Skechers USA Inc (SKX) 0 Q0 法說會逐字稿

Good day and welcome to the SKECHERS USA, Inc. fourth-quarter 2005 earnings conference call. (Operator Instructions).

It is now my pleasure to turn the floor over to your host, Mr. Andrew Greenebaum of Integrated Corporate Relations.

Please go ahead.

Thank you.

Good afternoon and thank you, everyone, for attending SKECHERS fourth-quarter conference call.

I will now read the Safe Harbor statement.

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

Such forward-looking statements involve known and unknown risks including but they are not limited to general economic and business conditions in the (technical difficulty) industry.

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

Users of forward-looking statements are encouraged to review the Company's latest Annual Report on Form 10-K, its filings on Form 10-Q, management's discussion and analysis in the Company's latest Annual Report to stockholders, the Company's filings on Form 8-K and other federal securities law filings for a description of the other important factors that may affect the Company's business results, operations and financial conditions.

Now, I will turn it over to SKECHERS Chief Operating Officer, David Weinberg.

Thank you, Andrew.

Good afternoon and thank you for joining us today to review SKECHERS fourth-quarter and fiscal 2005 year-end results.

I would like to begin the call by welcoming Fred Schneider, SKECHERS' new Chief Financial Officer to the Company and to the call.

I will begin with an overview of the quarter and year-end, and then Fred will discuss the 2005 financials in detail.

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

Year-end 2005 net sales were 1.006 billion, an increase of more than 9% over last year and a new record for annual revenues.

Fourth-quarter 2005 sales totaled 223.5 million -- also a record -- and an 8.25% increase over fourth quarter 2005.

On a year-over-year basis, our fourth-quarter 2005 sales represent the Company's eighth consecutive quarter of top-line increases.

Net income for 2005 was 44.7 million versus net income of 23.6 million in 2004, a 90% improvement over last year.

And, net income for the fourth quarter of 2005 was 5.9 million, a 177% improvement over last year.

Diluted net earnings per share were $1.06 for the full year and $0.14 for the quarter -- fourth quarter of 2005.

On a year-over-year basis, our fourth-quarter 2005 net earnings represent the Company's seventh consecutive quarter of bottom-line increases.

We believe our consistently strong financial performance and our new position as a $1 billion company marks a new era for SKECHERS, one of increased scale, profitability, and growth.

We further believe our continued improvement is a result of our dedicated efforts to consistently deliver trend-right products backed by the right marketing and sales support, which has resulted in increased demand for our in-season SKECHERS product and a broader acceptance of our new line.

We believe this trend will continue due to our key indicators, which include comp store sales growth, healthy backlog of 13.6% over last year and a positive response to our product during our January pre-lines with major accounts and at the WSA Shoe Show.

Product highlights include a continued and increased demand for our SKECHERS Sport Fusion and Casual Fusion footwear for men, women and children in the United States and in many international countries; over 100% increases year over year in five of our fashion and street lines for men, women and kids; the successful introduction of a new line in the fourth quarter, Kitson Footwear, the very well-received launch of The Game’s signature 310 line at key specialty athletic stores in December 2005 and an increase in pairs shipped domestically of over 8% for the year.

Turning to some specific highlights in the quarter -- as in the third quarter, we continued to focus in the fourth quarter on proven product as well as delivering fresh, new styles and efficiently growing our business.

To this end in the fourth quarter, we achieved the following -- record fourth-quarter sales resulting in our eighth consecutive quarter of increased year-over-year sales; our seventh consecutive quarter of year-over-year bottom-line increases; double-digit sales growth in our domestic retail business with a net of eight stores for the year, including the addition of one in the fourth quarter; continued strong sales growth in our domestic wholesale division; continued sales growth in our international subsidiary businesses; very strong year-over-year improvement of our gross margins by over 190 basis points to 41.6% for the fourth quarter of 2005 versus 39.7% for the same period last year; a further improved balance sheet with more than 197 million in cash; and current and on-plan inventory reduced by almost 14 million from December 31, 2004.

