Deckers Outdoor Corp (DECK) 2012 Q4 法說會逐字稿

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

Welcome to the Deckers Outdoor Corporation fourth quarter and fiscal 2012 earnings conference call.

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

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

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

(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 policy.

Please note that certain statements made on this call regarding the Company's expectations, beliefs and views about its future financial performance, brand strategies and cost structure are forward-looking statements within the meaning of the federal securities laws.

These forward-looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995.

These statements relate to the Company's anticipated revenues, expenses, earnings, gross margin, capital expenditures, brand strategies, and cost structure, as well as the outlook for the Company's markets and the demand for its products.

The forward-looking statements made on this call are based on currently available information and because its business is subject to a number of risks and uncertainties, some of which may be beyond its control, actual operating results in the future may differ materially from the future financial performance expected at the current time.

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

Listeners are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof.

The Company undertakes no obligation to publicly release or update the results of any revisions to forward-looking statements.

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

Please go ahead, sir.

Well, thanks, Operator.

And welcome to everyone joining us today.

With me on the call are Zohar Ziv, Chief Operating Officer, and Tom George, Chief Financial Officer.

We believe that great brands endure through periods of adversity and that's what we witnessed as 2012 came to a close.

When consumers eventually came out and shopped, albeit later than anticipated, it was clear to us, based on the sales results, that the desirability of the UGG brand has not wanted despite some of the recent challenges facing the business.

And we believe that it is still strong and in demand.

Beyond the results, there were other highlights from the fourth quarter that speak to the health and relevance of the UGG brand and give us added confidence about the future.

They include the UGG brand being the number one searched item, search term online during the 2012 shopping season, beating out popular brands such as Apple's iPad and Kindle's Fire, and our e-commerce orders increasing 33% during the four-day period following Thanksgiving that is book ended by Black Friday and Cyber Monday, the biggest shopping days of the year.

These metrics support the findings from our marketing study earlier in the year that indicated intent to purchase and brand interest increased meaningfully from our inaugural study that was run in 2010.

The strength exhibited by the UGG brand is encouraging, given the number of significant challenges that we faced in 2012.

To recap, we experienced increased cost pressures from a dramatic spike in sheep skin prices.

We battled macroeconomic headwinds in Europe and dealt with another year of record warm temperatures.

With all these challenges, we still grew overall sales for 2012 and generated respectable earnings and margins, especially when you take into account the increased sheep skin costs, which alone created approximately 450 basis points of gross margin pressure, which was worth approximately $1.19 in diluted EPS.

Starting with the UGG brand US wholesale, sales were softer than expected as a result of higher than expected cancellations.

All in all, though, we are pleased with the brand's domestic wholesale performance in light of a second consecutive warm winter.

While warm temperatures did impact early demand for the core classic and cold weather boots, which drove the cancellations that I mentioned, sell-through accelerated as December progressed and the weather got colder.

Meanwhile, sales of our slippers, specialty, classics and casuals delivered consistently solid weekly sell-through throughout the quarter.

With regard to classics, it has become more evident that as a greater percentage of sales are generated outside the moderate year round climate of California, particularly in the northeast, that weather is playing a larger role in sales trends.

This is important to understand for two reasons.

First, it reinforces our belief that the recent change in the brand's growth profile has been driven by external factors, namely weather, and higher price points from the increase in sheep skin costs and isn't reflective of consumer sentiment.

Second, going forward, we believe it's likely that an even higher percentage of classic and cold weather product sales are going to be concentrated in the fourth quarter.

We are adjusting our supply chain resources accordingly, while also introducing new fall products for the transitional period between summer and the holiday selling season.

In terms of international business, in Europe the UGG brand performance varied noticeably between the UK and our direct and distributor businesses on the continent.

Our UK business was driven by several strategic changes, including an improved distribution network and enhanced in-store and out of store marketing programs, which led to an increase in reorders, helping deliver a fourth quarter sales gain for our UK wholesale business.

Our recent results, which included significantly less promotional activity, are an encouraging sign for the UGG brand in the UK and extremely rewarding given the effort that went into restructuring this business following the challenging situation that we encountered after taking back the distribution in early 2011.

We now plan to focus on improving our wholly owned operations in Benelux and distributor business elsewhere in Europe, both of which suffered from excess carry-over inventory in the channel following last year's mild winter and difficult macroeconomic conditions in the region.

Turning to Asia wholesale, our UGG brand closed out a solid year in Japan, fueled by a broader product offering with key accounts.

This was offset by declines in distributor sales as a result of the transition to a new distributor in Korea and later deliveries of spring product across the region versus a year ago.

Now to our retail division, which posted fourth quarter sales of $135 million, an increase of 37% from a year ago, driven by 30 new stores, partially offset by low single-digit comp store sales decline.

Comps came in favorably versus our outlook for a low double-digit decline with Japan and US outperforming expectations.

Please keep in mind, our comp store base is still small, especially in the international regions, and therefore, as this comparison may not necessarily be indicative of the global retail performance.

US same-store sales were flat on top of an 11% increase a year ago.

Like many retailers, we experienced soft traffic patterns during much of the fourth quarter.

Despite this, sell-through of slippers, specialty classics and men's products were solid, with late season demand for classics helping reverse earlier declines.

At year end, we had 26 US locations, 18 of which are in the comp base.

Japan retail store performance improved to an improved inventory assortment -- due to an improved inventory assortment versus a year ago, and a positive consumer response to new merchandise offerings, particularly men's and kids footwear and accessories.

We ended 2012 with 14 stores in Japan, up from 10 a year ago, of which 7 are in the comp base.

Japan comp store sales increased in the high teens.

Total retail sales in Europe benefited from the addition of new concept stores, including our first two stores in Paris, several in and around London such as Piccadilly, Knightsbridge and Richmond, as well as new outlets in Liverpool and Portsmouth.

While fourth quarter comps were down double digits due primarily to the redistribution of traffic from new store openings in London, our European retail in total generated strong profit gains.

At the end of the year, we had 11 locations in the UK, and the 2 new stores in France.

Of these, four are in the comp base.

Finally, in China, comp trends were similar to Q3, down mid-teens as we continue to see consumers migrate to our newer stores due to their locations and accessibility to many of the large suburbs around Beijing and Shanghai.

Total retail sales increased 62%, driven by the nine new stores we opened since the end of last year which in aggregate are performing above expectations.

We currently have 20 stores in China, 6 of which are in the Q4 comp base.

For all stores open at least 12 months at December 31, 2012, average sales per square foot was $1,600.

This figure compares to sales of approximately $1,700 a square foot for the trailing 12 months ended September, with the difference driven by the addition of our Canadian locations, as well as several China stores, countries where store productivity levels are below the Company average.

