Skechers USA Inc (SKX) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the SKECHERS USA Incorporated first-quarter 2006 earnings conference.

At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation.

Also, today's conference is being recorded.

Now, I would like to turn the conference over to your host, Mr. Andrew Greenebaum of Integrated Corporate Relations.

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

I will now read the safe Harbor statement.

Certain statements contained herein, including, without limitation, statement addressing the beliefs, plans, objectives, estimates or expectations of the Company or future results were 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 are not limited to the general economic and business conditions -- and condition in the retail 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, 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 of operations and financial condition.

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' first-quarter 2006 results.

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

For the first quarter of 2006, sales were 277.6 million, an increase of 12.7% over the first quarter of 2005 and a new record for first-quarter sales.

Net earnings for the first quarter were 16.6 million compared to 10.3 million in the prior period.

Diluted earnings per share were $0.38 on approximately 45.4 million shares outstanding, compared to earnings per share of $0.25 on approximately 44.3 million shares outstanding in the first quarter of last year.

On a year-over-year basis, our first-quarter 2006 sales represent the Company's ninth consecutive quarter of top-line increases and eighth consecutive quarter of bottom-line increases.

We achieved our record-first quarter sales but focusing on our proven products, as well as delivering fresh new style, increasing our advertising presence, and efficiently growing our business.

By focusing on our key strengths, we achieved the following in the first quarter -- record first-order net sales; double-digit sales growth in our domestic retail business with one new store opened during the quarter; double-digit sales growth in our domestic wholesale division; double-digit growth in our international distributor sales; significant improvement in our gross margins by 180 basis points year-over-year to 42.6% for the first quarter of 2006 versus 40.8% for the same period last year; and a very strong balance sheet with more than 181 million in cash.

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

We're very pleased with the continued improvements in our domestic wholesale division.

For the first quarter, domestics wholesale net sales increased by more than 15% from the same period last year.

The growth was achieved in both our SKECHERS and uniquely branded fashion and street lines, as we continue to develop existing product categories and build on initial sales and further growing new lines.

For the quarter, we shipped nearly 10% more pairs at an increased average price per pair of approximately 5.5%.

The fashion denim trend continues to be an important influence on our sales, helping to fuel the ongoing success of our Sport Fusion and Fusion lines for men and women in both our SKECHERS and non-SKECHERS brand.

Are now-familiar Bikers, Critics and Urban tracks are leading the pack with newer (indiscernible) such as Velocity and Crusades are also making waves.

These styles cross numerous lines but are primarily in our SKECHERS active line for women and SKECHERS USA and SKECHERS Sport lines for men and women, as well as in our SKECHERS kids line.

Also impacting our sales for women and young girls is our SKECHERS spokesperson, Carrie Underwood.

We believe the triple-platinum recording artist in SKECHERS ads and in-store displays has had very positive effect on our brand image, as she is perceived as America's sweetheart and a true success story.

In addition to our Carrie Underwood ad, we are supporting many of our core styles with product-intensive print and television ads.

Also performing well is our sport business and sandal offering, which is primarily in our men's and women's SKECHERS USA and Somethin' Else from SKECHERS line.

We have found young women purchasing the sneakers and sandals to go with their Capris and skinny jeans, two hot trends.

With the launch of a new Carrie Underwood campaign for back-to-school, we believe the sales of our sport and Fusion styles will continue their positive trend throughout the year.

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 divisions.

Each of these lines has shown remarkable improvement and growth year-over-year with three lines and the combined kids lines posting triple-digit growth.

The game signature 310 sneaker, known as Hurricane, has taken off helping the 310 brand reach the triple-digit growth point.

Since its launch in a single color (inaudible) the day after Christmas, we have delivered the style in five other colors, three of which were exclusives to select accounts.

The feedback on this style, which has also launched in Europe, has been exceptional with sell-throughs to match.

Additional color waves will be offered over the next few months and a new style is planned for later in the year.

We also began shipping the Hurricane kids sneakers in the first quarter, which resulted in strong sales as well.

