Skechers USA Inc (SKX) 2005 Q2 法說會逐字稿

Greetings ladies and gentlemen and welcome to the Skechers USA Incorporated Second Quarter Earnings Conference Call.

At this time all participants are in a listen-only mode to prevent background noise.

A brief questions-and-answer session will follow the formal presentation.

If anyone should require operators assistance during this conference please press "*" "0" on your telephone keypad.

As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Mr. Andrew Greenebaum of Integrated Corporate Relations.

Thank you sir, you may begin.

Thank you.

Good afternoon, I thank everyone for attending Skechers second quarter conference call.

I will now read the Safe Harbor statement.

Certain statements contained here in including without limitations statements addressing, beliefs, plans, objectives, estimates or expectations with the Company or future results or events may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Actually of 1995 as amended.

These statements involve know and unknown risks including, but they are not limited to the general economic business condition and the conditions in the retail industry.

There can be no assurance that the actual future results performance Qs and is expressed or implied by such forward-looking statements will occur.

In the view of forward-looking statements are encouraged to review the Company's latest annual report of Form 10-People, filings of Form 10-Q, managements discussion analysis and the Company's latest annual report to stockholders, the Company's filings on Form 8-K and other federal securities laws for description, the other important factors that may effect the Company's business results of operation.

Now with that I would like to turn the call over to Skechers Chief Financial Officer, David Weinberg, David?

Thank you Andrew.

Good afternoon and thank you for joining us today to review Skechers second quarter 2005 results.

As always we will open the call to questions following my prepared comments.

For the second quarter of 2005 sales were 263.9 million, an increase of 12.5% over second quarter 2004 and the Company's sixth consecutive quarter of year-over-year topline increases and its highest second quarter revenues in its history.

Net earnings for the quarter were 15.9 million or 38 cents per diluted share, above first call consensus of 25 cents per diluted share and 81% higher than net earnings of 21 cents in the second quarter of 2004.

For the 6 month period ended June 30, 2005, net sales were 510.1 million compared to net sales of 456.2 million in the first 6 months of the prior year.

Net earnings were 26.2 million compared to net earnings of 15.4 million in the first 6 months of last year.

Diluted earnings per share in the first 6 months were 62 cents versus diluted earnings per share of 39 cents in the first 6 months of the prior year.

In the second quarter and 6 months ended June 30, 2005, the revenue growth and improved earnings with the result of a broader acceptance of our trend-right product.

Highlights include improved sales for many of our existing and historically proven successful Skechers men's, women's and kidsline, such as Skechers Active and Skechers USA for men and women as well as Skechers work.

Continued strong growth in our Unlimited by Marc Ecko, Red by Marc Ecko, 310 Motoring adult brands and increased average selling price per pair of 47 cents or 2.6% and an increase in pairs shipped by 10.8% of the same quarter last year.

By focusing on a fresh flow of products and efficiently growing our business we achieved the following in our second quarter.

Record second quarter net sales of 263.9 million, double digit sales growth in our domestic whole sales business, double digit sales growth in our domestic and international company owned retail stores, continued growth in our international whole sale business, significantly improved gross margins of 42.3% a 170 basis points year-over-year increase, well controlled SG&A expenses decreasing a 140 basis points to 32.7% of sale which resulted in an operating margin of 10.3% and an increase of more than 85% in net income and a further improved balance sheet with more than a 150 million in cash and current and on planned inventory positioning us well for the second half of 2005, also of note in the second quarter we signed an endorsement agreement with American Idol winner and Rising Star Carrie Underwood to represent Skechers in our marketing effort for our women's line.

Separately we also signed an agreement with multi platinum recording artist the game for a signature line of footwear called Hurricane by this weekend.

We are excited about both these marketing and product initiatives and believe they will help to keep our business exciting, young and growing.

Now I’d like to expand on our second quarter 2005 achievements in our four revenue channels.

Domestic wholesale, International, Retail and Licensing.

We are very pleased with the growth in our domestic wholesale business which increased by almost 15% from the prior year.