Total square footage at the end of 2012 was approximately 210,000 square feet, compared to roughly 130,000 square feet at the end of 2011, representing an increase of about 62%.

As you'll be able to compute, new stores are generating sales per square foot below our original or early fleet of stores.

New store productivity is still very high, in the neighborhood of $1,000 to $1,200 per square foot on an annual basis.

This is how we are modeling new stores going forward, along with a four-wall operating margin in the mid-20s versus mid-30s for the earlier stores.

The average new store investment is still around $1 million, with a payback that is in line with our historical performance of one year.

In terms of our e-commerce channel, the UGG brand's e-commerce business increased 30% in the fourth quarter from a combination of positive developments.

These included increased traffic on our existing Web sites in the US, the UK, and Japan, higher conversions on classic and fashion product, an increase in mobile sales, and the addition of two new sites, one servicing the Benelux in France and another covering the rest of the European union.

This channel was our most consistent in 2012, particularly in the second half when weather in specific regions was a big factor in sell-through in our stores and wholesale accounts.

With advancements in technology reshaping the way the consumer shops, along with our focus on reducing the impact of weather on sales, we are implementing several new initiatives, which I'll detail later, to capitalize on the current momentum and increase the penetration of e-commerce in 2013.

Quickly touching on our other brands, the Sanuk brand had a very strong fourth quarter with sales up 39% versus a year ago, led by marked success in a number of key national accounts.

The acceptance of the Sanuk brand's expanded selection of colder weather shoes and boots was very positive.

While at the same time, consumer demand for sidewalk surfers and sandals, particularly in the warmer regions of the US, remained robust.

These trends were mirrored on our own Web site, sanuk.com, which finished the year well above expectations driven by all categories and gender-specific products.

For the Teva brand, there were a number of factors that negatively impacted the brand's fourth quarter performance, the biggest being the difficult comparison with a year ago when we shipped a large amount of core sandals ahead of scheduled price increases in January 2012.

These early shipments accounted for nearly 90% of the decline in Teva brand's Q4 domestic business.

The bottom line is we did not experience a reorder business we would expect given the solid sell-through of Teva brand collections.

We believe consumer demand is there but in light of the softness in the outdoor industry, retailers have no appetite for additional inventory.

Before I turn it over to Tom, I would like to emphasize that while I was not pleased with our results in this challenging year, I am satisfied with the significant progress that we made as a company this year, improving our product lines, refining our operational capabilities, and focusing our management teams on the significant growth opportunities that lie ahead of us.

While it was a challenging year, we have stronger brands, stronger people, and a stronger foundation for growth.

Tom will now review the numbers and outline our guidance.

Thanks, Angel.

Today's earnings release contains a good amount of detail about our fourth quarter sales performance, plus Angel has covered each brand, channel and geography pretty thoroughly.

Therefore, I'm going to limit my discussion primarily to gross margins, operating expenses, the balance sheet and guidance.

Gross margin for the fourth quarter was 46.3%, compared to 51% in the fourth quarter last year, slightly lower than our expectations.

The 470-basis point decline is primarily attributable to an increase in product costs for the UGG brand relative to -- product costs for the UGG brand and relative to expectations of a gross margin of approximately 47%.

The small decline is due to increased close outs, mark downs, as well as product mix.

Total SG&A expense for the quarter was $141.9 million, or 23% of net sales, compared to $131 million, or 21.7% of net sales a year ago.

The dollar increase versus a year ago is mainly due to $12.2 million of additional expense related to our retail operations, most of which is for the 30 new retail stores that were not open during the fourth quarter last year, as well as increases in marketing and e-commerce expenses, partially offset by lower performance-based compensation, lower legal expenses, and the positive impact from foreign exchange rate fluctuations.

SG&A expenses were below projections, primarily due to savings in retail and Sanuk expenses.

Operating income for the fourth quarter was $144.1 million, compared to $176.8 million last year.

The decline reflects the reduced gross profit, as well as the increased operating expenses.

We recorded income tax expense of $43.3 million in the fourth quarter for an effective tax rate of 31%.

Fourth quarter diluted earnings per share of $2.77, compared to $3.18 a year ago, and exceeded projections.

We achieved our EPS projections despite the sales shortfall due to lower than projected operating expenses and a lower outstanding share count as a result of our repurchase activity.

During the fourth quarter, we bought approximately 932,000 shares of our common stock at an average price of $38.64 per share for a total of $36 million.

These purchases were funded using our cash position and borrowings from our credit facility.

For the full year, we repurchased 4.514 million shares at an average price of $48.89 per share for a total of $221 million.

At the end of 2012, we have $79 million remaining on the $200 million authorization announced in July.

Turning to the balance sheet, at December 31, 2012, inventory increased 18.5% to $300.2 million, from $253.3 million at December 31, 2011.

By brand compared to December 31, 2011, UGG brand inventory increased $46.5 million, or 23% to $248.3 million.

Teva brand inventory decreased $1.4 million to $27.8 million.

Inventory for the Sanuk brand decreased $1.6 million to $14.5 million and our other brands inventory increased $3.4 million to $9.6 million.

I would like to provide more detail regarding the comfort and quality of the UGG brand inventory.

At December 31, 2012, inline and carry-over products represented approximately 80%, or $200 million of the UGG brand inventory.

The remaining $48 million is inventory available for our outlets or the closeout channel, and we believe have been valued appropriately.

This number has been included in our forward margin guidance.

Regarding orders for inline and carry-over product as of December 31, we had orders for approximately 60%, or $120 million in inventory.

Although it is still early in the fall 2013 pre-booking process, nevertheless when complete, we expect a significant amount of the remaining $80 million of inline product to be pre-booked for 2013, with the balance available for our retail stores and e-commerce business, which combined has grown to over 25% of our business.

Regarding the approximate $47 million year-over-year increase in total inventories for all brands, approximately $16 million is due to higher unit costs and $10 million is due to 30 more retail stores compared to a year ago.

At December 31, 2012, our cash and cash equivalents were $110.2 million, compared to $263.6 million at December 31, 2011.

At December 31, 2012, we had $33 million in outstanding borrowings under our recently expanded credit facility compared to zero at December 31, 2011, and $275 million at September 30, 2012.

The decrease in cash and cash equivalents and increase in borrowings year-over-year are attributable to $220.7 million in stock repurchases over the past year and $61.6 million of cash payments for capital assets, which includes $34 million for retail expansion, $11.6 million for the new headquarters facility, $7 million for IT infrastructure maintenance, as well as other expenditures, offset in part by cash provided by operations.

Now, moving to our outlook, based on current visibility, we expect 2013 revenues to increase approximately 7% over 2012 levels.

For the full year, we expect UGG brand sales to increase by approximately 4%, Teva brand sales to increase by approximately 6%, and Sanuk brand sales to increase by approximately 15%.