With the game's new CD planned for this summer and a continued strong marketing campaign featuring the artist on TV, in print and on billboards, we believe the Hurricane sneaker will continue to be a top seller.

For 310, we now have the support of an incredible ad campaign featuring the much-praised and respected actor, Terrence Howard, who received a lot of attention over the last three months with Oscar and Golden Globe nominations for two critically acclaimed movies, 'Crash' and 'Hustle and Flow'.

The ads are just beginning to hit fashion and lifestyle publications, and we believe they will have a strong impact on the brand, which is already posting triple-digit improvements over last year.

The 310 brand has proven itself relevant, and we believe there is a lot of opportunity with the 310 brand for growth, both within the footwear as well as the opportunity to extend the brand beyond footwear and its [automotive] heritage.

Michelle K and Mark Nason, our two designer lines, have steadily built a growing clientele, which is reflected in their sales.

Both achieved triple-digit growth in 2005 and continued the trend in the first quarter of '06 with high triple-digit growth on a year-over-year basis.

Michelle K has grown into a well-established designer sport fusion line with distribution in leading better department stores.

We believe this brand has tremendous growth potential, due to its unique styling, its position in the marketplace, the strong design denim trend, and our consistent advertising efforts in leading fashion publications and better malls.

The Mark Nason line has hit its stride with its unique offering of Italian-crafted, hand-treated boots.

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.

The success of the Mark Nason line can be attributed to the unique nature of the product as well as the premium denim brand.

We're pleased with the opening of a premier boutique in Beverly Hills and have just started shipping this month.

By year-end, our largest department store account has plans to grow the offering to half its doors.

Late in the fourth quarter and in the first quarter of 2006, we introduced 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, and we began shipments to a major department store that already has plans to increase its door count in the coming months.

The Mark Echo footwear brands, Unlimited by Mark Echo and Rhino Red, also continue to grow in the first quarter.

With components of fusion, street and black and brown, the sneaker line for men and women has found their homes in many accounts that already carry Mark Echo apparel, as well as in footwear exclusive retailers who understand the power of the Rhino label.

The children's footwear collections continue to do well and are aided by the popularity of the Mark Echo apparel.

Two new footwear brands that have recently been added are Kitson and Zoo York.

Kitson is a collection of fashion sneakers reflective of its namesake, the hip Los Angeles boutique where celebrities regularly shop.

We began initial shipments of the footwear to the Kitson store in the fourth quarter and have now started rolling it out to select department stores and boutiques in the U.S., as well as to select stores in the United Kingdom and France in the first quarter of 2006.

Initial reaction has been strong.

Zoo York, owned by Mark Echo, is a leading urban skate brand that is strong in this 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 were underpenetrated, as well as in select specialty and athletic stores for back-to-school, 2006.

Each of our established fashion and street brands -- 310, Michelle K, Mark Nason, Rhino Red, and Unlimited by Mark Echo, has grown to be successful, and we believe they and the newer brands have great growth potential.

We support each of our brands with targeted marketing efforts, including print ads in more than 90 magazines nearly every month, as well as television sponsored spots on select programming.

We also just launched a new SKECHERS television campaign called real-life, which began airing on MTV the first week of April and has now moved to select national and local programming.

We also support our accounts with point-of-purchase displays and graphic packages, many catered to their specific needs.

We are a marketing-driven company and plan to increase our marketing presence over the next two quarters.

Now, moving onto international -- the international sales are comprised of wholesale direct through eight subsidiaries and international distributors through a network of more than 30 companies that service over 100 countries and territories around the world.

For the first quarter, SKECHERS International division experienced a slight improvement in its total sales.

Our international subsidiary business in total was down slightly for the quarter in dollar terms.

Several key countries, including Canada and Germany, saw improvements in the quarter.

Overall, our subsidiaries ended the quarter with backlogs up double digits, which should positively impact (indiscernible) performance in the third quarter.

