Deckers Outdoor Corp (DECK) 2006 Q3 法說會逐字稿

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

Welcome to the Deckers Outdoor Corporation third 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 questions. (OPERATOR INSTRUCTIONS) I would like to remind everyone that this call 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.

Deckers 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 consumers to carry and promote its products.

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

Deckers is not obligated to update its 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.

As you have probably seen from our press release, we had a very strong third quarter.

In particular, Ugg outpaced our expectations driven by robust consumer demand for the entire fall collection.

This was gratifying and underscores our efforts to diversify the product line, increase the breadth and depth of each collection, and expand our customer base.

Additionally by containing our sourcing, labor, and materials costs, we were able to generate above normal gross margin during the quarter.

However, we expect gross margin to return to more normalized levels in 2007.

I will quickly review some of the numbers before discussing each brand performance in detail.

Third quarter sales increased approximately 19% to a third quarter record of $82.3 million, compared to $69.2 million a year ago and more than $8 million ahead of our guidance range of $71 to $74 million.

Net earnings improved to $10.6 and diluted earnings per share increased 32% to a third quarter record of $0.83, versus $0.63 last year which exceeded our projections of $0.51 to $0.54.

We are very pleased with our better than anticipated financial results which were fueled by a very strong reorder business for Ugg and gross margins in access of expectations.

Zohar will go into more detail about what was behind our significant gross margin improvement and our expectations going forward.

Now to each brand, beginning with Ugg, as we previously mentioned, UGG recorded very strong third quarter sales increasing 18.4% to $67.9 million, a record third quarter for the brand.

Sell- through for retail was excellent beginning early in the quarter and driven by the new fall product line, including, the driving mocs for men and women, men's casuals, women's fashion boots, and our new introductions such as the Classic Mini and [Lahoya] booties.

Our children's sell-throughs have been excellent as has our Heritage product, such as, Classics, Ultimates, and Slippers.

The strong early sell-through fueled a healthy reorder business in Q3 adding to our top line increase.

Our team has worked very hard to create a complete line of men's, women's, and kid's products expanding our product offering.

This year's fall collection included approximately 100 styles, versus approximately 75 styles just a year ago.

We increased our national ad campaign to 44 pages in the fall featured in Vogue, Vanity Fair, Glamour, O, Teen Vogue, Men's Vogue, Lucky, and Cookie magazines.

We also increased our outdoor advertising in key markets with billboards, banners, and mall advertising.

Our sell-throughs were strong across all our channels of distribution.

Now this includes department stores, independent specialty, Internet, and outdoor specialty.

We increased stores and assortments with existing accounts and continue to develop distribution in under penetrated regions, such as, the Southeast and the South.

We are pleased to share that Ugg's positive momentum is continuing in the fourth quarter and has heightened our confidence in our holiday selling season. .

Looking forward, we're excited about the Spring '07 collection which we debuted at WSA Show in Las Vegas and at the Bread and Butter Show in Barcelona.

For Spring 2007, we'll be featuring a full line of sandals, casuals, espadrilles, boots, and flip flops.

We will support the new Spring line with increased media spending featuring the new product line in Vogue, Glamour, Men's Vogue, Teen Vogue, and Cookie magazines.

And while spring is currently a small percentage of our business.

Our early success with this collection bodes well as we look to evolve Ugg into a true year round brand.

Now, turning to Teva.

Sales for Teva were up slightly in the third quarter to $10 million, versus $9.7 million a year ago.

We experienced solid full price selling for our sandals in July and August.

The third quarter has historically been Teva's smallest quarter in terms of revenues and pairs sole.

Now with that said, an integral part of our growth strategy is extending Teva's selling season be developing a more comprehensive line of closed toe, non-weather-dependent footwear, including, light hikers, trail runners, amphibious footwear, and outdoor casuals.

While the majority of our new styles will be launched next year, we did introduce a limited amount of new product in the third quarter.

And we are pleased by the initial consumer response.

As we have previously noted, 2006 is a transitional year for Teva.

As we reposition the brand towards a younger consumer.