Our other brands combined are expected to be approximately $40 million.

While we continue to strategically address the impact of weather conditions on our business, our top line guidance assumes another mild winter, similar to the one we just had, as well as for the UGG brand, a similar amount of reorders and cancellations, as we experienced in 2012.

At December 31, 2012, our backlog was $323 million, down 17% from $387 million at December 31, 2011.

The decline is primarily attributable to lower pre-bookings for UGG brand domestic wholesale business.

We believe the decline is due to the timing of customer orders, as customers are starting to be more cautious with the timing and amount of pre-booking due to now two years in a row of inconsistent weather.

Thus far, we've been pleased with retailer response to several collections led by specialty classics and slippers.

With that said, due to the inconsistency in winter weather and its impact on our retail partners' overall business, we have developed conservative assumptions with regard to the remainder of the booking period which closes in late April.

Looking at our bottom line, we currently expect 2013 diluted earnings per share to increase approximately 5% over 2012 levels.

Embedded in this guidance are gross margin assumptions of 46.5% for the full year.

The projected 180-basis point improvement over 2012 levels will be driven primarily by lower raw material costs, namely sheep skin.

The 11% reduction in our sheep skin price is expected to help gross margins by approximately 150 basis points on an annualized basis, with the entire benefit coming in the second half of the year and mostly in the fourth quarter.

2013 gross margins will also benefit from a greater contribution from our retail division.

Our guidance also assumes SG&A as a percentage of sales of approximately 34% and the main components of our increased spending are as follows.

The full-year expense associated with the 30 stores we opened in 2012, 24 of which opened in the second half of the year, costs associated with the approximately 30 new stores we plan to open in 2013.

We will also make additional investments in marketing in our Asia wholesale and retail infrastructure that we believe are important to the long-term development and growth of the Company.

Our capital expenditures in 2013 are expected to total approximately $85 million, with $30 million for the corporate facility and the balance of $15 million for retail stores, IT, and other maintenance.

Capital expenses for 2012 were $62 million, including approximately $12 million for the new headquarters.

We are still planning to refinance our new corporate headquarters by securing longer-term financing.

For the first quarter of 2013, we currently expect revenues to be flat compared to the first quarter of 2012 and a diluted loss per share of approximately $0.12 per share.

As a reminder, a significant amount of our operating expenses are fixed and spread evenly on an absolute dollar basis throughout each quarter.

This includes the costs associated with the 24 new stores that were not open until the second half of 2012.

Therefore, due to the aforementioned increases in SG&A, we expect our earnings to decline in the first half of 2013, as compared to the first half of 2012, which are typically our lowest volume sales quarters.

And we expect our earnings to increase over 2012 in the back half of the year.

More specifically, we expect the Q2 loss to be close to double last year's loss.

And with regard to back half earnings, based on the growing contribution of retail, we expect an even greater percentage of second half earnings to come from Q4.

I will now turn the call back over to Angel.

Thanks, Tom.

Well, as you've heard, there were several aspects of our fourth quarter performance that we believe demonstrate the vitality of the UGG brand and bolster our confidence about the future.

With that said, some of the challenges we face in 2012 have not fully abated, namely uncertainty around the weather and timing of an economic recovery in Europe.

Mindful of these obstacles, we plan to make strategic investments during 2013 in the areas of the business that we think are critical to the ongoing development of our brands and channels, while at the same time mitigate risks from the external factors beyond our control.

Let me outline our business plan for the coming year.

From a product perspective, I think I've touched on several of the initiatives, but here are the priorities.

Introduce more transitional UGG brand product to drive excitement and demand during a historically slow retail period, between back-to-school and Thanksgiving.

Leverage the popularity of classics to attract new consumers via broader selection of specialty classics and classic derivatives.

Improve the accessibility of UGG brand's fashion boots through more attractive opening price points.

Expand our men's and kids businesses.

Reduce our dependence on sheep skin by further enhancing proprietary supply chain technologies and other initiatives, which I will discuss momentarily.

Develop more regional-specific product and continue to evolve the Teva and Sanuk brands into year-round businesses.

In terms of distribution, we are taking a harder look at the wholesale channel, with a long-term view of possibly narrowing the UGG brand's domestic account base.

At the same time, we are moving forward with expanding our global retail footprint in 2013, as our stores generated significant profitability in 2012 and on average, pay back in approximately one year.

At this point, we have signed leases for seven locations, two in Asia and five in the US.

This includes our first company-owned Sanuk brand store, which is scheduled to open in Santa Monica in April of 2013.

We are currently in negotiations with additional stores, for additional stores, and have a sufficient pipeline to open stores approximately equal to the 30 we opened in 2012.

With the addition of Dave Powers, we've gained important insights and identified opportunities in store operations and merchandising that we'll be applying to the business.

These include smaller format stores that carry lower operating expenses and they are less expensive to build out.

Within the stores, we are focused on telling better stories around the product lines, using enhanced visual merchandising, increasing the number of store exclusives, and maintaining better inventory assortments of key styles.

We are also redeveloping our outlet strategy to take a better advantage of these highly profitable locations.

For e-commerce, we are investing in mobile capabilities, elevating our CRM program and enabling some omni-channel tactics, such as pick-up in store.

We're developing product customization, which we plan to activate this year.

And finally, we plan to launch our site in China this summer and are continuing to evaluate new market opportunities in Europe and Asia.

Investments in marketing are also a priority, with a targeted spend as a percent of sales consistent with 2012.

We continue to shift a higher percentage of resources toward digital programs and away from print in an effort to enhance our direct connection with consumers and increase our return on investment.

In the international markets, we've made initial progress fine tuning our brand message, but there's still work to be done improving our marketing insight and capabilities to ensure each program and campaign is resonating with consumers in our different geographic regions.

In the past year, we've gathered some important consumer insights, particularly in China, which will be helpful in shaping our product and marketing strategies going forward.

In terms of personnel, there are some key positions that need to be filled in 2013, primarily in the Asia region, as well as our global direct to consumer operations.

Based on current momentum in the near and medium-term opportunities we believe exist in Asia, we are allocating more international resources to Asia versus Europe this year.

With regard to our supply chain, we are very excited about a new proprietary process developed over the last two years that we believe could have meaningful impact on future sales and margins.

Our innovation team was asked -- was tasked with exploring and developing alternative materials that had to enhance the consumer experience, while also helping us mitigate the unpredictability of material costs.

The results of the innovation team's effort is UGG Pure, a pure wool material with improved feel and consistency, which will first be used in linings and some foot beds this year.

With UGG Pure, we expect we'll be able to lower our product costs and pursue profitable new growth opportunities, some of which were previously not economically viable.

UGG Pure gives us another important key to further unlock a life-style nature of the UGG brand well beyond footwear.

