Deckers Outdoor Corp (DECK) 2007 Q1 法說會逐字稿

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

Welcome to Deckers Outdoor Corporation First Quarter Fiscal 2007 Earnings Conference Call.

At this time, all participants are in listen-only mode.

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

(Operator Instructions).

I would like to remind everyone that this conference 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 different materially from those described on this call.

Deckers has explained some of these risks and uncertainties in the risk factor 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 sells 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 and this call will be protected by the Safe Harbor provisions of the Securities Exchange Act of 1934, as amended.

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

I would now like to turn the conference over to 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.

Well, as you saw from our earnings release, we began 2007 with a strong first quarter, which was marked by double-digit sales gains for Teva, Ugg, and Simple.

Total sales increased nearly 30% to $72.6 million, compared to $56.0 million a year ago, which was above our previous guidance of 15% sales growth.

Net income improved approximately 72% to $9.7 million, and earnings per share rose 70% to $0.75, which exceeded our projection of 15% EPS growth and the first call consensus estimate of $0.51.

Clearly, we're very pleased with the top line results for all three of our brands, which allowed us to generate meaningful expense leverage and once again exceed earnings expectations.

So beginning with Teva, we're particularly encouraged with the brand's performance as the first quarter represented the debut of our reengineered spring line.

As a reminder, nearly 70% of the product offering was new, and with sales up more than 11% over last year, it gives us confidence that our investments in R&D and sales and marketing, and our strategic decision to reposition the brand for a younger, more active consumer are helping fortify Teva's leading position in sports sandals while at the same time further establishing it as a premiere outdoor-performance-oriented footwear brand.

The feedback from retailers has been positive across the board.

Until the recent cold spell across much of North America, which included snow storms in the Midwest and the Nor'easter that dumped a record amount of rainfall on parts of the Northeast, they're all experiencing solid sell-through, most notably with our high-end performance water series, which features higher price point styles such as the Karnali Wraptor, our first ever $100 sports sandal, the Toachi, and the Sunkosi.

In fact, several retailers who originally passed on carrying this collection have come back to us with orders.

And that's as a result of strong consumer buzz about these products.

As temperatures have returned to more normalized levels for this time of year, particularly on the east coast, where it was in the 70s in New York this past weekend, we are again witnessing a solid order flow on Teva.com, which is a good indicator of the positive momentum which continues into the second quarter.

Other standouts from the first quarter, to name a few, included updated versions of the Dozer and the Terra-fi, our women's Ventura series, our Mush flip-flops, and all kids' products.

To support the new line, we launched our print advertising campaign in the March and April publications of Outside, Women's health, Men's Journal, National Geographic Adventure, and Runner's World, and continued to roll out our Shop n' Shop and new retail displays at key outdoor specialty retailers like Beck's and Paragon Sports.

All our advertising and merchandising materials feature imagery of our Teva Tribe, taken during the Grand Canyon expedition last fall in conjunction with the filming of the IMAX film Grand Canyon Adventure 3D.

In April we significantly increased the number of ad pages prior to the start of the spring selling period, and this will continue throughout the summer, leading up to the fall when our new closed-toe products will hit the shelves.

Internationally, we're pleased with our performance during the first quarter with total international sales up 37% over the first quarter of 2006.

Coming off a very brisk holiday selling period, the United Kingdom continues to be a strong market for us, as evidenced by a 226% increase in sales over the prior year's first quarter sales.

We're working closely with our new distributors for Scandinavia, Germany, and France to enhance brand awareness and secure the right retail partners in each respective market.

We're also in the early stages of exploring the individual opportunities for each brand in some of the world's largest countries like Russia, China, India, and Brazil.

Now to Ugg, which, by the way, generated another quarter of excellent results.

Sales were up more than 67%, significantly exceeding our expectations.

The brand's performance was primarily driven by the spring collection, as we had minimal carryover sales except for a small amount of fall holiday boots that we shipped to the UK.

For this year, our spring collection was dramatically expanded, encompassing 52 styles, including boots, sandals, slippers, and casuals for men, women, and children.

