Skechers USA Inc (SKX) 2006 Q4 法說會逐字稿

Good day everyone and welcome to the Skechers USA Inc. fourth-quarter 2006 earnings conference call.

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

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

Please go ahead, sir.

Thank you, Lisa.

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 result 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 that are not limited to, the general economic and business condition and the conditions 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, its filings on Form 10-Q, Management's Discussions 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 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 year 2006 annual results.

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

Year-end 2006 net sales were $1.205 billion, an increase of 20% over last year and a new record for our annual revenues.

Fourth-quarter 2006 sales totaled $304.5 million, a 36% increase over fourth quarter 2005 and a new fourth-quarter record.

On a year-over-year basis, our fourth-quarter 2006 sales represent the Company's 12th consecutive quarter of top-line increases.

Net income for 2006 was $71 million versus net income of $44.7 million in 2005, a 59% improvement over last year.

Net income for the fourth quarter of 2006 was $14.6 million, a 147% improvement from $5.9 million last year.

Diluted net earnings per share were $1.59 for the full year and $0.33 for the fourth quarter of 2006, which is above our previously revised guidance provided January.

On a year-over-year basis, our fourth quarter 2006 net earnings represent the Company's 11th consecutive quarter of bottom-line increases.

When we reported our 2005 year-end numbers at this time last year, we said we felt our strong financial performance and new position as a $1 billion brand marked a new era for Skechers, one of increased scale, profitability and growth.

Our growth over the past year further enhances our belief that we're on target with each of our segments, our product, our marketing and our infrastructure.

We believe our continued improvement is a result of our dedicated efforts to globally deliver the right product into the right market at the right time and in the right quantity, and then to support it with the right marketing efforts.

With this strategy, we have delivered more in-season product, continuously offer fresh trend-right styles and introduced new lines and categories that have been broadly accepted in the targeted markets.

As a result of these efforts, we achieved the following in 2006 -- double-digit improvement in many key Skechers lines driven by the continued demand for our low-profile and fusion styles, as well as our growing kids offering that include Skechers Air Raiders for boys; significant improvement in most of our street and fashion lines, including triple-digit growth in several men's lines and our kids fashion lines; successful introduction of several new lines, including Skechers Cali and Zoo York; double-digit sales growth in our domestic wholesale division; double-digit sales growth in our international subsidiary and distributor businesses; double-digit sales growth in both our domestic and international Skechers retail divisions with a net increase of 20 stores for the year and increased average selling price by $1.00 per pair, or more than 5%, with an increase of pairs sold by more than 15% in the U.S.

Efficiently and profitably growing our domestic and international wholesale and retail businesses with fresh in-season styles resulted in several key achievements in the fourth quarter.

These include --record fourth quarter sales and our second consecutive quarter of sales over $300 million and our 12th consecutive quarter of increased year-over-year sales, our 11th consecutive quarter of year-over-year bottom-line increases, backlog up 29% at year-end, continued year-over-year improvement of our gross margins by 40 basis points to 42% for the fourth quarter of 2006 versus 41.6% for the same period last year, a further improved balance sheet with $220 million in cash and short-term investments and current and on-plan inventory in line with our sales and backlog growth and to support our new division and stores.

We are very pleased with our financial results and liquidity, having more than $4.50 per share in cash, as well as our position in the global footwear marketplace at the close of 2006.

We also believe our growth trend will continue in 2007 based on our key indicators, which include comp store sales increases, strong backlog, sell-throughs at retail and very positive responses to our product during our January pre-lines with major accounts and at the WSA and MAGIC trade shows.

Now, I would like to expand on our 2006 achievement in our three operating segments -- Domestic Wholesale, International and Retail.

For the fourth quarter, Domestic Wholesale net sales increased by 48% from the same period last year and 22% for the year.

We believe this is a result of the strength and acceptance of our Skechers lines and the increasing recognition and demand for our fashion and lifestyle brands, as well as our goal of selling the right product into the right market at the right time and in the right quantity.

