Deckers Outdoor Corp (DECK) 2010 Q1 法說會逐字稿

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

Welcome to the Deckers Outdoor Corporation fiscal 2010 earnings conference call.

(Operator Instructions) Following the presentation, we will conduct a question-and-answer session.

Instructions will be provided at that time.

This conference call is being recorded.

Before we begin, I would also like to remind everyone of the Companies 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, some of which are beyond its control, could cause Deckers' actual results to differ materially from those described in this call.

Deckers has explained some of these risks and uncertainties in its earning press release and in its SEC filings, including the risk factor section of the annual report on form 10-K and its other documents filed with the SEC.

Among these risks is the fact that the Companies sales are highly sensitive to consumer preference, general economic conditions, the weather and the choice of its retailers 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, as amended, and the Securities Act of 1933,as amended.

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

I will now turn this conference over to the President, Chairman and Chief Executive Officer, Mr.

Angel Martinez.

Please go ahead sir.

Thank you, Operator and welcome to everyone joining us on the call today and listening via webcast.

With me are Zohar Ziv, our Chief Operating Officer and Tom George, our Chief Financial Officer.

As you saw from our press release issued today, after the close, the first quarter ended up being stronger than we anticipated, particularly from an earnings perspective, as our diluted EPS increased 47% to $1.37.

Our results were driven by another record first quarter for the UGG brand with Q1 sales topping $100 million for the first time, combined with a very strong start to the year for the Teva brand.

Our retail stores, both domestically and overseas, were key drivers of our Q1 results.

Highlighted by same-store sales growth of 28.2% during the quarter.

We witnessed strong consumer demand for the UGG brand Spring line.

Particularly boots like the Lo Pro, the Cardy and the Classics in Spring colors.

In addition, our new sneaker line, led by Avera, performed extremely well.

The arrival of warmer weather in March coincided with the introduction of UGG sandals and flip-flops in our stores, resulting in a healthy sell through over the past month.

In addition, our eCommerce business was also above plan.

And it was a combination of these two high margin businesses that drove the majority of our sales and earnings upside.

Four years ago, as part of our growth strategy, we made the decision to expand our retail distribution with our Company owned, UGG Australia stores.

These results demonstrate clear evidence of a strong payback on this strategy.

The performance of the UGG brand in our Department, Specialty and Independent store base has also been solid.

The selection of Spring products at our wholesale accounts is broader than a year ago, as retailers are gaining more and more confidence with the UGG brand as a year round brand.

They are accepting a wider selection of styles, including sandals, casuals, and our new sneaker collection which, as I mentioned, has had a strong debut.

We're just completing very extensive market research regarding UGG brand consumers.

Our research in the US indicate that we have an expanding, diverse and loyal customer base, showing upside potential in all age groups.

For example, 22% of females surveyed, ages 13 to 54, stated they have not yet purchased UGG products, but are considering doing so in the future.

Only approximately 20% to 25% of UGG consumers are between the ages of 13 and 17.

However, at the same time, we have a very well developed and loyal teen base, with room for significant upside, as evidenced by 40% of female teens responding that they definitely, or probably, will buy UGG products in the next 12 months.

Give that once women are converted to purchase, they tend to repeat purchase and wear UGG products more often.

Our research has enthused us about the future growth opportunities.

Building on this brand loyalty will be a key marketing focus in late 2010 and beyond.

At the same time, our Teva brand delivered one of its best quarters in several years as sales increased 21% from a year ago.

Despite some very wet snowy conditions in January and February that negatively impacted early Spring sales for much of the industry, the Teva brand experience solid sale through our key retailers, such as REI, Nordstrom and Dick's Sporting Goods throughout the quarter with sales accelerating above plan in March.

Over the past few years, we've gone from struggling to appeal to younger demographic groups with the Teva brand, to the brand that is gaining market share.

This progress has been achieved through our committment to evolve the Teva brand beyond its authentic roots in the sports sandal category and to lessen the brand's dependence on weather.

This seasons line is, by far, our most complete from top to bottom with diverse collections of both open and closed toe styles at a variety of price points.

This year we have a meaningful amount of quality closed toe products for Spring, versus just a handful last year.

And in fact, several have been some of our best performers year-to-date.

Our enhanced merchandise assortment, combined with updated point of sale materials, is resulting in much better product placement at retail and is helping the brand establish a stronger more consistent presence across all channels of distribution that better reflect the Teva brands position as an outdoor industry leader.

While the first quarter is typically the smallest volume quarter for our international division, the Teva business in Europe was up nicely on the strength of our expanded line of men's and women's closed toe footwear, and from realizing the benefit of assuming the distribution of the product in the Benelux.

We're also starting to gain better traction with the UGG brand Spring business, particularly in Benelux, which currently sells the largest collection of Spring product outside the United States.

Our international wholesale distribution model is now in its second year in Japan.

And we continue to be very pleased with our decision to convert the business from the distributor model.

We're just starting this process with the Teva brand in the Benelux region and France, while at the same time, building up an infrastructure to support larger wholesale operations in Europe beginning next year.