Our boot business was very strong at retail in the first quarter.

At the same time, our casuals sold through very well, led by the Espadrille collection, particularly the Mar, which was the number one shoe for Ugg and in Nordstrom's top 10.

Looking ahead, we're pleased with the order [book] for fall, which is just about complete.

Once again, we've continued to diversify the product line, including higher heels for women, additional casuals for men, and more kids-only styles.

Throughout the process, we work closely with our retail partners to manage their orders and ensure each is representing the full fall collection.

We also continue to focus on expanding our business outside California and expect to see further growth this year in markets like the Northeast, the Northwest, and the Southeast, which are markets into which the brand has historically not penetrated as well.

Ugg has been running a very extensive ad campaign for spring, which will wrap up as we approach the back half of the year.

In fact, based on current page buys, Ugg is in the top three fashion advertisers on the west coast for Conde Nast, which is the parent company of Vogue, Teen Vogue, Glamour, and Vanity Fair.

For Simple, the first quarter was highlighted by a 14% sales increase over last year.

We also opened several influential accounts such as Urban Outfitters, Bloomingdales, David Z and Kitson as well as additional health and wellness retailers like [pharmac -- pharmasa], [Gaim] and Elephant Pharmacy.

[Pharmaca], I think.

I'm having trouble with that.

We also continue to expand within our current account base and added Whole Foods Market doors in New York, New Jersey, Arizona, and Colorado.

We also added doors to Nordstrom in northern California and in the Midwest.

In addition, we added doors to Dillards in the Southeast and the Midwest.

Simple is building on its position as the leader in sustainable footwear through the introduction of new Green Toe products, which feature recycled car tire outsoles, bamboo linings, and organic cotton uppers.

We're very pleased with the sell-through on Simple during the quarter, and we believe that we're just beginning to scratch the surface in terms of the brand's market potential.

Furthermore, based on the new accounts we've opened and the additional shelf space we have secured, it is clear that retailers are now realizing the commercial viability of Simple.

We're confident this success will continue to grow as we launch our new Eco Sneaks collection this July.

This marks the introduction of the most eco-friendly sneakers in the footwear industry.

To help drive sales and further expand brand awareness, we introduced our largest-ever advertising and marketing program for Simple during the first quarter.

This featured print ads in a variety of magazines from Rolling Stone to Vanity Fair to Surfer and Surfing, as well as LA Magazine, Ready Made, and Outside.

We also took part in a number of green events, such as the Epic Sustainable Living Expo in Vancouver and the Natural Products Expo in Anaheim.

We also collaborated with StopGlobalWarming.org on a special edition Green Toe flip-flop with a $5.00 donation going to StopGlobalWarming.org for every pair our retailers purchase.

So now turning to our consumer direct division, sales increased 70% to $11.1 million.

This significant year over year increase was fueled by gains in our Internet and catalogue business, as well as from the addition of three new retail stores.

Our Ugg flagship store in New York City, which carries the full spring collection, continues to outperform our expectations.

We currently have another flagship store scheduled to open in Chicago later this year, and our Canadian distributor is opening its own Ugg store also later this year.

Overseas, we believe both Europe and Japan provide several opportunities for company-owned stores.

Cities such as London, Paris, and Milan are targets for future expansion, while Japan continues to be the largest market for luxury goods in the world.

In addition, we'll continue to selectively open outlet stores in high traffic destinations such as Woodbury Commons, which is located just over an hour north of New York City, and that store is set to open this fall.

Not to be overlooked are the performances of our Internet and catalogue businesses.

Many of you may know or may not know, but we've had a highly evolved consumer-direct business for many years.

The Teva brand began selling sandals directly to consumers back in the early 1990s, first by catalogue and then over the Internet.

When we purchased Teva in 2002, the acquisition included both the catalogue and the ecommerce website, along with a very strong management team that has been instrumental in developing the direct strategies for Ugg and Simple.

As a result, we feel we're ahead of the curve when it comes to direct-to-consumer sales, and therefore we've been very selective about selling our products through outside, online retailers.