With the depth and diversity of our offering, we believe we have appropriate product for nearly every type of store in the U.S., from urban to suburban, from skate shop to high-end boutique, from specialty athletic to department store and for nearly every fashion-focused male and female, from toddler to teenager, to college student and parent.

The improvement in our domestic sales within Skechers lines can again be attributed to a combination of our sporty and casual low-profile styles for men and women as well as our street fusion looks for men.

Our top styles for the year fall within this category and are divided between what we now consider our signature styles, as well as updates to these proven winners.

These include Bikers for women and Critics and Urban Tracks for men.

We see this low-profile and street fusion trend continuing as we saw some of our top styles for the fourth quarter come from these categories, including one new outsole known as City Walker.

The growth of these categories has resulted in double-digit quarterly and yearly increases in our Skechers Active, Skechers USA for men and Skechers Sport for men, which is positively impacted by the continued success in our athletic looks.

Also contributing to our impress domestic wholesale performance was the double-digit growth of our Skechers USA casual line for women, which is comprised of our essential black and brown shoes and leather sandals, as well as Skechers Kids.

While our girl's sales have historically been strong variations on our women's styles, including the Bikers, as well as styles designed just for girls, we have seen much improved sales in our boys division.

We believe this is due primarily to the introduction of Air Raiders, or air-cooled sneakers, and back to school '06, as well as the continued success of our Energy, Annex and Stax boy's sneakers, many with alternative closure systems.

We believe our Skechers domestic sales were positively impacted by our aggressive yet prudent advertising efforts.

For women, we had a back-to-back celebrity approach; first Grammy winner Carrie Underwood in print, kiosk and outdoor campaign that ran throughout 2006, and then we launched a holiday campaign in the fourth quarter of 2006 with multi-platinum recording artist Ashlee Simpson.

The press around the signing began in August 2006, enabling us to have two celebrated singers as a face of the brand for several months in 2006.

We're looking forward to the expansion of the Ashlee Simpson campaign as new print ads with this singer wearing key Skechers styles in fashion and celebrity magazines and the outdoor campaign grows from key locations in Times Square and Venice Beach to select cities across America.

We continue to focus our men's advertising on key styles with our stacked ads which are easy to update with new looks and our television campaigns for Skechers Kids and adults in 2006.

Adding to the strong growth in the domestic wholesale business is our group of fashion and street lines for men and women and the accompanying children's divisions, which grew collectively by almost 90% from the prior year.

Fulfilling the needs of the urban and suburban set are Unlimited by Mark Ecko, Rhino Red and 310 Motoring.

Each one of these footwear lines are just two years old, yet each has carved out a solid niche in the marketplace with the Mark Ecko lines being positively impacted by the highly recognizable Rhino logo and 310 being fueled by its stable of celebrities.

For Unlimited by Mark Ecko, we saw best-selling styles from the classic street sneaker and low-profile silhouette, showing the diversity of the consumer and account within the men's lines.

We're expanding our Unlimited men's offering with a new package of vulcanized sneakers which we believe will be a strong category based on initial orders.

Like the men's Mark Ecko footwear, the Rhino Red collection also has best-selling styles with the classic street sneaker and low-profile silhouettes, also showing the diversity of the consumer and type of account within this line.

We're also expanding the Rhino Red line with full vulcanized sneakers, as well as thongs and skimmers.

Each of these lines increased its revenues by more than 50% from the prior year.

The Mark Ecko footwear brands were positively impacted by a print and kiosk marketing campaign that featured appealing lifestyle images, along with key product shots.

Looking ahead, we believe the sales will continue to improve of we're stepping up our marketing efforts in 2007 with singer actress JoJo as the new face of Rhino Red appearing in print ads, a television campaign, in-store and outdoor and a multimedia men's campaign featuring the graffiti-painted shoe which will include print, outdoor and a compelling TV spot.