Now, I would like to expand on our 2005 achievements in our four revenue channels -- domestic wholesale, international, retail, and licensing.

For the fourth quarter, domestic wholesale net sales increased by just over 7% from the same period last year and just over 9% for the year.

With more than 2,000 styles, our goal is to sell the right product into the right markets and distribution channels.

We're increasing sales by further developing existing product categories, building on initial sales and new lines and further growing these lines.

The improvement in our domestic sales can primarily be attributed to the success of our Sport Fusion and Casual Fusion styles for men and women throughout the year.

The demand for these styles, both in our sporty and casual looks, has grown as we have introduced more variations on existing, proven outsoles, such as Bikers, Rhythms, Critics and Urbantrack as well as fresh looks on new outsoles, such as Bikers, Rythms, Critics and Urbantracks.

These styles cross numerous lines but are primarily in our SKECHERS Active line for women and SKECHERS USA lines for men and women.

We believe the strength of denim in the marketplace has had a positive impact on sales for these looks as the Fusion styles are a national accompaniment to jeans.

We've also had a positive reaction to our 2005 Carrie Underwood marketing campaign that featured the multi-platinum recording artist in our key Fusion styles.

These images appeared in magazines, mall and bus kiosks, billboards, and in stores, reaching consumers both at home as well as while they commute and shop.

We're looking forward to the launch of the 2006 campaign featuring the chart-topping singer in the new signature looks and believe these fresh ads will continue to have a positive impact on sales and the brand's image.

Integral to the Company is our Sport business, which makes up half of the top 10 domestic styles.

The Energy and its updates known primarily as Premiums and Premieres for men, women and children are the leading sports styles in 2005.

And we've received a strong reaction to some new Sport outsoles in late 2005 and believe these will continue to be essential to the mix going forward.

Looking deeper into our top 50 styles, the offering is even more diverse.

It includes several sandal styles, classic black and brown shoes and kids' footwear.

Also important in our SKECHERS branded business is our Work line, which posted a double-digit increase for the year.

This is a technically-driven line created solely for the service and occupational industry professional.

We believe the success of this line is due to the quality and design along with the SKECHERS name delivered at attractive price points.

This consumer can now where more fashionable and comfortable work footwear from a company that they know and trust.

Adding to the growth in the domestic wholesale business is our group of seven fashion and street lines for men and women and the accompanying children's division.

Each of these lines has shown remarkable improvement and growth year over year.

Our two designer lines, Michelle K and Mark Nason, posted triple-digit sales increases for the year.

Michelle K has grown into a well-established designer Sport Fusion line and in 2005 significantly broadened its distribution at leading better department stores.

We see this line experiencing tremendous growth through the unique styling and attention to detail, the strong designer denim trend and our consistent advertising efforts in leading at fashion publications and in better malls.

The Mark Nason line has been driven by its unique offering of Italian-crafted, hand-treated boots.

Breaking out of the traditional boot season, the boots are being sold year-round, including such warm weather place climates as Miami.

This can be attributed to the very unique nature of the product, which is a true fashion statement, as well as the growth in the designer denim industry.

We have found better department stores and key boutiques have experienced solid sell throughs with retail price points upwards of $250 for sandals and shoes and $375 for boots.

These same retailers have grown their SKU and door count with many new boutiques having come on board.

We're presently working on adding several high-end department stores.

New to this brand is Siren by Mark Nason, a women's boot-driven line that is designed to accompany designer denim and casual couture.

Siren was introduced at better boutiques late in the fourth quarter.

And in the first quarter of 2006, we began shipments to a major department store that already had plans to increase its store count in the coming months.

In addition, three new brands were launched in 2004 to address the fashion street trend -- Unltd. by Marc Ecko, Rhino Red, and 310 Motoring.

Each of these lines has steadily grown from their initial store test to penetrate major department stores and specialty athletic channels and become successful businesses.

For the Marc Ecko brand, the introduction of footwear was a natural step, as Ecko has a strong men's, women's and children's apparel business.

We experienced many accounts that already carried Ecko apparel, adding Unltd. by Mark Ecko and Rhino Red shoes.

