Deckers Outdoor Corp (DECK) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Deckers Outdoor Corporation second quarter fiscal 2006 earnings conference call.

At this time, all participants are in 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 a question. (OPERATOR INSTRUCTIONS) I would like to remind you that today's conference is being recorded.

Before we begin, I would also like to remind everyone of the Company's Safe Harbor language.

Please note that some of the information provided 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.

The Company cautions you that a number of risks and uncertainties beyond its control could cause Deckers' actual results to differ materially from those described on this call.

Decker has explained some of these risks and uncertainties in the risk factors section of its annual report on Form 10-K and its other documents filed with the SEC.

Among these risks is the fact that the Company's sales are highly sensitive to consumer preference, to general economic conditions, to the weather, and to the choice of its customers to carry and promote its products.

Deckers 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.

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

I would like to now turn the conference over the President and Chief Executive Officer, Angel Martinez.

Please go ahead, sir.

Thank you.

Good afternoon to all of you and thanks for joining us.

We are very pleased to have once again exceeded expectations as the positive momentum generated at the beginning of the year carried over into the second quarter.

Our better-than-expected performance was driven by slightly higher-than anticipated sales and strong full selling price across all three of our brands, which allowed us to report a 600 basis point improvement in our gross margin.

These results represent the early success of the many strategic initiatives we have recently implemented.

Importantly, we are now well positioned to capitalize on the many opportunities we believe exist in 2007 and beyond.

This is further evidenced by the early sell-through of 2006 line, which is off to a nice start at retail.

While it is still early in the selling season, we believe that among UGG, Teva, and Simple we have a well diversified product offering with innovative and compelling styles.

At the same time, we recently completed the pre-line of our spring '07 product with major retail partners.

The initial feedback has been very positive, which bodes well as we look forward to continue to evolve our business.

A real highlight in the second quarter came when UGG Australia received the Partners in Excellence Award from Nordstrom.

Nordstrom is a first-class retailer that sells the best brands around the world and to be one of two recognized out of 60,000 vendors is a terrific honor.

We were thrilled with the award and with the evolution of our relationship with Nordstrom.

We look forward to many more years of continued success together.

As I've stated, we are very pleased with our financial results in the second quarter.

Sales were 41.7 million, which was above our previous guidance range of 38 million to 40 million.

Diluted earnings per share were $0.21, which exceeded our projection of $0.03 to $0.05 and the first-call consensus estimate of $0.05.

Zohar will discuss this in more detail later in the call.

The upside was primarily driven by better-than-expected sales, strong full-price sales, and lower SG&A expenses.

Let's start with Teva.

As anticipated, Teva sales for the second quarter were 22.8 million compared to 24.8 in the same period last year.

The decrease in the volume of sales was primarily the result of fewer closeout sales, which was partially offset by an increase in full-margin sales that were driven by solid sell-through of men's, women's and kids' products including the introduction of several new styles of the Dozer, the Elixir and the Mush.

While this was a limited launch of new product, the acceptance of our new footwear is very encouraging.

We are also encouraged by the fundamental strength of the brand as demonstrated by full-price sell-through of core products such as Terrify and Pretty Rugged.

Some of you may have seen the Footwear News article of July 24 where retailers comment on the strength of the brand and the success of some of the new product this season.

So I call your attention to that article.

In early June we held the fifth annual Teva Mountain Games in Vail, Colorado.

The consensus was it was our best event to date.

This year Yahoo and Trek Bicycles came on as sponsors adding further credibility and legitimacy to the caliber of the event.

It was great to witness the intensity and the sportsmanship displayed by all the competitors.

It was especially gratifying that so many Teva athletes on the awards podium throughout the event.

During the second quarter we also completed our retail store re-merchandizing program, which included updating and improving our point-of-purchase materials in over 700 doors.

Our investment in retail presence and increased advertising is paying off for our retailers.

Additionally, over the next month we'll be installing new in-store graphics and launching an advertising campaign to support our fall introductions such as the Terra Raptor, the Pseudo, the Shay, and the new Dozer styles.

We are very pleased with the traction we're getting at retail with our initial investments in marketing and advertising for Teva.

We are committed to continually upgrading our retail presence and broadening the exposure of our brand.

For spring 2007, we'll once again be introducing new styles and new initiatives, including a shop-and-shop concept, window displays, the river trip sweepstakes, as well as ongoing spending in media to support the marketing strategy.