We're also broadening the (indiscernible) campaign with a TV spot for boys.

310's reputation continues to grow and its triple-digit year-over-year sales increase is evidence of its strength in the market.

We believe the growth of this brand is attributable to the quality and styling of the product, as well as its alignment with urban trend setters and power players.

Our agreement in 2005 with multi-platinum hip-hop artist The Game to market a signature 310 line saw the release of one of the key styles in 2006, the Hurricane sneaker, with a multifaceted print, outdoor and television campaign to back it.

We expect the December launch of Hurricane 2 will continue to enhance the 310 line in 2007.

Additionally, we think the association with actor Terrence Howard, who appeared in 310 ads in 2006 and continues in 2007 has also had a positive impact on sales.

We're excited about our next venture with 310, a signature shoe line with hip-hop legend Nas who has achieved a great deal of recognition and respect in the music world throughout his 12-album career.

The Nas 310 line, known as Disciple, is planned for a June 2007 launch.

The children's offering of these lines, as well as that of Kitson, has also improved year-over-year with triple-digit gains reflecting the growing demographic and appeal of these brands.

Just a year old, Kitson footwear is growing in reputation as its namesake continues to garner press as the hip Los Angeles boutique where celebrities regularly shop.

The Kitson footwear represents the trendy boutique in its uniqueness with satire prints, funky embroidery and playful imagery and is regularly selected by editors as must-have sneakers.

Along with a steady press campaign, the line is supported by an illustrated print campaign that also features product shots.

New in 2007 will be a skimmer and a line of things that already has strong sales.

Rounding out our fashion and lifestyle division is Michelle K, Mark Nason and Zoo York.

Both Michelle K and Mark Nason grew year-over-year, with Mark Nason showing gains of just over 100%.

We believe the Mark Nason high-end boot and shoe offering has filled the need in the market and will continue to grow in specialty and department stores.

New to our fashion and street division is the footwear for Zoo York apparel, a brand with a solid reputation in skate and suburban communities.

Introduced at the end of the third quarter, we believe that Zoo York footwear has strong growth potential based on its reputation and orders received at ASR, WSA and MAGIC trade shows earlier this month and in January.

Also new is Avirex footwear, which is being introduced this month at select retailers, some of which carry the Avirex apparel line.

Owned by Ecko Enterprises, Avirex is a natural extension of our relationship with Mark Ecko.

We have had a positive initial reaction from accounts and believe that this line that was first known from its bomber jackets has a lot of potential.

While the total sales of our fashion and street brands is still relatively small in comparison to the Skechers brand, we believe these lines have great potential to further gain market share and grow sales.

We also see continued growth opportunities with our Skechers brand, including the recent launch of Skechers Cali, a sneaker and sandal line that typifies the California lifestyle.

Introduced in the fourth quarter, early sales were driven by vulcanized footwear and we believe our sandal offering will be strong for spring '07.

Now moving onto International.

For the fourth quarter and full year, Skechers' aggregate International sales improved on a year-over-year basis by over 18% and 12%, respectively.

The International sales are comprised of Wholesale Direct through our eight subsidiaries and more than 30 international distributors that service more than 100 countries and territories around the world.

Both our subsidiaries and distributors grew at approximately the same rate for the quarter and the full year.

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

Seven of our eight subsidiaries posted growth for the year, including Canada, one of our leading subsidiaries, growing by more than 30%.

While we believe all of our subsidiaries have tremendous opportunities to grow the Skechers brand in Europe and Canada, we see the fashion brands, including 310 and The Game's Hurricane 2 shoe as an opportunity to increase our shelf space in these regions without taking away from Skechers.

Based on 2006 sales of Unlimited by Mark Ecko and Rhino Red lines in Germany where it was first launched, we believe these lines will have a positive impact on our subsidiary sales across Europe as they are now available in each of these regions.

We believe that Zoo York and Kitson, now launching across Europe, will have a positive impact on our 2007 subsidiary sales.