We're excited about the long term sales and earnings potential, we believe, converting from distributors to wholesale sales in select markets will provide the Company in years to come.

Tom will now go through the financials in more detail.

Then I'll review our plans for the remainder of the year.

Tom.

Thanks, Angel.

For the first quarter of 2010, net sales increased 16.2% to $155.9 million, versus $134.2 million for the first quarter of last year.

Including sales from the wholesale division, as well as, retail and eCommerce businesses, net sales of UGG products increased 14.2% to $104.4 million, versus $91.4 million for the first quarter last year.

Net sales of Teva products increased 21.4% to $43.2 million in the first quarter, compared to $35.6 million in the same period of 2009.

Combined net sales to the Company's other brands were $8.4 million for the first quarter of 2010, compared to $7.3 million for the same period last year, a 15% increase over last year.

Included in these numbers are global retail store sales of $23.1 million, up 66.1% from $13.9 million in the first quarter of 2009, driven by five new stores and a same-store sales increase of 28.2%.

Sales for our eCommerce business, which are included in the brand sales numbers as well, increased 13.8% to $18.4 million for the first quarter compared to $16.2 million for the same period a year ago.

Most of the Q1 sales and earnings upside was driven by the retail stores and eCommerce, which at this early stage in the rollout of stores, is more difficult to predict than our pre-booked wholesale business.

In summary, on a combined basis total consumer direct sales, both retail and eCommerce combined, for Q1 were 26.6% of sales compared to last year 22.4% of sales.

Also included in the brand sales numbers, domestic sales for all brands increased 14.7% to $117 million, compared to $102 million, in the first quarter of last year and international sales increased 20.8% to $38.9 million, compared to $32.2 million in Q1, 2009.

International sales were 25% of total sales, up from 24% last year.

Our gross margin for the current quarter improved 610 basis points to 50%, compared to 43.9%, in the first quarter of last year.

This increase was attributable to the higher sales from our global retail and eCommerce businesses, which carry higher gross margins than our wholesale business, as well as, improved product margins, including improved Teva international margins resulting from being direct in the Benelux region.

Total SG&A expense for the quarter was $49.1 million or 31.5% of net sales.

Compared to $39.6 million or 29.5% of net sales a year ago.

In addition, to variable SG&A costs increasing with increased sales, we had planned SG&A to increase in absolute dollars due to other factors, including increased payroll and infrastructure costs, fixed costs related to five new retail stores, open this year versus last year, and costs associated with our Teva distribution, in Benelux, both the costs incurred to assume the distribution, as well as, the ongoing operating expenses.

Operating income for the quarter was $28.8 million or 18.5% of sales compared to operating income of $19.3 million or 14.4% of sales last year.

Improved operating margin was mainly attributable to the aforementioned gross margin increase, more than offsetting the increased operating expenses associated with our retail and international growth initiatives.

Interest income was $19,000 in the quarter compared to interest income of $.6 million in the first quarter of last year and the decrease was a result of significantly lower market interest rates, versus the same period a year ago, as well as, our decision to shift our cash equivalents and short term investments to just highly liquid instruments.

Net income for the first quarter of 2010 increased 45% to $17.9 million from net income of $12.3 million.

In the first quarter diluted earnings per share increased 47.3% to $1.37, up from $0.93 in the first quarter of last year.

Now turning to the balance sheet at March 31, our overall inventories increased 3.7% to $68.8 million, versus $66.4 million a year ago.

Very favorable comparison given our sales grew 16.2%.

By division, UGG inventory increased 2.4% to $44.5 million.

Teva inventory increased 24.3% to $18.7 million.

And the other brands inventory decreased by $2.3 million.

In addition, at March 31, we had cash and cash equivalents totaling $357.3 million, up 55.4%, compared to $230 million of cash, cash equivalents and short term investments a year ago.

Accounts receivables were $54.6 million, down 3.1% ,compared to $56.3 million at March 31, 2009.

Although, we did not repurchase stock during the first quarter, we still have $30 million remaining on our repurchase authorization.

Now moving to our outlook.

Based on our better than expected first quarter results, coupled with an improved outlook, including increased sales projections for the UGG and Teva brands, we are raising our 2010 guidance.

We now expect full year 2010 revenues to increase approximately 13% over 2009 levels, up from our previous guidance of approximately 11% growth.

We now expect UGG brand sales to increase by approximately 11%, up from our previous expectation of 9%, and Teva brand sales to increase in the mid 20% range, up from our previous expectation for growth in the low 20% range.

Our other brands combined are still expected to increase approximately 20%.

We currently expect diluted earnings per share to increase approximately 11% over 2009 non-GAAP diluted earnings per share of $8.94 per share.

Which excluded pretax, non-cash, impairment charges of $1 million on intangible assets as discussed in our related earnings release, up from previous guidance of approximately 5% growth.

Our forecast is based on a full year gross margin of approximately 48% and SG&A as a percentage of sales of approximately 26%.

As a reminder in preparation for transitioning to direct wholesale for the UGG, Teva and Simple brands in the UK and UGG and Simple brands distribution in the Benelux region in 2011, as well as, Teva, Benelux and France transition this year.

