Skechers USA Inc (SKX) 2008 Q1 法說會逐字稿

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

Welcome to the SKECHERS USA first-quarter 2008 earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

(OPERATOR INSTRUCTIONS).

This conference is being recorded today, Wednesday, April 23, 2008.

I would now like to turn the conference over to Andrew Greenebaum of ICR.

Please go ahead, sir.

Good afternoon.

Thank you, everyone, for attending SKECHERS' first-quarter 2008 results 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 are not limited to, the general economic and business conditions and 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 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 businesses, results, operations and financial conditions.

And now, I'll 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 2008 results.

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

First-quarter 2008 net sales were $384.9 million, an increase of more than 11% over last year, and the highest first-quarter net sales ever and the second-highest quarterly sales in the Company's history.

Net income for the quarter was $32.8 million versus net income of $23.9 million in the first quarter of 2007, a 37.4% improvement over last year and the highest quarterly net income in the Company's history.

Diluted net earnings per share were $0.70 for the first quarter of 2008, significantly above our previously given guidance of $0.57 to $0.62.

We are pleased with our new record first-quarter revenues and quarterly earnings, particularly given the challenging U.S.

retail environment.

The record revenue and earnings were primarily the result of very strong growth across our international businesses, which represent 27% of our total sales for the quarter.

Our domestic wholesale, retail, and e-commerce divisions also grew year over year.

Our strategy is to continue our brand and product momentum across our U.S.

wholesale business and our leading subsidiaries to further build our brand and our other international subsidiaries, including our newest in Brazil; to deliver the right product to our distributors; to establish our new operations in China; and to continue to grow our retail business.

Our focus resulted in the following successes in the first quarter of 2008.

High double-digit sales growth in our international subsidiary business; double-digit sales growth our international SKECHERS retail division; sales growth in our domestic wholesale and retail division; double-digit growth in our e-commerce division; and double-digit improvement in our key SKECHERS men's and women's lines.

Our key financial achievements in the first quarter include record quarterly sales and our seventh consecutive quarter of sales over $300 million; record quarterly earnings of $32.8 million and diluted net earnings per share of $0.70; backlog up over March 2007; improvement of our gross margins by 150 basis points year over year to 44.7% for the first quarter of 2008 versus 43.2% for the same period last year; an even further improved balance sheet with over $259 million in cash and long-term investments, representing $5.55 a share; current and on-plan inventory, in line with our sales and backlog growth; and our tax rate reduced to 33.8%, which we believe is appropriate for the full year.

We have continued to aggressively grow sales and further solidify the position of our brands in the marketplace.

We believe the sales momentum we are seeing will continue into the second quarter based on our backlogs and sell-throughs.

While we are encouraged by our key indicators and our extended prelines with key accounts in January and February, we remain somewhat cautious about the coming year due to the challenging economic environment.

Now, I would like to expand our first-quarter 2008 achievements in our three operating segments -- domestic wholesale, international and retail.

For the first quarter, domestic wholesale net sales increased by 3.5% from the same period last year.

We are gratified with this growth given the soft retail environment and believe this is a testament to our ability to consistently deliver trend-right styles at an affordable price, which we believe is imperative during the challenging economic times.

We feel our aggressive advertising efforts, both on TV and in print, had a positive impact on our sales as our top sellers for the quarter are the same styles featured in our marketing campaigns.

This is true for men's, women's and kids styles, and across several product lines.

For SKECHERS, we have three men's, four women's, four children's, and one SKECHERS work commercial.

These cover our SKECHERS Sport, SKECHERS USA, SKECHERS Active, and Cali Gear by SKECHERS lines for adults.

For kids, these commercials are for Air Raiders by SKECHERS, SKECHERS Bungee, SKECHERS Super Z Strap, and Cali Gear by SKECHERS Kids Style.

We also support our men's and women's SKECHERS line with various print campaigns that appear in magazines as diverse as Time, Seventeen and Maxim.