With our subsidiary business continuing its momentum, we're looking at opening additional foreign subsidiaries, including Brazil and China, that we believe have great potential for the Skechers brand.

The growth in our international distributor business came across several regions with the best performers being the Americas, Eastern Europe and Australia/New Zealand.

The only area in which we have not seen growth is in Japan where the distributor has not kept pace with our overall growth and has not kept the consistent flow of new style in the market.

We have been working closely with Japan to correct this issue and are beginning to see the effects with an improved backlog.

We're encouraged by this and we believe Japan will be back on track by year end 2007.

Some of our fusion brands are now launching in many of our other distributor regions.

We see this as a tremendous opportunity to grow their business incrementally, much like in our domestic and subsidiary markets.

We are particularly encouraged by Central and South America with the Unlimited by Mark Ecko, Rhino Red and Zoo York lines as our distributor in this region believe that these brands will be a strong business.

To support their Skechers businesses, many of our key distribution partners have opened Skechers retail stores in regions where they sell our footwear.

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

Currently, 52 retail stores in 21 countries have been opened by 15 distribution partners.

In 2006, they opened eight stores, including the first store in Bangkok and the first in Beijing in the fourth quarter and four more in 2007, including our first in Taipei, another in Dubai, our eighth store in Chile and an outlet in Australia.

Two stores were closed in 2006, including one in Seoul.

Our South Korean distributor is presently looking for a better location to reopen the store.

Five to 10 additional distributor stores are planned for 2007.

As in our subsidiary business, we believe there's great growth potential for the Skechers lines with our network of distributors.

Like in the United States, we believe our aggressive and on-target advertising and marketing efforts from print ads to outdoors and from mall kiosks to Skechers stores has had a positive impact on our international sales.

The added impact of having world renowned celebrities, such as Ashlee Simpson, The Game and Nas has further increased our recognition.

Our international distributors support their business with company-created advertisements, as well as by regional celebrity endorsements.

In addition, distributors have developed Skechers branded goods, including bags and apparel, to further build the Skechers brand in their regions.

In regards to retail, our Domestic and International retail sales are up almost 20% for the fourth quarter and almost 18% for the full year.

The improved sales are due to a combination of double-digit comp increases and a 20-store increase from the prior year.

Domestic retail sales have increased almost 19% from the fourth quarter of 2005, making the 14th consecutive quarter of double-digit year-over-year sales increase in our Domestic retail division.

International retail sales improved more than 32% from the fourth quarter of 2005.

The positive International sales were a result of improvement in each region, especially in Canada, which also benefited from one new store.

We currently have 155 company-owned and operated retail stores, of which three were opened so far this year, bringing our total in the United States to 143.

Eight Skechers stores were opened in the fourth quarter, including our first concept store in the greater Phoenix area, which has had a very strong opening.

We also opened one SoHo Lab store in Q4 at The Pier at Caesars in Atlantic City, bringing our total for this concept to six.

In addition to the domestic stores, we have nine company-owned and operated Skechers stores in Europe and three in Canada.

Our sales in these stores are in areas in which we directly handle the sale of our product through subsidiaries.

We closed one store in Germany in January 2007.

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 through business in 2007 with the addition of 20 to 25 Skechers domestic stores and we will continue to pursue opportunistic international retail locations.

We believe the continued positive performance of our retail stores is a strong indicator of the strength and positive trend of our business and we will continue to selectively expand our store base in good locations.

Moving onto our licensing initiatives, we continue to see licensing as an effective imaging tool that will also add to our revenue stream without require the Company to build its infrastructure.

Our royalty income is primarily derived from our licensed children's and toddlers apparel where we also see the most branded building benefit.

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

We have continued to selectively grow our international licensing agreement through Skechers goods in Mexico, South Africa, Israel, South America and China.

We also launched Skechers adult apparel in Germany, Austria, Switzerland and the Netherlands in autumn-winter 2006 through the largest mail-order catalog in Europe, German-based OTTO.