We also believe the launch late in the first quarter of the games Hurricane by 310 sneaker in key specialty athletic stores in Europe and Kitson footwear in better department and specialty stores in England and France will have a positive impact on our subsidiaries sales in the future, as will the recent introduction of Unlimited by Mark Echo, Rhino Red, and 310 Motoring, which will allow us more opportunities to expand our offering and open new accounts in Europe.

The majority of International's growth came from our international distributor business, which improved by just over 12% over the first quarter of 2005.

As we indicated in our fourth-quarter and year-end 2005 conference call, our distributors had a very strong 2004 year and in 2005 were up against these strong numbers.

Also in 2005, the distributors faced some product cycling issues and a slower intake of fresh styles.

Now, in 2006, with the right product and marketing in place, the distributor sales have increased in the first quarter over the same period last year.

The growth came from all regions -- the Americas, Pan-Pacific, Europe and the Middle East, with the largest gains in South and Central America.

We believe this positive trend will continue based on our increase in double-digit backlog.

Many of our key distribution partners have opened SKECHERS retail stores in regions where they distribute our footwear.

As with our company-owned SKECHERS stores, the distributor-owned SKECHERS retail stores in select countries will both build the brand and, we believe, positively impact sales.

By the end of the first quarter of 2006, 13 distribution partners had opened 40 retail stores across 18 countries.

One store was opened in the first quarter, which was also the first in Poland.

In 2006, SKECHERS distributors plan to open another seven to nine stores, including the first SKECHERS stores in Greece and Indonesia.

Along with SKECHERS retail stores, our international distributors support their business with company-created advertisement, 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 up more than 11% from the first quarter of 2005.

This also marks the 11th consecutive quarter of double-digit year-over-year sales increases in our domestic retail division.

The improved sales are due to a combination of high single digit comp increases and an increased domestic store base of 10, year-over-year.

To date, we have 135 company-owned and operated retail stores, of which 123 are in the United States, including a store opened in Park City in the first quarter.

Our first store in Utah and a store in Dallas (indiscernible) North Park Center opened earlier this month.

Three of the domestic stores are under the name Soho Lab, a new format designed to showcase our uniquely branded fashion and street lines, as well as the most fashion-forward items in our SKECHERS collections.

The Soho Lab stores also serve as testing centers for these brands, as well as for new designs.

They've also created a product line that embodies the feel of Soho with trend-right designs.

In addition to the domestic stores, we also have ten company-owned and operated SKECHERS stores in Europe and two in Canada.

These stores are in areas in which we directly handle the sale of our products and we believe help position and build the brand.

We plan to continue to profitably grow our retail business this year with the addition of approximately 15 to 20 domestic stores, including 2 Soho Lab applications, one in San Diego's Gaslamp district, and another in Atlantic City, and we will continue to pursue opportunistic international retail locations.

Once 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 onto our licensing initiative, royalty income for the quarter was almost $1 million, which was primarily derived from our licensed children and toddlers SKECHERS apparel in the United States.

Adding to our royalty line is SKECHERS kids apparel in Canada through a separate licensing agreement, SKECHERS sock in the United States, as well as international licensing agreements for SKECHERS goods in Mexico, South Africa, Israel, South America, Japan, Russia and most recently in Germany.

With the belief that the SKECHERS brand is relevant in the United States as well as many markets around the world, we are continue to focus on building our existing domestic and international licenses while exploring new opportunities for SKECHERS-branded merchandise and apparel.

We are also looking at opportunities for brands in which we own the rights for licensing, such as Apparel for 310, Michelle K and Mark Nason.

Now, I would like to have Fred go over the first-quarter 2006 financial results in more detail.

Thank you, David.

As previously mentioned, first-quarter sales were 277.6 million, compared to 246.2 million in last year's first quarter.

The improvement in 2006 is due to a combination of factors, including strong domestic wholesale and domestic retail sales, an increase in our retail store base, sales improvements within our international distributors, significant growth in key SKECHERS lines and with each of our fashion street brands, and increased demand for in-line product with fewer close-outs resulted in higher margins.