Last, and most importantly, we continue to monitor and adjust our UGG brand inventory commitments, which will reduce our working capital requirements, thereby freeing up cash.

We expect to have inventory levels more in line with our back half 2013 sales forecast by the end of the second quarter, when they are projected to be down versus the same date last year and flat with the end of 2012.

The ultimate level will depend on certain factors, particularly how our new transitional product pre-books, as these styles will need to come in by the second quarter for delivery in Q3.

I want to close by acknowledging the effort put forward by this organization in 2012.

For our business to persevere through such a challenging operating environment is a testament to the strength of our people and their commitment to our consumers and their shareholders.

Thank you to everyone for your continued support.

Operator, we're now ready to take questions.

(Operator Instructions)

Randy Konik, Jefferies.

Thanks.

The question is for Tom.

Tom, when you gave a very interesting statement regarding your top line assumptions for 2013.

You said that 7% outlook growth includes a similar winter kind of assumption to this year.

Now, to clarify, does that kind of incorporate similar amounts of close-outs, similar amounts of at once pre-book, et cetera?

How should we be thinking about that there?

The way it kind of looks to me is that the probability would increase in year three, that the winter should theoretically could get better.

Then second, we have almost a car analogy here where almost women haven't been buying UGG's for two years, so the replacement cycle could actually get better in year three here.

Just trying to get a level of what should we be thinking in that similar winter comment regarding the top line?

How should we be thinking about that?

That's my first question.

Then I have a follow-up.

Thanks.

Yes, Randy, what we've assumed in the guidance, we're pretty cautious here in light of the uncertainty around the weather.

We really assumed minimal reorders similar to what we experienced in 2012, i.e., minimal reorders.

We've assumed similar cancellations that we received in 2012 and we received a fair amount of cancellations, relatively large amount relative to our historical pattern for cancellations.

So that's the assumptions that we put into.

At this point in time, where we're at in the pre-booking process, we wanted to make sure we were cautious on our domestic wholesale business.

And the --

Yes, this is Angel.

I think the replenishment component is something to keep in mind.

We are the number one -- in terms of footwear -- gifted item at the holidays.

And as we saw with the onset of colder weather, people did rush out to replace some of the UGG product, primarily a lot of slippers and a lot of the new styles.

Some of the classic products, matter of fact, in the Daily Beast today, I just saw this, there was an article on the resurgence of UGG Classic.

I always wonder where we went.

I don't think that we went away, but people are rediscovering it.

So that bodes well.

It's just still right now consumers are challenged by the multiple opportunities they have to buy product, not just in the retail environments, wholesale environments, obviously, but online, et cetera.

We're sort of trying to evaluate all of that stuff in our assumptions.

It does feel like the visibility and predictability at least is starting to come a little bit more into focus here.

So my follow-up question would be definitely around the comp store sales number.

So if we look at the comp in the fourth quarter down 3-ish versus the third quarter down 13, would you argue that, that -- because it's the holiday quarter that speaks to kind of that strength of the brand, what did you see in the quarter that progressed -- did it progress towards the -- up until Christmas?

Or, how did the comps in the quarter kind of play out, because there was a big beat versus expectations.

I'm just curious there, your thoughts.

Well, I think, first of all, weather was a key factor.

I think certainly the back half of December, the weather did improve to what we call UGG weather and it was a significant factor.

I think consumers are putting off their purchasing through, as we said beginning last year even, buy now, wear now.

So they are just developing a habit of buying closer to the market, which is I think part of why we've made the decision that our expectations, that we're going to see more of our business weighted to the fourth quarter than we had seen in the past.

And I think that this is also a component of the omni-channel strategy that seems to be emerging in so many different manifestations.

It's still hard to understand the full impact of omni-channel on consumer behavior, on the impact to conventional wholesale customers.

Consumers want what they want and they want it now and they want it in every facility -- every easy way they can get it.

So that has a ripple effect on a lot of assumptions and a lot of investments that people make in terms of inventory levels, et cetera.

So this is all still shaking out.

And we're being cautious, but I think we have our eyes open and we're doing -- we're working very, very hard to project the impact of what I would almost call a revolutionary change in the wholesale environment and consumer behavior around omni-channel.

Thanks.

Tom, could you just hear this question, just a clerical question.

The headquarter CapEx that you're guiding for in 2013, are we to assume that there's no eight headquarter CapEx in 2014?

Yes.

And let me also clarify something.

On 2013 CapEx of $85 million, $30 million of it's for the facility.

And I think I misspoke and I said $15 million for everything else.

It's really $55 million for everything else.

And you're correct --

Right, so 30 of that could theoretically go away in 2014.

So, improving free cash flow cycle?

That's right.

All right, got it.

Thank you.

Bob Drbul, Barclays.

Hi.

Good evening, guys.

The first question I have, Angel, you mentioned the potential to narrow the account base on the US wholesale business.

Wondering if you could expand on that a little bit and maybe the magnitude that you think might be necessary.

Then the second question that I have is essentially around pricing on the classics.

Could you just talk about the pricing strategies heading into '12, both in the US and some of the international businesses on a lot of your marquee styles?

Sure.

Well, first of all, our classic pricing, let me start with that.

Classic pricing is something that our research has said consumers have an expectation of quality with the UGG brand, are willing to pay a premium price.

But when we push the price beyond a certain point, we start seeing a negative effect.

And we saw that last year.

The -- we expect we'll be able, with UGG Pure and other improvements in supply chain, in design and development, that we'll be able to hold our price structure now and actually evolve our pricing to fill in and our product line to fill in some areas where we're leaving opportunity open to the competition.

And that's a worldwide statement.

We feel that in markets like China, for example, we are priced quite high.

And I think that we're speaking to a very high end luxury consumer and there are people out there with knock-off product selling at 20%, 30%, 40% below, driving a very, very big business on the tails of UGG.

We feel that, that's an opportunity for the UGG brand and we're going to be developing product to address that.

What was the first question again?

Sorry.

Distribution.

Distribution.

I said before that as the brand has evolved and our men's business, our kids business, our year round business, it requires a commitment of inventory, requires a commitment of on the brand by a retailer, and where we get those commitments and we see that kind of support for the brand, we have partners for life, if you will.

However, there are some environments where we don't -- we're not happy with the brand presentation.

We're not happy with the support for the year-round elements of the business, and the support for the men's products.

So we have to reevaluate whether or not those are long-term participants in the brand success going forward.

Consumers today expect a full brand experience when they have a brand they love like UGG.

They don't want to see a piecemeal representation and a brand that gets cherry picked and put out there at retail.

So we're taking a very hard look at that.

It's a very important part of what we will be doing.

When you walk into an Apple retail, you expect to see a full array of Apple products.