This improvement is attributable in parts of the addition as three brands, two of which were introduced in the second quarter 2004, marking their first year of sales and an increased acceptance of our trend life product across our Skechers line.

Quarter-over-quarter we sold more inline product, experienced less closeout, shipped over 10% more pairs, and increased average selling price per pair by 2.6%.

Within our Skechers product line we saw the strongest improvements in our women's fusion active line led by fresh biker style and the new R&D [outdoor] and our men's USA line led by fresh critics urban tracks and skeptic styles.

With updates for the back-to-school season and based on existing orders and current sellthroughs we believe these styles will remain strong in the third quarter and continue to be robust for the remainder of 2005.We also saw a strong improvement in second quarter and our work division, usually extension of our never out program and the introduction of Titanium footwear We also saw a strong sales in our Skechers kids line comprised of both boys and girls footwear.

New for Skechers advertising is the signing of Rising Star and American Idol winner Carrie Underwood what we believe, will positively impact the Skechers brand image over the next year and half.

Much like Britney Spears and Christina Aguilera did when they endorsed our brands and appeared in Skechers campaigns around the world.

Ms Underwood became the new American Idol after more than 500 million votes were cast during the season, which had more than 30 million viewers in the U.S. alone and were shown in numerous countries around the world.

Our uniquely branded fashion lines Mark Nason and the showcase for show a strong percentage increases over the second quarter last year.

While the increases were small in dollar terms relative to Skechers active USA and work line we believe these lines have great opportunities to grow an existing channels and expand into a new doors.

Both lines are supported by new product specific advertising campaigns.

But 310 Motoring and led by Marc Ecko the second quarter marks the first full of year of sales for these lines while on limited by Marc Ecko was launched in the third quarter of 2004.

In spring 2004, read by Marc Ecko launch with the strong selection of products and some key accounts and had an advertising campaign backing it.

Similarly 310 Motoring delivered several styles in the quarter of '04 into selective accounts that tested the products in the few doors before the fall launch.

Since the introduction of these urban street lines, we have increased the door count for each of these last three lines.

In many cases doubling and tripling it and launch boys 310 Motoring and boys and girls Marc Ecko footwear lines.

New for 310 was the signing of multi platinum hip hop artist the game to both represent 310 and to launch a signature shoe.

The street athletic offering will be called hurricane by 310 and is expected to launch in November 2005 with the single style, and then expand with additional athletic looks in spring 2006 with the games global recognition we expect 310 sales to be positively impacted by this agreement.

New campaigns will be launching to support hurricane by 310 and the Marc Ecko footwear brands.

These campaigns as well as Skechers Carrie Underwood campaign will appear in print magazine as well as on mall kiosk, high traffic bus kiosk, and underground transportation systems.

We have also increased our presence on TV with the sponsorship of cable programming on ESPN and Nickelodeon as well as syndicated daytime and evening programs.

These campaigns are for 310 Motoring, Michelle K Girl Skechers USA for men, Skechers Sports for men, Skechers Active for women, Skechers Kids boys and girls.

Strong account reactions that are pre-lined earlier this month, stronger gross margins and the continued strong shipment of inline product in the third quarter.

In addition to our own retail stores performance lead us to believe that our domestic wholesale business will see improvement in the third quarter year-over-year.

Turning to our international channel our international business improved in the second quarter 2005 over last year during the same period with our company owned international retail business reporting the strongest gains at over 13%.

With regards to international retail, in the second quarter we opened our 12th international retail store in Toronto which in part contributed to our retail stores in Canada reporting the highest overall gains.

Each of the other five countries in which we have company owned stores Netherlands, England, France, Germany, and Spain also reported strong gains year-over-year.

Our international retail focus is to profitably grow our existing international stores and as key locations become available add to our store base to further build the brand in regions where we have established subsidiary businesses.

Turning to our eight international subsidiaries, overall we saw a mid single digit growth for the quarter and are up substantially more for the year.

Additionally we saw slightly improved margins year-over-year leading to increased profitability for our subsidiaries.

For the second quarter our distributor business saw a slight improvement year-over-year, and overall remained solid.