We're confident that our investments marketing and advertising and research and development have created a renewed sense of excitement at retail and a positive buzz across the industry.

So to recap, during the first half of this year, we completed our retail store remerchandising program which included updating and enhancing our point-of-purchase materials in some 700 doors.

More recently, we installed new in store graphics and continued with our Go, Do, Be campaign to support our new introductions for fall and further set the stage for Spring 2007 when 70% of the product line will be entirely new.

Over the past few months, we pre-lined Spring 2007 for our retailers beginning with key accounts, such as, REI and Sports Authority, Nordstrom, and Dillard's.

And we completed very successful trade shows, including, WSA and Outdoor Retail.

Consisting of approximately 350 skus, the entire collection was very well received, in particular, the [Carnally] Wraptor which won best design award at a trade show in Germany.

The Carnally Wraptor will be a key focus of our Spring 2007 advertising campaign.

And again, we have divided the product offering into three categories, Go, which is the shoes you wear on the way to the activity, Do, the shoes you wear during the activities the performance product, and Be the [indiscernible] activity shoe.

Now before we move to Simple, I would like to mention that last month Teva athletes took part in a memorable two week trip down the Colorado River in conjunction with our partnership with the Water Keeper Alliance and McGilvery Freeman Films.

Other participants included Robert F. Kennedy, Jr., Founder of Water Keeper Alliance, and Wade Davis from the National Geographic Explorer.

The purpose of the trip was to shoot and produce the Imax feature film titled "Water Planet" which will tell the story of water conservation, a subject that is very important to this company and to the Teva community.

In addition, our Teva marketing team and advertising agency were on hand shooting images that will be used in the upcoming advertising campaign.

Now turning to Simple, for the third consecutive quarter, Simple sales were up double digits underscoring our belief that the brand has turned the corner.

Sales more than doubled to $4.4 million, compared to $2.1 a year ago driven by solid performances from our sandal and sneaker categories.

In addition, our Green Toe collection experienced strong retail sell-through across all channels of distribution and in all geographic regions.

Simple is the world leader in sustainable footwear.

And our Green Toe collection uses 100% sustainable materials and currently consist of six styles for both men and women.

Since our limited launch of Green Toe earlier this year, we have expanded distribution to department stores, outdoor chains, the Internet, independents, surf shops, and increased our presence in the health and wellness channel, including adding 57 whole foods market doors.

So we're very excited about the potential for the Green Toe collection.

We're also committed to participating and sponsoring sustainable lifestyle trade shows and events, such as, the Natural Product's Expo East and the Green Festival in Washington D.C., San Francisco, and Chicago.

Our attendance is allowing us to reach a new level of brand awareness among eco-ethical consumers as we call them and retailers further solidifying Simple sustainable initiatives.

That those initiatives are in sync with emerging environmental awareness movement.

Geographically, Green Toe continues to perform strongly in the domestic market as a world leader in sustainable footwear.

It only makes sense that our products are also being received well in key international markets, such as, Japan and the UK where the same sustainability movement is taking place.

Moving now to international.

International sales in the third quarter were $9 million, slightly down from the $9.1 million a year ago.

Collin Clark and his team have been upgrading and enhancing our international operations and restructuring our network of distributors.

As we mentioned previously, we currently have 32 distributors and sell in 38 countries around the world.

While we expect our efforts to be better reflected in next year's performance, we're beginning to witness the opportunities we believe exist for our brands over seas, namely in the UK where recent sales of Ugg have outpaced supply.

As I mentioned earlier, we attended the Bread and Butter Trade Show in Europe this summer, as well as, the Outdoor Show in Germany, the [Friedrick's Hoppen Show].

The feedback from retailers across the continent was positive for both Ugg and Teva and we are encouraged by the initial orders for Spring '07.

We're confident that we are on track to achieve our goal of international sales representing 30% of our total business in four to six years.

Turning to consumer direct, sales from our Internet, catalog, and retail operations increased 72.8% to $5.8 million in the third quarter, compared to $3.4 million a year ago.