You expect to see all the new stuff.

You expect to see it celebrated in the presentation.

That's what we will have with the UGG brand.

Great.

One more question, on the share repurchase was pretty solid.

Could you maybe give us an update on the Board's perspective or the Company's perspective on the capital structure and the willingness to sort of take on significant debtor any level of debt to continue the repurchase authorization?

Yes, Bob, I think the Board is open to being more flexible from a capital structure point of view and incurring some debt.

That being said, we're cautious about the business and don't want to incur too much debt.

Obviously, the seasonality in the business, the third quarter especially, there's a large consumption of working capital, thereby some good size draws on our working capital line.

I think net-net, there is sort of a general trend of being more open to some borrowing related to the share repurchase.

That being said, we see a lot of opportunity within our own business to continue to reinvest in our own business vis-a-vis repurchasing stock.

I think the last 12 months where we purchased $221 million of stock that I think that sends a strong message about our confidence in the business itself.

Thanks very much, Tom.

Erinn Murphy, Piper Jaffray.

Angel, I had a question for you on the marketing spend as you think about 2013.

What mediums and regions will you be weighting your investment toward and how should we think about the new customer acquisition and revenue growth prospects from some of these marketing initiatives?

Then I have a quick follow-up for Tom.

Thank you.

Sure.

Well, I mentioned omni-channel earlier.

It's pretty clear that, that is becoming the driver of marketing strategy.

The ability to have a relationship one-on-one with a consumer today, intersect that consumer in every way they care to shop and they care to access your brand is really critical and it's global.

That's not just the US.

That's what's happening all over the world.

So it really requires us to reallocate our marketing expenses in a way that puts us where we need to be over the course of the next few years so that we're not missing that opportunity to offer all of our brands, offer consumers access the way they want them, when they want them.

This is, as I mentioned, a revolutionary moment, I think.

I think that we're still, all of us, everyone in the industry, and I think all of retail, is still assessing the impact.

I think it has broad implications for how retailers sell product in the future, how brands put their products out there, and the idea of running magazine ads like we used to run, it's like the old adage, 50% of it works.

I just don't know which 50%.

That's been way obsoleted now, because we can run digital advertising, digital marketing, and we can tell you precisely that day how well that performed and where and what, to what extent it was a good investment.

So we're orienting ourselves toward this future.

And that's what's happening.

Okay.

That's very helpful.

Thank you.

And then just, Tom, just a quick clarification on the guidance.

I want to make sure I heard it correctly.

First quarter, loss per share was about $0.12.

You said the second quarter loss about 2X of what it was last year.

Is that correct?

That's right.

Okay.

So then the implicit guidance for the back half would be somewhere in the mid 20% year-over-year growth rate.

Maybe help -- on the visibility that you have here, help us appreciate the reacceleration of growth in the second half.

Is part of this kind of tied to the higher retail weighting in that second part of the year due to the closer of the new store openings?

What are some of the other catalysts?

Is it replenishment, like Randy spoke to earlier, some of the other things you're seeing at this point?

Thank you.

Yes, I think the biggest drivers, you hit on it, the retail stores will have another fourth quarter.

Just a point of reference, in the fourth quarter, the typical retail store does about half its annual revenues and does about three quarters of its annual operating profit all in the fourth quarter.

So this year's fourth quarter will have another year of openings we had in 2012 and then we'll have another 30 stores.

So that's the big catalyst, as well as we have some more e-commerce business expected over the course of the year and it's really driven in the back half and a lot of that's driven by some new initiatives in e-commerce, as well as our international e-commerce site.

And then Sanuk and Teva has some growth in the back half of the year, especially the fourth quarter with Teva more close to footwear and Sanuk, it's more of a rounded out fall line.

I think that's it.

Omar Saad, ISI Group.

Thanks, good afternoon.

Angel, could you maybe give us a little bit more color or insight into some of the interesting comments you made at the end about this Pure product?

You also made some comments about bolstering kind of your transitional product offerings.

I'm hearing more and more from some of the cold weather-sensitive brands out there, given changing weather patterns and retail order patterns, I'm hearing more and more about an emphasis on transition product.

Are the two related or could you maybe address them separately?

I think as we look long-term, yes, they are related, in the sense that transitional product is at lower price point generally speaking.

It's not the twin faced sheep skin product that the classic is and classic predominates in the fourth quarter.

So we already know, because of our success with extensions of our moccasin program, for example, and variety of other styles that we have done, that consumers are amenable to it.

We have really been kind of tiptoeing around it.

We really didn't have the capability, given the sheep skin pricing issue, to address the breadth of price points that are required in order for us to fully exploit the development of that kind of a product line.

UGG Pure allows us to have a lot more flexibility.

It is in every way superior to the current field of our product.

As good as our products feel, we feel we've hit on something even better and consumer testing has already demonstrated that it is preferred to a significant level in terms of its suppleness, its softness, et cetera.

So there are some things and you'll see them in the liners, in the foot beds or sock liners as we say, and use sort of minimally as we have been ramping up on this new material approach.

It's pretty exciting, because it does give us less of a dependence on the availability of sheep skin in the global market.

So that's not to say we won't be continuing to create product using the conventional materials.

It just means that we'll be far less dependent on the sheep skin, the twin face that we've been using.

And the other thing that it does is it gives us a chance to explore some life-style products and home products, which we've been dabbling in that.

But again, the same reason that we haven't pursued it more aggressively when we would create these products, we would find ourselves almost priced out of the real volume opportunities, still a quality premier level, but our prices were too high.

This now allows us to fully evolve that whole idea and we're pretty excited about that.

Thanks.

And a quick question on SG&A.

I think you guided to 34 range this year, up a bit from last year.

And then not that too long, you guys were at 25% rate, mid 20's rate.

Great to see you guys ramping up your investment in the brand (Inaudible) and infrastructure and framework.

How do you think about it long-term?

Is that kind of a level that feels right to you relative to sales or did you see enough significant opportunities out there where you are going to continue to aggressively invest and maybe continue to delever a little bit?

I think when you think about SG&A long-term, you sort of also need to look at what the gross margin may look at long-term.

With the increase in the direct to consumer and some of these other initiatives around input costs, I think there's opportunity to expand gross margins obviously above our current level.

That being said, we need to be able to invest to drive the growth.

I think we need to, on a longer term basis, look at the Company more similar to other multi-billion dollar global multi-channel brands and when you sort of net out there, you net out a new view on operating margins more in the mid-teens on a longer-term basis on a much larger company.

Thanks, guys.

Thank you.

Taposh Bari, Goldman Sachs.

Hi, guys.

I just wanted to start on same-store sales.

So, Tom, do you mind giving us some clarity as to what your assumptions are for same-store sales for both the full year and first quarter guidance?