Given the strength of the Skechers brand in the United States as well as around the world, we are continuing to selectively explore licensing opportunities that we believe will enhance our brand, grow our presence within select retailers while provide additional revenue.

And now, I would like to turn the call over to Fred.

Thank you David.

Turning to our fourth quarter and year-end 2006 numbers in detail, as previously mentioned, fourth quarter sales were $304.5 million compared to $223.5 million last year, an increase of 36.2%.

We experienced double-digit sales growth in all operating segments -- Domestic Wholesale, International Wholesale and Retail.

For the year ended December 31, 2006, net sales were $1.205 billion versus net sales of $1.006 billion for the prior-year, an increase of 19.8%.

The increased demand for in-line product resulted in fewer close-outs, discounts and allowances, which in turn generated higher margins in the fourth quarter of 2006, as compared to last year's fourth quarter.

Fourth quarter gross margin was 42%, compared to last year's gross margin of 41.6%.

Fourth quarter gross profit was $127.9 million versus $93 million in the same period a year ago.

Gross profit for the year was $523.3 million, compared to $420.5 million in the prior-year, and gross margin for the year was 43.4% in 2006 compared to 41.8% in 2005.

Total operating expenses for the fourth quarter were $105.8 million, or 34% of sales, compared to $84 million, or 37.6% of sales in the fourth quarter of 2005.

The improvement is due to positive operating leverage from the additional $81 million increase in revenues, as well as the continued management of general and administrative expenses.

For the full year 2006, operating expenses were $414.9 million, or 34.4% of sales, compared to $350.8 million, or 34.9% of sales in 2005.

Fourth-quarter selling expenses increased to $22.9 million, or 7.5% of sales, compared to $15 million, or 6.7% of sales in the fourth quarter of 2005.

The increase in selling expenses as a percentage of sales is primarily due to the planned increase in advertising and promotional expenses during the year.

This is in part related to new advertising campaigns for Skechers with Ashlee Simpson, the launch of Zoo York and our first TV spot for Unlimited by Mark Ecko for boys.

For the full year 2006, selling expenses were $109.9 million, or 9.1% of sales, compared to $81.4 million, or 8.1% of sales in 2005.

General and administrative expenses increased 20% for the quarter to $82.8 million, compared to $69 million for the fourth quarter last year.

Our general and administrative costs were down on a percentage basis from 27.2% of sales for the fourth quarter compared to 30.9% in last year's fourth quarter.

This increase is primarily due to the increase in the number of our company-owned stores, increased salary costs and greater warehousing and distribution costs.

Total G&A expense was $305 million, or 25.2% of sales for the full year 2006, compared to $269.4 million, or 26.8% in 2005.

Net earnings for the fourth quarter were $14.6 million compared to $5.9 million in the prior-year period.

Diluted earnings per share were $0.33 on approximately 46.6 million shares outstanding compared to diluted earnings per share of $0.14 on approximately 41.2 million shares outstanding in the fourth quarter of last year.

The increase in the share count is primarily due to the inclusion of our convertible debt under the [if]-converted method in the fourth quarter of 2006, but not in the fourth quarter of 2005, as well as an increase in the stock options exercise.

For the full-year 2006, net earnings were $71 million versus $44.7 million in 2005.

Diluted earnings per share were $1.59 in 2006 on 46.1 million shares outstanding versus $1.06 on 44.5 million shares outstanding in 2005.

Our balance sheet continues to be extremely strong.

On January 19, 2007, we called our 90 million convertible debt, and of said yesterday, the redemption date, substantially all of the issue was converted into equity.

At December 31, 2006, cash and short-term investments on the balance sheet stood at $220.5 million.

Trade accounts receivable at year end were at $177.7 million, and our DSOs at the end of December 2006 were 47 days versus 46 days at December 31, 2005.

Inventory at year-end 2006 was $200.9 million, representing an increase of $64.7 million from year-end 2005, which we believe is appropriate given our backlog and the size of our business.