For our fashion lines, we have effective print and television campaigns for almost every one of our brands, Unlimited by Marc Ecko, Red by Marc Ecko, Zoo York and 310.

Additionally, Red by Marc Ecko has the power of two of the hottest young movie, television and recording stars, Ashley Tisdale and Vanessa Hudgens, both of High School Musical fame.

Our newest brand, BEBE Sport Footwear, is backed by the beautiful Eva Longoria Parker, who appears in the BEBE Sport print campaigns.

We believe the continuous marketing support we provide and the diversity of our trend-right product offering has enabled us to grow our domestic wholesale business in the quarter.

We are pleased that our key lines, SKECHERS Active and SKECHERS Sport for men and women have double-digit sales growth.

Turning to our fashion and street line, on a comparable basis, we saw double-digit growth in our Kids Street fashion division, which is comprised of multiple boys and girls lines.

We also saw growth in Mark Nason line, which includes Siren for women and bags for men.

We had solid sales in our men's and women's Marc Ecko footwear and our men's Zoo York footwear, though the lines did not show growth from last year.

We restructured the distribution of our Marc Ecko footwear lines to better position the brand for profitability.

While this has not resulted in higher sales overall, the sell-throughs and margins have improved.

Zoo York for women is continuing to grow since its launch in the third quarter of last year.

As we stated, we're not immune to the current economic environment, but we believe we are extremely well-positioned given our multiple and unique lines comprised of more than 2500 trend-right and reasonably priced styles.

We are able to successfully meet the needs of a diverse consumer base in the United States by marketing our products through multiple mediums and to a variety of department, family footwear, specialty, independent and athletic stores.

We believe our fashionable product, broad diversification and willingness to support our business through both marketing and execution makes us the right brand for our retail customers and consumers.

Now, moving on to international, international wholesale improved by 39% for the first quarter, which we believe is an indicator of the continued strength of SKECHERS and the opportunities available to the Company to continue to gain market share on a global basis.

The strong growth in our international wholesale business is from our subsidiaries in Europe, Canada and Brazil.

For the quarter, our subsidiary sales improved by 70%, which is in line with the growth we experienced from them in the fourth quarter, giving us further Belief that our international sales have solid positive momentum.

Five of our seven European subsidiaries had very strong double-digit growth, while the other two, France and Switzerland, had triple digit growth.

We are particularly pleased with the growth in France and Italy, two regions we feel have underperformed in the past.

We feel Brazil has great potential and are encouraged by their strong performance this quarter.

We believe our product and marketing efforts are working and we look forward to continued growth in all areas.

From a product standpoint, the improved sales across our subsidiaries were the result of the continued growth of our SKECHERS men's, women's and kids lines, as well as the significant growth in the Marc Ecko footwear lines which are now in their first full year of sales.

We believe that our brands are in great position in our subsidiary markets in terms of shelf space, reputation and image.

Our distributor sales, which are approximately 25% of our international wholesale sales, were down 10% for the quarter.

This decrease was primarily due to some inventory issues in Central and South America, which are being rectified and bookings are improving.

We have seen very strong growth in SKECHERS in Eastern Europe and in the Middle East and growth in our fashion lines Israel, Canada, Greece, Taiwan, Chile and South Korea.

As we mentioned during our fourth-quarter year-end conference call, we relaunched our brand in South Korea during the first quarter with a new distributor and are pleased with both our initial sales and position in the market.

We are very encouraged by our backlog and believe our distributor sales will improve for the remainder of the year.

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

At quarter end, 64 SKECHERS retail stores were open in 24 countries from 17 of our distribution partners, including a store in South Korea.

Six additional stores are planned for this year.

In addition to our distributor-owned stores, we have five concept stores and one outlet in China through our joint venture.

We're off to a strong start in China, which just launched in the first quarter, and are already seeing shop-in-shops opening in key malls in Beijing, Shanghai, Guangzhou and Shenzhen.

We believe China, with more than 1.3 billion people, has tremendous potential and will begin impacting our international sales later this year.