In fact, only a handful of websites currently offer our products, such as Zappos.com and Nordstrom.com.

Importantly, as demand in this channel of distribution has continued to grow, we've increased our investments to upgrade our infrastructure, particularly IT, as we recently installed new, larger servers that allow us to process significantly more business in a much shorter period of time.

We have also just recently completed the development of a website that will allow foreign consumers to view products and place orders online in their local currencies direct from our distributors, which we believe will reduce lead times on overseas deliveries and improve efficiencies in our international business.

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

Zohar?

Thanks, Angel.

For the first quarter of 2007, net sales increased 29.6% to $72.6 million compared to $56 million for the first quarter of last year.

Including sales from the wholesale division as well as the consumer-direct business, our net sales of Teva products increased 11.6% to $38.7 million in the first quarter compared to $34.7 million in the corresponding period of 2006.

Net sales of Ugg products increased 67.7% to $29.8 million compared to $17.8 million for the first quarter last year.

Simple brand net sales increased 14% to $4 million for the quarter compared to $3.5 million in the same period last year.

Included in these numbers are consumer-direct sales for all three brands of $11.1 million in the first quarter of 2007, up 69.7% from $6.5 million in the first quarter a year ago.

International sales for all three brands increased 37.1% to $16.9 million compared to $12.3 million in the first quarter of last year.

For the quarter, domestic sales increased 27.5% to $55.6 million compared to $43.7 million in 2006.

Our gross margin for the current quarter increased 210 basis points to 46.2% compared to 44.1% in the first quarter of last year.

This increase was primarily due to improved sales mix and lower closeout for Ugg, as well as lower inventory write-downs for all brands, partially offset by higher international sales, which have lower gross margins.

Our SGNA expenses for the quarter were $18.3 million or 25.3% of net sales compared to $15.8 million or 28.2% of net sales a year ago.

The total SGNA dollar amount was up year over year as the result of our ongoing investment in our infrastructure.

However, as a percentage of sales, we witnessed a decrease of 350 basis points due to higher sales levels.

Our operating margin for the first quarter of 2007 was 20.9% of net sales compared to 15.9% last year.

Our net interest income was approximately $989,000 in the first quarter compared to last year's first quarter of $580,000.

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

Net income for the first quarter was $9.7 million or $0.75 per diluted share compared to $5.6 million or $0.44 per diluted share in the first quarter of last year.

Turning to the balance sheet, at March 31, 2007, our overall inventories increased to $34.2 million compared to $31.3 million at March 31, 2006.

By brand, Teva inventories increased to $15.8 million at March 31, 2007 compared to $11.9 million a year ago, due to the arrival of our spring '07 inventory in anticipation of increased sales in the second quarter.

Ugg inventories decreased to $14.6 million as of March 31, 2007 compared to $15.6 million last year, and Simple inventories remained relatively consistent at $3.8 million at March 31, 2007 compared to $3.7 million at March 31, 2006.

In addition, at March 31, 2007 we had cash, cash equivalent, and short-term investments totaling $109.8 million compared to $65.3 million a year ago, and account receivables increased to $36.4 million compared to $28 million at March 31, 2006 due to the higher sales in the first quarter of 2007.

Now to our outlook.

Based on our better-than-expected first quarter results, coupled with improved visibility into the back half of the year, we are raising our 2007 guidance.

We now expect revenues to increase approximately 25% over 2006 levels, up from our previous guidance of approximately 15% growth.

We also now expect diluted earnings per share to increase approximately 15% over 2006 before the impairment charge, up from our previous guidance of approximately 5% growth.

Again, this is based on a more normalized gross margin of approximately 44% in 2007 compared to 46.4% in 2006.

In addition, our fiscal 2007 guidance includes approximately $5 million of stock compensation expense, an increase of $3.1 million over 2006.

For the second quarter, we kindly expect revenues to increase approximately 50% over the second quarter of fiscal 2006.

At the same time, we kindly expect second quarter earnings per share to decrease approximately 80% over the second quarter of fiscal 2006.