Yes, for the full year, we've -- again, we want to be cautious there and we're looking at full-year total company same-store sales assumption relatively flat and sort of embedded in that is some improvement in China and UK, still some work to be done there, but at least I started to identify some of the issues there.

So that's, that.

And in the first quarter -- another thing on the full-year number, is Japan.

Some tough comparisons there in some of these newer stores going to the base.

We don't expect same-store sales in Japan to continue at the high clip they have been.

So that's the full-year number and flattish.

In the first quarter, we expect some modest kind of growth in the first quarter, but still relatively small in the first quarter as well.

Okay.

That's helpful.

Thank you.

And then Angel, I wanted to ask you a more high level question.

Obviously you had a very, very difficult 12-month period you're coming out of.

Looking back, there obviously have been some pretty nasty macro headwinds, including sheep skin, weather, Europe.

Anything company specific strategically that you think you could have done differently looking back in retrospect?

Well, we could have invested in better weather predicting.

We have for quite awhile, as I mentioned in my comments, for the last two years we've been working on this innovation of UGG Pure.

It's not something that we've been shy about.

We put a lot of resources against this.

It's been an important thing.

I kind of wish we would have been even more aggressive there because it has proven to be validated as a very important thing going forward.

If I would have known how it would have all come together, I really would have been even harder driving against that.

I would also say that this transitional product that we are now doing, I would have liked to of begun that process earlier but in a sense, it's very difficult when we knew what our -- what the known components of pricing and raw material costs were what they were a year ago, UGG Pure was still not fully evolved.

So it was even hard then to get as aggressive about the development of the transitional product.

So innovation is the key to our success in the future and this is really -- how hard we push on innovation is something I've learned we need to push even harder.

I think we need to get the entire organization focused on innovative ideas in every single component of our business and I think that, frankly, with all of those things that went down in 2012, the first few months, we were a little shell shocked.

We kept sort of saying to ourselves, this really can't all be happening at the same time.

And we were caught perhaps a little bit flat-footed.

That's not true right now, I'll tell you that.

We're in full sprint mode and I think that's a major lesson learned.

Just wanted to sneak in one more, if I can.

For the first quarter guidance, flat revenue growth, that seems -- you're going to have 30 more stores year-over-year.

I'm just trying to understand where the gap lies.

Just seems like a very low number.

Yes, Taposh, again, I mentioned sort of a modest view on comp.

We do have 30 more stores.

At the same time, our wholesale business is under pressure in the first quarter compared to the year-ago quarter and albeit last year was a difficult winter in January and most of February.

We still had more classic boot kind of sales the first couple months of last year than we've been experiencing this year.

Also, there's one other thing that comes to mind when you asked the question what would we have done differently.

I don't think, looking back, that we would have pushed our suggested retail prices in line with our increases in material costs.

We were trying to protect our bottom line.

And I think it cost us.

And I think that's a lesson learned.

I think in the end, it's something we've always said, but it's hard under fire to hold to it.

The consumer rules.

The consumer wants what they want.

And you have to be super careful not to go beyond a point where consumers feel that you've overstepped the boundary.

And we really -- we knew that.

We were conscious of that.

But at the same time, wanted to satisfy all of you guys, all of our shareholders.

And I think we got caught a little bit there.

So I think that's a lesson learned going forward.

Thanks for the honesty.

And good luck in '13.

Thank you.

Thanks.

Mitch Kummetz, Robert W Baird.

Yes, thanks for taking my questions.

Let me start, I want to get some clarification on the backlog.

I think you guys said it was down 17%.

I didn't hear as of what date that was.

So if you can remind me of that.

Could you also say what percentage of your fall pre-book is actually captured in that backlog number?

And you mentioned that you'll take orders over the next couple of months.

Can you say kind of what sort of projection on the overall fall pre-book is baked into your guidance for the year?

Yes, that -- Mitch, this is Tom.

The backlog numbers I talked about were as of the end of December 31.

Early in the pre-booking process and another thing we've seen this year, I kind of mentioned it on the call, it seemed to be the customers are viewing the product and ordering the product later than we saw last year.

And last year, by the end of December, we had a good amount of customers, still although early, that had already viewed written some of the product.

On the pre-book, still early.

We're pleased with how some of the product's been booking.

The booking, the pre-booking process goes to the end of April.

So we've got a good amount of it in.

We feel we've taken a cautious look in terms of where the pre-book's going to end by the end of April.

And we've developed our guidance.

So just a follow-up on that, can you tell me where you think it will end or could you at least say sort of what is your wholesale outlook embedded in your guidance?

Obviously you guys are opening up stores.

You expect some good growth from that.

Your e-commerce business is trending very well.

But sounds like the wholesale has been a bit weak.

The backlog's a bit weak.

Maybe we'll see that pick up with some later ordering.

But if you could either say kind of what's baked in on the wholesale side for your 2013 guidance, particularly on UGG?

Yes, I think the wholesale guidance, again being cautious here of all the other assumptions I laid out.

For UGG, for the total year, we are assuming at this point in time the wholesale guidance could be down mid to high single digits.

Okay.

That's, that's helpful.

And then my second question, on this UGG Pure, is there any way you can say what percentage of your COGS you think that will represent for the year?

And what kind of impact does that have from a gross margin standpoint in terms of kind of that 150 basis point?

Is that on top of the 150 basis points you're just benefiting from lower sheep skin costs, or is it kind of embedded in that, or how should we think about the impact of UGG Pure from a margin standpoint on this year's numbers?

Mitch, this is Zohar.

I'll take the first part about the usage of that.

Right now we are using at lining and socks material and it's a significant amount of the usage that we've had.

That can be about a quarter of what we are using, but we are not using the whole thing at this time.

As we continue to develop the product, you will see a greater usage of the UGG Pure in our product.

Okay.

And Mitch, the 150 basis points I talked about of improvement in the margin related to sheep skin, that does include a portion of that 150% is related to UGG Pure, albeit we're at the early stages of that really.

Got it.

That's great.

Thanks, guys.

Good luck.

Scott Krasik, BB&T Capital Markets.

Yes, hi, everyone.

Congrats to a better ending to a tough year.

Angel, you talked about transition product.

What sort of reception have you seen specifically to the transition product in your bookings?

Are customers interested in you guys playing a big role now in August through October, non-classic product?

That's my first question.

Well, I would say yes, the transitional product, and we're just now calling it that, that's like a working name, but the casual product that we have been showing has booked extremely well.

It's booked extremely well for Q3.

So we really feel like we've got momentum there.

We've also had ballerinas doing very well, the driving mocs, our quite, unquote, smoking slippers, those are all transitional products.

And they are not sheep skin dependent per se.

They have sheep skin touches.

But they have been well received.

