of the spectrum in our casual sector, of course [Wreath] is very strong.

And then you always have Columbia, Timberland.

I can lay out all the athletic brands.

So, we constantly see competitors coming in and we're well aware of our positioning versus their positioning.

I will tell you that, when it comes to market share, our market share continues to be strong and we continue to be the leader, in particular in sports sandals.

And we're gaining a lot more ground in leisure sandals as we've developed more product to fill that.

And as you can see, we're very proud of first quarter.

The sell-throughs look very strong for second quarter.

I mean, again, in our whole history of Teva, this was a record quarter for us.

So, we're real excited about that.

When we talk about our sourcing, I want to reiterate again that this is an important thing.

There is-- you know, sheepskin is a byproduct of people eating lamb.

An the quality of sheepskin that we need for our boots is a particular type.

It's different than what's needed for apparel, for handbags, things like that.

So it's a thing that we really spend a lot of time sourcing.

As I did say, we have secured the materials, as well as the manufacturing capacity that we need to hit the guidance that we've given, as well as to end the year with inventory to support what we anticipate for first quarter of next year.

And I think I covered your questions.

Thank you very much.

OK.

Once again, to ask a question, please press *1 on your touchtone telephone at this time.

And our next question today is coming from Ronald Redfield of Redfield Blonsky [ph] Company.

Please pose your question, sir.

Hi, good morning.

Have you factored-- or have you seen, factored or seen any results yet or your future operations any inflation costs coming in?

I'm talking about shipping, raw materials, packaging.

We're all seeing a lot of costs going up, although the consumer hasn't been hit with these rising costs yet.

What are you doing about that and how do you-- well, not about it, but how are you approaching it and how do you think it might affect your future gross margins and net margins?

Well, we have experienced - and I'll use the one, freight, because we've talked about it a lot.

Since really 9/11 and, of course, with fuel prices going up and the red tape with all the security issues, freight prices have gone up substantially.

And we knew about this when we were doing our pricers, so it's all figured into our gross margin.

There is some upward movement.

In particular sheepskin has moved dramatically.

We take an early position on it.

Also, because of the volume we use, we get probably better pricing than anybody does.

So, all of that's been factored into it.

As we scrambled to get the last round of sheepskin, the price was higher.

So, you know, I guess our-- that would affect our margin, but then our volume's going up so our manufacturing overheads are coming down.

There's a lot of things going up and coming down and we've factored all of those things in as we go forward.

And, you know, again, we really pride ourselves on being in the top quartile when it comes to gross margin.

We have premier brands, premier retail partners.

We're very profitable for our retail partners, profitable for us.

And the real key to anybody's gross margin is controlling that closeout or markdown at the end of the season.

And-- I don't want to say we have it down to a fine art, but we definitely have a strategy and we execute well on that.

So I anticipate us maintaining the types of margins that we've seen historically, as well as what we've put forward in our guidance.

May I ask one slight follow up to that?

Sure.

Of course, fuel costs have gone up for a year and a half or so or longer.

Have you seen in the last quarter alone, even the last two months, the cost of rubber, paper, shipping going up?

And if that were to continue and we were to go into an inflationary environment, would that affect-- do you think you would be able to control that via volume, or do you think, like most other manufacturers and so forth, that gross margins would suffer for a period of time until the inflation subsided or until you could pass it off to-- forward?

I've got to say it's a combination of all of above.

I mean, any time anybody's faced with inflationary pressure - and we deal with it all the time, especially in leather, in rubber - you're talking about all the things shipping.

I'll tell you, we have such great relationships with our factories and with our retail partners, you know, there's a little bit of--I know in this recent sheepskin run up in prices, we've actually been able to share it with our factories.

Certain models that we've done with Ugg, we've raised the price this year; others, we didn't.

It's a little of all of the above and I think that's just part of doing business.

I'll tell you, inflationary things, what we're seeing now is nothing like we saw back in the '70s.

And we were able to go through it in the '70s.

We've seen times when there hasn't been inflation and we've dealt well with it ourselves.

A lot of it has to do with being innovative in your designs, too.

And we have a dedicated staff and we put a lot of effort into being innovative in product.

And a lot of times you engineer out and you find ways to make product that can keep the kind of margin that you want.

Is it a factor?

Yes.

Do we deal with it every year?

Yes.

And we'll continue to deal with it and I think we do it quite effectively.

And I agree.

Are you saying that possibly we're in an inflationary period that can perhaps be compared to the 1970s and one which would--?

Oh, no, no, no, no.

The 1970s were a lot more difficult than we're at right now.