As we've discussed, 2006 is a transitional year for Teva.

As we get set for spring 2007, 70% of the product line will be comprised of new styles.

The entire Teva team has done a tremendous job over the also several months, improving Teva's market position and setting the stage for a bright future around all these new products.

We've made great strides in cleaning out our inventory, developing several new and innovative styles of both open and closed toe footwear, segmenting our distribution, and addressing our marketing focus towards a younger, active consumer.

We recently concluded a successful global sales meeting and all of our sales reps and distributors are enthusiastic about spring '07.

More importantly, we just pre-lined our spring '07 Teva offering for key retailers and the feedback was positive giving us a heightened degree of optimism about our prospects as we head into our two largest trade shows, WSA and Outdoor Retailer.

I might add that the recently concluded Friedrichshofen Show in Germany was a big success for us.

We were awarded best new product – most innovative product of the show, which was very exciting for us.

Turning to UGG, sales increased approximately 19% to 15.9 million versus 13.3 million for the same period a year ago.

Second quarter UGG results were fueled by strong reorder business for our spring line.

For fall we've added new styles and new colors in all of our collections including the [Selma] and the [Tybo] driving mocs and the new Classic Mini.

Also, early feedback is that chocolate will be an important color this fall.

We are well positioned there with it booking as the number three color behind only sand and chestnut, two historically strong colors for us.

We recently began shipping fall product to retail and the initial sell-throughs indicate that the brand is off to a strong start.

At the same time, the first fall 2006 advertisements are hitting magazines beginning with the Classic Mini ads in the August issue of Teen Vogue.

These are the first of 45 pages of national ads in premium publications such as Vogue, Teen Vogue, [Lucky O], Glamour, Vanity Fair, GQ, and Surf.

We're once again participating in Nordstrom's anniversary sale, which is going on this month.

This year Nordstrom has included men's and kids product for the first time in addition to women's.

While the sale is not over, indications point to another good performance by UGG.

The major difference at Nordstrom this year is our new UGG feature areas enhanced displays, which will be found in the top 40 Nordstrom doors for UGG's women's business and the top 30 for men's.

These focus areas help UGG further differentiate itself from the competition at this key retailer and provide us with more floor space to further increase our penetration going forward.

We look forward to replicating this program with other select retailers in the future.

As we look ahead to 2007, we've expanded our spring collection and early reaction has been positive.

The product line now includes espadrilles, sandals, and flip-flops as well as driving mocs and casuals all of which have been received well.

This is important as we work towards transforming UGG into a year-around brand.

Now what about Simple?

Simple sales increased nearly 40% to 3 million compared to 2.2 million a year ago.

Simple's performance was highlighted by the positive sell-through of our Green Toe Collection across all channels of distribution, including Whole Foods, Zappos.com, Simpleshoes.com as well as surf shops and independent retailers throughout the country.

In fact, demand exceed our expectations resulting in Green Toe being sold out in many places.

The next shipment of product is hitting retail this month.

Not to overlooked are Simple branded sandal products, which included women's leather sandals and men's and women's flip-flops – also sold well.

Importantly, Simple's success during the first half of the year has translated into increased orders for fall from key accounts like Zappos, Dillard's, and Parisians to name a few.

Speaking of fall, we'll be expanding our doors for Green Toe and penetrating new geographic regions.

We ended the quarter selling in 30 Whole Foods in southern California and the Northeast and we'll soon be adding additional locations in Northern California and the Pacific Northwest.

We expect to end the year in approximately 64 Whole Foods stores.

At the same time, we're targeting other health and wellness retailers and eco-friendly shops in key markets like California, Colorado, Long Island, and the Mid Atlantic states.

Based on the early success, we'll begin selling Green Toe in our more traditional accounts like Nordstrom, Dillard's, EMS, and Journeys beginning this fall.

On the product front, we're introducing two new styles for men and woman with the Play Toe and the Sloppy Toe as well as new color-ups on new carry-over product.

These will be supported by a targeted print campaign and PR effort in order to best ensure that we capitalize on this positive momentum.

Let's turn to International.

With regard to that business, we continue to make important progress creating a strong network of distributors for all three brands.

International sales for the quarter increased 64% to 7.3 million versus 4.5 million for the same period a year ago.

The sharp increase in international revenues was driven by robust demand for UGG primarily in the UK where sales of the classic boot were higher than anticipated.