We remain there is room for continued growth and improvements in each of the 100 plus countries and regions in which Skechers is sold.

As we have done in our subsidiary countries, select distributors have opened retail stores as well.

We believe the Skechers international distributor owned and operated stores are excellent brand building tools and are increasing sketches profile abroad.

Using Skechers images and company guidelines by the end of the second quarter 10 distribution partners have opened 30 retail stores in 15 countries.

This month our Israeli distributor opened its first concept store in the premier mall in Tel Aviv.

The Israeli distributor also opened a Skechers shop-n-shop in the Tel Aviv airport late in 2004.

Our international business is supported by multiple marketing vehicles.

As we do in the United States, print advertisements featuring relevant Skechers imagery and soon to include Carrie Underwood, are the cornerstone of our marketing efforts.

The prints are supported in some cases by outdoor advertising and POP materials.

In addition some distributors have also signed regional celebrities which have proven very successful.

We have also begun alternative mediums of advertising, such as advertorials for a few select European markets.

In regards to retail, in the ninth consecutive quarter we achieved double digit year-over-year sales increase in our retail division.

Our focus in the retail segment continues to profitably grow our existing business.

With this in mind in the second quarter of 2005 we opened two domestic retail stores in the Seattle and Detroit areas and closed one, bringing our total number of domestic Skechers stores to 113 at the end of the second quarter.

We currently have plans to open an additional five to seven stores in the U.S. during the balance of 2005; including a concept store later this week in the Greater Seattle region as well as our first stores in New Hampshire and Connecticut later this year.

In addition to our Skechers retail stores, we've also recently launched a new retail concept called [couple lab] which started with the conversion of our Skechers store in New York SoHo district.

This new format is designed to showcase the company's brands, marketed separately from Skechers.

Unlimited by Marc Ecko, Red by Marc Ecko, 301 Motoring, Mark Nason, and Michelle K, and the children's footwear for these lines.

In addition to the first store in New York we have a SoHo lab store in the Los Angeles area and one in San Francisco.

Given the product's appeal, the trend savvy men and women we plan to open addition SoHo lab storesin location that attract a cross section of fashion and urban customers.

We are pleased with the increased profitability in our retail stores and our improved sales.

The increased revenue growth in our stores was based on one addition domestic and additional international store versus last year.

The continued sales increases in your retail stores is evident of the strength of the Skechers brand and the increased demand for our product.

And finally we'd like to discuss our licensing initiative.

In the second quarter of 2005, we signed one new licensing agreement with multi platinum hip-hop artist The Game for a signature line of street and athletic shoes.

The offering knows as hurricane by 310 will be branded separate from Skechers and positioned as a shoe under the 310 Motoring label.

The initial sneaker will launch for Holiday 2005, along with the plan marketing campaign.

While we do not believe the shoe will significantly impact our sales in 2005, we believe the growing lines and marketing associated with it should have positive impact on the brand recognition of the entire 310 line, both domestically and internationally for spring '06.

The agreement for The Game's Hurricane by 310 snickers brings our total number of active domestic and international licensing agreements to 11 at the close of the second quarter.

These agreements offer apparel, swim wear and accessories for our Skechers and 310 Motoring brands.

Also relatively new in licensing is our Skechers beach swim wear, which began shipping in the first quarter of 2005 to swim wear boutiques in the United States and Canada for the Resort '05 season.

The initial offering has been well received and we are very pleased with the reaction from key swim wear retailers and a major account that reviewed the Resort '06 line earlier this month at the international Miami Swim Wear Trade Show.

While we will not know the outcome of the show until later in the third quarter, a swimmer buys traditionally right orders during market week, in August, they found the initial product launch and in the Miami's trade show, we believe we will experience growth in both those and accounts.

We believe the launch in this category further builds the Skechers brand, especially with our summer and sandal business in the niche market of swim wear specialty shops.

It is important to note that these swimwear royalties are small in relation to our overall loyalty.

Our licensing division continues to be led by our Skechers kid's apparel, which had a successful launch during the back-to-school 2003 and continues to be a strong license.