We continue to experience significantly higher traffic levels on our Ugg and Simple websites.

All our sites do a great job showcasing the product lines and echoing our current marketing messages and themes.

We are please to announce that we recently launched our first international website for Teva in conjunction with our distributor in the UK.

Looking ahead, our plan is to replicate this eCommerce initiative for all three brands with our distributors around the world.

On the retail front, our outlet stores in California and Massachusetts continue to perform well from both a sales and a margin perspective.

And we're currently in the final stages of development for a fourth outlet store in Riverhead, Long Island and our first Ugg concept store in SoHo in Manhattan which we plan to open in early December of this year.

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

Zohar?

Thank you, Angel.

For the third quarter of 2006, net sales increased 19% to $82.3 million, versus $69.2 million for the third quarter of last year.

Including sales from the wholesale divisions, as well as, the consumer direct business, our net sales of Teva were $10 million in the third quarter, compared to $9.7 million in the corresponding period of 2005.

Net sales of Ugg increased 18.4% to $67.9 million, versus $57.3 million for the third quarter last year.

Simple net sales increased 108.8% to $4.4 million for the quarter, versus $2.1 million in the same period last year.

Included in these numbers are consumer direct sales for all three brands of $5.8 million in the third quarter of 2006, compared to $3.4 million in the third quarter a year ago.

International sales for all three brands decreased 1.7% to $9 million, compared to $9.1 million in the third quarter of last year.

For the quarter, domestic sales increased to $73.3 million, compared to $60.1 million in 2005.

Our gross margins for the current quarter increased 320 basis points to 45.2%, compared to 42% in the third quarter of last year.

The current gross margin is in the high end of our normal range.

It is important to note that gross margin have fluctuated based upon the company's ability to contain material costs, [indiscernible], labor cost in the emerging China labor, adjust wholesale prices to changes in product cost, and control the amount of product close outs.

We expect gross margins to return to more normalized levels in 2007, and I will discuss this more when I outline our outlook for next year.

Our SG&A expenses for the quarter were $19.9 million or 24.1% of net sales, compared to $15.1 million or 21.8% of net sales a year ago.

The increase in SG&A expenses in the third quarter was primarily due to increasing our advertising and marketing budget and research and development costs as part our strategic initiative to support future growth.

Year to date, we have spent approximately $6 million of the planned incremental, $9 million SG&A investments form the full year.

As we said in the past, we anticipate that this current level of expenditures is more indicative of levels necessary to continue to achieve our sales growth target.

Our operating margin for the third quarter of 2006 was 21% of net sales, compared to 20.3% last year.

Our net interest income was approximately $673,000 in the third quarter, compared to last year's third quarter net interest expense of $167,000.

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

We also had interest expense last year as we held long-term debt.

Net earnings for the third quarter were $10.6 million or $0.83 per diluted share, compared to $8.2 million or $0.63 per diluted share in the third quarter of last year.

Now turning to the balance sheet.

At September 30, 2006, our overall inventories decreased to $51.5 million versus $66.8 million at September 30, 2005.

By brand, Ugg inventories were down 30.7% to $38.9 million at September 30, 2006, compared to $56.2 million a year ago.

Teva inventories increased 15.1% to $8.7 million at quarter end from $7.6 million at September 30, 2005.

Our Simple inventory increased to $3.9 million as of September 30, 2006 compared to $3 million at the end of the third quarter of 2005.

The overall decrease was primarily the result of the strong reorder business we experienced for Ugg in the third quarter of this year and tighter inventory management.

In addition, we ended the third quarter of fiscal 2006 with cash and cash equivalents and short term investments totaling $45.3 million, compared to $19.1 million at this time last year.

And accounts receivables were $49.9 million, versus $44.1 million at September 30, 2005.

With regard to our outlook, we obviously exceeded our previous guidance for the third quarter, and we are comfortable flowing the entire outside through to the full year.

In addition, we are raising our outlook for the fourth quarter.

We now expect end year revenues to be in the range of $287 to $290 million and earnings per diluted share of $2.75 to $2.78.