The adult and children's lines all have shown considerable sales increases for the year.

We are continuing our relationship with Mark Ecko Enterprises with a new launch in 2006, Zoo York Footwear.

Owned by Mark Ecko, Zoo York is a leading urban skate brand that is strong in its niche apparel business with a highly recognized logo and brand identification.

We plan to launch men's Zoo York footwear in core skate shops, an area which we are underpenetrated, as well as in select specialty and athletic stores for the back to school 2006.

While not as well-known a brand as Ecko, 310 has proven to be a force in the urban and street markets since its launch in 2004.

In the fourth quarter 2005 alone, it more than doubled its sales from the prior-year period.

Steady marketing efforts, including celebrities wearing the product and bringing notoriety to the brand as well as the creation of a unique product that blends its luxury styling with automotive influences, further strengthened its appeal to a growing consumer base.

In 2005, we announced a partnership with multi-platinum hip-hop artist, The Game, to market a signature 310 line which has also positively impacted sales.

The Game's Hurricane by 310 shoe is a single color, which was successfully launched at Foot Locker and Finish Line stores in December 2005, has continued to enjoy steady double-digit sell-throughs.

New colorways have been introduced as exclusives earlier this month, and additional colorways will be offered over the next few months.

With the launch of The Game's shoe, we are experiencing stronger demand for our 310 boys' line, led by the takedown to children's sizes of the Hurricane by 310 sneaker.

Best actor Oscar nominee, Terrence Howard, has recently been added as a new face of 310.

With the heavy media attention and praise being showered on Terrence, we believe the campaign which we shot earlier this month will have a strong impact on the brand when it hits national magazines in a few months.

New in the fourth quarter was the introduction of Kitson footwear.

Kitson has become a lifestyle brand as well as a hip Los Angeles boutique, where celebrities regularly shop.

In the fourth quarter, we began initial shipments of Kitson footwear to its namesake store and will roll out these styles to select department stores and boutiques in the US as well as to select markets overseas in the first quarter of 2006.

While the total sales of our fashion and street brand is small -- about 5% in comparison to the SKECHERS brands -- we believe these lines have great potential to further gain market share and gross sales.

We support our many brands with print advertising, such as Carrie Underwood, The Game, product specific ads and now Terrence Howard in more than 90 magazines nearly every month as well as television sponsorship spots on select programming.

Now, turning to international -- for the fourth quarter and full year, SKECHERS International division improved their sales on a year-over-year basis by between 3 and 5% respectively.

The international sales are comprised of wholesale direct through our eight subsidiaries and international distributors through a network of more than 30 companies that service more than 100 countries and territories around the world.

The sales increases were by our subsidiary business, which was up more than 15% for the year.

Through our subsidiaries, we handled the marketing, sales and distribution of our product in 12 European countries and Canada.

The majority of our subsidiaries posted double-digit increases for the year, including two of our leading regions, Germany and Canada.

In each of the countries where we handled direct distribution of our product, we have seen increased brand acceptance as we have been able to open new accounts and broaden our product offering.

We believe we have more opportunities to expand our offering and open new accounts with the introduction of several of our newer brands in select European countries, including Unltd. by Mark Ecko, Rhino Red and 310 Motoring.

In March, we will be launching The Game, Hurricane by 310 sneaker in key specialty athletic stores in Europe and Kitson Footwear in better department and specialty stores in England and France.

Our international Company-owned and operated retail stores further improved our total international sales for the year, improving growth by 5%.

Our international distributor business was up slightly for the fourth quarter and for the year.

This is in line with our expectations of flat revenue for the year as we discussed during our third-quarter earnings announcement.

At that time, we noted that our distributor sales were up 25% year over year in 2004.

We believe the reason for the lower sales in some markets is due to longer cycling of products resulting in a slower intake of fresh styles.

Early indicators, including our double-digit backlog in January sales, lead us to believe that our distributor sales are on an upward trend and that sales will continue to improve in the first half of 2006.