While the girls division of our children's apparel is very strong, we believe our recently launched toddler apparel and our boy's apparel which has been redesigned to reflect our increasingly strong boy's footwear business has great growth potential.

In regards to our licensing plans, we are currently focused on further building our presence and the impact of a licensed merchandise already in the market by both growing our offering in existing doors as well as expanding into new accounts.

We're also developing new initiatives to be introduced this year as well as exploring new opportunities for the future.

We continue to believe that selective licensing on the Skechers brand name and other brand that lines broadens and enhances the brand without requiring significant capital investments or additional operating expenses.

Now turning to our second quarter and 6 months numbers in detail; as previously mentioned, second quarter sales were 263.9 million compared to 234.7 million last year.

The improvement in 2005 is due to a combination of factors including strong sales of fresh products in key Skechers men's, women's, and children's divisions as well as in several of our recently launched fashion divisions and solid sales who risen our company owned retail stores and key wholesale accounts which resulted in higher margin.

The improvements were also the result of growth in key International markets and positive comp store sales.

Second quarter gross margins was 42.3% compared to last years gross margin of 40.6%.

The 170 basis point improvement is due to a combination of inline wholesale business increased retail which carries a higher margin as well as less closeout.

We are extremely pleased with our improved margins, where we like to note that at the consultation with our auditing firm we reclassified royalty expenses from net royalty income to cross the sales for the quarter in six month period.

This reclassification resulted in the reduction of our gross margin by 40 basis points for the quarter and 30 basis points for the six month period.

However as discussed in previous calls, we feel that 40% to 41% gross margin is appropriate for our business.

Gross profit was a 111.5 million versus 95.2 million in the same period a year ago.

Total operating expenses at the percentage of sales decreased significantly to 32.7% compared to 34.1% in the second quarter of fiscal 2004.

We have a relatively fixed operating expense structure and thus to a positive leverage with the increase sales.

Second quarter selling expenses increased to 21 million or 7.9% as compared to 20.7 million or 8.8% of sales in the prior period.

The reduce selling expenses as a percentage of sales are primarily due to relatively flat expenses combined with higher revenues.

Our goal is to continue our aggressive advertising focus with traditional format such as print by supplementing it with alternative means such as Nokia, Billboards in prime locations such as Times Square and on buses in subways like New York's subway Amsterdam's Tram and London Underground.

As we said to you on the first quarter call we anticipate our advertising to be at the lower end of a historical range of 8-10% of sales well possibly below for the 2005 fiscal year.

General and administrative expenses for the quarter were 65.3 million compared to 59.3 million last year.

We realize operating leverage from our general and administrative cost as they declined to 24.7% of sales compared to 25.3% last year over same time increasing our store count by net one store.

Net earnings for the second quarter were 15.9 million compared to 8.3 million in the prior year period.

Diluted earnings per share was 38 cents on approximately 41.4 million shares outstanding compared to 21 cents per share on approximately 43.2 million shares outstanding for the second quarter of last year. for the six month ended June 30, 2005 net sales were 510.1 million versus net sales of 456.2 million for the first six months of 2004.

Gross profit was 212 million compared to 184.9 million in the same period of the prior year.

Selling expenses for the first six months of 2005 were 39.1 million compared to 36.8 million for the first six months of 2004.

D&A expense was a 131.6 million compared to a 120.3 million in the same period last year. in total for the first six months of 2005 operating expenses were a 170.8 million compared to 157.2 million for the same period last year.

Net income for the first six months of 2005 was 26.2 million or 62 cents per diluted share compared to 15.4 million or 39 cents per diluted share in the same period last year.

To put it in perspective our net income in the second quarter ‘05 was 15.9 million which is more than the 15.4 million we've made for the entire first six months of 2004.

Our balance sheets continue to be very strong.

At June 30th 2005 cash on the balance sheet stood at a 150.9 million.

Trade accounts receivable at quarter-end were a 175.1 million and our DSOs at the end of June were 53 days versus 50 days at June 30, 2004.

Inventory at quarter-end was a 164 million representing an increase of 23.4 million from June 2004 figure of 140.6 million.