We will incur additional expenses in 2010 for the new initiatives to establish the infrastructure necessary to support broader wholesale operations beginning in 2011.

Also, because of the transition sales of approximately $10 million will shift to 2011 under our wholesale model, that would have been recognized as international sales in November and December of 2010 under a distributor model.

In total, these incremental expenses, and profit shift of $8 million, will have an estimated diluted earnings per share impact of $0.38 of which approximately 65% is a one time impact.

Furthermore, due to the impact on our international pretax income from the aforementioned expenses in 2010, our effective tax rate is expected to increase to approximately 37% from 36.2%, 2009.

When you exclude the impact of these investments, we are guiding the strong earnings growth of 15% well above the 11% sales guidance.

Our capital expenditures for 2010 are expected to, in total, to be approximately $25 to $30 million, a $10 to $15 million increase from our '09 level, $15 million, driven mainly by the buildout of new retail stores, as well as, a new eCommerce platform in P&L and Software.

For the second quarter of 2010 based on our current visibility, we expect revenues to increase to approximately 25% and diluted earnings per share to be flat compared to the second quarter of 2009 non-GAAP diluted earnings per share of $0.26.

Which excluded pretax, non-cash, impairment charges of $1 million on intangible assets as discussed in our related earnings release.

Second quarter guidance includes estimated estimates of approximately $1 million, or $0.05 per diluted share, of incremental investments associated with the international distribution transition.

As well as, higher levels of fixed overhead for new retail stores, international infrastructure and other general administrative costs.

This is being partially offset by improved gross margins due to a higher retail mix and improved brand wholesale margins compared to the second quarter of 2009.

A significant portion of the Company's operating expenses are fixed and spread evenly on an absolute dollar basis throughout each quarter, resulting in an impact on earnings in the lowest volume sales quarter, which historically has been the second quarter.

When you exclude the impact of the international distribution investments, we are guiding to 19% earnings growth for the second quarter.

One final comment before I turn it back to Angel.

Given our current stock price trading range, in an effort to improve trading dynamics, including increased trading liquidity, we are currently planning a three-for-one stock split in June subject to shareholder approval of an increase in our authorized shares at our May stockholder meeting.

I'll now turn the call back over to Angel.

Well, thanks Tom.

On our year end conference call in February, we outlined how we planned to grow each of our brands this year while also investing in the business for the long term.

Let me quickly review these strategies and update you on our progress.

For the UGG brand, the business currently falls into three primary areas; domestic wholesale, domestic consumer direct and international.

Our domestic wholesale strategy is centered on driving higher productivity by expanding our floor and shelf space and increasing the unit volume with our current account base of national Department Stores, Specialty Shops, Regional chains, and Independents.

We continue to have success in improving our presence with the majority of our accounts.

Thanks to a much expanded UGG brand product offering for both Spring and Fall holiday.

This spring we've seen a strong consumer reaction to our diverse selection of boots, sandals and flip-flops and, as I said earlier, the initial response to our new sneaker line has been very strong.

We recently completed our fall pre-book process and we're very pleased by the trends we are seeing in terms of the broad mix of product being ordered by our wholesale accounts.

Early indications point to nice gains for our women's casual boots, including Metropolitan, Soho, Surf and our cold weather collections for men and women featuring Beaud's, Adirondack II and Hilgards.

We had solid growth in new categories such as our new wood bottom clogs and boots.

And our new sneaker collection featuring the Ryland, the Evera and our sneaker bottom boot, the deLaine.

We're excited about this new UGG sneaker collection, especially the opportunity for the fall and back-to-school season.

As we've not had a viable sneaker product to properly address this large segment of the footwear market before now.

Consumers will be presented with our most diverse line of UGG footwear ever, in very compelling fashion, thanks to an even greater presence at retail this fall, including more than 110 shop-in-shops at key independent accounts in the US, up from 70 last year.

This is, in addition to, the large in-store displays at the majority of our national accounts, such as Nordstrom, Bloomingdale's, Dillard's and Lord & Taylor, invest in for the Fall and Holiday selling seasons.

Next, we plan to increase our Company owned retail locations by almost 50%.

With the planned opening of nine new UGG Australia stores this year.

Six of these are planned in the US, with all but one of them, in new cities.

We have some really great locations lined up that we're excited to share with you on our next earnings call.

once the deals are finalized.

We also plan to open three stores in China.

Two in Shanghai and one in Shenyang.

Our retail stores continue to perform exceptionally well, with quick cash paybacks and extremely high internal rates of return, in addition to, doing a fantastic job presenting the brand and highlighting the lifestyle nature of the brand.

The last piece for the UGG brand is international expansion.

This year we're focused on working with our distributors to continue to expanding the brand within their respective markets, by increasing the breadth of styles that their retail customers carry.

Growing within existing accounts, including more than 100 new shop-in-shops and opening new points of distribution.

We've seen very good success with our core product line throughout parts of Europe and Asia, as well as, in Canada.