I just wanted-- I guess what I wanted to say is, in the '70s, inflation was high double digits.

That's when we were in the high teens in inflationary things And we weathered it there and we learned a lot of the skills then that we apply now.

And I think communication nowadays is much better and cooperation with factories and with retailers.

But, isn't rubber, paper and other commodities also having on an annualized basis over the last quarter, which we haven't seen probably in 20 years, double digit inflation?

You know, no.

I thought that like, I don't know, steel, aluminum, rubber, I thought had gone up 40-- .

--You've got to use the commodities but you've got to understand, in our supply chain, there are a lot of people.

So what has happened to us and where that really comes down to it-- people feel it a lot more at the gas pumps than we feel it in our materials.

Okay.

Thank you very much and-- great.

Thank you.

The last question today is coming from Scott Johnson of Highland Capital.

Please pose your question, sir.

Yes.

I have two questions, actually.

Will you guys disclose what percentage of your sales go to Neiman-Marcus and Nordstrom for '04?

For '04, no.

I mean, we haven't gotten there yet.

I think we've disclosed in the past that Nordstrom for-- Nordstrom actually is our largest customer for the company.

I don't know the '03 number off the top of my head; '02 number is around 8% I think it was about that for 2003 as well.

And the reason they're our biggest customer, they're in our top five when it comes to Teva but, in both Ugg and Simple, they are the number one customer.

Neiman-Marcus has become a strong what we call an "Ugg destination account" that, just over the last year or two, has really accelerated.

Nordstrom again continues to be far and away our biggest customer for Ugg.

Neiman has moved into the number two position and we expect them to grow quite a bit as an Ugg destination customer.

OK.

And then secondly, what's their return policy in the event that they over order to secure supply?

Can they return this stuff at the end of the year if sales don't go through?

No.

I mean, our policy is no returns, no markdowns, all of that kind of stuff.

I will tell you that what we do do is we monitor the sell-throughs - and we do this in all our brands.

We don't want our customers to get stuck with product nor do we want to get stuck with product.

And we watch the sell-throughs early in the season to anticipate what styles are tracking faster than what we anticipated and what aren't.

We modify our factories and the orders there on the backend of it so that we control the product.

I think the other thing - and I always say this - is we never go after that last 10% of the business.

It's just too risky.

That's where you end up with your markdowns.

And we don't do that.

And in particular, I think you're probably referring to Ugg.

We've got core product there that sells day in and day out.

And where we take inventory positions are on those core products that carry forward year after year.

You know, we're still selling the classic boot and the ultra boot that we've been selling now, well, since we bought the brand.

But I mean, Bryan [sp] sold them all the way back in the '80s.

So, that's how we mitigate it.

It's product, it's watching them.

And what we'd rather have them do is cancel an order than take product and return it.

The last thing you want to have is markdowns out in the area.

And we remain very, you know, we control it.

We watch it early on, react, and deal with it.

So your return percentage, you don't have a return percentage then?

I mean, we put a reserve in for returns and there's always a little bit, but it's very, very minimal.

Our brands, very few returns relative to what I would say our peer group in the industry.

And it's because we control it.

I'll tell you right now, there are people that want to order four times what they ordered last year in Ugg.

Some of them ten times.

You know, you can see by the guidance where we're putting out and we're selectively adding distribution, but not that much.

What we're doing is we're broadening the category offerings at the different-- at our existing Ugg dealers.

And we don't let them get out of hand.

I mean, that's all part of brand building is don't glut the marketplace.

Keep them hungry.

Okay.

It was a great quarter and appreciate your time.

All right.

Thanks.

We actually do have one more question today coming from Shiam Davis [ph] of the Gartner Group.

Please pose your question.

Hi.

I'm sorry if I missed it already.

I was just hoping you could run through again where your sales from the closed-toe Tevas are coming from?

And which of those particular brands are stronger and which are weaker and what your plans vis-à-vis that?

And then a second question actually is that there was a very wide discrepancy I guess between retail-- I guess prices on Uggs last year, especially during the fall.

And the prices, I guess-- I mean, analysts were talking about what they were selling for on eBay.

Just wanted to know whether or not you were willing or are planning to mark up the prices on Uggs again, either coming up in this shipment or in the fall?

Thanks.

Okay.

First thing I think you were referring to Teva closed-toe footwear?

Yes.

Where we are seeing in particular things that are selling more are amphibious footwear.

The Gamma is doing phenomenal.

Proton continues to be a very strong performer.

We also introduced the Romero trail running shoe.