As we previously stated, a significant amount of our engineer expenses will be evenly incurred throughout the fourth quarter, and therefore this will have its greatest impact on the second quarter when our sales volume is at its lowest.

With regard to the second half of 2007, we kindly expect revenues and diluted earnings per share to grow in line with our full year target of approximately 25% and 50% respectively, and before prior year's impairment charge with the greater percentage of growth coming in the third quarter.

For the full year, we now expect Ugg and Simple sales to increase approximately 30% and Teva sales growth to be in the mid-teens.

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

Angel?

Thanks, Zohar.

Well, just a year ago, in the first quarter of 2006, we introduced a limited number of new Teva styles, predominantly updated versions of core product.

We launched Ugg's first spring line, consisting of 26 styles, and debuted Simple's first spring Green Toe collection.

A year later, 70% of Teva's spring product line is new and selling through at double digit rates across all retailers; Ugg's spring collection has evolved to include over 52 styles of boots, sandals, casuals, and slippers; and Simple is committed to innovation and bringing 100% sustainable products to the market and leading in that effort, I may add.

We're obviously very pleased with the progress that we've made over the past 12 months in revitalizing and repositioning Teva, evolving Ugg into a year-round brand, and transforming Simple.

However, we're still in the early stages of our long-term growth plan, and there's much work to be done.

Later this year, we will introduce a more comprehensive fall Teva line, including several closed-toe styles of our spring line; and for next year we will continue to focus on gaining key market share as we work toward evolving Teva into the premiere outdoor performance-oriented brand.

While Ugg has achieved nine consecutive years of double-digit growth and surpassed the $200 million sales mark in 2006, it is still a relatively small footwear brand and we see significant opportunities for growth, both domestically and overseas, including retail stores and additional licensing opportunities.

We're excited by Simple's recent transformation and we move forward committed to bringing awareness and creating meaningful, eco-friendly products to the mainstream.

Thanks to considerable media exposure, politics, and celebrity backing, Simple is becoming a dynamic force in the green movement.

We're also dedicated to taking Simple to the next level and making the brand a meaningful contributor to our bottom line in the years ahead.

Integral to our growth strategy is increasing our business outside the U.S., which has been virtually untapped until recently, when we expanded our international team and refocused our efforts by signing agreements with new partners in Europe and Latin America.

Similarly, our retail prospects are just unfolding, and we will look to significantly increase the contribution of this high-margin business over the next several years.

Importantly, with nearly $110 million in cash, cash equivalents, and short-term investments on our balance sheet, we're in a very strong position to fund our future growth plans.

This includes organic growth, such as accelerating our retail store openings, expanding our international and Internet business, and possibly developing additional brands in-house, as well as pursuing acquisitions.

We continue to explore and evaluate companies that we believe would make a good strategic fit with Deckers, both from a brand standpoint and a management standpoint, and we'll move forward with potential transactions if we believe it would enhance our long-term growth prospects and be in the best interests of our shareholders.

So as you can see, we have several areas of growth across our business, and we move forward with a strong portfolio of brands, an experienced management team, and a strategy that we believe will result in increased profitability and long-term shareholder value.

Operator, we're now ready for questions.

Thank you.

(Operator Instructions) The first question comes from Jeff Klinefelter of Piper Jaffray.

Yes, guys, congratulations on another fantastic quarter.

Thank you, Jeff.

Thank you.

Couple questions.

One, maybe, Zohar, you could just talk a little bit more specifically about this Q1, Q2 split which no doubt is going to be a question on the mind of investors with such a fantastic performance in Q1.

Understand taking a more cautious approach to Q2, but it would seem that something is happening either in gross margins or SGNA, meaning maybe some of the expenses that maybe didn't hit Q1 are flowing into Q2, so it's jumping up the SGNA level.

Or with Q2 are you just being more cautious and assuming that the margin mix may swing back the other direction and that would keep down your EPS contribution?

Just any more color you could add on that would be very helpful, and then I have a follow-up.

Okay, yes, I appreciate that.

In Q1, really, our expenses are in line with our expectation, so there really hasn't been any deferment of expenses from Q1 to Q2.