The increase in inventory is due to the addition of three new fashion lines and the associated children's line and is in line with the revenue growth we are seeing.

We believe our continued healthy inventory position is the result of the success we have seen from our inventory control initiatives and the positive sales momentum.

Working capital rose 8.7% to 341.2 million at quarter-end versus 313.9 million at December 31, 2004.

Long-term debt was a 107.8 million.

Of this amount 90 million is related to our convertible debt offering.

The remainder is related to mortgages on our distribution center and corporate headquarters along with capital lease obligations.

Shareholders equity at quarter-end increased 9.2% to 322.1 million versus 294.9 million at year-end 2004.

And now turning to guidance.

Based on early indicators, we believe we will see significant improvement in our third quarter year-over-year; these indicators include double digit sales increases in our domestic wholesale business due to our strong product offering for both our Skechers and fashion lines.

Double digit domestic and international retail comps and the current strength of the brand and the product in the market place.

We currently expect third quarter sales to be between 270 million and 280 million and diluted earnings per share to be in the range of 25 cents to 30 cents.

We are extremely pleased with our record second quarter sales, our improved margins and our net earnings for the quarter.

Our record revenues in the second quarter which follows record revenues in the first quarter also marks the 6th consecutive quarter of year-over-year top line quarterly increases which we feel is a clear testament to the continued momentum of our brands.

We believe our performance in our three distribution channels, domestic whole sale, international and retail and the reaction and orders for our Skechers and fashion product lines for back-to-school is further evidence of the strength of our brand and targeted marketing efforts.

As always we will continue to focus on making all areas of the business more profitable.

Further growing our recent initiatives and continuing to build a brand on a global worldwide basis to ensure Skechers continued relevance.

And now I would like to turn the call over to the operator to begin the question and answer portion of the call.

Thank you Sir.

Ladies and gentlemen at this time we would be conducting the question and answer session.

If you would like to ask a question please press "*" "1" on your telephone keypad.

A conformation tone will indicate that your line is in the question queue.

You may press "*" "2" if you would like to remove your question from the queue.

For participants using speaker equipment, could maybe necessary to pickup your handset before you press the "*" keys.

One moment now we will pause for your questions.

Our first question comes from John Shandavis (phonetic), Susquehanna Financials.

Good afternoon this Christopher Stealpah (phonetic), congratulations on a really good quarter to you.

Thanks Chris.

A couple of questions, I guess first maybe could you add a little bit color with regard to your [forward order] position at the end of the quarter, both in terms of how you see it for the third quarter playing out and I guess for the fourth quarter as well.

Maybe add a little bit color with regard to your both, in terms of your international subsidiary business and your domestic wholesale business as well.

Well they are both tracking about the same.

We're slightly higher internationals than we are domestically simply because the second quarter is really a non event for our international subsidiary.

They start really shipping their core product in end of July and August while we ship ours in June; that is a timing difference there.

Our backlog remains relatively strong for the third quarter, more strong than -- as we said in the first quarter conference call and it does going out 6 months.

Our timing tables have shortened but we are experienced more [inaudible] business, we ship a lot of product that we are getting a to lot of turn them, we're already beginning to see some out once orders coming in the third quarter and early fourth quarter.

So we think that whole package fits together and fits us in a relatively good place, relative to third quarter.

Okay and as the growth that you are seeing since the backlog it's pretty much broad based across all your categories, both your existing Skechers brands and the new products as well.

Yeah.

We're pretty hard across the categories.

Okay.

In terms of Europe specifically, can you add a little bit more color with regards to what's happening in some of the five major markets, with regards to U.K., with regards to German, Spain, France, in terms of the trends that you are seeing right now for the Skechers brand?

It hasn't changed significantly from the first quarter other than France seems to be recovering a little more so during this period but it's just at the beginning stages.

Germany continues to grow at significant rates, England tends to be fairly stable, Italy and the Benelux countries are obviously growing since they relatively new and Spain has showed nice increase as an increased backlog for the quarter.

So we're still relatively small as far as Europe is concerned but we continue to grow there and we have a good backlog.