This is compared to our previous full year guidance of sales between $272 to $278 million and earnings per diluted share of $2.39 to $2.45

For the fourth quarter, we now expect sales of between $107 to $110 million and earnings per diluted share of $1.27 to $1.30, compared to previous expectations of $103 to $106 million and $1.23 to $1.26 respectively.

As a reminder, our fiscal 2006 guidance includes approximately $1.9 million of stock compensation expense, which includes approximately $600,000 of additional stock compensation related to the adoption of the new accounting requirements of stock options.

In addition, the guidance includes approximately $9 million of expected increased SG&A expenses as part of the strategic initiatives to support future growth of the brands.

Based on our third quarter results and the current trends in our business, we expect full year ad sales to be up by low double digits, Simple to be up by high double digits, and Teva sales to be slightly down.

Now for next year, in an effort to improve the accuracy of our forecasting, Angel and I believe it is more prudent to wait until we report the year end results to give detailed guidance for 2007.

We're still early in our budgeting cycle.

And we are in the process of planning, realigning our Fall 2007 collection, preparing for upcoming sales meetings, and negotiating pricing with our factories in China.

With that said, we want to provide general perimeters.

For now, we are targeting top line growth of approximately 50% and projecting gross margins of approximately 43%.

In line with our previously stated long term range of 42 to 44%.

Next year, we will also continue to invest in our brands, including, additional spending on marketing and advertising, research and development, as well as, further building our retail international presence.

Similar to 2006, these expenditures will occur throughout the year.

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

Angel?

Thanks, Zohar.

So again, we're very pleased with our third quarter performance.

And we're excited as our positive momentum continues into the fourth quarter.

At the beginning of 2006, we outlined a series of strategic initiatives for all three of our brands.

Let me recap these for you.

For Ugg, this included introducing its first true spring line, expanding its product categories, its gender mix, its selling season, and its geographic penetration while building on its position as a premiere brand in luxury comfort.

For Teva our plan called for reengineering the product line, introducing innovative new product by capitalizing on our proprietary technologies, developing non weather dependence footwear, repositioning the brand to attract a younger consumer, and making the successful transition from a sandal brand to an outdoor performance oriented brand.

Lastly for Simple I discussed the brands untapped potential and the excitement for the upcoming launch of Green Toe.

Looking back on the first nine months of this year I'm pleased with what we've accomplished to date beginning with our financial results which have been driven by double digit gains for Ugg on an apples to apples basis, double digit gains for Simple, and solid full price selling at Teva, and stronger than expected gross margins.

I'm also happy to say that our additional investments in SG&A are paying off as our brands have gained important traction and garnered key shelf space at retail.

While our sights and focus are set on long term success, our better than expected results so far in 2006 are gratifying.

And they underscore the hard work and positive contributions of our entire organization.

Before we open the call up to questions, I'd just like to say that I've been in this business a long time, nearly 30 years.

I'm confident that with the team we have in place coupled with the strength of our brands and our position in the marketplace, we can successfully reach our goal of $600 million in sales in four to six years, which includes doubling the Ugg and Teva businesses and taking Simple to $75 million.

In closing as I've said before and for those of you who know me, you know that I'm up front and transparent in my business philosophy.

And therefore, as we gain more insight into our business, we'll be sure to keep all investors updated on our progress.

Operator, we're now ready to take questions.

+++ Q-and-A

Thank you, sir. (OPERATOR INSTRUCTIONS).

And we will go first to Todd Slater with Lazard Capital Markets.

Thank you very much and congratulations.

Thank you, Todd.

I guess I just want to start with one of your last comments on the gross margin.

You said that you're expecting 42 to 44.

You're running the first three quarters around 45.

And I'm just wondering if you could just walk us through some of the gross margin levers for 2007?

Why that might be two points below where it's been running this year.

OK.

Well I think one of the things that we have in this business since we use so much sheep skin.

We were able to really get a great price on our sheep skin negotiations last year.

Given that sheep skin is a commodity product, it's subject to a fluctuation of price based on climate, demand, etcetera.