For Teva sales were strongest in the UK as press coverage of the Dozers introduction helped fuel demand with the Benelux also showing strength.

In June we held our spring '07 sales meeting for all three brands.

We received positive impact and feedback from all of our distributors in terms of the product line and the marketing initiatives.

We currently have 32 distributors selling in 38 countries around the world.

We expect this number to increase by yearend.

We're confident we can drive meaningful growth in our overseas markets in 2007 as we make important progress toward our long-term goal of our international business representing 30% of total sales.

Sales in our Consumer Direct business, which includes the internet, catalog, and retail operations increased 13.5% to $4 million in the second quarter compared to 3.5 million for the same period a year ago.

During the quarter we completed several upgrades to our websites including broadening our payment processing methods in order to improve the overall experience for consumers.

We experienced a spike in unique visitor growth as well as increased sales for all three brands.

We're focused on further enhancing our internet operations as we look to attract a younger customer, particularly to Teva, and to ensure that we fully capitalize on this high-margin business.

In May we opened our newest retail outlet store at the Wrentham Village Premium Outlet Mall in Wrentham, Massachusetts just south of Boston similar to our first outlet store in Camarillo, California.

This 3,500 square foot location is off to a good start.

We're also on plan to open our first UGG flagship store this December.

We currently evaluating possible locations in Soho and expect to have the doors open for the important holiday selling season.

I'll turn the call over to Zohar to discuss our financial performance and our updated outlook for the remainder of the year.

Thank you Angel.

For the second quarter of 2006, our net sales increased 3.4% to $41.7 million versus $40.3 million for the second quarter of last year.

Including sales from the wholesale divisions as well as the consumer direct business, our net sales of Teva were $22.8 million in the second quarter compared to $24.8 million in the corresponding period of 2005.

Net sales of UGG increased 19.2% to $15.9 million versus $13.3 million for the second quarter last year.

Simple net sales increased 39.9% to $3 million for the quarter versus $2.2 million in the same period last year.

Included in these numbers are consumer direct sales for all three brands of $4 million in the second quarter of 2006 compared to $3.5 million in the second quarter a year ago.

International sales for all three brands increased 64% to $7.3 million compared to $4.5 million in the second quarter of last year.

For the quarter, domestic sales decreased 4.1% to $34.4 million compared to $35.9 million in the second quarter of 2005.

Our gross margin for the current quarter increased 600 basis points to 45.6% compared to 39.6% in the second quarter of last year reflecting the strong full selling price of all three brands.

Our SG&A expenses for the quarter were $15 million or 36% of net sales compared to $11.3 million or 28% of net sales a year ago.

The increase in SG&A expenses in the second quarter is primarily due to the increase in our marketing, R&D, and infrastructure as part of our strategic initiatives to support future growth in addition to increases in warehouse and bad debt expenses.

Remember for 2006, we are spending an additional $9 million for these programs of which $1.8 million was spent in the second quarter.

For the remainder of the year, there is approximately $5 million remaining, which will be evenly distributed between the third and the fourth quarters.

As a result, our operating margin for the second quarter of 2006 was 9.6% of net sales compared to 11.6% last year.

Our net interest income was approximately $687,000 in the second quarter compared to last year's second quarter net interest expense of $6,000.

This increase was a result of higher excess cash balances and higher investment return rates.

Net earnings for the second quarter were $2.7 million or $0.21 per diluted share, the same as in the second quarter of last year.

Again, as Angel mentioned earlier, the upside to EPS versus our original guidance was primarily related to better-than-expected sales, strong full-price sales, and lower SG&A expenses.

Now turning to the balance sheet.

At June 30, 2006, our overall inventories decreased to $45.2 million versus $66.7 million at June 20, 3005.

By brand, UGG inventories were down 42% to $32.2 million at June 20, 2006 compared to $55.6 million a year ago.

Teva inventories decreased 16% to $7.2 million at quarter end from $8.6 million at June 30, 3005.

Our Simple inventory increased to $5.8 million as of June 30, 3006 compared to $2.5 million at the end of the second quarter of 2005.

The increase in Simple inventories was planned in order to support our expectations for double-digit growth of this business in 2006.

The overall decrease in inventories is a result of tighter inventory management and buying closer to the required shipping dates.

In addition, we ended the second quarter of 2006 with cash and cash equivalents totaling $64.9 million compared to $11.1 million at this time last year.