The anticipation is they are having a good third quarter will lead towards some increases in the fourth quarter and obviously the big season will be first quarter of '06.

Okay.

So we expect to see improvement in terms of revenue growth, I guess for the third quarter for your subsidiary business versus the second quarter, it being only up -- if you set up in mid single business or something like that?

Absolutely, our backlog shows we have a stronger results in the third quarter.

I guess at second quarter in Europe is mostly a fill-in business and the marketplace itself has been very relatively difficult which means even successful brands can only have so much fill-in and we don't speculate quite as heavily in inventory in Europe as we do need in the United States, being a new marketplace.

So I think the backlog is geared towards the increases showing in the third quarter.

Okay, terrific and just on in terms of product placements for of the new some of the new product lines and showcase 301 Motoring, I guess specifically for 310 Motoring for back-to-school, if you talk about some of the new doors and new channels of distribution that you are entering into and also maybe talk a little bit about Michelle K for spring, any other additional highlights with regard to penetration in Nordstrom.

I don't know this is any more to get, we were moving pretty well in Nordstrom and it's standing quite nicely, I think it's a growth.

I don’t know if there is outrageously large loot channel of distribution, we are testing in lot of places; we are growing significantly where the product exists, that is two votes for Michelle K and 310, which we said that the places we are testing obviously will show that kind of growth, at least that's the anticipation as we go forward.

We are just showing increases where ever the product has shown and placed it tends to retail quite well and go through expansion.

So we just -- see --I am seeing that over and over again.

Our next comes from Dorothy Lakner with CIBC World Markets.

Thanks can you here me?

I can here you.

Thanks, great, congratulation David, although that was little fast in terms of presentations and a lot of information in a short period of time?

Yeah you can read on our internet tomorrow again, we will give it to you, or you can call me, I will read it again, I love to --

You liked reading that I could tell.

Just a couple of housekeeping things; what was the inventory figure for last year in the quarter?

We are up have 24 million year-over-year.

Okay, from last year and so inventory -- I'm assuming from what you said about the third quarter inventories are up about 24% 23 something like that?

24%.

No we're up 24 million and that’s a $160 million base this year so we went from whatever was a 140 million to 160 million so that's probably about 15% 17%.

Okay.

But it looks like for in terms of what you're looking for in the third quarter something on the order of a 24% gain unless I’m doing the math wrong?

24% oh you mean on volumes?

Sales right.

Oh yeah we were going from 157 to 170 to 180.

Okay and then in terms of the fourth quarter should we use the same kind of assumption?

No we haven’t really given any guidance to the fourth quarter yet I think it's key for us and I felt the number of people that WSA will be key because we've had a number of pre-lines with our customers and it will come to fruition sometime in August in the WSA and one we tend to believe that this as significantly positive as we’d hope and to believe that we might be able to change those assumptions for the fourth quarter.

Right okay.

But you want to see what happens at WSA first?

Always.

Okay, and then I think when you talked about the retail business and you were talking about an increase of 13% were you referring to total top line growth or were you referring to comp?

That was total top line growth as we don’t really report comps but I will say that comps had accelerated from second quarter first quarter so as good as comps were in the first quarter they were even better in the second quarter.

Okay great.

And we don’t have that many new stores so it's not that tough to figure it back.

Right.

Okay alright great thanks.

Our next question comes from John Zolidis with Buckingham Research.

Hey guys nice feed on the number there.

Thanks John.

one big picture question for you.

Looking back to like 2003 when results were a little more difficult, what do you think the biggest change that has occurred at the company since that time has been?

Well I think that we were starting and we weren’t sure would work and had to make that big evaluation at the time turned out to work in all our positive contributors now.

Okay, and then is it possible can you share a ballpark figure for revenues for I guess the non Skechers branded component of revenue?

They still remain somewhat under 5% or are obviously growing quickly.

The thing is -- they are still a relatively small percentage but the whole base is growing so it's going to be tougher for them to pick up that piece but they are still under 5 but they do make an impact now.

Now is that under 5% each or under 5% in aggregate?

Under 5% in the aggregate of the four new brands.