Working capital rose 24.8% to $450.8 million at year end versus $361.2 million at December 31, 2005.

Long-term debt was $106.8 million.

Of this amount, $90 million is related to our convertible debt, which as discussed, has subsequently been converted to equity.

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

Shareholders equity at year-end increased 30.6% to $449.1 million, versus $343.8 million at year end 2005.

Capital expenditures for the year ended December 31, 2006 amounted to approximately $29.3 million, of which $16.9 million related to new store openings, store remodels, warehouse equipment upgrades and information technology hardware.

The balance of $12.4 million relates to a new corporate office building.

We expect our capital expenditures in 2007 to be approximately $30 million, which includes the opening of 20 to 25 new sources and store remodels.

Now I would like to turn it back over to David for guidance.

Thank you.

We currently expect first-quarter 2007 sales to be between $325 million and $335 million and earnings per share of $0.50 to $0.55 on approximately 47 million basic shares outstanding, assuming an effective tax rate of 38%.

With our new annual sales record of almost $1.25 billion and our 12th second quarter of top-line growth, we believe that our continued momentum is a reflection of our trend-right product offering, the strength of the Skechers brand name around the world and the successful introduction of several on-target fashion and street and lifestyle brands for consumers and our consistent marketing efforts, including the impact of our celebrities Ashlee Simpson, The Game, Evangeline Lilly, Terrence Howard, among others.

Account reaction has been extremely positive as we continue to deliver the right product into the right doors at the right time and the right quantity and consumers are reacting favorably to the diversity of our offering.

With these efforts globally, we believe that our sales will continue to improve year-over-year and that our three-year trend of top-line record-breaking quarters will also continue.

Our comp store sales and double-digit backlog along with the launch of many of our fashion brands overseas gives us confidence that our growth is continuing.

We look forward to our 15th year of business and new opportunities to grow our brand.

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

(OPERATOR INSTRUCTIONS).

Chris Svezia, Susquehanna Financial Group.

Good afternoon, gentlemen, and congratulations on a great quarter.

I was wondering, David, if maybe you could just talk about, with inventories building here, you're up 48% year-over-year, I was wondering maybe if you could just talk a little bit about how your backlog of 29%, how it might look as to move through WSA, the reaction to the pre-line, maybe the reaction to some of the early back to school product from some of your key retailers, because it looks like with inventories being up that much, it looks like the backlog will continue to grow from this point.

I was wondering if you could add any color on that.

I think that is true, but let me take a step back and give you a different perspective to look at this inventory and how we're looking at it now.

We view most of 2005, which is what we're comparing this inventory, as a year in which we were -- [2000] became under-inventoried and had trouble struggling to catch up with our inventory production to get the at-once pieces that we were looking at, and we've had these conversations in the past given the strength of our 2006, especially at the beginning of the year.

If you take a look at a two-year perspective, our inventory for the two-year period is only up 34% as opposed to 47% year-over-year as there was an actual decline last year in inventory.

And when you judge that against sales being up 31% and our backlog being up 46% from that benchmark two years ago, I think you put your inventory on a running rate back into significantly where is belongs and certainly within lines.

Additionally, I think you are right.

As we said in our prepared remarks, we had quite a good result, both at the shows and our January pre-lines, starting all the way in December at (indiscernible) to the product coming out for back to school.

And I'm sure those that have done channel checks would realize that we certainly don't see any slowdown and would anticipate a building of backlog as we go through the first quarter into the back half of the year.

Anecdotally, we'd note that our sell-throughs at retail, from what we have from our retail partners, continue to hold up, even though some of this time has been a difficult retail time.

So we think we're in the right place and back to historical norms as far as inventory is concerned.

Okay, that's good to hear.

Thank you on that.

And then just I was wondering maybe if you could talk a little about internationally, you went through that pretty quickly, but just on your subsidiary business.

Maybe if you could just talk about some of the country-specific trends you're seeing.