Accounts receivable improved to $24.6 million versus $26.2 million at June 30, 3005.

Now for our guidance.

As you know, we beat our second quarter guidance and we are comfortable maintaining our previous guidance for the second half of the year.

Therefore, we are raising our fiscal 2006 outlook and now expect revenues to be in the range of $272 to $278 million and earnings per diluted share of $2.39 to $2.45.

This is compared to our previous full year guidance of sales between $268 million to $276 million and earnings per diluted share of $2.21 to $2.29.

As a reminder, our fiscal 2006 guidance includes approximately $2.1 million of stock compensation expense, which includes $700,000 of additional stock compensation expense related to the adoption of FAS 123R effective January 1, 2006.

In addition, the guidance includes approximately $9 million related to the aforementioned increase in SG&A expenses in marketing, R&D, and infrastructure as part of the strategic initiatives to support future growth.

As I just mentioned, we are reiterating our previously-announced outlook for the second half of the year of sales between $174 to $180 million and earning per diluted share of $1.74 to $1.80.

Today we have not broken out outlook for the second half of 2006 by quarter.

However, we will provide that now.

For the third quarter we expect net sales of $71 to $74 million and earnings per diluted share in the range of $0.51 to $0.54.

For the fourth quarter we are projecting sales of between $103 to $106 million and earnings per diluted share of $1.23 to $1.26.

It is important to note that both the third and the fourth quarters each contain approximately $2.5 million associated with the $9 million increase in SG&A expenses.

Based on our second quarter results and the current trends in our business, we now expect ad sales to be up this year, Simple to continue the current growth rate it achieved in the first and second quarters, and Teva sales to be flat to slightly down.

At this time we feel very comfortable with our guidance for the back half of the year and believe that we are well positioned for the fall and holiday selling seasons.

Our ability to exceed this target will primarily depend on the level of reorder business we experience.

I will now turn the call back to Angel for some closing remarks.

Thanks Zohar.

Summarizing our call today, our investment in Teva is paying off for us with solid full price sell-through and acceptance of limited range of new product compared to especially to what's coming for spring '07 as I'll talk to.

Improved retail presence has also kept the brand important at retail despite heavy competition.

We believe we have stopped the market share erosion that we experienced last year and can now build from a stable foundation with the new product, 70% of which is new for spring '07.

I might add that I am somewhat surprised by the resilience of the Teva brand.

My expectation was that Teva would, given the limited new product offerings in the spring of '06, see more margin erosion and less robust sell-through at retail.

This really does underscore the power inherent in the brand portfolio.

UGG has established itself as a year-round brand with our most important retailers.

This remains a key initiative and as the quarter's results demonstrate, we're making good progress here.

This represents an excellent platform for growth worldwide for the UGG brand.

We'll keep driving hard to solidify our position in spring '07 with an even better collection.

Simple is establishing itself as a leader in natural footwear.

This initiative has opened new channels of distribution and most importantly, it has created a buzz about the brand.

We'll continue to create innovative, sustainable product.

We feel that this is very timely as consumers are beginning to demand sustainable, environmentally friendly products in all classes of consumer purchasing.

So we're pleased with our results and we feel confident that our strategies are sound.

We are optimistic for the second half of 2006.

The brands are strong.

The product looks very good across-the-board.

Early feedback is excellent.

We're building momentum toward achieving our goal to grow total revenues to approximately $600 million over the next four to six years by doubling UGG and the Teva business and growing Simple to 75 million.

We still have a lot of work to do, but we remain focused on executing our plan.

We're excited about the opportunities that lie ahead.

I would now like to open it up for questions.

(OPERATOR INSTRUCTIONS).

Todd Slater with Lazard Capital Markets.

Actually this is Jacqueline Anderson for Todd.

Great quarter.

Just a quick question about your inventories.

They continue to be down strong double-digits.

Do you continue to plan these inventory levels?

Or is this just stronger sales?

Do you have enough inventory for [multiple speakers] ?

Yes.

We feel that we have enough inventory.

We plan to continue managing inventory this way, buying it tighter to market and to shipping dates.

The big improvement has been a much tighter focus on the flow, buying it closer to the market as Zohar is pointing out, working with our customers to better forecast our business so we have a better anticipation of our needs.

It all seems to be working quite well.

Now looking at the fall, how much visibility do you have into the season?

For the third quarter, we have quite high visibility because, as you know by now, all the bookings should be in place.