We're now looking forward to building on that momentum, with the introduction of our newer collection that have performed so well here in the US, over the past few seasons.

At the same time, we're preparing for the rollout of our wholesale distribution model next year in the UK and Benelux.

These are the UGG brand's top two international markets, and each are planning for a strong Fall season.

So, we believe we'll be heading into the next year with a lot of momentum behind the brand and continue to develop the brand in these markets.

Turning to the Teva brand, where a strong first quarter has set the pace, for what we believe, to be a very promising year for the brand.

This Spring we've seen retailers, once again, embrace the Teva brand as a vital piece of their outdoor strategy.

While the sales through performance underscores consumers reaction to our much expanded line of sports sandals, light hikers, amphibious products, and casual footwear.

Based on Teva's early results, we head into the second quarter with good momentum and are well positioned to capture some meaningful fill-in business on top of our scheduled deliveries.

In addition, performance of our Spring close toe product, just came on top of solid, full priced selling last fall, is truly better than expected orders for the back half of 2010.

This fall we'll feature updated looks for many of our top sellers, like the Reva for men and the Dahlia for women.

And there is a lot of excitement about our new MXT, or Mountain Cross Training Collection, of outdoor multi-sport footwear for men and women.

The initial line consists of three styles with US price points between $90 and $130 and we believe the potential exists to expand this category into a sizable year round contributor to the Teva brand's results.

Overseas, we're witnessing similar trends with the Teva brand.

Where our closed toe products are also resonating very well with consumers especially in Europe.

Meanwhile, our conversion to wholesale from distributer sales in the Benelux region and France is going very well and is driving incremental sales and margins for the brand, while creating new distribution opportunities throughout the region.

Our growth prospects for Fall appear promising.

With most of our international distributors currently planning to double the size of their fall business from a year ago.

As you can hear, there are a lot of positive things going on with the Teva brand right now.

I want to take this opportunity to congratulate Pete Worley and his team for the work they've done over the past several years.

The brand has come a long way in the five years since I've joined the Company in terms of product, positioning and relevance.

I'm confident that this is just the start of an exciting new chapter in a long and successful history as the Teva brand continues to move forward and become the leading innovator in the closed toe multi-sport category.

With regard to our other brands, including Simple, Ahnu and TSUBO, the strategies are similar.

Improve the look, and the quality of the product and build distribution.

Specific to the Simple brand, we've put a greater emphasis on design.

So, consumers no longer have to opt for sustainability over style, which we believe will help the brand appeal to a much broader audience.

The adjustments that we have made are having an immediate impact as domestic fall bookings are up 37.6%, thanks to a more focused and commercial product line.

The same time, Spring sell through has been solid at several important accounts, like Zappos.com, Nordstrom and Journey's, which is also helping drive future orders.

Equally important, with inventory levels down approximately 32% from a year ago, we head into the Simple brand's key selling season in very good shape with fresh product and very little obsolescence.

With the Ahnu brand, we're making good strides getting in front of the brands target consumer, active women in their mid-30's, replacement in several key catalogs, including Garnet Hill, Acacia and Eddie Bauer.

Not only is this helping drive sales, but is providing great advertising for the brand.

In addition to the strong -- to the catalog retailers, brick and mortar stores like REI and eCommerce sites like Zappos.com, are also responding favorably to the much improved quality, and the fit, that the Ahnu brand is now able to deliver.

TSUBO brand is also benefiting from better product quality and more focused collections.

The Spring line, while still relatively small,has sold through better than expected at retail and is helping set the brand up nicely for Fall when many of the accounts that used to sell the TSUBO brand, like Nordstrom's and several key independents, will again be carrying the line.

As we announced on our last call, thanks to a strong operating performance of the past several years, we now have the financial flexibility to pursue a sizable acquisition, a brand with annual sales in the $100 million to $200 million range.

While we don't have anything to update today, we'll continue to evaluate the opportunities that, we believe, would make good financial and strategic sense of the Company and its shareholders.

Finally, we are pleased at the W Ratings Corporation, a consumer based equities research firm, announced today in its 2010 consumer goods rankings for the most competitive companies.

These rankings cover companies that manufacture products or deliver services for distribution through retail.

We topped the list for mid-cap companies.

This recognition provides further independent validation of our brand building and distribution strategies.

If you'd like more on that research, please go to the WRatings.com website.

With that, Operator, we're ready to now open the call up for questions.

Ladies and gentlemen, we will now be conducting a question and answer session.

(Operator Instructions) Our first question is from the line of Jeff Klinefelter with Piper Jaffray.

Please go ahead.

Congratulations everyone, a fantastic start to the year.

Wanted to ask you a couple of questions, first on UGG.

You mentioned, or I think Tom mentioned, the gross margins would be expected up for the balance of the year.

A big part of that, the retail mix, but also some product margin improvement.

Is that coming from sourcing improvements or sourcing leverage?

Is that mix?

Where are you seeing that and putting it in context with any sort of sourcing inflation that the industry might have been anticipating?

I think it's a combination of various factors, Jeff.