First-quarter gross margin was 42.6%, compared to last year's gross margin of 40.8%.

The increase in margin is due to lower levels of close-out merchandise, significant margin improvements in our new fashion lines, as well as more improvements in our SKECHERS lines.

We are pleased with these new margins and now feel that we should be able to achieve a 41 to 42% gross margin in upcoming quarters.

Gross profit was 118.4 million versus 100.4 million in the same period a year ago.

Total operating expenses as a percentage of sales decreased to 33.2% from 34.3% in the first quarter of 2005, as we saw positive expense leverage.

First-quarter selling expenses increased to 20.2 million from 18.2 million in the first quarter of last year.

This increase in absolute selling expenses is primarily due to increased advertising and promotional expenses.

Going forward, with the addition of two new lines and increased demand for street and fashion lines, we will be increasing our advertising expenses, which is reflected in our guidance.

General and administrative expenses were 72 million, compared to 66.3 million last year.

Our general and administrative costs were down on a percentage basis from 26% of sales compared to 27% last year.

The absolute dollar increase is primarily due to the increase in the number of our company-owned stores, increased salary costs and travel expenses, partially offset by a decrease in depreciation expense.

Net income for the first quarter was 16.6 million, compared to net earnings of 10.3 million in the prior-year first quarter.

Diluted earnings per share were $0.38 on approximately 45.4 million average shares outstanding, as compared to diluted earnings per share of $0.25 on approximately 44.3 million average shares outstanding in the first quarter of last year.

Our balance sheet continues to be very strong.

At March 31, 2006, cash on the balance sheet stood at over 181 million.

Trade Accounts Receivables at the end of the quarter were 173.7 million, and our DSOs at the end of March 31, 2006 were 51 days versus 50 days at March 31, 2005.

Inventory at quarter end was 118.9 million, representing a decrease of 17.3 million or 12.7% from the 136.2 million at year-end.

Inventory decreased 11.9 million or 9.1% from the same period last year.

The decreased inventory levels are a result of continuing positive sales momentum that we are presently experiencing.

Working capital increased 28.9 million or 8% to 390 million at quarter end from 361.2 million at year-end.

Our working capital increased 66.3 million or 20.5% from 323.8 million in the same period last year.

Long-term debt was 107 million.

Of this amount, 90 million is related to our convertible debt, which matures on April 15, 2007, and will be classified as a current liability starting in the second quarter of 2006.

The remainder of our long-term debt is related to real estate mortgages and capital lease obligations.

Shareholders equity at quarter end increased 8.3% to 372.5 million, versus 343.8 million at December 31, 2005.

Capital expenditures for the quarter ended March 31, 2006 were approximately 4 million, of which 1.2 million is related to the construction of our new corporate headquarters.

The balance is related to new store openings, store remodels and Information Technology hardware.

We expect CapEx to be about 30 million for the full year, of which 16 million represents -- relates to the new corporate headquarters building, versus 14 million in total capital expenditures in the prior year.

We currently expect second quarter -- and now, turning to guidance, I'm sorry.

We currently expect second-quarter sales to be between 295 million and 305 million, which would be a new record quarter, and earnings per share of $0.41 to $0.46.

It is important to note, however, that, historically, SKECHERS' back-to-school shipping period occurs in June and July, overlapping both its second and third quarters, which has caused sales to shift between the two quarters.

The timing of when goods shipped is determined by the delivery schedules as set by our customers.

Early indicators for back-to-school look positive, as we have a healthy backlog, and we're still receiving orders as many retailers continue to book closer to the season.

We are pleased with the reaction and orders within our SKECHERS product lines, and we believe that our fashion and street lines are finding their place in the market, as is evident by the growing number of accounts and doors.

As previously mentioned, we are stepping up our marketing efforts with product-intensive ads, new campaigns and celebrity advertisements, Carrie Underwood for SKECHERS, Terrence Howard for 310, and the game for our signature line sneakers, and we may add more celebrities if we find the right fit.