Like our Company-owned SKECHERS stores, we believe our distributor-owned SKECHERS retail stores in select countries will both build the brand and positively impact the sales as it has in our subsidiary countries and in domestic markets.

By year-end 2005, 38 retail stores in 17 countries were opened by 12 distribution partners using SKECHERS images and Company guidelines.

This includes the first SKECHERS stores in Riyadh, Saudi Arabia;

Tel Aviv, Israel and Dubai, UAE -- all opened in 2005.

Also opened in the fourth quarter were two new stores in Santiago, Chile and two in Venezuela, one in Puerto Ordaz and the other in Caracas.

In 2006, SKECHERS distributors plan to open another 8 to 10 stores, including the first SKECHERS stores in Greece, Poland and Indonesia.

As in our subsidiaries, our international distributor business is supported by Company-created ads, commercials and POP as well as by regional celebrity endorsement agreements in select countries.

Regional celebrities have been signed in Israel, Japan, Hong Kong, Croatia, Greece and for much of Central and South America.

In addition, select countries have increased brand exposure by developing SKECHERS branded goods, including bags and apparel.

In regards to retail, we are extremely pleased with our domestic retail sales which are again up double-digits for the fourth quarter.

This marks the tenth consecutive quarter that we've achieved double-digit year-over-year sales increases in our domestic retail division.

For the year, sales were up almost 15% for our domestic retail stores.

We believe the increased sales are due to the growing demand for our product and the continued positive effects of our marketing efforts.

During 2005, we closed 3 stores and opened 11 new stores, bringing our total Company-owned store count to 121 in the United States, 10 in Europe and 2 in Canada.

These new stores include our first stores in the states of Washington, Delaware, New Hampshire, and Connecticut plus one new store in Alabama in the fourth quarter.

In the first quarter to date, we've opened one retail store in Park City, which is also a first in Utah.

Our retail stores have historically served as a combination of product testing centers, marketing vehicles as well as profitable distribution channels.

We plan to grow our retail business in the coming year with the addition of 15 to 20 SKECHERS domestic stores, and we will continue to pursue opportunistic international retail locations.

In an effort to market, test and further expand our non-SKECHERS brands, we have opened a new format of concepts stores called SOHO Lab.

In 2004, we converted an existing SKECHERS concept store in New York's SOHO District to the new format, removing all SKECHERS signage and graphics, replacing them with graphics from our fashion and street lines, Michelle K, Marc Nason, 310, Unltd. by Marc Ecko and Rhino Red.

In 2005, we converted two additional SKECHERS concepts stores in urban and/or fashion locations to SOHO Lab stores.

These stores now include more fashion-forward SKECHERS styles and also serve as a testing center for SKECHERS and our fashion and street brands.

We plan to open four more SOHO Lab locations built from the ground up, including our first in San Diego's Gaslamp District in the second quarter.

Again, we are pleased with the continued positive performance of our retail stores and believe this is a strong indicator of the strength and positive trend of our business.

Moving on to our licensing initiatives, royalty income for the quarter was 1.6 million and for the year was 6.6 million.

The licensing of the SKECHERS brand is led by our children's apparel in the United States, which has grown to include toddler apparel and children's sleepwear.

SKECHERS Kids apparel is also available in Canada through a separate licensing agreement.

We have further grown our children's brand with the licensing of SKECHERS Socks in the United States.

We've continued to selectively grow our international licensing agreement.

In addition to SKECHERS Kids apparel, we now have international licensing agreement for the design and distribution of men's and women's active apparel in Israel; for adult and children's active apparel, swimwear, hosiery and accessories in Japan; and new in 2005 bags in select Central and South American countries and watches in the Philippines.

We've also signed an agreement for SKECHERS bags in China, which are expected to begin shipping in 2006.

In regards to our licensing plan, we are currently focused on building our 14 existing domestic and international licenses, while carefully exploring new opportunities for SKECHERS-branded merchandise and apparel as well as for our uniquely-branded lines.

We continue to believe that selective licensing enhances the brand without requiring significant capital investment or additional operating expenses.

Now, I would like to have Fred go over the financial results.