The reason for the impact on the earnings per share in Q2 is our investment and infrastructure and our SGNA -- the bulk of our SGNA expenses are fixed, and they are spread evenly throughout the year, which has the biggest impact on the second quarter, which traditionally has been our lowest sales.

As to also our margin expectations, we are also expecting the margin to be a little bit lower than in Q1 due to the Q2 is usually the fill-in business and so forth.

And until we get a better indication by then of the quarter, we are looking at the margins to get the level that we are predicting.

Okay, so --

And one more thing to add to, Jeff, is also as we indicated, our stock compensation expense went up by $3 million this year and that also is being spread out evenly throughout the quarters, which has a significant impact also in Q2.

Okay.

So just to be clear, I mean, it's not an unusually high expense load necessarily in Q2; it is a volume consideration during the quarter; and if there were up side beyond your projected sort of sales at this point, that would be something that would flow through to the bottom line in Q2, correct?

Yes, that's correct.

Okay.

Thank you, and then as a follow up, a couple of things.

You know, on Teva, Angel, any other color in terms of types of customers that are responding to it?

Inventory is obviously up year over year because of the new styles, and I imagine I know that the reorder business is very important now in Q2.

Any sort of sense or comfort you can give anybody in terms of how you would expect the reorder business to play out here?

Sort of how you look at your markdown exposure, given weather variances across the country?

Anything else to add would be helpful.

Yes, well, in terms of weather, obviously there's not a heck of a lot we can do about that.

The most important thing is for the brand to show up at retail with exciting new product and kind of get that consumer motivated about the brand again.

And that seems to be happening, both anecdotally and from all indications of sell-through numbers prior to the snowstorms of April, or whatever we just had.

I mentioned in my comments the emphasis on point of sale and the sort of shop 'n shop approach that we've taken, and the fact we have more real estate, more visibility now than we've had in previous years.

That's very, very important.

I think that's, combined with the new product, is driving a positioning of the brand at retail back to a leadership level when it comes to sports sandals.

So I think critical, whether you have good weather or bad weather, is to be out in front of the consumer with your best product and I think we're doing that better than we've ever done it this year.

And we've got great new products that are exciting the consumer and that's what I -- the thing I get excited about most is we're getting so many great comments on the Karnali Wraptor.

You know, people -- I mentioned a retailer who's -- a couple of retailers who said, look, I turned -- I didn't buy that, I thought it was kind of expensive, but now consumers are coming in asking me wow, Teva's got this great new Karnali Wraptor why don't you carry it?

And that's good.

That's exactly what we need to have happen, and I'm satisfied that we're moving in the right direction.

Okay.

Two just last quick things.

In terms of the 11% growth in Q1 for Teva, I think you said, what was the sort of mix in terms -- you know, was that pricing increases, did you find?

Was it door count expansion?

Was it units?

I know that the mix of pricing was going considerably higher this spring, year over year.

Is that really what's driving it at this point?

No, it was a mix of product.

I mean we had good sell-through on higher-end product, but we also had good sell-through on the women's Ventura collection, which is very strong.

We had the Dozer, which we introduced last year in new configurations, new colors.

That's been doing really well.

And our flip-flops have been performing well.

So it's just the brand is out there in a more aggressive way, the advertising is getting in front of the consumer, more products are getting out on the floor, retailers are feeling more positive about the brand, given the direction and the focus that we've been putting on reinvigorating it.

So it was kind of an across-the-board thing.

You know at $100, we're not going to do as big a volume in that product up front to move the needle that much.

You know that's positioned as back to serious performance.

You've got to do the business at the core price points, and we seem to be doing that.

And as to distribution, it was from our existing doors.

Yes, we --

It wasn't (unintelligible).

Yes, we didn't add -- that's not a new door calculation.

Okay, very good.

And international, you're obviously happy with the growth there.

Is that something -- it's growing quickly on a relatively small base compared to the rest of your business.

At what point do you have a trigger out there, an established distribution network, that could really start accelerating that business, or do you just see this being more of a methodical growth story, similar to how you've managed your brands in the U.S.?