There's been a drought in Australia which has tended to limit the amount of hides available as compared to previous years.

We've got a lot of competition for hides now with Russia.

The Russian market has gone sheep skin crazed in fashion.

So that's obviously putting impact on our pricing.

We're working very hard since we are such a big player in sheep skin to keep our prices down.

But I think we did very good job last year.

The other thing you have to look at this year on the Ugg side is the fact that we have very, very few, if any, write downs of product.

I mean our inventory is very clean.

We just didn't anticipate that we'd have such solid sell-through so early in the third quarter which really has impacted our profitability.

So I think that those are some of the factors.

Zohar, did you have something?

Yeah.

In addition, Todd, our gross margin are impacted as you can imagine both by material and labor costs.

And we have managed to contain labor cost down in China, but all indications are the cost are rising.

So I think it's just prudent for us to target the gross profit margin at the level we are indicating.

OK.

Well, that explains it.

Then my second question is just on the inventory.

We are hearing a lot about stock outs as one might expect given the demand has been so high.

And I'm just wondering if you could talk a little bit about how you're managing through the supply chain to satisfy that demand to -- looks like inventory is down $15 million. and how are you going to manage that through the fourth quarter?

Well essentially, we do a very good job of planning our business with our customers.

I think a lot of our customers were pretty aggressive this year in anticipating the ongoing success of the Ugg brand at retail.

Even they have been caught by surprise.

We are going to do our best to chase the business as best we can.

At some point in the fourth quarter, we may run out of inventory.

And we didn't anticipate the kind of reorder business that we are seeing so early.

Last year, as you may recall, we had a lot of cancellations in the third quarter which converted into fill in business in the fourth quarter as people then tried to chase the business that they had canceled.

We're seeing none of that this year and none of those cancellations, and we are seeing increased demand.

And in many cases, some retailers are going to get an extra turn out of their Ugg product.

So it's just really difficult to anticipate what the consumer is going to do.

We're just driving the brand to where we know it belongs and trying to plan accordingly.

And my approach has always been to use all the data points we have, be as intelligent as we can about our purchases and our inventory, and keep as lean an inventory as is practical and feasible.

Obviously, nobody likes to run out of product on one hand.

On the other hand, it's a sign that consumers love the brand.

Right, so are we correct to understand that the fourth quarter guidance, you are assuming that you might run out of Ugg products?

Well if the trend continues, we're not going to be -- like last year I think we did $10 million in fill in business on Ugg in the fourth quarter.

I don't anticipate that we are going to be able to do that this year current trends being what they are.

Yeah, but one thing about the inventory, we are also managing the inventory tighter and bringing it closer to market.

But in our guidance, we have all the inventory to meet the demand that will generate our guidance for the year.

OK.

Great.

Thank you very much and best of luck.

Thank you.

We'll go next to Elizabeth Montgomery with Cowen.

Hi, guys.

Congratulations from me too.

Thank you, Elizabeth.

Todd got my inventory and gross margin question.

But I guess I'm curious as to -- and I know you've discussed this in the past but -- for the Spring Teva relaunch, how are you tracking now kind of in your discussions with retailers about their orders of that so far?

And what are the risks of relaunching so much of your product at once in one season, and how do you mitigate those?

OK.

Well we're very happy with the response to the Spring line beginning with the trade shows.

And really it has been, I think, a relief to a lot of retailers who have depended on the Teva business in the first half.

The brand has come around.

It's more modern, more contemporary, more performance oriented technology.

So that's a really good thing.

So that's proceeding according to our expectation.

In terms of the amount of product that's new, that was just a necessary thing to do.

We had a lot of sale product that we needed to move through which we did.

The 70% of the product line being new, a lot of that replaces product that had been stale and had been in the line quite a while.

So it's not as if we were getting optimum performance from the older skus that were in the line.

Now we have freshness in the line.

There's color in the line.

We're smart about how we utilize design.

In other words, we try to keep -- we try to maximize the number of molds that we have to create a new line of course.

But in general, we're pretty comfortable with the number of skus we have and the direction it's taking us.