Thank you, David.

It is a pleasure to be part of SKECHERS and to join you on the call.

Now, turning to our fourth-quarter and year-end 2005 numbers in detail -- as previously mentioned, the fourth-quarter sales were 223.5 million compared to 206.5 million last year.

The improvement in 2005 is due to a combination of factors, including significant growth in many key SKECHERS lines, strong growth within our new fashion brands, steady growth in domestic wholesale, double-digit growth in our Company-owned domestic retail business and increased sales in many of our key international markets.

Fourth-quarter gross margin was 41.6% compared to last year's gross margin of 39.7%.

The strong gross margin was positively impacted by a shift in our sales mix to our higher margin business units.

Gross profit was 93 million versus 82 million in the same period a year ago.

Total operating expenses as a percentage of sales were 37.6% compared to 40.1% in the fourth quarter of fiscal 2004.

We saw significant expense leverage from a combination of the 17 million or 8.2% increase in revenues as well as the continued careful management of general and administrative expenses, which increased 7.6% or 4.9 million.

Fourth-quarter selling expenses were 15 million, a decrease of 3.7 million from the prior year.

The quarterly decrease in selling expenses from 9.1% to 6.7% is primarily due to an increase in revenues and a timing shift in our advertising and promotional expenses.

Going forward, we expect our advertising costs to remain in our historical range of 8 to 10% of sales.

General and administrative expenses were 69 million compared to 64.1 million last year.

The increase is primarily due to the increase in the number of our Company-owned stores as well as increased salary cost.

Our general and administrative costs as a percentage of sales remained relatively constant at 30.9% this year compared to 31% in the fourth quarter of 2004.

Net earnings for the fourth quarter were 5.9 million compared to 2.1 million in the prior-year period.

Diluted earnings per share were $0.14 on approximately 41.2 million shares outstanding compared to earnings per share of $0.05 on approximately 40.2 million shares outstanding in the fourth quarter of 2004.

The increase in the share count is primarily due to the increased dilutive effect of the in-the-money stock options and options exercised.

For the year ending December 31, 2005, net sales were 1.006 billion versus net sales of 920.3 million for the prior year.

Gross profit was 420.5 million compared to 370.9 million in the prior year, and gross margin for 2005 was 41.8% versus 40.3% for 2004.

Selling expenses were 81.4 million compared to 79.7 million in the prior year.

General and administrative expenses were 269.4 million compared to 249 million in the prior year.

In 2005, operating expenses were 350.8 million compared to 328.7 million in the prior year.

Our balance sheet continues to be very strong and has improved even further.

At December 31, 2005, cash on the balance sheets stood at over 197 million.

Trade accounts receivable at year-end was 134.6 million, and our DSOs at December 31, 2005 were 46 days versus 43 days at December 31, 2004.

Inventory at year-end 2005 was 136.2 million versus 149.8 million at year-end 2004.

During the year, we successfully converted our Ontario distribution center into a foreign trade zone, which allows us to only pay import duties when goods are shipped.

This has resulted in a reduction in our investment in inventory of approximately 6 million as compared to December 31, 2004.

The balance of the decrease in inventory is due to a higher demand for our product.

We continue to focus on managing our inventory levels and have benefited from the positive sales momentum we are currently experiencing.

Working capital rose 13.8% to 352.7 million at year-end versus 310 million from the prior year, primarily due to cash generated from operations.

Long-term debt was 107.3 million.

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

The remainder is related to mortgages on certain real estate along with capital lease obligations.

Shareholders' equity at year-end increased 16.6% to 343.8 million versus 294.9 million at year-end 2004.

Ongoing capital expenditures for the year ended December 31, 2005 were approximately 13 million, which consisted of new store openings, store remodels, warehouse equipment upgrades and information technology hardware.

Next year, we expect our ongoing capital expenditures to be approximately 12 to 14 million, which includes the opening of 15 to 20 new stores, store remodels and further technology enhancements.

As we've said in the past, we are consorting a new corporate facility in addition to the amounts above under our construction contract, which has a maximum expenditure clause of approximately 18 million.