For the fourth quarter we have good visibility.

But, as you can imagine, a portion of the fourth quarter business depends on reorder business and sell-through.

I don't know, but what percentage of your third quarter revenues is replenishment business?

We have not been disclosing that amount.

It's not a large one.

Alright.

Great quarter.

Thank you very much.

(OPERATOR INSTRUCTIONS) Jeff Mintz with Wedbush Morgan.

Good afternoon.

Congratulations on a nice quarter.

I have a couple of questions.

First of all, it looks like the second half guidance is more weighted towards the fourth quarter than it was last year.

Can you talk a little bit what might be driving that.

I think last year in the fourth quarter we were very conservative.

We had a lot of people out there saying that the brand had – UGG has been a fad.

We had a fair number of cancellations early in the fourth quarter – October for example.

People then later in the quarter, in December stepped up to reorder from us.

Luckily we still had some of that inventory.

This year I think we have more insight into how the quarter flows and the kind of sustainability that our retailers are seeing and the confidence they have in the brand going forward.

Then more of a broad picture question.

What are you hearing from your retailers or your customers about the ultimate consumer and what they are seeing in terms of sell-through, either in general or for your brands particularly.

The people I talk to are fairly bullish on brands in the first place.

Quality brands, premium brands tend to be right now what the consumer wants.

Brands have to keep moving.

The innovation in important.

New styles are important.

The consumer doesn't want to stand still.

Just because you had a good year last year doesn't mean you are going to have a good year this year.

You have really got to be aggressive with innovation and product development.

Generally speaking, it's a young consumer that is driving the business, particularly in footwear and fashion.

That consumer demands comfort as much as they demand innovation in style.

I think all of that plays very well to the core values of our three brands, but particularly UGG.

Will you talk a little bit about your international business outside of Europe.

It's probably not as developed.

Where are you starting to see some acceptance of the brands internationally outside of Europe?

We've been focusing on Japan as a market to bring along that leadership consumer.

We feel that the Japanese consumer is the leadership consumer for Asia, particularly with the rebounding economy there and the strong consumer drive toward brand building and fashion.

Therefore our distributor has opened a store in Tokyo.

We continue to see good progress being made with the brand-building efforts there.

We are doing a fair amount of product seeding.

We are feeling good about the direction we're moving in Asia.

In Latin America we have a couple of new distributors.

Our whole approach there is to focus on the premium end of the market and the premium distribution points in key cities, particularly as we move farther south in the South American cone where you have, for UGG, cooler weather.

On the Teva side, that is a big market and a big potential given the weather.

Across the world as you move into the subtropical climates, sandals are the primary choice for footwear because it is hot and humid so much of the year.

I just came back – I was just in Asia recently.

It is amazing how much Teva you see on people because it is the most comfortable product to wear when it is 96 degrees and 95% humidity.

Did I hear you correctly?

Did you say your goal is 30% of the business being international?

Yes.

We've said that our long-term goal is 30% of our business should come from international.

That stage was our goal of doubling the business to 600 million in four to six years.

Okay.

I didn't think that was going to happen next quarter.

No.

Thanks very much.

Good luck in the third quarter.

Jacqueline Anderson from Lazard Capital Markets.

Could you flesh out how Simple gets to $75 million in sales from its current base.

I think the most important thing to know about Simple is that at one time it was close to $40 million in sales.

So here is a brand that, with very limited product when it was doing 40 million.

It was basically the sugar and the old school sneaker.

In that nearly $40 million, 10 million almost was in Japan.

We're really looking at a brand that got a start and then stumbled.

The consumer that wore the brand never stopped wanting the brand.

The brand stopped developing and evolving to the place where retailers felt that it was important.

Retailers in general, the reaction we get to Simple is, wow, we've been wondering where you were.

We're glad you're back.

So, across-the-board we've had an excellent response to the new products.

When you stop and think about it – distribution of a global brand – $75 million is not a big brand.

I would consider that first base.

Step one, get to 75 million.

Then you have some ability to drive some attention and some focus on your brand.

We feel that we can get to first base with that brand by working hard.

And it's like the International.

That is not next quarter or next year target.

That is the four to six year target.

Of course.

On another topic, your tax rate went up again.

This time I think it was 42.3%.

Yes.

That is based on – you know the tax rate for the quarter, you do it based on the expected tax rate for the full year.

That has to do with the split between the domestic and the international earnings, heavily weighted more toward domestic than international.