The four new brands and so those would be

To Ecko, 310, and Michelle K

And Michelle K okay thank you.

And then just looking at the guidance quickly for the third quarter.

Are we assuming -- should we assume that gross margins are going to be a little stronger than that historical I guess that normalized rate that you have given out.

We still plan on a normalized rate.

I hate to change all the models just based on one outrageously good quarter but it wouldn’t surprise me if we had some positive movement off that very basic margins, I really haven't seen significant deterioration yet although its early September which is really close that much depending on how we flow through there and assuming that there is no backup at retail and retail seems to be pretty positive for us as well right now so I would expect from a historical we should show some positive increases in margins but I am [larry] about committing to it too early.

Okay that makes sense.

And then for the second quarter that just ended I think that the gross margin improvement was due to both retail sales increasing I mean by which I mean company on retail and better margin with wholesale or is there one or the other that was bigger factor?

Its both -- it's on a relative magnitude. it's all pieces into business and when the brand is harder or we had better margins at our retail there is nobody we have better higher comp store sales which we had better margins as well individually but, those are two fold -- our wholesale business had better margins and our wholesale business in Europe even though it's relatively flat had less closeouts they had higher margins as well so we really got benefit from almost all our operating divisions.

Fantastic see you in Vegas.

Thanks.

Our next question comes from Scott Krasik with CLK.

Yeah hey Dave let me just reiterate congratulations on a great quarter.

Thank you very much.

Question from the first quarter release when you had given guidance but I guess the street perceived has less than expectation you made a comment that you were giving the guidance because a lot of the back-to-school business can sort of ship between June and July.

Was the strong wholesale sales in the second quarter more a function of some of that back-to-school business showing up in the second quarter or is it more sort of reorders and things like that?

I think it was reorders, I mean we're hard enough so that it's safe to assume that most people came at the front end of the window some were anxious to get products into there was a slight shift.

There wasn’t' such a shift that we had to take down the third quarter anything like that so was a pretty even split maybe a little stronger but there was a much bigger obviously real order business which showed in the margins and the top dollar, top line dollar.

Okay and just getting back on gross margins for the third quarter, could increase in greater European distributor sales for the third quarter and the second quarter be the reason why you wouldn't expect an increase like you had in the second quarter year-over-year or is there another reason?

No, I mean I have no basic expectation other than a long-term trend line.

I don’t want to change your model because we had one outstanding quarter, it was obviously a great quarter.

Now that doesn't mean to say that I don’t believe, it's certainly possible that we repeat the quarter next quarter and we could be that hot, the only indications are, I just wouldn't come out with an estimate putting that on the street yet.

Okay and then anything, how big a business is boots in back-to-school for you guys?

It's not as big as samples are in the springtime; we're more basic in the back half, so we are not as tied to boots in the back half as well we have sandals in the front half, but, I mean it's a nice business for us but it certainly doesn't move the needles in outrageous proportions.

So back this --

Sorry he lost the back -- hello?

Sir his line is disconnected.

Okay, it wasn’t me guys.

Our next question comes from Sam Poser with Mosaic Research.

Thanks again; just -- what's follow up on the first question regarding the changes that you've made; could you talk about style change, because I've been hearing a lot of talk about updated products versus the basics.

Are you seeing the same thing within your own lines as far as performance?

And then I just wanted to get some guidance on tax rates.

We think a little bit of everything.

It's, we had a one of those kind of quarters where our basic product is working, our new product is working, our new product is starting to gain momentum without really taking away from our basic products.

So we have a little of both and it seems to be in the right place.

So our product is very broad based in what brings us to this positive place here, as far as tax rates are concerned we think that 40% tax rate may be slightly less, we have been running slightly less than that for the first two quarters, it is still the place to be, we will have, obviously that is placed on how well international does as a function as whole.

We spoke fairly confidently that we will stay right around that 40% range.

Okay and then one last question; can you talked about change in distribution strategies within, now that you have all these with the other brands up and running and then within the core Skechers brand, Athletic and so on as well, and how there may have been changes there?