At the quarter end, international was 27% of our total sales.

We continue to believe international can be at least 30 to 35% of our total sales in the near future, and there are many opportunities to grow our SKECHERS and fashion lines around the world.

In regards to retail, our combined retail sales for our Company-owned domestic and international stores were up nearly 7% for the first quarter.

The improved annual sales are due to a net 35 store increase in the prior year, partially offset by a mid single digit decrease in net comp sales.

At quarter end, there were a total of 195 domestic and international Company-owned retail stores.

Total domestic retail sales increased almost 6% from the first quarter of 2007.

At the close of the quarter, we had 179 Company-owned and operated retail stores in the United States.

Four SKECHERS stores opened in the first quarter, including two concept stores in Arizona and one in Reno.

We closed one store in the first quarter in Richmond, Virginia.

International retail sales improved 20% from the first quarter of 2007.

The positive international sales were a result of double-digit improvement in nearly every region.

We currently have 16 Company-owned and international SKECHERS stores, including nine in Europe, three in Canada and four in Asia.

We are pleased with the strong sales in our stores and believe this is in direct response to the growing awareness and acceptance of our brand in these regions.

We plan to continue to strategically grow our retail business in 2008 with the addition of 25 to 30 SKECHERS domestic stores and pursue opportunistic international retail locations, which include the opening of our first store in Scotland later this week.

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

Thank you, David.

Now turning to our first-quarter 2008 numbers in detail.

As previously mentioned, first-quarter net sales were $384.9 million compared to $344.9 million last year, an increase of 11.6%.

This increase is due to the double-digit sales growth in our international businesses.

First-quarter gross profit was $172.2 million or 44.7% of sales compared to last year's gross profit of $149 million or 43.2% of sales.

Operating expenses as a percentage of sales decreased 30 basis points to 32.4% in the first quarter of 2008 compared to 32.7% in the prior year due to positive operating leverage from our higher sales and a reduction in selling expenses, which was partially offset by an increase in general and administrative expenses.

First-quarter selling expenses decreased to $25.5 million in the period from $26.8 million in the prior year.

The year-over-year decrease in selling expenses to 6.6% from 7.8% was primarily due to a reduction in the trade show and POP expenses, partially offset by an increase in media spend.

General and administrative expenses were $99.2 million compared to $86 million last year.

Our general and administrative costs increased 90 basis points to 25.8% of sales compared to 24.9% in last year's first quarter.

The increase was primarily due to the increase of 35 Company-owned retail stores in the prior year's first quarter as well as increase in salary, warehousing and distribution costs related to international.

Net income for the first quarter was $32.8 million compared to net income of $23.9 million in the prior-year period.

Diluted earnings per share were $0.70 on approximately 46.6 million average shares outstanding compared to diluted earnings per share of $0.52 on approximately 46.8 million shares outstanding during the first quarter of last year.

Our balance sheet continues to be very strong.

At March 31st, 2008, cash and long-term investments stood at over $259 million.

While we are cautiously optimistic that the liquidity will be restored for our auction rate securities in the short term, we felt it was prudent to classify them to a long-term asset during the quarter.

[Trade-up] accounts receivable at quarter end were $237 million and our DSOs at March 31st, 2008 were 48 days versus 53 days at March 31st, 2007.

Inventory at quarter end was $178.4 million, representing a year-over-year increase of $9.3 million.

We continue to believe we are prudently managing our inventory position.

Working capital decreased 18.8% to $425.6 million at quarter end, primarily due to the reclassification of our auction rate securities to long-term assets.

Long-term debt was $16.4 million, which is primarily related to mortgages on certain real estate.

Shareholders' equity at the end of the first quarter increased 5.5% to $650.9 million or $14.20 a share versus $626.7 million as of December 31, 2007.

Capital expenditures for the quarter ending March 31, 2008, were approximately $14 million as compared to approximately $8 million in the prior year.