So for the year, we're still looking for 40.5?

Or has it gone up?

It is around 41%.

On a separate topic, are the EU tariffs going to hit you at all?

Could you repeat that please.

The EU tariffs, are they going to impact your business at all in the back half of the year?

At this point, everyone is sitting in a wait-and-see mode as to what is going to finally emerge.

From a Teva point of view, it looks like sport sandals will be safe, particularly since it is not leather product generally.

On the UGG side, there may be an exemption for sheepskin.

We don't know yet.

We are working from such a small base in Europe that, as onerous as these tariffs are and however they end up impacting our business – they will impact everyone.

But we don't feel it will have a significant long-term impact on our brand-building expectations there.

It is – of course, all of our products are premium in nature.

We'll certainly not compromise the quality of the product we're making to have to absorb increased duties.

Okay, great.

Thank you.

Sam Poser from Mosaic Research.

Good afternoon.

Congratulations.

Could you talk a little bit more about the international business.

You had a good – it looks like you are getting it going there.

What kind of – how is that going to play out for the rest of the year, do you think?

This year has been a building year and a foundation laying year for international.

I think we are making good progress.

I think we've got a long way to go. 2007 will be a very important year because it is going to demonstrate the ability of our distributor network to drive new product into the market versus relying on the old core stuff – the core product lines.

I don't know.

I am still reticent to start jumping up and down about international this year.

I think we've got a lot of work to do.

But the momentum is excellent.

The new product – I was very happy with the response we got from our distributors at our global sales meetings.

They were as – I had many of them – actually I had all of them come up and say, best new product we've ever seen from this Company across all the brands.

That tells you that at least they are excited.

At least they know they've got an opportunity.

Whether they are going to translate that opportunity into volume and profit, we have to work very hard with each of them, every individual distributor to make sure that happens.

I am a little cautious on that because I know the vagaries of international business.

We are controlling what we control – product and marketing and quality.

I think we are doing very well.

We'll keep driving hard.

Just a follow-up.

I may have missed something earlier.

Could you reiterate what the US business was and international for the quarter.

International business was 7.3.

That was against 4.5 million last year?

Right, yes.

The domestic was 34.4.

Sam, to follow-up your question, we saw a strong international increase of 64% of Q2.

That is not our expectation for the remainder of the year.

Most of our international business is still driven by Teva.

We really have a very underdeveloped international business in UGG.

As we continue to develop, it will start probably to take more of the pattern that we see in the US with UGG driving the business.

We've got a very long road ahead of us with all the work that we've got to do.

Two more questions.

On Teva we saw earlier in the year the closed-toe product that you were showing for Q4 and for the fall season.

How is that looking?

Of the product that you are showing for – how much of spring product, based on what the retailers are telling you, do you potentially see to bring in early.

It looks like we are talking about having a slight increase somewhere with Teva towards the end of the year.

The amount of – Teva has never been bought as closed-toe product necessarily for retailers, particularly in the fall.

So what we really needed to do this year in '06 was establish some good core product, some credible product.

We were very conservative in how we bought it, since it is all new territory for the brand.

Virtually across-the-board, retailers said in the past we've seen closed-toe from Teva.

This is the best closed-toe we've seen.

And it's a start.

Our better retailer is saying, we believe in the brand.

We'll give you a shot and let's see how it goes.

It's still too early to get a read on sell-throughs on that.

Obviously we're still – out here anyway, it's over 100 degrees until recently.

Not a lot of closed toe being sold as well as around the country.

As far as the spring '07 product line, we have very high expectations.

We feel that some core product will probably come in early to address our Southeast – Florida, for example, which always does a good job with early season selling, December selling.

The bulk of the new stuff, the new technical stuff is not going to hit the stores until Q1.

Can you break out with UGG how you see the next two quarters falling out?

In what----?

As far as sales.

You were talking about having it be up now.

Give an idea relative to last year how you are seeing that flow.

As you know, we are not breaking out the guidance by brand.

Based on an estimate of the guidance we are giving, we expect that business to be up.

Up?

Is that up like singles, double?

Can you give us some idea what you're thinking about there?

We're confident in the business.

I am going to be coy and I am not going to – because I don't know.

I don't know.

As Zohar said, the fill-in business that we had last year in December was quite extraordinary.

A lot of people cancelled orders that they had on the books with us because they got cold feet.