I think one of the things I mentioned is that we made an investment in PLM, which is product life cycle management software.

And one of the key benefits of that, going forward, is that we should be able to be a lot more precise about the utilization of materials, the right materials in the right factories for the right constructions.

So, long term we should see benefit on the margins there.

The other benefit is that it allows us to spend more time getting it right with the consumer.

It can allow us to compress our actual product creation cycle, giving us more time to be close to the market really.

We really haven't seen much impact yet on any sort of pricing increases and raw materials, although we do anticipate there'll be some of that going forward next year.

There's two other quick things.

I know a lot of questions today.

On your UGG, given the very successful growth and evolution of that brand in the US, how are you thinking about that differently, if you are, for the UK and Benelux, as you take that direct in the next year in terms of rollout, number of points of distribution, retail versus wholesale?

Anything strategically you've picked up on that will accelerate the brand growth over there?

And then just lastly on Teva, do you feel like you're taken a lot of share in that business or is it your, and Pete's, impression that that category is really starting to turn around nationally?

Well, let me start with Teva.

I think we are taking share.

I think the brands authenticity and heritage as a core outdoor brand and the fact that it's performing well, the product's compelling.

Certainly a much more youthful customer is the target and responding to the product.

So, yes, I think we are taking share.

I also think that the category is coming to life.

I think retailers have gotten very smart about understanding the need to make the outdoor more youthful, sort of destination for people.

Everybody is working very hard to get that age group appeal down from the mid 40's, to the mid 30's and 20's.

So over time, I think we're just positioning very well to take advantage of new approaches in marketing by our retailers and we want to be one of the lead brands in the new face of the outdoors.

When it comes to UGG and rolling it out around the world, not just Europe.

Those markets benefit tremendously from the insights we get in selling the line here in the US.

Obviously, new introductions of sneakers, as I was mentioning, the fashion product, new innovations with fabrications and materials.

All of those things allow us to be more precise in the merchandising story around the world.

That, and the retail stores overseas, give us a sense of what that local consumer expects from the brand.

So, the retail stores act as a great model for refining what the wholesale assortment needs to be as each season comes along.

We become much better wholesalers because we have those retail stores.

Great, thank you.

Congrats again.

Thank you, Jeff.

Thank you.

Our next question is from Todd Slater with Lazard Capital Markets.

Please go ahead.

Thanks and congratulations to everyone, especially to Pete.

Yes, thank you Todd.

I'm sure Pete appreciates that.

Well, just following on Jeff's question with respect to Teva.

Can you give us a sense of the profit outlook you have for us this year and could the earnings growth, especially domestically, keep pace or exceed revenue growth?

Todd, this is Tom.

Given we do have the international distribution.

We have Benelux now, we're direct with the Benelux, which has an operating margin improvement relative to dealing with a distributor.

We are expecting some improved profitability.

Obviously, improved profitability outlook for Teva in 2010.

Right, but if you exclude, that was my point about domestic.

If you exclude the international, what's that look like?

Are we also picking up some profit margin in that business domestically?

Yes, we are.

Great.

Just on the -- looking at the second quarter and the $0.25 number guidance, if we back out the international investments, the nickel, earnings growth about 19%.

That's well below the first quarter trend.

I guess with the UGG and the Teva performing so well and I'm assuming the DTC, direct-to-consumer likely to continue, increase in mix.

Could you talk about what seems like a lot of conservatives in there.

Is there an Easter shift impact or something else in the growth margin or expense side that we should be aware of that we haven't factored, in addition to, the international investments?

I think the thing to consider there, as we said on the call, the margin is up some because of some of it mix, as well as, being direct with Teva.

There's a larger amount of SG&A we need to address this year, compared to a year ago in the second quarter.

One being five additional stores.

Another being just additional infrastructure relative to a year ago, this time, that we've invested in.

That plays into what influences our guidance there right now.

That's pure infrastructure in the smallest revenue quarter.

Not pure infrastructure.

Remember, we have five new stores, as well now, in the second quarter of 2010 relative to a year ago.

Got it.

So those five stores all come in Q2?

One in Q2?

Yes.

Okay.

Terrific.

Thanks very much and best of luck.

Thanks.

Thank you.

Our next question from the line of Scott Krasik with BB&T Capital Markets.

Please go ahead.

Hi.

Thanks for taking my question.

Angel, have you gotten to the point now where you need to really start to segment what retailers get what UGG product because the line has grown so much?

Could that have a beneficial impact on your margins going forward when you get there?

We've always done that actually.

The process that we use in working with our retailers is more of a business management process.

We're very selective, as you know, about which retailers carry UGG.

But also, in a given environment, let's say a Mall with say, four or five retailers caring the brand.

We're very conscious of which product works in which retail environment.

Not to have everybody all in a feeding frenzy over everything we make.

Obviously, there's a fairly broad cross section of retailers that carry the Classic and carry slippers.

But the fashion product isn't for everybody.

The sneakers, for example, are not for everybody.

And so we've been managing this now pretty well for quite a while.

Going forward, I think the trend lies in the sell through at each retailer, will allow us to be more intelligent about that.