We're getting weekly double digit sell-throughs as a lot of retailers, including the Walking Company with one of the models that they've had.

As we look further into fall, we're getting very strong reaction to our Sawtooth hiker, which is our first Gortex hiking boot.

And as we go into Spring '05, we're following that up with a low cut version with Gortex XER, as well as we're adding a new technology, our Wraptor Light technology.

So we're seeing it in the amphibious.

We're also seeing it in our Terrain group, as well as our Nomadic group.

The Big Wall, which is one of our more casual offerings, has got a little climbing inspired styling to it, is booking well for Fall.

So, that's where we see it.

Amphibious footwear is where we really see us accelerating and we put a lot of new product in that area.

We have a new amphibious trail runner coming out for Spring '05.

In terms of-- you mentioned the eBay and I think you're talking about seeing Uggs on eBay for anywhere from two to four times what they retail for.

Let me tell you that those are not us.

Those are people that are buying product at retail and putting it out on eBay themselves.

No.

I was just-- exactly.

I was asking if the secondary markets can sustain such prices and you're not planning on putting out-- you're still trying to leave some sort of-- is it somewhat scarce.

I thought maybe you could close the gap, but actually at the retail level, charge more than I guess whatever it was, 130 for [unintelligible] or whatever it was last year.

Well, I think-- our view is we believe we price things fairly.

And we're not going to change our pricing structure because people on eBay are selling things for more.

No, it was just an indication of demand.

That's all.

Yeah.

It is an indication of demand.

And I've got say there was a major scarcity this last holiday season.

We continue to see sell-throughs that are phenomenal, both on our own website.

I know Nordstrom, Neimans, two of our big customers, they're also experiencing it right now.

As soon as the product hits the floor, it goes.

You know, I've got to say-- well, you can tell by our guidance we've doubled what we anticipate having in the marketplace this year.

I believe that our--.

You know, would our retailers like to get more product from us?

Yes.

Will we give them-- we think we're on the right course for that.

We're going to fill the gap.

Are we going to fill it all?

Probably not.

But, I don't know.

And it's really hard for me to tell.

That whole eBay thing was a phenomena that, you know, in previous years we haven't had to deal with, so--.

Right.

No, actually-- I was actually, on the other side of the coin was wondering whether or not there's some elements of risk in trying to overproduce for sort of Spring and Summer time sales.

I know in the Fall they're very warm.

But I didn't know-- and I know that they're-- brands as also being able to be somewhat cool during the Summer.

But, if you look at them, they're very thick.

So I wondering if there was some sort of risk of overproduction and overselling to your retailers for like the Spring and Summer line, for some of them within the Ugg line?

Well, I'll tell you that what we've been filling in first and second quarter here is probably pent up demand from people that were unable to get them for Christmas.

Right.

As we look into third and fourth quarters, we've always had-- or not always, in the last few years, we've developed new product that has allowed us to stretch that selling season into that back-to-school market.

Right.

If you look at our '05 line, you will find that there is product that is more suited and colors that are more suited even to Spring than they all to Fall.

And as we go forward, we're even doing new things.

In fact, for Spring '05 will be the first year that we will actually offer an Ugg Spring line, where we have product that is using sheepskin in trim instead of all over, more sculpted to the foot.

The patterns themselves and the colors themselves are more suited for the Spring season.

What we've got here is, with Ugg, not only is the boot - which everybody sees in the magazines and stuff - selling well, but our slippers sell phenomenally well.

I mean, they continue to be 20% of our business.

We've also done a lot of product innovation in what we call the casual line.

And that's selling through really well.

You know, we're not just a boot.

And I think a lot of people with the publicity see that boot but, in reality, what we've got is a strong brand with a great consumer franchise and a great retailer group that gets it out.

And the person that owns the boot and owns the slipper is now buying the casual footwear from us.

And that's less seasonal than the boot is.

So, you know, when we bought the brand it was two boots and two slippers.

We're now close I think to 70 styles and they are all selling well at retail, as well as selling into our retail partners and being displayed that.

So, you know, I guess that's how we deal with it.

It's building a brand and not just an item.

Okay.

Thanks again and congratulations on a good quarter.

Great.

Thank you.

Thank you.

That does conclude today's question and answer session.

I'd like to turn the call back over to the speakers for any closing comments.

Well, listen, thank you everyone.

Again, we appreciate your support.

We look forward to talking to you at the end of second quarter.

Take care.

Thank you for your participation.

That does conclude this morning's teleconference.

You may disconnect your lines at this time and have a great day.

Thank you.