It is important to note that, reflected in our guidance, is this increased advertising budget.

We are pleased with our ninth consecutive quarter of top-line growth, our strong profitability, and the continued demand for our product from consumers and retailers.

Our efforts are directed at maximizing this trend for the remainder of 2006 by delivering the right product at the right doors at the right time, in both North America and abroad.

We are continuing to focus on profitably growing our business, and we believe we are now on our way to a record new year.

Now, I'd like to turn the call over to the operator to begin the question-and-answer portion of the conference call.

Thank you. (OPERATOR INSTRUCTIONS).

Deena Friedman, Brean Murray.

Good afternoon.

Congratulations -- very nice quarter.

In your prepared remarks, I noticed that you talked about ASPs being up 5.5%.

Is that a function of more of the higher-end brands selling through better, or is that pricing on the core SKECHERS brand?

Both.

We had obviously less closeouts, less give-backs, and our better margins and therefore have better pricing, both on the SKECHERS and the new brands -- had at retail, as a matter of fact.

So we got it from all avenues.

Excellent; sounds very good.

I was wondering if you could give me some more detail on the backlogs.

It's up! (LAUGHTER).

It's up.

Well, you know, we don't give backlog numbers during the year, but this is about as big an increase as we've seen over the past number of years, so it's significantly into the double digits, and it's across all venues.

Obviously, the fashion brands are higher on a percentage than a real dollar basis.

The SKECHERS brands are up significantly, and international is up and our subsidiaries are up in dollar terms and up even more so in local currencies, so we're getting it across the board and it's about as strong as we've seen them.

Excellent.

Keep up the good work.

Thank you.

Chris Svezia, Susquehanna Financial Group.

Good afternoon, gentlemen.

Congratulations on a really good quarter.

I guess, David, first just on -- you talked briefly about your international subsidiary business.

I'm wondering if maybe you can add a little more color, kind of about what you're seeing going on in the markets, particularly in the UK and Germany and France, and some of the other marketplaces where you're currently doing business and kind of your thoughts as you look out to the balance of the year.

Well, we think we are building some strength in those places in Europe where we've had trouble getting started.

Germany obviously continues to do well, even in a tough economy.

Their backlogs are up higher than our norm and they did have sales increases even in the first quarter, even on a dollar basis, even with currency issues.

They were obviously up even more on a local-currency basis.

Canada also does very, very well.

They piggy-back the United States in both the wholesale perspective and the couple of stores we have up there.

They do quite well and have increased some.

What we see is, on a dollar basis and even more so on a local currency basis, increases in France, so that leads us to believe that we're getting some placement.

If we can get some good sell-throughs, we can get off the debt there and show some significant gains.

Certainly, the deterioration is done.

But the most promising piece is that our backlog in the UK has gone up significantly and in double digits, and they're getting spread out on their placements on the SKECHERS core brand, and getting some good results on both Kitson and 310, which we've placed out there.

So, UK being up this strong and going back to [future] and being almost on par now with Germany and coming back to that kind of level makes us feel very positive about the business there in general.

David, what do you think is driving the growth in the UK?

Is it more of a fashion presence.

Is it channel changes and channel distribution?

Can you talk at all about the promotional environment in the UK?

Yes.

I think, in the UK, we are obviously less promotional than last year.

We had more goods to clear out.

But to the first part of your question, it's always about the product.

The product is doing much better there, and we are in different locations.

We've moved a little bit away from the sporting goods outlets, which were having significant problems; they are into shoe stores and fashion shoe stores, and keeping our presence wherever we can in that athletic specialty.

So we're in places now like Office and Offspring and [Shoe], so we've picked up where we are and we are more widespread and obviously feeling a lot better and the fashion is just right for there.

Okay, I have two other quick questions, I guess.

The first is just on the inventory number.

I guess it looks like the third consecutive quarter, you guys are seeing significant declines in inventory, and I know, in the fourth quarter, there were some issues with regard to some of the new brands being a little more focused in terms of product selection.