Now, turning to guidance, we currently expect first-quarter sales to be between 270 and 280 million and earnings per share of between $0.29 to $0.34 on approximately 44.5 million fully diluted shares outstanding.

In closing, we believe 2005 was the beginning of a new era in the Company's history.

We experienced year-over-year quarterly growth, resulting in a record year of over $1 billion, improved margin, strong profit and an increased demand for our group of brands.

We will continue to build on our momentum in 2006 by delivering the right product and the right doors at the right time in both North America and abroad.

Our efforts will be to grow our existing business with fresh styles and colorways and look at new opportunities to expand our collections, such as with the launch of Zoo York.

We will also look to expand our presence with bigger and better advertising spearheaded by household names -- such as Carrie Underwood, Terrence Howard and The Game -- across the country with additional 15 to 20 company-owned retail stores and around the world with another 8 to 10 distributor-owned retail stores.

We are well-positioned for a strong 2006 and with our key indicators trending positive including an improved backlog of 13.6% over last year, we believe we are well on our way to another record year.

Now, I would like to turn over the call back to our operators to begin the question-and-answer portion of the conference call.

(Operator Instructions).

Chris Svezia, Susquehanna.

Good evening or good afternoon, gentleman, and congratulations on a really strong quarter.

I'm wondering if maybe you can explain just quickly on the shift in advertising during the fourth quarter, just explain where it kind of went.

Did it go into the third quarter, or is it going into the first quarter or just kind of maybe explain what was going on there?

It actually went to both; you pick them both up.

If you look at the annual expenditures and the first quarter will be slightly higher in real dollar terms than last year, it sort of had a shift to October -- from the fourth quarter into the third quarter, predominantly September and January in the first quarter.

So, that was just a timing shift that we pick up on an annual basis.

So that's just related to the picking up on some of the TV advertising that you took advantage of during the third quarter?

Yes, it's some of the TV advertising and some of the cover dates, the more TV advertising that we did in the first quarter.

Then just on the forward order numbers being up strong 13.6% on the backlog, could you maybe talk a little bit about relative to first quarter versus maybe second quarter and domestic versus international?

It's stronger in domestic and international, other than maybe the distributors.

Actually, Europe is fairly even in local currency and slightly down in US dollars, and they are starting to pick up as they go through.

The biggest piece of what we have booked obviously right now is still for first quarter; although, we are expecting some more [Mat Ones] business and we are starting to fill in very nicely for our second quarter, which is back to school which will overlap June and July.

Then just on -- I guess on your implied guidance of 2.70 to 2.80 for the first quarter (multiple speakers) on the guidance for the first quarter.

So, maybe you can just talk about I guess what is really going to be the drivers to obtain that level of revenue?

Is it primarily going to be on domestic retail, wholesale division?

I was just wondering maybe if you'd add a little bit of color about that.

I think it's -- as in the past, it's going to be a combination of everything that we do.

We still see retail continuing very strongly through the first quarter, certainly through January and it seems to be holding up through February.

We've seen big increases in our wholesale business and it's both SKECHERS and the fashion division -- the fashions and sport divisions.

So, we are seeing a pick-up everywhere.

Our distributors are picking up, and we are starting to get the Mat Ones business in Europe.

So, it's across the board -- domestic, wholesale -- both SKECHERS and the new divisions are probably the strongest followed by retail and then international.

Then the last question I will ask and I will pass it on.

Coming out of WSA, any fall pre-line that's been done with some of your major retail accounts, what has been the reaction to some of that fall product?

It's all been very positive.

Also our pre-line through WSA has been very positive both for sell-throughs at the current period and acceptance of the lines going into back to school.

Deena Friedman, Brean Murray.

Congratulations, very nice quarter.

I was wondering if you could give me some information about the comps in the retail channel, specifically I wanted to get some color as to which channels in retail were the strongest?

Well, our customer base hasn't changed significantly over the years.

So, when we are strong, we're strong in a broad spectrum.

So we start with the specialty stores, which I've seen -- especially footwear, which is doing very well.