We have had, as well, excellent sell-through on those products this fall, when we introduced them in a more complete assortment than we had in the past.

So I think that really bodes well for the retailer and the consumer reception to this idea.

And then -- okay, thanks.

And then you alluded to the fact that the retail stores you're opening now run at a little bit lower productivity and the returns are a little bit lower.

Is that a function of where you've opened these stores, as maybe Europe improves on a macro basis or you have some better brand recognition in Asia?

Could it get better?

And if it is at these levels, does it make sense to keep opening stores the way you expect to?

Yes, Scott, this is Tom.

A good amount of it, there's obviously a lot of different dynamics depending what region you talk about, but our first class of storage, so to speak, the first 48, are just great locations and are very productive.

So in terms of does it make sense to open more stores, look at those -- even with the productivity below the best, the freshman class, so to speak, they are great returns, great operating margins, great returns on capital with those one-year pay backs.

So that, coupled with some of the earlier trends we're seeing out in the marketplace wholesale versus retail that Angel talked about, makes a lot of sense to do this.

And also keep in mind that the stores we've got in Asia have been pretty much located in what you might call luxury environments.

These are really premium malls.

The neighbors are high end neighbors, if you will.

The consumer is now evolving.

The middle is coming up.

The consumer for -- and more malls are developing that cater to what you might call upper middle class, or solid middle class people in Asia, particularly China.

And so we have opportunity to expand beyond the luxury locations that we've been in, which is fine for -- those have been great for brand positioning and image, but I think that we have now got an opportunity to access more consumers, just a lot more consumers for whom the brand and in China it's called U-G-G, that's how they refer to it.

U-G-G is considered premium, high end brand, high quality.

Our goal really has to make sure that we're merchandising the product line appropriately for the Asian consumer.

Not even Asian, for the Chinese versus the Korean, versus the Japanese.

And also make sure that we're hitting the price points we need to hit, because this is really a critical component of our growth going forward.

Okay.

No, that's great.

If I could sneak one in on Pure, is the material something that you could put into made for outlet product?

Is it that similar to a sheep skin that you could use it to change the margin structure across the board?

Well, we -- I'm not going to speculate on exactly where we -- what class of product we put it in.

I would just say that it's -- as a material, it is softer, it is more consistent, and the perception is it's higher quality than even the natural stuff that's out there, which as much as we select for the best hides, a lot of the shearing material itself is -- it feels a little coarse by comparison.

This is a significant enhancement to our product consistency.

All right.

Well, good luck, guys.

Thank you.

Corinna Freedman, Wedbush Securities.

Thank you for taking my question.

I wanted to ask about the longer-term plan for 2016 to get that additional billion.

Does the lower retail productivity change your thinking there?

Does the reduction in the wholesale base change your thinking there?

If there's any update you could give us on that 2016 plan.

Thanks.

Yes, we're -- with the innovation we talked about with UGG Pure and some of the recent learnings we have in our retail business, especially in Asia, we're -- at this point in time, we're sort of going through the update process of our longer-term plan.

So I really can't comment or update any long-term plans at this point in time.

But I will fall back on what I said earlier, with these opportunities we see and the UGG Pure innovation and even with the lower productivity, the great returns on capital and great operating margins we see there, albeit we're going to have to invest in the right OpEx and the right infrastructure to be able to grow a global brand.

We obviously still feel there's great opportunities long run, long-term.

And I just have one follow-up question about the NPD POS data that comes out monthly.

Is there any -- can you address any inconsistencies that you might be seeing on your side of the business versus what is being reported and do you expect that to inflect any time soon?

That's my last questions.

Thanks.

Well, a couple things to talk about NPD data.

It doesn't cover our entire distribution base.

Obviously doesn't cover our retail stores or our e-commerce.

Some of the categories blur the lines in terms of where UGG falls and where UGG doesn't fall.

It's -- we've talked about how the sporadic weather, how that's impact weekly sell-through, not only our wholesale channel, but our own retail stores.

It's one thing to look at.

It's certainly, in our mind, not the most important thing to look at.

Thanks a lot.

Eric Tracy, Janney Capital Markets.

Thanks.

Good afternoon.

If I could just touch on the supply chain and given the retailers changing ordering patterns in later, I get the transitional product being layered in, but maybe just speak to the supply chain adjustments that are being made to try to smooth that and, again, just deal with that change.

Yes, the change we are making is specifically timing of bringing the inventory when it's needed and building the transition product that Angel was talking about.

And also, just more responsiveness from our suppliers.

In other words, being more current with consumer preferences.

This is a business historically that was wholesale driven.

So we built product for introduction twice a year.

We went to trade shows two times a year.

The consumer wants fresh product every 60 days at a minimum.

And you have to be much more reactive and especially when they seem to have access to sort of every -- the presentation of product across the internet, a fashion thing happens or a color happens, or a trend, a motorcycle boots pop, and they pop big and they pop everywhere.

So we have to be current, we have to be aggressive, and that's what these changes are going to guarantee.

Okay.

And if I could just follow on this conversation between wholesale and be it retail or DTC, Angel, as you think about the model longer term, what is the right percentage of the mix, be it domestically or globally?

How far do you want to vertically integrate, not alienating the wholesale partner, but even on lower new store productivity, clearly it's a massively accretive sort of move to move in that direction.

So again, maybe just speak to the longer term structure.

I think we will always be quite -- it will always be very important for us to be in wholesale environment.

Right now, I'll just throw a number out.

I wouldn't ever see us less than 50% of our business being wholesale as it's been historically.

Now, how long before that happens, that's up to the consumer, what they want and whether or not in many cases we even have the wholesale partners who make the transition to omni-channel.

I think one of the things that I know about the footwear business, it's really important for you to be available in store, with multiple brands.

Obviously, in our own environment, it's only going to be UGG.

But the true test of competitiveness is when you're in a Nordstrom and you are up against all the other great brands and you perform on that level.

That's what's unique about the footwear industry.

People go to a store, they want to try on a variety of products.

If they are looking for a boot or loafer or driving moc, they don't just want to just try on yours.

You have to win that battle at retail.

It's what I call the last three feet.

That is always going to be a critical component of success for this company long-term.

That's a key element of the footwear industry.

And so our job is to be in the best environments, where the brand is presented consistent with our expectations and the consumer value that's placed on those brands.

So wholesale will always be important.

It will always be a key component.

And frankly, over time, as retailers evolve to the new reality of consumer behavior, the partnership that we have with them is going to be absolutely critical, because it's going to be a multi-legged stool.

You're going to have the Internet.

You're going to have wholesale.

You're going to have our own retail.

And all three things have to work in concert for that consumer to be satisfied.

And so it means that we have a lot of collaboration with our customers.

That's why it's so important that we make sure we have wholesale partners that are committed to the same vision for the brand as we are.