I know you've made changes in the UK with regard to some of your distribution partners.

I'm wondering if we can just talk about each one of those markets -- UK, France, Germany -- in a little more detail.

Germany continues to hold up.

They're our biggest and they were up certainly for the year, and this year, however, the big change in international will be that England has come along with those changes we had said last year.

Their backlogs are up significantly.

They're among our strongest backlog increases for International.

Also, their results, they were up almost 15% in sales for the fourth quarter and carried that momentum into the first quarter.

And given their size, that is certainly a big push for International.

France, we're beginning to see some signs of life and it's growing, and unfortunately we have nothing to report as far as year end as backlogs remain relatively flat and only up slightly.

I can tell you, however, that their sell-throughs are picking up and their backlogs have increased into the mid-double -- I should say -- upper-low-middle digits, whatever that would be, in January and February of this year with a very strong booking season that is pretty much on target to blow away last year.

So that has been positive.

Benelux continues to grow.

Italy remains about status quo.

Our Spanish business continues to grow.

We think we're looking for significant growth, that the growth of International, predominately our subsidiary in Europe, will match the Company on a local currency basis and probably exceed it when we convert back to dollars, so that will be a growth piece.

Our business in Canada, like I said, is up 30% last year, as we said in our prepared remarks, and their backlog is up higher than that at year-end.

That's good to hear.

And then I guess, just on the fashion brands real quickly, I know you've talked in the past, that business being roughly a $100 million business for 2006.

I was wondering if you could just add some color to that.

And also, it seems like you're very optimistic about growth opportunities in terms of product and distribution, both in the U.S., and obviously internationally for those business.

Can you just given us some idea of what the potential growth opportunity for those businesses could be?

I think we have mentioned in the past, we think the fashion brands should come out at a minimum of $150 million domestically in the United States.

They're just going to Europe and our distributors for the first time, so it's very difficult to have an upside, but we think in 2008, they certainly will be a significant player and should be like they were in the United States last year, possibly even like they have been in 2005 and possibly even like 2006, but they will have two seasons under their belts and get them started.

Congratulations.

Thank you very much, gentlemen.

Jeff Mintz, Wedbush.

Thanks very much, good afternoon, David and Fred.

Congratulations on a great quarter.

Just a couple of questions.

Can you give just a little bit of detail on the comp store sales in your various retail formats?

Sure.

For the quarter, we were up mid-single digits in our concepts, low-double digits in our outlets and mid-single digits in our outlets and I believe double digits in our International stores.

Great.

Looking out to 2007 on the domestic wholesale side, where do you see the increase, the growth coming from?

Is it more from additional doors, additional floor space, or just kind of a combination of the two?

It's always a combination -- well, not always, but this year, it happens to be a combination of the two, because our key retail partners are enjoying some of the same success we're enjoying and are increasing their door count for the first time at a very rapid rate that should make a difference coming into 2007.

So without an additional extreme amount of customers, we will be expanding doors in the customers we're in.

Our bigger customers where we're already all doors we'll be expanding their door base, and we anticipate getting additional shelf space as well.

Great, thanks.

And then Fred, just kind of a clarification.

Were you seen that the debt that was on the balance sheet, the long-term debt, that that essential has already gone in January with the exchange of the convertible, or is that still there as of today?

$90 million as of December 31 was there, but as of today, it has been converted into equity substantially.

I think all but $30,000 converted into equity (MULTIPLE SPEAKERS) $30,000 converted in equity.

Nut as of December 31, it will show up on the balance sheet.

Great, thanks very much.

John Zolidis, Buckingham Research.

Hi, guys another great quarter.

Question for you, and a follow-up question on the balance sheet.

Did you guys mention what the operating cash flow number was for the quarter -- for the year, rather?

We did not --.

We didn't mention it --.

Would you happen to have that handy?

We worked back, I -- okay.

He actually does.