But we haven't really noticed any downturn anywhere.

I think our bigger accounts though, the ones that make up the largest part of our business, have continued to support and grow.

And I think it still continues to be true as we said on the third-quarter conference call that in our larger accounts, in our top accounts, we're growing faster than the Company has in general.

So, I think it's just disseminating down through the line to the smaller mom-and-pops.

So we continue pretty much across all the venues where we're selling right now.

And in terms of your own retail stores, are you seeing any difference between your full price and your outlets in terms of the comp performance?

Yes, there's always a difference, but the strongest piece has been in our comp store sales as was true last year for the most part.

But we've seen strong comp store sales in both our --

Across the board, all three.

And in the concepts and outlets so in the newer products.

So we're getting great acceptance from newer products.

One of the reasons our margins have increased so much is that we're getting significantly better sell-throughs at the concept of retail of new styles that carry higher margins for us.

So we've increased both the top-line revenue in the stores and our margins in the stores.

So, it's a great precursor for the sell-throughs of our product across the board.

Just one other question.

You talk about a number of store openings for next year.

Can you tell me where -- how that's going to fall out by quarter?

The largest will be in the third and fourth quarter.

We had one so far in the first quarter.

I think maybe one or two other ones depending on what the schedule is.

I don't remember, but I think there's about four or five possibly for the second quarter.

And the balance as we come along will be third and fourth quarter.

Excellent, congratulations again.

John Zolidis, Buckingham Research.

Great finish to the year, guys.

A question for you on the fashion brands.

I guess I would assume at 5% of total revenue that right now those brands are not contributing to the bottom line as a group.

I was wondering if you could confirm that -- and two, kind of talk about what the strategy is for making them profitable contributors and how big do they really need to be before they can start adding to the bottom line.

Well, I don't know.

I believe they contribute to the bottom line now.

I don't know why you would assume they did not.

We do not have an infrastructure built for them; they are self-contained.

It's the marginal cost of carrying those (technical difficulty) as far as warehousing is concerned, and everything is pretty small.

What we have is a design element and a sales element, and it covers its own.

So they are a contributor, even given the advertising we do.

And I think this is the first year that they've started to contribute in a positive way.

So, given the fact that they contribute now as they grow, they will contribute more and more.

So, and that's to your first part, they contribute now.

And as to the second part, they are of a size now where they contribute.

How big can they be is a very difficult question.

We would anticipate they're going to double or more this year.

And after that, I think they still have significant way to go.

So, 2005 was kind of the inflection point year, where they started to contribute.

Is that fair?

That's fair.

Well, good luck with the rest of the year, guys.

Scott Krasik, CL King.

Congratulations.

Since I guess after the third quarter, the worry might have been a little bit on the international distributor side and that's really been cleaned up, is there anything right now that's keeping you up at night?

Or is this thing just going on all cylinders and as long as the consumer holds up, you guys are in good shape?

What are you thinking about?

I think about everything.

I am a worrier by nature.

The only person that worries more than me is Fred.

So now I (multiple speakers).

But you know we worry about all the pieces obviously continuation, and we tend to worry about things that we don't know were coming from.

But, primarily they would be on a macro level.

Right now, we seem to be just trying to figure out what the order of magnitude growth of where we can actually fit in the marketplace and how big is big.

But obviously, there's more competition.

There is a macro picture, there's a Chinese picture.

So right now, we are feeling pretty good across the board.

But we do not want to feel too good because there's always somebody out there lurking, so --

What's the -- I think in your categories, you have it pretty well stabilized.

But, what's the levers I guess on gross dollars right now?

Is it just sales leverage or is there anything you can do on cost of goods to accelerate that as well?

You're talking about to get to the bottom line?

Yes, just to generate gross profit dollars.

Well, we're not concentrating extremely on expenses, while we always did watch them as we grow.

We think we will leverage quite quickly.

But two things would be to lever sales at high margins and to manage that portion of it.

Is that just full price selling or is there something you can do on the sourcing or--?

I don't think there's too much to be done on sourcing.