We'll be able to dial in a retailers mix and assortment, being very specific with their consumer and not every retail, obviously, has the same consumer target.

So, just in a broad base example, a Nordstrom's versus a Journey's.

You're going to have a very different mix in Nordstrom than you're going to have in Journey's.

The more we learn about the Journey's customer, as distinct and separate from the Nordstrom customer, it's going to allow us to dial in that assortment in a much more precise way.

So, you're doing it already.

And then, the other question is on the non-footwear component of UGG's, in terms of, growing those to be a bigger part of the business.

We're very excited about that.

We think that the handbag business is an important part of our accessory of growth area, which we think there's a natural affinity obviously between footwear, especially boots and bags.

Beyond that, we think that the tests we've been doing in outerwear have been very successful so far.

We anticipate developing that to include more than outerwear and that will include knitwear and sweaters.

As you know, we've been doing a great job through our licensee with cold weather accessories.

Those have become very, very popular in the Winter selling season.

Has non-footwear component has that hit the railing, is it meaningful at this point?

It's still evolving, still developing.

Really, that's kind of been us, wanting to make sure we got the product right.

We really feel confident going into this Fall that we've got the product dialed in where we want it to be and you'll see an ongoing improvement from a revenue perspective in these kind of accessories, non-foot products over the next few years.

Thanks, good luck, guys.

Thank you.

Our next question is from the line of Mitch Kummetz with Robert W.

Baird.

Please go ahead.

Yes, thanks.

Let me add my congratulations.

Angle, can you just give us your quick thoughts on what's happening at retail right now?

To what extent are retailers chasing and how are you reacting to that?

It sounds like you've got some fill-in orders on Teva in the first quarter.

Are you expecting that in the second quarter?

Seems like your inventory is pretty well positioned in order to accommodate that.

Is the fill-in opportunity really within Teva more than the other brands and is that kind of how you would view it over the balance of the year too?

I think on the Teva business we're in good shape with the right inventory this year.

We're in good shape with fill-in's through the balance of the Spring and going into early Summer.

We're also in good shape on the Simple brand with some fill-in business.

Ahnu and TSUBO bought their inventory very close to orders.

So, more limited fill-in opportunity there.

We're chasing it there, with those two brands because we're getting good sell-throughs.

In general, the general thing I'm hearing from retailers is the improved environment.

A lot of people are chasing inventory.

Brands have become resurgent.

It's important to have the right brands.

The consumer has been out there, just kind of got tired of not shopping.

Americans shop.

This is what we do.

Entertainment value being necessary, shopping is a primary form.

People are out there and they are looking for brands.

It's pretty interesting.

It's caught a lot of people by surprise because I think people were expecting a storm that would be more intense, maybe deeper into this year, maybe resurging for Fall.

We're getting good sell-throughs in the Spring.

Got it.

Speaking of the fall, I think you mentioned on the Simple business that your prebooks there are up 30%.

I don't think you gave it for UGG and Teva.

I don't know that you care too.

If you could just give us a little more color in how those two businesses are setting up for the back half in terms of the wholesale orders there?

We're very satisfied with the trends that we see.

It's really about, as I said on my prepared comments, the spread and assortment of product with UGG.

So, really looking at the presentation of the brand to the consumer.

What we find especially for our stores, is that consumers love to see the assortment and they're willing to try the brand for non-classic product which is, and they're very satisfied and they come back for more.

It's important for us to make sure that story gets translated to our wholesale customers.

I'm very happy with the trend we're seeing, in terms of those kinds of orders, non-Classic orders.

On the Simple side, we came out with a shoe called the BioDese this year -- and that's really what -- that and the EcoSNEAKS are really driving the performance of the brand.

We feel pretty comfortable.

The Teva side, great strength in the Fall closed toe product.

That's been an exceptionally powerful insight we've had that the consumer is ready for a new brand in outdoor.

And Teva, The Heritage brand seems to be filling the bill, especially with the technical product we've got.

The Fall looks like it's setting up pretty nicely.

That's good to hear and lastly, a question for Tom.

On the SG&A, your guidance is now for 26% of sales for the full year.

I think coming off Q4 you guys were seeing 25%.

Given where the sales expectations are for the year, looks like you expect SG&A to be up maybe, looks like about $13 million more than what was in the guidance before.

Could you tell us where that's coming from?

Are you guys looking to spend a little bit more investing in the brand based on the strength you're seeing or is there anything else, any other bucket where you guys are looking to increase the spending?

Yes, Mitch.

In terms of the guidance for the total year for SG&A, the 26%, I think that's where we were at that prior guidance year, at 26%.

What drives it with SG&A year-over-year is relative to the direct distribution now in the Benelux group now that we have operating expenses there.

The addition of the stores, not only the ones that were not open up full-time but opened up full-time this year plus the ten new stores and some more infrastructure.

But for the most part, it's stores in international distribution that drives the SG&A year-over-year.

Got it.

Thanks, guys, good luck.

Our next question is from the line of Sam Poser with Sterne, Agee.

Please go ahead.

Good afternoon.