And while you're looking for that, my question is -- and now that the convert has converted, and you're sitting with a pretty significant pile of cash, what are the future thoughts on balance sheet management with regard to that cash?

Thanks.

Nothing yet.

It just converted, as Fred said, yesterday, so being an opportunistic kind of Company, I don't think there's anything right now that we planned specifically to put that cash into.

We are always looking at all of the alternatives, whether it's a stock buyback or an acquisition, but we think the time is too early right now and it will settle in.

One of the issues is, how fast we will accelerate now in this growth process.

We seem to be doing quite well and accelerating into it.

So I would believe that we should sit back and watch and see exactly how fast we're going to grow over the next couple of years, because I think it still could surprise a lot of people and may require a little bit of cash investment.

On your first question, you're looking for what will show up in the cash flow statement at net cash flow provided by operating activities, is that what you're looking for?

Yes, I'm trying to back into what the free cash flow generation was for the year.

You're looking at EBITDA, or are you looking at cash flow, because --?

If you have the cash flow from operations, then I can figure out the CapEx on my own.

If you look at EBITDA, which is I think what you're more looking at, there's about $16 million and roughly $17 million of depreciation and amortization.

So you can add that back to the $71 million of earnings, then you get your EBITDA.

Obviously, we've invested in inventories and receivables and the full cash flow statement will be presented later.

We have a significant increase in inventories, you know, from year-over-year, and receivables as well.

So the actual cash provided by operating activities is substantially lower than that.

At the moment, it's just $30 million roughly because of the increase in working capital essentially in the business.

So I think those are the numbers you're looking for.

Roughly, during 2006, we had approximately $29 million of capital expenditures in those numbers as well.

Does that sound right to you?

Thanks a lot, Fred.

(OPERATOR INSTRUCTIONS).

Scott Krasik, CL King.

Just talk a little bit about your penetration now in the athletic specialty chains, and how you view that rollout over 2007 and beyond?

I would say we're still in the early stages and it's still quite restraining and has significant places to grow as it sells through.

It's one of those places -- we all believe that we have a place, and I think the retailers in that space think we have a place, but we're testing to see now what [seat] that our customers sell in that space and try to get a very solid base, rather than to try to push it in too quickly.

So I guess best defined as it's the very early stages of penetrating that marketplace.

You want to throw out a round number of how many doors have been out?

If I had to tell you today, I would think we're in less than 1500 doors, probably in the 1000 range, maybe less, but not significant penetration even within those doors, or all of them.

And then talk about -- you've done such a good job segmenting the distribution for your fashion brands.

Is there pressure from your big customers to bring some of those brands into the moderate channel?

How do you view -- do you think there's plenty of growth left in the existing brands?

We think there's plenty of growth left in all our channels, and we don't have -- we have some pressure, although I wouldn't call it significant pressure, to move some of those brands in places where we don't think they belong yet, but I think everybody understands that we're managing those brands and, as well as the Skechers brands, for the long-term, and it will be to everybody's benefit as they stay segmented, as you said.

So your sort of 50% growth targets there represent no real new avenues of distribution that aren't appropriate?

That's correct.

Okay, good.

Just a question about England improving.

Who is that coming?

Because I don't think their markets a growing double digits.

What is your growth coming, at whose expense?

Well, our growth, we've changed, and I think it comes a little bit from everybody.

I don't believe it's from any one person, but we have gone more into traditional footwear stores, like we are in the United States and family footwear brands, something like [Shoe] and like Barrett's, and we're not concentrated in the athletic end.

So while we have some business there, just like we do in the States, our growth is coming from traditional footwear levels, and I think all the traditional footwear growth in England comes at the expense of some of the athletic specialty.

So, some of the athletic brands.

Okay, good, alright thanks.

At this time, we have no more questions in queue.

At this time, I would like to turn the conference back Mr. Greenebaum for concluding remarks.

Thank you.

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 risk 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, this concludes today's conference.

Thank you for participating and you may now disconnect.