Is it something we should see similar growth rates, or is there a point when it could really take off, door expansion accelerates, and that business becomes a much more meaningful contributor to growth?

I think it's more of a methodical acceleration because it's about finding the right partner.

And in the case of Ugg in the UK, for example, I think we had last fall a breakthrough season where the brand just kind of caught fire.

People ran out of product.

That bodes well for the UK business.

That's just one piece of the pie.

We've got obviously markets around Europe that are undeveloped and in Asia that are totally undeveloped.

So we really have to sit back, make sure we have the right partners, make sure the investment level is right, make sure there's consistency in the product assortment and the presentation of product at retail, and the positioning of the brand in the marketplace.

So we're going to take the same kind of approach we've taken here, and I think it's going to be a consistent and strong build, kind of like a wave building offshore.

It's the kind of thing that is, I think, the preferable way for sustainability in the long term.

Okay, very good.

Thank you.

And the next question will come from Todd Slater with Lazard Capital Markets.

-- and add my kudos on the quarter, just terrific.

Thank you, Todd.

I just want to revisit the Q2 issue, if I might.

Just, if you could tell us, give us a sense of the incremental dollar expense we should be modeling for the second quarter because the Q1 expense is about $2.7 million in dollars, and I'm just wondering if the incremental expense load is split evenly, as you said.

So is that $2.7 million the kind of number we might want to use in our models for 2Q,and if not, why not?

Yes, the Q2 expenses should be in line with Q1, and potentially there can be some slightly higher expenses due to some programs that we will implement here.

Okay, so that means a much higher increment in dollars.

Yes.

Year over year.

Yes.

And why is that?

Well, as we indicated, we continue to invest in the infrastructure to support the growth of the company.

And that wasn't in Q1?

I thought you said it was going to be evenly split across the quarters?

Right, but as you're implementing certain programs, it depends on the time that you're implementing it.

So you're saying Q2 then therefore has a much higher than -- it's not the kind of split that you were talking about.

It could have a much higher dollar contribution.

Well, in the percentage fluid, it's going to be a much higher percentage of sales.

But from a dollars perspective, based on the timing that we are starting the investment, it will increase the expenses accordingly.

I see.

Okay, all right.

And then just on the inventory, it's nice to see the inventory coming up.

And although on Ugg it's still down, I realize it's hard to catch up with the momentum there.

When do you think you get to a point where the Ugg inventory might actually grow year over year?

Or is that something you're not -- that's not an objective?

Well, the issue of the inventory, I mean, the Ugg, I mean, we are seeing the inventory at one point of time.

Throughout, the period and the year, you see the Ugg inventory growing over the prior year.

Okay, so it's a lot of replenishment or resell, or what is that?

Yes, I mean, we had -- we are buying our inventory with the expectation of how much we are going to sell; and as we're exceeding our targets, depleting the inventory.

But clearly, we are targeting to replenish the inventory and to bring inventory here to meet the numbers that we are projecting.

Okay.

Just moving to Teva for a second, I think you guys made a comment that it was selling through.

We know that the sell-ins were very strong, but selling through at double-digit rates, is that right?

That's the indication we've had, yes.

Okay, and that's at -- is that at full price, or have retailers started to pull the markdown lever on anything?

No that was generally the full -- that's the full price.

Okay.

It's still too early, and obviously the weather is still a factor, so things could change.

But generally speaking, if we just continue with a good weather pattern, we should get back to a reasonably good sandal season.

Sure.

Now, does the second quarter have any -- are you guys reserving any markdown money for Teva just in case the weather doesn't, doesn't stay warm?

Have you sort of baked that into your assumptions at all?

Yes, we do, yes.

Okay, that's good to hear.

And then lastly on the Simple Green Toe, it's starting to obviously take off a lot, clearly.

But we would have maybe expected growth to exceed, at least given the low base, the other two businesses.

When does that really start to ramp?

Well, it's really hard to say.

I mean it's really about the brand.

Green Toe is just one collection.

When we introduce Eco Sneaks in July, that will represent what we feel is a little bit more commercial product.