Then come December, they wanted all that product back.

I think they learned a lesson, a lot of folks, and they are not going to be canceling.

Will we see the same level of fill-in business in Q4 that we saw last year, particularly in December?

I don't know the answer to that.

An educated guess is no.

I think that most people aren't going to cancel orders.

That won't translate into the same volume of fill-in that we had in the four weeks in December.

Are your futures up in December as far as what you see?

Are your initial orders up for December right now?

We've had a strong order book for Q3.

It is still too early for Q4 for us to comment.

I tend not to comment on that anyway.

But we're feeling confident.

That's all I'll say.

As to the break out between the two quarters, as Angel said, we are comfortable with the booking and the visibility.

One thing that is depending on how the quarters are going to shape out, we have some large orders toward the latter part of the month.

The volume depends on the customer shipping, which means that they come and pick up the goods.

You have something that is sitting for the last week of September and it is not going to be shipped until the first week of October.

That can slip between the quarters.

We see a lot of that today with some of the other retailers for the other vendors as well.

So that is why we are not breaking the brands between the quarters.

As I said, we are comfortable for the back half of the year and guidance we gave.

If I may ask one last thing.

Are you seeing, with the response you've gotten on the Teva line and some of your competitors – one of the bigger ones is going through a large transition right now.

I think you know them well.

If this really becomes as well received as you expect, do you think that the apparent weakness there might allow for an opportunity for you going into the beginning and middle of next as well? [multiple speakers] talking about.

I did reference that article in Footwear News.

In that article, if you look at it, you will see there are a couple of retailers that are saying that – I can quote you.

One of our customers in San Diego, Adventure 16 said that "after a slow summer last year, Teva has rebounded this season.

They have been much, much stronger.

It has been pretty surprising because Keen has been strong and continued gaining ground.

But now people are coming back in and asking for Teva."

In the end, it's all about what the consumer wants and it's all about the power of the brands.

We feel we've got a brand with 20 years of heritage, which counts for a lot.

Especially when you talk to our retailers who want Teva to be successful.

They have been waiting on the fence for Teva to come with new product.

So I think '07 is going to be good for Teva.

I think we've got the fire power we need for the retailer to excite the consumer again.

Thanks a lot.

Congratulations again.

Jeff Klinefelter from Piper Jaffray.

Congratulations.

Another great quarter.

A couple of questions.

I apologize if some of these were covered in the initial comments.

In terms of the bookings or the guidance you brought in for the second half, any additional composition that you want to share in terms of where you are seeing the variances by retail channel – men's versus women's – the whole composition of the traditional boot versus non-boot.

Are there any interesting trends that are emerging?

I am particularly interested – UGG is becoming far more of a powerful brand now.

It seems like retailers are coming back ordering multiple styles, not just a style.

Are you seeing the composition of your retail customers change at all?

I think it's clear that the men's line that we've created has achieved a lot of good intense energy out there.

People like what they've seen.

They like the direction it is going in.

That I think bodes well for the brand.

It's 50% of the population that really hasn't bought a lot of UGG in the past, with the exception of say slippers.

I think the combination of men's product, the combination of more technical product – product that you can wear in foul weather.

So our cold weather product has, I think, done well and will continue to evolve.

I think that bodes well, especially in specialty stores and outdoor specialty stores as well.

Our kids business across all the brands is very strong, surprisingly so.

This year, this spring Teva's kids business across all channels of distribution has been a very good business.

I think the consumer out there is saying that they want to spend on their kids.

They are not just looking at low-end product either.

They want technical performance product for their kids and they are willing to pay for it.

That bodes well for premium brands like ours.

I have to look at what Simple is doing with the natural product.

Suddenly everybody is jumping on the bandwagon with that.

We've got a couple of key competitors who are all starting to talk about natural and sustainable.

We were first with Simple.

Our job is to stay on top of those trends and give people solutions in the kind of product we make to meet their needs and fit their lifestyle.

We'll continue to do that.

If you come across a hole in the market that we don't see, Jeff, be sure and call.

Oh yes, absolutely.

A couple other follow-ups would be in terms of the leverage between these brands, we're noticing more cross-over where you are seeing maybe non-traditional or specialist retailers that are starting to get interested in carrying perhaps both UGG and Teva.

Maybe they haven't in the past.

Are you seeing more leverage now as both of these brands start building stronger momentum where retailers – you can leverage a strong trend in UGG to maybe encourage them to look at the assortment in Teva as you re-launch that this spring?