OK, and at this time of year, I guess, how much of your Q1 business for Teva is normally booked or agreed upon with retailers?

And how does it compare for Spring '07 this year versus historical levels.

Usually about -- I'd say about 75% of it is booked by this time this year.

And we're running pretty significantly.

I'd say, mid double digits easily across all channels of distribution, all retailers, which is a nice healthy increase.

So it's up double digits from that right now.

Yes.

OK.

Are we going to see this product at the analyst day?

I think we've seen some of it, but will we see --

We'll be showing it, yes.

OK.

Great.

Thanks, guys and congratulations.

Thank you.

Thank you.

We'll go next to Heather Boksen with Sidoti & Company.

Good afternoon, guys.

Most of my question already got answered with the gross margin issue.

Could you talk a little bit about the top line growth for next year, which brands -- maybe your thoughts by brand on how that breaks up?

Sure.

The way I look at it, I think we're going to be seeing an across the board increase all the brands.

I think Simple will continue on the track it's on.

As we've said in the past, the Spring line for Ugg demonstrates a great opportunity for the brands.

So we anticipate growth there.

And then on the Teva front, I just indicated we're seeing some nice prebook on those orders on those styles.

So far, all three brands are showing pretty solid performance as we move into '07.

So we should for planning purposes, I guess, expect to see that 15% comprised of pretty similar growth, at least for Simple and Ugg, as we saw this year and with obviously, Teva being the difference?

Is that correct?

We're not breaking the guidance just yet.

We'll give you more indication when we close the year.

But overall, you will probably see a similar type of growth and Teva being the difference.

OK.

And lastly, continue to generate a lot of cash here.

Cash balance looks like it will be up again by the end of the year.

I guess, any plans for what you guys would use all this cash for?

Well, we continue to evaluate it.

Right now, we feel that the best utilization of our cash to continue investing at the business and to look for other opportunities.

OK.

Thanks, guys.

Thank you.

And we'll go next to Stephanie Wissink with Piper Jaffray.

Hi.

Good afternoon.

This is Steph for Jeff Klinefelter.

Just one question on your international business, if you could just speak to some of the trends you are seeing, specifically, among each of the brands internationally.

Anything unique or similar to the domestic market?

Thanks.

OK.

Well let me start with Teva.

I think one of the things that we suffered from internationally with Teva was the lack of innovation, lack of new product.

Our distributors are just ecstatic about what they've seen for Spring '07 for Teva.

I think that bodes well for getting our Teva business back on track in the U.S.

On the Ugg side, as I indicated, we are experiencing very strong selling in the UK with Ugg.

Probably they didn't order enough product.

In that end, that bodes well, because it's just not just classics that are selling there as well.

It's all the other styles similar to here, so that's a good thing.

And we also see even more of a trend in Europe towards sustainability and environmental consciousness.

So Green Toe as it is launched with new distributors, because keep in mind, we really haven't had Simple distributors in the mix here prior to this year.

So there's a lot of excitement about Green Toe and the direction it's going.

And it's also consistent with the U.S.

I wouldn't be surprised to see Green Toe be pretty significant opportunity for establishment of the brand in Europe.

It's just new and fresh and exciting.

Great.

Thanks, guys.

Thank you.

[Operator Instructions].

We'll go next to Jimmy [Harv] at FTN Midwest Research.

Hi.

It's Sam Poser at FTN.

How are you?

Congratulations.

Using an alias, huh Sam?

Yeah, I was here.

How's everything?

Listen going back to the international business for a second, what is the outlook for growth there?

It's sort of been -- sort of stabilized now.

When is all this going to start kicking in?

You sound fairly optimistic about it.

I'm very optimistic.

And as I've been saying all along, we have had to restructure our international business.

We have had to review all of our distributors.

They have had to have, the ones that have remained distributors have had significant revamping of their business plans to compensate and keep up with the growth that we're expecting.

So that's not done over night.

That always takes a little time.

The trends in terms of consumer growth, consumer acceptance of the brands, I think that bodes very well.