I don't think we have really changed significantly our distribution strategies, we are always refining and we are always working on them.

But I don't think there has been a major shift in any of our strategies yet.

Are you working towards any?

Not that I would -- no nothing that I would point to right now.

Okay, thanks congratulations again.

Thanks.

Once again if there are any further questions or comments, please press "*" "1" at this time.

We have a question from Oran Shacib (phonetic).

Two questions for you, just on the housekeeping side.

Do you mind breaking out for the sales by channel, obviously you have got the wholesale but international wholesale and retail?

I give you some round about percentages and we will picked them up, I guess in the queue.

That's the great.

International for the quarter represented just under 13% of the total and retails represented just over 18% of the total.

Great and my second question for you was on G&A, actually G&A.

I think that the selling expense was up, much less year-over-year than I would have anticipated, that G&A was actually up more than I would have anticipated at 10% year-over-year; how should we be thinking of about those two line items going forward?

I think we've only really given guidance for the third quarter, I would say in the third quarter the selling expense, quarter-over-quarter, not necessarily -- and probably year-over-year will be up, probably a higher percent than the G&A.

The G&A I think won’t be up at higher percentage year-over-year as the selling expense but we are moving a lot of product and there is a lot of reactionary items and it's very difficult for us to peg down, when we're talking about your percentages, the last couple of million bucks which could be [inaudible] or changes in the way we do business or deliver those or something like that.

So, but right now I would expect the G&A for the third quarter to be equivalent, maybe slightly less than second quarter; the selling expense will be higher and we've got a little more advertising going into this third quarter.

So if you are guiding to roughly 8.5% growth on the revenue line year-over-year, should I believe that the G&A growth year-over-year could be somewhere around that or could become in maybe less than all of it year-over-year?

I think it will somewhat less than that year-over-year.

Got you, thanks a lot.

We have a follow-up question from Scott Krasik with CLK.

Hey you guys.

Yeah, I know pretty much was finish, just any difference in, I guess department stores, I beg you pardon, your business, the department store versus mid Tier in the wholesale business?

No I think it's pretty safe to day, our larger customers and our distribution has remained, especially in the main Skechers brand has remained fairly constant year-over-year.

Okay thanks congratulations again.

Thank you.

Our next question comes from Dorothy Lakner with CIBC World Markets.

Thanks I'm just going back to the new retail concept David.

You said there is a --

Sorry I lost you I didn’t hear anything other than new retail concepts.

Hello?

The next question comes from Samposia (phonetic).

With the Soho lab stores.

What is the growth plans on that?

We are pretty modest right now.

We only have one or two more scheduled over the next six months.

We are very careful about that and want to get the right locations and check them as we go along.

We are not on a outrageously fast track with them.

And where will those two be, where are you planning those?

Well one of the in San Diego and the other one is still negotiating two sides which will pick one.

Great thanks.

Again ladies and gentlemen if there are any questions or comments please press "*" "1" now.

We have Dorothy Lakner back on the line.

Can you hear me now David?

I can hear you now.

It's okay so to speak. [Kam] actually asked the question that I was trying to ask on Soho labs so it's one more in San Diego for sure and then two other you haven't decided on yet?

At least one other that we really haven't decided on yet.

Okay. so there is just the plans for the three at the time -- for the time being.

The three to one new one is four there will be another one somewhere down the road as five and you know, how we are.

We are reacting we'll see how they work if we think they are better will open them at a faster pace otherwise which is take it easy.

Okay but LA and San Francisco's are for sure.

They are already open.

They are open okay.

Alright terrific.

Gentlemen there are no further questions at this time.

Do you have any closing comments?

Yeah I would like to thank everybody for joining us on this one I certainly had a great time on this conference call, and hope the next one is just as good.

Thank you for joining us today on the call.

Again I'd like to note that today's call may have contained forward-looking statements and as a result of various factors results could differ materially from those projected in such statements.

These risk factors are detailed and [inaudible] filings with SEC.

Again thank you, and have a good day.

Bye.

Ladies and gentlemen this concludes today's teleconference.

Thank you for your participation.

You mat disconnect your lines at this time.