I guess can you talk a little bit more about what happened here in the first quarter?

Do you have I guess enough product to kind of chase business and do -- (technical difficulty) -- orders during the second quarter, and do selling during the second quarter as well?

Well, we have some, obviously, it's spoken, but we could certainly use some more.

Had we known how hot we were going to be, obviously we would have taken care of that.

I think what you will see happening is that we will continue to chase it and probably won't catch it until the third quarter.

I think that leaves us in a situation where we are set for the second quarter and we're comfortable with our guidance, other than what might happen in that June/July timeframe and what could go the last week in June and the first week in July.

But I think what we are set up for is even a better increase in the third quarter, when we start to catch all of this stuff with our production cycle and stay that hot.

So I think it just builds from here and I think, if you do your channel checks, and most people honestly -- I think you'll find that they are short in product and while we have enough for their initial deliveries for the second quarter to go into back-to-school, they will be chasing it through the third quarter.

Just on your retail storefront, it would assume you had some minor impact related to the Easter shift, given the fact that you guys and obviously the quarter in March and didn't obviously get the benefit in April.

Is it safe to assume that trends have picked up maybe a little bit, relative to kind of the high single-digit positive comp that you saw during the first quarter?

Yes, I think we did quite well.

We comped very well through January and February, and obviously March was a difficult comparison because of Easter, and we ended up at high single digits, but we feel very comfortable now going through April.

We've picked up that end.

We are very close to getting back to double digits for year-to-date.

It's only the beginning of the fourth week of April and we feel, if things continue, certainly by the end of April/early May, we will be back to double-digit increases on a year-over-year basis for year-to-date.

Okay.

My last thing and I will just sneak in here real quick -- just any thoughts on the convert?

I know you and I have talked about this in the past, but I know you guys have the option to redeem it at a little over 100% of principal.

Obviously, the conversion price, it's more than likely going to trade above that, obviously, throughout tomorrow it seems like.

Any thoughts about what you guys might be thinking about doing?

Refinancing (indiscernible) convert, any thoughts there at all?

Yes, we're thinking about all of those terms.

Right now, I think the consensus is we would let it convert, or refinance it somewhere as we go down the road, depending on what our needs are and exactly how much we will be growing.

We have a year to go, so there's really nothing -- no feed to the fire and we don't have to make a decision, certainly even as it trades over that point.

So we will pay close attention and see how we're building and what goes on through the end of the year, and decide what best to do with it.

We tend to believe that will be over the conversion price, so all of the options will be ours through the second and third quarters.

So, we will take some time and decide which way it's going and see exactly how much we are growing and what we want to do, whether we want to redeem some of it or convert some of it or buy back some stock as we convert.

I mean, there's a lot of things that can happen that we will be deciding as we find our exact financial position or our growth rate as we go into the second half of the year.

Okay, sounds good.

Congratulations.

Best of luck.

David Turner, Branch Banking and Trust.

I wanted to dig into the pricing a little bit.

I was curious about the variance between these powerful new brands that you've got and how it relates to the core sketcher stuff.

I understand you're getting price increases on both, but what's the magnitude of the difference?

I guess, looking at that, how meaningful are the new brands going to be in the back half of the year?

Or even as you progress through the year?

I think you've said previously they are less than 5% of sales now.

Are they going to become 10% or somewhere in between?

I'm just trying to get an idea of how the pricing is going to play out throughout the year.

Okay.

On a twofold basis, we never said they are less than 5% now.

We said they were less than 5% then. (indiscernible) we happen to be more than 5% now as we go through (indiscernible).

So, they've stepped up and I think they could be significantly into the double-digit parts of our percentage of sales as we go forward.

They're growing on a very (indiscernible) -- and that's with SKECHERS continuing to grow.

Having said all that, they still make up certainly less than 10%, and their pricing increases can only have so much impact on the whole.