In other words, it's going to appeal to a broader cross-section of consumers as the kind of footwear they're used to wearing.

You know, we're very happy with the performance of Green Toe in the stores like Whole Foods, which draws a consumer that would wear a shoe that looks, quote, unquote, environmentally friendly.

But the average consumer out there still wants great-looking shoes that are more traditional-looking, and that's what the Eco Sneaks, I think, is offering, and that's what retailers have seen in their enthusiasm over the product when we showed it last fall.

So it's just hard to say.

It's hard for me to say, well, we're just gong to explode Green Toe in the marketplace.

We've got Sheryl Crowe wearing it out on her tour now with the StopGlobalWarming.org flip-flop that we did.

I guess over the last few days Jack Black was on was it Leno or Letterman?

Leno.

And somebody picked it up on American Idol last night.

And so it's just starting to create a buzz, you know?

It's the brand; it's about the brand.

It's what Simple stands for, being consistent with the consumer values that are out there that determine these kind of purchases.

Okay, great.

Thank you.

You're welcome.

(Operator Instructions) Next question comes from Heather Boksen with Sidoti & Company.

Good afternoon, guys.

Just to get -- sorry to beat a dead horse here, but just to get back to the SGNA expenses and the timing, maybe I'm not understanding something here.

But it looks like SGNA in just raw dollars was up a little over two and a half million here in the first quarter.

If you extrapolate that out to Q2, yes, it's deleveraging as a percent of sales, but, you know, going over the math, I can't -- I can't see how it winds up with earnings down 80%.

So, I mean, can you maybe give some more color as to what the line item was in SGNA maybe we're looking at that's going to be up more significantly than two and a half million?

Well, we're not going to disclose the line items; but if you are taking the level of Q1 and with continued investments that we are doing in our infrastructure in Q2, that's caused the increase in the SGNA.

And as we've indicated, we are also looking at a slightly lower gross profit margin for the quarter.

And that's what's causing when you look at the bottom line for the target of EPS.

Okay, and you guys are still targeting that gross margin target of yours of I believe it was 43% to 44% for the year as still the case?

We are looking at -- for the full year, we are looking at 44% margin.

Okay.

And lastly here at the end of February you said revenue was going to be up about 15% for the first quarter.

Came in in raw dollars about $8 million above that.

Anything that you can comment on that changed so dramatically in March to cause the month's sales to be that far above plan?

Well, I think the amount of volatility, meaning the accelerated rate of sale that we had on our Teva -- rather our Ugg spring line.

And there were some products that just really took off as the weather improved -- the Espadrilles, as I mentioned, the Ugg flip-flops that are just hitting -- that just hit then and then good performance by Teva.

So it was just the weather in this business, come spring, always has a big impact.

And you never want to get your eggs in one basket, thinking that it's the season's going to occur exactly when you want it, and the nice, warm weather's going to come exactly when you want it.

Historically, we've been burned by bad weather in the past.

So you really have to take a wait and see until the season starts to develop weather-wise.

We'll continue to do it that way, by the way.

Okay.

With respect to the inventories on hand, are you able to chase -- well, I guess it's a two-part question.

One, did some of the April orders therefore ship in March because of the weather, and part two, are you able to chase a reorder business here in Q2 on some of that merchandise?

We're in a good position from an inventory point of view to chase fill-in business.

We anticipate that we'll have a better fill-in situation this year than we did last year with Teva.

And on Ugg, given that this is building and we didn't have that much of a track record, I think we bought spring fairly conservatively.

We may not have as much up side in spring on Ugg, but I think there's still room there.

Okay.

And Simple continues to perform.

Obviously, it's at a lower base, so.

Okay.

Thank you, guys.

You're welcome.

(Operator Instructions) At this time, there are no further questions.

I would like to turn the conference back over to you for any closing or additional remarks.

Well, thank you all very much for your support of our company, and very, very proud of our performance in the first quarter.

I'd also like to thank our team worldwide, and a tremendously hardworking group of people all over the world.

And so we look forward to talking to you all and thank you.

That concludes today's conference call.

Thank you for your participation.