You can bet that we will use all the leverage that we can.

But the most important leverage is good product.

In the past, in my previous lives in this business, I've seen leverage used in a variety of different ways.

Leverage based on volume is not really long-term sustainable leverage.

It may get it done for a quarter or two.

But leverage based on better product is really what satisfies the retail in the long-term.

If they can count on your brand to always be there with really good product that sells through well, that's all the leverage you need.

I tend to look at each of the brands as having to stand on its own merits.

Then when we have them where we need them to be in terms of product, then of course, we will leverage that strength as much as we can in a reasonable way.

That's very helpful.

On the Teva, I know that one of the original patents is rolling off, I think next year on that.

Could you talk about that from your footwear expertise perspective.

In the past when you've seen these things coming off – certain utility patents, how do you navigate through that?

Is it an impact at all at this point in the lifecycle of this brand?

How do you think about it?

I think if we hadn't been so aggressive in the last year with new product innovation, the Raptor and some of the new technologies we have, we would probably be nervous right now.

The fact is that we anticipate the universal strap technology will continue to decline as a volume driver for the brand.

More you will see some of the new product taking over.

We have such a great array of new technologies and new ideas for spring '07, that we really don't even have that conversation.

Like I said with the international distributors, they were so excited about the new stuff, they hardly even talked about the universal strap.

It will become more – it is still going to be an iconic look for the brand.

It will still define the brand.

What I have experienced in the past when some of these patents expire – if you look at Nike's air window, which expired about five or six years ago, interestingly, they didn't stop making shoes with that window.

Other people started making their imitation of it and probably Nike sold more shoes than ever before with that visible air window in the back just because they were the authenticate, the legitimate, the real one even though the patent had expired.

Maybe some of that will happen with Teva.

But it's not – we're not dependent on it as a result of the very large investment we've made in time and money and R&D and new designs.

Okay, great.

Thank you very much.

Good luck with the back half.

Adam Comora from EnTrust Capital.

Thanks very much.

I just have one quick follow-up on the international business this quarter.

Did you pick up a new distributor in Europe?

Or was that direct to accounts?

What was the strength primarily from?

Strength – we had excellent sales of UGG in the UK and also excellent sales of the Dozer product for Teva in the UK and in Benelux.

That wasn't driven by a new distributor in the quarter.

We do consider our distributor in the UK to be new.

They just came on about a year ago.

I think it was a year ago June.

They are just now really getting rolling with their own product line and the inventory that they had established.

Its organic growth right there.

Okay, terrific.

Can you help us understand a little bit more about the revenue guidance of 71 to 74 in the third quarter.

What is the breakdown domestic versus international that you are thinking.

We have not been breaking down the revenue guidance by regions.

Okay, but I presume you think international is probably still going to be growing in the third quarter?

We expect it to grow some.

But as I mentioned before, international is not – I would not take the growth rate of the second quarter and extrapolate it for the rest of the year.

Okay.

Thank you very much.

Todd Slater from Lazard Capital Markets.

I want to point what amazing progress you have made in such a short period of time.

It really is impressive.

Just on the 75 million Simple goal, does that include what your ambitions are for Green Toe?

Or is that a separate----?

That does include Green Toe.

It does.

Just quickly on the selling that you are seeing right now in stores, because I know you've got about five items in the Nordstrom anniversary sales.

You've got two clogs, a kids boot, a woman's flat, and a lace-up boot for women.

I am wondering what the selling on those – or any of the other items that you have in Nordstrom's because that is an early indicator – what that tells you about how you are positioned on the rest of your product for fall.

We don't comment on the Nordstrom sell-through.

Generally in the past, it has always been a good indicator of the consumer preference to the brand.

There has been no apparent cooling off by the consumer for UGG as a brand.

Importantly, as you just mentioned, there are multiple styles involved now.

I think that bodes well for fall sell-through.

Was this more, bigger last year in terms of participation on UGG's part?

Last year we didn't have kids and last year we didn't have men's in the mix.

We do have more product offered in the anniversary event than we had last year.

There are no further questions at this time.

Thank you.

If there are no further questions, I'd like to thank you all for participating in our call.

I will be hopefully seeing some of you at the WSA or the OR show.

I appreciate you taking the time.

That does conclude today's teleconference.

We would like to thank you for your participation.

Have a great afternoon.