Can you hear me?

Yeah, Sam.

You sound like you're in the shower.

Sorry about that.

How are you?

A couple of questions.

One, can you break out the international, the revenue, for the quarter please?

Hang on.

International sales for the quarter were $38.9 million.

Great.

Then with the Teva increase, how much of that can be attributed to the Benelux.

I mean on, how much of that increase could be attributed to the Benelux and, I guess, to France?

Approximately a third attributable to having a direct model now.

Just in those two countries?

Yes, direct model just in those two countries, right.

So, next year when you direct in the UK that theoretically could be very helpful as well?

So we get some idea of how much power the conversion to these direct businesses have?

Well, I think one of the things that's different Benelux versus the UK, we had a very strong distributor model, distributor operating in the Benelux with Teva.

Doing a great job for a very long time.

We did not have that in the UK.

So, the UK has got a ways to go with the Teva brand.

We know that the consumer is there.

We know there's a market.

We know there's great distribution.

We know there's a solid outdoor industry there.

So, we've got some building to do.

But we don't have as developed a Teva business to begin with in the UK that we had in the Benelux.

But when we look at, say, the UGG business which is very well developed in the Benelux and in the UK, we could expect to see that kind of acceleration or that kind of impact?

Obviously, my -- we're pretty aggressive in how we want to grow the business, yes.

There's a market.

There's great distributors.

I mean there's great retailers.

It's a competitive environment.

Probably a bit more competitive than the Benelux was.

Brands, outdoor brands, being highly evolved there.

We're certainly not being squeamish about setting aggressive plans.

And the timetable for the new, for the stores would be, I guess, September, October like usual?

Or third quarter really?

We'd like to get them open in that quarter, yes.

And you're just not talking about the cities as of yet, I gather?

No.

We're still in the final stages of lease negotiations.

So, we'd rather not talk about that yet.

One last thing.

Tom, when we're looking at the SG&A, what's the balance?

Is really Q2 going to be the highest percentage of SG&A of any of the quarters, as we look at it?

Yes.

You know, Sam, -- like we indicated and with the guidance with the revenues for the second quarter historically the lowest revenue quarter, there went the large amount of fixed overhead, fixed SG&A we have in place.

That's going to drive the highest SG&A as a percentage of sales.

With that number, would pretty much almost be in line with the first quarter, I would guess?

In actual dollars?

You know, pretty reasonable there.

Pretty reasonable to assume that.

All right.

Well continued success.

Thank you.

Thanks, Sam.

Thanks.

Thank you.

Our next question is from Chris Svezia Susquehanna Financial.

Please go ahead.

Good afternoon everyone and congratulations.

I guess just on the Teva business for a moment.

Angel, when you think about the improvement that you've seen and right sizing the business, improving inventories, when you've mentioned, in the past, there's always been an REI businesses has really been talked about.

It's obviously one of the key retailers.

You're obviously talking about some opportunities here at Dick's and what's going on there, and obviously mentioned Nordstrom's as well.

I guess, as you think about that business this year, can you just talk about door growth relative to just increasing penetration in existing doors?

How we should be looking at that?

I think you're going to see door growth from all of those retailers with the brand performing the way it has been.

You have to look at last year as, was a true test year for Teva.

Even though the brand had been, those had been our customers for a long time.

We were down to what you might call a pilot flame in terms of growth.

We needed to have some product that sold through solid double-digits, so we could get more open-to-buy and get a better foundation, which is what we started this year with.

And the performance this Spring is yielding more door growth as we look into Fall, for the new Fall product, as well as, for spring '11.

So, that's all great.

Then there are other retailers like TSA, like Sports Authority where they've been very -- they been a good customer for a long time.

But now we're starting to see great performance and sell through, especially on the mush product and that's opening the door for a variety of other sandal opportunities, as well as, the closed toe.

And keep in mind we've also got closed toe for Spring.

It isn't just closed toe for Fall that's helping us.

It's closed toe for Spring I think has made a big difference this year, because suddenly, on a rainy day, we're not out of business in the Spring.

And that's important.

We have product that will sell in any environment.

I'm not sure about this.

Is Bass Pro, Cabela's, Gander Mountain, places like, that play into --

Those are good growth opportunities for us.

We've had excellent conversations with them.

A lot of excitement over the direction of the brand.

Okay, all right.

And my other question is on the eCommerce business.

I know first half, until you got until about midway into third quarter last year, was a tough business for various reasons.

I'm just kind of curious.

Just remind us exactly what changes you've made to that business on the eCommerce platform.

I know you saw some nice growth here.

Can we just extrapolate that that's pretty stainable at this point?

Some of the things we've done is we have really focused in increasing both the visitor and the conversion rate into the site.

For example, we brought the new Marketing Director and focused on the business on really how we drive more traffic to the site and conversion.

And playing nice results, according.

Alright, and thank you very much and best of luck.

Thank you.

Thank you, our next question is from the line of Andrew Burns with Thomas Weisel.

Please go ahead.

Hi, this is Andrew in for Jim DUFFY.