Ugg, I just saw some beautiful slides of Ugg in Italy in store windows, beautiful displays of product in high-end premium stores.

That wasn't occurring a year ago.

We've got, generally speaking, most of the right distributors in the mix now.

I'm pretty comfortable with the ones we have.

More importantly, they seem to be across the board well finances and now capable of handling the kind of growth.

It's expensive to buy the inventory.

It's expensive to do the marketing and certainly hiring staff and putting in showrooms, especially in Ugg and Teva.

Those are all things that are a change from what they were anticipating.

And not everyone was able to do that.

So as I've said, 30% of our business is going to come from international in four to six years.

I'm holding to that.

I'm feeling pretty confident about that. and you said that the business has stabilized.

I don't agree there.

I think that we've just -- it's almost like a long jumper taking a step before they launch themselves.

We've had to take a tiny step back to get everything in order so that we could grow and develop our business going forward.

Year to date, I think our business is up about 8%.

Is that about right, about 8%?

And we're going into a very strong selling period now.

So, things look good actually on that front.

OK, great.

And then about just your general distribution on how, the new doors versus broader assortments.

How many new doors have you gone in versus how much broader have the assortments gotten in Ugg primarily?

I don't know the breakdown on that.

I will say the we are getting our preference is to support those retailer who have been supporting us, number one.

And many of they have wanted more doors.

So when we say new doors, generally that means new doors within our existing distribution, not 100% new retailers.

And in that existing distribution as you have seen, a lot of the growth is being fueled by an increase spread in assortment.

Men's products has done well, all of the new styles.

I want to emphasize this too.

I think it's very important.

It's amazing when you look at what's selling abroad.

It's an across the board.

It's not like we're selling only classic or ultras.

We're sell -- everything that we're doing in terms of new styles is for this fall is selling-through.

And that's very exciting, because that tends to give the consumer a new face to the brand, a new idea about the brand, combined with what they see in the advertising.

It's all working quite well together.

And just two last things.

How big is your slipper business looking this year and when is the analyst day?

It's a Wednesday, November 8th.

November 8th.

Yeah, that sounds about right.

And we don't disclose how big our slipper business is.

It's pretty darn big though.

And it just seems like every year we seem to run out of slippers.

And it's not because we don't get aggressive ordering slippers.

It's just that -- I don't know about you.

I've noticed a lot of people walking around on the streets of LA wearing our slippers as outdoor footwear.

So it continues to grow.

OK.

Congratulations again.

Thanks.

Thanks, Sam.

And, Mr. Harv, anything further?

No, thank you very much.

OK.

Thank you, sir.

We'll go back to Todd Slater with Lazard Capital Markets.

Thanks, guys.

I realize you're not ready to release specific '07 guidance, but I'm just trying to understand how you look at your expense line.

And if we're now lapping the big 9 million increment in expenses understanding that you're still going to invest in marketing and international platforms and so on.

If we want to try to grow the expense line just sort of in theory more slowly than the revenue line.

As we've said, we'll continue to invest in our SG&A.

And it's going to be basically evenly spread out throughout the year.

The only thing, Todd, which you have on your SG&A which is a variable nature, is the commission and bad debt.

Right.

But if you look at the 9 million piece, which is 7% of sales, that was a big jump in that number.

What kind of ramp does that go to in '07 for example?

Well, I think as we've indicated before, we'll keep the operating expense margins in the mid twenties, around the 25 level.

OK.

So we should expect that to be at the same level in '07.

OK.

Then we kind have a little lower tax rate for next year is that an appropriate assumption?

Slightly lower, yeah that should make sense.

Alright, terrific.

Thank you.

Thank you.

And, gentlemen, it appears as though we are standing by with no further questions.

I'd like to turn the conference back for any closing or additional comments.

Well I'd like to thank you all for your support and your ongoing interest in our company.

We're very happy with our quarter and look forward to talking to you at the year end.

And see whoever can come to the investor's --

And, yes, we hope to see you at the investor day.

This does conclude today's conference.

We do thank you for you participation.

You may disconnect at this time.