So the pricing, the positive pricing came from across the board, from SKECHERS, from just about all the SKECHERS lines, from active, from sport, from men's brown and black, from the kids, as well as the fashion brands and even some in international.

So -- and obviously, the cost of that stems from certainly less closeouts, better inventory positions, but broad-based, I think that happens when your product is right and you sell well into the marketplace, and there's not a lot of give-backs.

So we're getting to the full-price level that we should be at.

Second, regarding -- I wonder how big of a role (indiscernible) business played in the gross margin, the nice gross margin increase.

Again, it looks like you're maybe a little bit short this quarter, so it might have an impact on Q2.

You said you're comfortable with 41 to 42, over -- or I guess that could persist over a period, but I guess just a more closer-term outlook -- how much impact did it have on Q1 and is it teed up to do the same thing in Q2?

You know, I'm a little lost.

I will take it from backwards.

Our [At Once] business is not necessarily a margin increase.

When we're selling hot stuff, we don't really change our pricing significantly from the [At Once] portion.

The [At Once] portion that could impact us is if we have a significant close-out piece that has to sell through the quarter, which we obviously don't have and then don't anticipate having in the second quarter as well.

So the At Once piece won't have a margin impact.

It will have certainly a topline impact.

The more we sell through, the more right product we have, as people (indiscernible) going through.

So, I think we're saying 41 to 42% because we, even in our own conservative nature, couldn't stick with 40% but we still think that's conservative, and we think thin the dynamics that held in the first quarter certainly continue to second and third quarter.

Okay.

Then lastly, Fred, you've had your feet on the ground a (indiscernible) day-to-day a couple of months now I guess, in terms of prior -- what are your top two or three priorities as you -- with the newfound -- or you know, increasingly healthy capital position?

I guess have just ranked what you see doing over the next year, taking up the most of your time over the next year?

Well, I think we continue to grow this business and look for opportunities to be strategic in our investments.

I think we continue to refine some efficiencies here, and yet we are running.

We have an incredible infrastructure of which we can get additional leverage and just finding ways to do that and continue to work towards growing this company in ways that we -- and really capitalizing on the initiatives that we have and not being distracted into too many other initiatives.

I think we are pretty focused and the SKECHERS brands are really working well.

I think we will continue to grow that, as well as these fashion brands, and looking for opportunities to do that.

Okay, thank you.

Same Poser, Mosaic Research.

Congratulations, everybody.

David, can you talk, number one, about the new stores that you're going into?

I mean, I'm starting to see some goods show-up at FootLocker.

I heard your back in at Belk's and so on.

How many incremental doors are we going to see with the SKECHERS brand this year?

I'm really not sure get.

I would assume you'll see somewhere on the order of -- it could be anywhere from 4 to like 700 doors, I would think, depending on how quickly some of these new tests roll out to more doors.

When you talk about guys like Belk's and FootLocker and the FootLocker chain, I mean, obviously the door count there is outrageous, or outrageously large and good.

So it's very difficult to tell, as we start selling at these great sell-through rates, exactly how many doors we can actually go out to.

But there will be significantly more doors, no doubt.

Okay.

You gave us guidance for Q2 and indications that Q3 could be a little bit better as for on the top line, anyway.

Can you give us -- can you give us some thought as to what you're thinking on the full year?

You know, we never really give guidance for the full year.

But as I've said in the past and I've said before, we think third quarter is a significant opportunity.

It was not strong enough last year and things had moved around.

Just to give you an idea, if you think of moving out through the quarter as we had a significantly stronger margin this year than February and it doesn't usually work that way.

A lot of people are trying to buy closer to the vest; a lot of customers have moved inventory to that way.

Given where our backlogs are and the fact that some -- a lot more is moving to July and the fact that we are short of inventory to move and we feel so positive about second quarter -- I'd only tell you that we certainly have significantly more potential in the third than the second.

The way our products are being received, obviously (indiscernible) is very typical but because it's small, we can have significant impact with new product launches as we go through, which we will find out more about at (indiscernible) next month.