Okay.

And if I could just sneak in one last sort of near-term question, I'm trying to somewhat reconcile the trends you're maybe seeing year-over-year through January and February relative to seemingly much more beneficial weather, just being very cold across the country.

I get still sort of working through the inventory, but maybe speak to what that dynamic is and, again, maybe why the sell-through isn't as strong.

Well, we see -- whenever the weather gets cold, we see very strong performance in our stores and on our Internet sites.

It's become just a very precise barometer.

It's amazing actually.

This wasn't necessarily the case when we were in an environment where let's say our business was concentrated in California and we have cool nights in California, even in the summertime.

So our business was pretty stable because people put on UGG in the evenings to go out on a cool evening.

Well, it really did change the dynamic for our brand in ways that we began to understand a lot better with the real extreme swings in weather.

The real extreme swings in weather sort of highlighted this consumer behavior and really created for us a need to really diversify the product offering and do some things that, if the consumer loves UGG, they love it for the comfort, they love it for the quality and the luxury.

We want to make sure that there's a version of UGG that they can wear in most weather environments.

Okay.

Appreciate it.

Best of luck.

Thank you.

Thanks.

Christian Buss, Credit Suisse.

Yes, hi.

I was wondering if you could provide some help with us in understanding what the incremental expense is on the SG&A front are associated with the new store openings, sequentially over the course of the year.

Christian, it's Tom.

In terms of the year-over-year guided OpEx versus where we were at in 2012, really most of the year-over-year increase is really related to the retail stores, as well as our e-commerce business.

That's it net-net.

With the -- when you're talking about 24 stores that now are open -- excuse me, the 30 that we opened in 2012, they are obviously going to roll in starting the first quarter of this year.

And then as we open the roughly 30 more stores in 2013, most of those will be in the fourth quarter.

I think another subset of that retail in e-commerce, to give you a little granularity, is our e-commerce business, which is about 10% of total overall OpEx increase for the year.

And there's a fair amount of variability in the e-commerce business and we're looking at some good strength in the e-commerce business.

So there's -- hopefully that gives you some-- typical retail operating expenses are the amortization, the lease hold improvement, the supplies, the labor, those kinds of things.

So we could be seeing a step up in the incremental SG&A expense year-over-year in the first quarter and through the balance of the year, is that correct?

That's right, yes.

That's helpful.

Yes.

And then I wanted to ask, the guidance for other revenue is for basically a doubling of other revenue year-over-year.

Could you talk to me about how you get there?

Yes, the biggest drivers in that are the couple brands.

Although we see growth in every one of the brands, it's in that other category, the biggest category is in our new brand, as well as our new brand Hoka.

Those are the two biggest drivers.

And just give you a little color on Hoka, Hoka One One is a running shoe brand that was developed for ultra marathon running.

We're talking 50, 100-mile races in the mountains.

It has tremendous momentum in running specialty, extremely authentic brand.

We have been looking for an opportunity in the athletic aspect of footwear.

We don't play in that arena.

That's the biggest piece of the business when it comes to footwear globally and we wanted to make sure it was an authentic brand, preferably a running shoe brand.

So we're pretty excited about Hoka.

It's still young, it's still small, but it's evolving very quickly.

They are extraordinary shoes.

They really are amazing products.

Will that revenue flow in starting in the first quarter or is that weighted later in the year?

More the beginning --

On that one particular brand -- more -- it's -- there's more in the back half than the front half.

It's fairly, fairly even.

Okay.

Thank you very much.

And good luck.

All right, thanks.

Howard Tubin, RBC Capital Markets.

Thanks, guys.

Just really quickly, Angel, you spoke about looking at your outlet stores differently and redeveloping your outlet store strategy.

Any more detail you can give us on that?

Well, I think outlet stores for us have been something that we have been a little bit opportunistic on.

We haven't put the focus on an outlet strategy as compared separate and distinct from a first line store strategy.

If you look at some of our outlet stores, I think they are wonderful looking stores.

It's a great shopping experience.

We're going to be more focused -- focusing more on the merchandising of those stores as distinct and separate from our concept stores.

We're going to be more aggressive about locations as they pop up, opportunities that may surface in malls that we feel we need to be in, whereas we have been putting the priority on concept stores in the last few years.

But the outlet stores are very profitable, as you know.

And they provide a great opportunity for access to the brand by consumers, especially now when we can create price points that enable us to be more flexible there.

So creating product for those stores that really fills the UGG expectation by consumers as a good opportunity.

All right, thanks.

Camilo Lyon, Canaccord Genuity.

Thanks, guys for squeezing me in.

I had a quick question.

With respect to the transitional product, how are your wholesale accounts splitting their open to buy dollars between the classic UGG orders that they had in years past versus the traditional product?

Is there a shift in allocation of dollars?

Are you getting a bigger share of that open buy?

If you could shed color on that, that would be great.

I think over the last few years, we've seen our classic business remain pretty much flat to the total and the growth has been coming from a lot of the new styles, including the casual styles that we've done over the last couple of years and transitional product sort of falls into that domain.

It opens up the business to more seasons for the retailer.

At first, in I would say about four years ago, when we really first started developing this product, there was a big question mark as to whether we could sell product beyond classic slippers and classic boots.

The consumer has answered that question.

They have really said they love the brand.

The brand could come at them in everything from sandals to driving mocs, as I mentioned earlier, and so there's -- we're not seeing a retailer -- it's not an either/or.

It's an and conversation.

We're taking market share from people that we have not in the past competed with because of this development of our casual product.

UGG Classic is UGG Classic.

That is a business almost in and of itself.

It's, as we said, heavily fourth quarter.

It's a big gift item.

The casual product is bought for a very different purpose, although people still expect it to perform like UGG.

Okay, and then so is the casual product then going to have lower ASPs since it's selling earlier in the season?

And should that have an impact in how we should look at the overall back half ASP picture?

I would say generally speaking, yes, because it is by nature, it's not boots.

Boots are more expensive.

The nature of the product, ballerinas, driving mocs and those kind of things are lower price point products.

Got it.

Thanks a lot.

Good luck for '13.

Thanks.

This does conclude our question and answer session.

I will now turn the call back over to the speakers for any additional or closing remarks.

Well, thank you all for participating on the call.

2012 was a very difficult year, a very tough storm that we weathered as a company.

But as the old saying goes, what doesn't kill you makes you stronger and we are definitely stronger as a company.

We're stronger as all of our brands, a lot more focused, and I think it bodes well for the future.

I'm incredibly proud of our team around the world and the way we have managed through all of the challenges, and I'm very -- all of us are very excited about the future and the kinds of things that we now get to do with all of our brands.

So thank you all very much.

Thank you.

That does conclude our conference.

You may now disconnect.