There may be a little bit of efficiencies to be gotten there, but I think most of it has do with full price and selling -- and managing inventory so as to avoid significant markdowns.

Okay and then Fred, I guess should we see the same type of G&A creep on next year that we did this year with the new stores, etc.?

Yes, I would think so.

A lot of the G&A creep that you're referring to this year had proportionately a little bit to do with additional retail stores and I would expect it to run up maybe not quite as much as the sales ramp, but I think you can expect G&A to increase.

Sam Poser, Mosaic Research.

Congratulations again.

A couple of just cleaning up things.

What is your share count?

What are you looking at the share count and the tax rate to be next year?

Well, I think we assumed a 40% tax rate generally speaking.

I don't see much change in that.

As far as the share count, a lot will depend upon how the stock price does in terms of fully diluted and what happens to the convert.

But we have no other -- that's a 3.4 million, the 2.5 million shares or so.

So, short of those two issues, I don't know that there's anything significant that is going to change the share count that we have contemplated at the moment.

Then how do you look in the fashion brands?

I've been hearing very strong things; you guys were very excited about it at the show.

Leaving 5%, can you give us an idea of how that breaks out and where you are really seeing the biggest growth, and what the game plan over time there?

I mean, how you see it growing and you know over next few years?

It's obviously different between real dollars and percentages.

I don't think we get in too much into detail.

But as we have said before, Ecko by its nature because it's such a strong retail brand and apparel and because it does encompass men's, women's and kids', which obviously Michelle K does not and 310 does not -- is the biggest potential and is the biggest single piece of what we have now.

But, they all grow, and I don't think we would like to sit here and limit any of them.

I think all of them have significant potential and could be significant stand-alone brands.

We will get a better handle on that through 2006 and 7 as we start increasing our distribution and tests and find our consumer acceptance.

You guys ran I think a 50-store test with Foot Locker.

On what?

On SKECHERS and Marc Ecko is what I saw in some of the stores.

Could you talk about how that's going and what kind of -- how that's looking for going forward this year?

Well, it was a very positive test, but I think it's still kind of early in the game and too small to start changing or taking numbers up to see how large it can be.

The test went as good or as well as we had hoped, and we're starting to move out.

We will have some increases as we go forward and certainly monitor and certainly have great hopes for it to continue and grow at a very rapid rate.

But right now, we're still in the test phase I think there.

Randy Scherago, First Albany Capital.

I am Randy Scherago's associate.

I was wondering, you gave a breakout for the licensing revenue of 1.6 million.

I was wondering, could you possibly break down the other categories -- the domestic, international, wholesale, as well as retail for the quarter?

Within that 1.6 million you mean?

No, not there as much as you broke out domestic wholesale being up 7% year over year.

Are you talking about sales?

Right.

Is that correct?

We said domestic wholesale was up about 9% I believe we said in the overall, and we had a double-digit increase in retail.

And international was basically flat.

That's the categories we break out, and I think we've given them all.

So, international was flat compared to last quarter?

Yes.

Yes.

International was relatively flat.

It was up in the subsidiaries and flat in the distributor base for the quarter.

It was slightly down in the distributor base and up about 15% for the subsidiaries as Fred said in his comments for the full year.

I have retail up about 20% for the fourth quarter.

Does that look about right?

Does that sound right?

Yes, it's close enough for government work.

It's in the high double digits just short of 20.

Just short of 20.

Possibly, could I get the revenue breakout between North American and Europe?

Well, our distributor base, which is what we break out, is about 20 -- it's just around 17, 18% of sales.

At this time, there are no further questions.

I would like to turn the conference back over to Mr. Andrew Greenebaum for any additional and/or closing remarks.

Mr. Greenebaum, please go ahead.

Thank you for joining us today on the call.

Again, I would like to note that today's call may have contained forward-looking statements.

And as a result of various factors, actual results could differ materially from those projected in such statements.

These risk factors are detailed in the SKECHERS filings with the SEC.

Again, thank you and have a good day.

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

We thank you for your participation.

At this time, you may now disconnect your lines.