So as we sit here, as good as we feel about first and second quarter, we still think there's significant and more potential in the back end of the year.

Okay, and then what is the tax rate and share count we should be using, because that's been bouncing?

Well, it hasn't been bouncing.

We've actually been increasing our share count considerably, and you can understand that just based on the options outstanding, and we're more in the money.

But we're very close to the end of that process, so I would use a 40% tax -- we've been running 39% taxes, but to be a little on the safe side, I would use 39.5 or 40 and use a 45.5 million share count going into the short-term, second and third quarter.

Okay, great.

Congratulations again.

From first Albany Capital, [Amrit Sandeer].

Good afternoon.

I was wondering.

Can you give us a breakdown of your geographic, North America versus Europe, in terms of sales?

Well, North America is obviously the biggest piece of our sales.

Also, I would think that North America -- you know, our international business, in general, represents a little less than 20% of our sales, and that wouldn't even include Canada.

So it's safe to say we were at 80%-plus in North America.

Great.

I know you gave increases, cost, domestic and wholesale --.

Increased -- oh, yes, I missed that part.

You were giving basically year-over-year increases in wholesale versus retail versus international.

I'm just trying to get some of the numbers on that.

Just correct me if I'm wrong, but I'm estimating domestic wholesale to be about 174 million, international to be about 51, roughly 52, and then retail to be about 50.

Does that seem about right?

That's pretty close.

For Q1, you know, that's pretty close.

You know, the Q will be out and all of that information will be available.

So rather than getting into very specific detail, that's certainly a ballpark number.

I think it's certainly within 5 or 10%.

Okay.

Just one last question -- regarding the Hurricane sneaker, can you give us actual shoes that might have been sold since this launch?

No, we're not ready to come out and give that yet.

It's significant, but it's growing.

So, I don't know that we're ready to just give shoe counts out there.

But it is in the hundreds of thousands of pairs since December.

Okay, and this -- and the number of SKUs out there, about six or seven?

Would that be right?

Yes, seven color waves now, not counting the new shoes that are coming out, yes.

(OPERATOR INSTRUCTIONS).

Susan Sansbury, Miller Tabak.

Yes, thanks.

Just a point of clarification on the international sales -- I'm not quite clear why sales were flat.

Can you discuss the difference between currency and other and fundamental trends?

Can you tell me what the currency impact is?

The currency impact is only on our subsidiaries that were slightly down.

They would have been much closer to break even at best case, even though we're not going to make a point that they were (indiscernible).

Our distributor business that was up 12% is all in dollar denomination; there is no currency impact at all.

Okay.

So the currency impact is light and we obviously performed better with our distributors than our subsidiaries, but we think that will clear itself or come more even keel by the third quarter when all of these backlogs that we have start being shipped.

Okay, but what I'm getting confused -- so the subsidiaries were down, the international distributor business was up, so it's a flat comparison.

Is that what you said?

Correct.

Okay.

Why were the subsidiaries down?

Sorry?

Why were the subsidiaries down?

Well, they just had a tougher year.

A little bit of it was currency, and we had a tough time in England in transitioning products that continued from last year, and we've had a tough time in France.

Germany continues to be our bellwether and Canada seems to be strong.

So overall, we had a relatively flat first quarter, but we've come out of it with product testing very well and coming back in England and France and those places with an overall double-digit increase in backlog as we sit now.

So we think we've cleaned out most of those problems and got the right products for those (indiscernible).

The problem with our subsidiaries -- or not the problem, but the reality of our subsidiaries are they are not a very big second-quarter shipper.

Their back-to-school really doesn't start in June like ours, so we really won't see that until July or August where we will have significantly positive comparisons, we believe.

Okay, great.

That helps very much.

Thank you.

We have no further questions at this time.

I'd like to turn the conference back over to Andrew Greenebaum.

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.

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

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

Again, thank you and have a good day.

Ladies and gentlemen, that does conclude our conference today.

We thank you for your participation; have a great day.

You may now disconnect.