You mentioned UGG sneakers as an opportunity for Back-to-School.

Could you give us some color on the growth of the product line, in terms of, SKU's and distribution.

It seems like there's opportunity to put the product in a lot of doors in fairly short order.

We're not going to put the sneakers in places you wouldn't put our own other products.

It's not like you're going to see the sneakers in athletic specialty stores or necessarily outside of our normal distribution for UGG.

What it gives us, however, is unique and a distinctive sneaker product that we haven't had in the past.

You might -- they're almost like dress sneakers, I guess you'd say.

And when you look at the price points that people are getting for sneakers, $150, $160.

It makes the UGG price point very, very reasonable, $130, $120.

We have a high top.

We've got a low top, we've got a slip-on.

I think, in the men's, three SKU's.

I can't recall, I'm sorry, how many SKU's we have in the women's.

A lot of color.

It's just a fun new, very young statement that we're making in a quality way.

Sell-throughs never lie.

So we're really happy with that.

Great, and last call you mentioned switching to wholesale model versus distributor, you gained Benelux, would have about a $40 million benefit to sales in 2011.

With the improving back drop and your current business momentum.

Is it fair to say that the number might be larger looking at it here a few months later?

Well, that would, we're not giving 2011 guidance at this point in time.

What that $40 million was sort of an apples-and-apples comparison of the lift we would get, relative to our expectations at that point in time.

It is a function of what volume of business we do in 2011.

So, we'll just have to see how that shakes out as time goes on.

Thanks, and last question can you break out the Simple brand revenue for the first quarter?

Right now we've sort of moved towards all the other brands, other than Teva and UGG, as other brands and we just do that together at this point in time.

Great.

Thank you.

Our next question is from the line of Howard Tubin with RBC Capital Markets.

Please go ahead.

Thanks guys.

Great quarter.

Just a question on inventory.

You've done a great job managing inventories.

They're nice and lean.

How should we think of inventory in the end of Q2?

Will it be up in the 4% range again or should we expect it to increase a little bit more than that?

I think the events at the end of the second quarter could be in the ballpark of where they ended up relative to the comparison in the first quarter, maybe higher.

We'll just have to see how things go.

As we mentioned on the call, we are really, there's been a concerted effort and we're seeing a lot of benefits of bringing in inventory closer to when we actually sell it to our customers.

So, I thin, net net, it could be a similar comparison or maybe even slightly up.

Got it, thanks.

Can you just remind us for the Fall season, is your pricing pretty consistent this Fall versus last Fall?

Yes.

Great, thanks.

Our next question is from the line of Omar Saad Credit Suisse.

Please go ahead.

I'm sorry, Mr.

Saad disconnected Our final question is from the line of Chi Lee with Morgan Stanley.

Please go ahead.

Good afternoon guys and congratulations.

I guess I just made it.

Can we go back to the first quarter gross margin?

I understand qualitatively what drove the expansion, but can you help us better understand what the magnitude of each of those drivers were, between the direct to consumer mix shift, perhaps organic gross margin improvement and the domestic wholesale business?

Just trying to get a better understanding of that 600 basis point improvement.

Right.

This is Tom.

I can give you some color on that.

There were -- part of it was relative to having direct distribution with Teva and, like you said, part of it was the direct mix.

And then there was improved margins and it splits relatively equally.

There's a little bit, let's say a 1% to 2% maybe relative to Teva and the direct mix is about 2%.

And improved wholesale product margins, too, is a little bit higher than that.

That's start of the split, what drives that.

Okay, that's really helpful and I guess Tom, question for you just on the accounts receivables provisions.

I mean, it seems this point last year you guys were still taking a lot of provisions for the receivables.

Have you seen that trend reverse?

In other words, are you starting to see somewhat of an earnings tail wind, as you perhaps, don't need to take those provisions and may even be reversing some of those at this point?

You're correct.

We have a lot of improvement in the quality of our receivable base relative to a year ago.

We have been able to cut back on some of our provisioning for bad debts.

Great, thanks and just lastly, I wanted to clarify.

Angel, I know you talked about certainly strengthening Fall bookings for UGG, but I think last call you had mentioned that you were expecting domestic wholesale business to potentially be up in the mid single-digit range for UGG.

Would you care to update us on where you think that business could be this year, given that you increased the guidance for the overall UGG business?

Thanks.

We haven't broken out what we expect by brand.

But I like the trends that we're seeing and I'd stay consistent with what I said last time.

We anticipate, because of new product introductions, the ongoing momentum of boots in the marketplace, and overall, the amount of spread we've gotten in retail, on ongoing growth in UGG business consistent with where we've been.

I don't really want to break it out any more than that.

Okay, thank you.

Thank you.

I'd like to turn the floor back over to management for any closing comments.

Well, again, I want to thank you all for participating on the call.

I want to send a note of congratulations and appreciation to our worldwide Deckers organization.

I think you're seeing the results of an ongoing commitment to developing our team, increasing the amount of talent we bring into the organization and being intelligent about the decisions we make to grow our business going forward.

We look forward to the second quarter call.

Thank you all very much.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.