We expect our capital expenditures for the remainder of 2008 to be approximately $37 million, which includes the opening of 25 to 30 new stores, store remodels and the purchase of additional real estate.

And now, I would like to turn it back to David for guidance.

We are pleased with our record first-quarter revenues and highest-ever quarterly earnings, particularly given the challenging U.S.

retail environment.

As I mentioned, our focus for 2008 is to continue to build on our momentum in our wholesale business in the U.S.

and our leading subsidiaries; to further grow our brand in our other subsidiaries, including our newest in Brazil; to deliver the right product to our distributors; to establish our new operations in China; and to continue to grow our retail business.

Though only a few weeks into the quarter, we are pleased with our initial sales and believe we will have solid second quarter, given this and our healthy backlog.

While we are encouraged by our key indicators, we remain cautious about the coming year, and therefore, are providing a broader guidance range for the second quarter.

This guidance reflects the difficult retail environment, which has resulted in many retailers requesting products shipping closer to their needs.

We now expect second-quarter 2008 net sales to be in the range of $350 million to $365 million and diluted earnings per share in the range of $0.30 to $0.38 on approximately 47 million diluted shares outstanding using a tax rate of 33.8%.

We will continue to support all of our brands with aggressive marketing efforts to ensure we are top of mind with consumers and that our footwear achieves strong sell-throughs.

We are also continuing to support the Company with necessary investments and improvements to grow to the next level in the coming years.

This includes our new corporate headquarters, which is scheduled to open this summer; the new distribution centers, which are currently planned for mid to late 2009; and the acquisition of some additional property across from our new corporate headquarters, which will ultimately serve as a campus and additional office space.

Again, while we are not immune to the current retail and economic environment and are carefully planning our worldwide business, we believe our brands will remain strong in the domestic market, and we will continue to experience growth around the world.

We remain very focused on profitably growing our business in the coming year.

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.

Congratulations, gentlemen.

I guess David, just on the first quarter, maybe, can you quantify possibly on the margin, just -- the sales came in at the low end of your sort of guidance.

Just can you break down on the gross margin how much was merchandise margin improvement or how much was from foreign exchange.

If you can give any color there, that would be helpful.

Well, to break it down as best we can, domestic wholesale remained relatively flat year over year.

So the big increase had to come from our international subsidiaries.

The differential in foreign exchange was probably about 15% for the year, but their margins were up over 100 basis points.

So it's mostly for product in Europe, and obviously, it's the shift as well.

We came in significantly stronger in our subsidiary business than our distributor business, and obviously, slightly higher at retail simply because of the new stores, and that was both because of those fluctuations brought the whole margin up.

But we had no deterioration in domestic wholesale, nor our international distributors.

So it was just a plus from the increased percentage of our subsidiaries.

That's helpful.

That's good to hear.

And I guess as you, in the past, when you guys have looked at your second quarter, there has always been an incremental I guess shift to some degree, depending on how product was shipped for back to school between Q2 and Q3.

I mean I guess what are retailers telling you right now in terms of how that may or may not unfold sort of given the environment at this point?

Did you factor that into your thought process in regard to the guidance?

We obviously took it into our thought process.

It's a very difficult conversation to have with retailers because they don't understand the distinction.

To them, whether they take it the last week in June or the first week in July is sort of artificial.

It doesn't change anything.

It just changes for us.

We've taken into account that most retailers have told us they've wanted closer to need, so we shifted as much as we could from June to July.

So basically what you see in these projections is a very solid international performance and a projected decrease in domestic wholesale, giving us that net number for the quarter.

And how about Company retail?

Is the comp trend more than likely going to continue to trend negative at this point?

We have been considering it flat to slightly down, although we have significant improvements over the last week to 10 days, which could be a positive.

Okay.

And then just on the expense side, on the selling expense side, obviously did a nice job dollar-wise year over year with it being down.

Just kind of give us again your thoughts in terms of how you sort of projecting that line for this year.

And if Robert decided to increase spending going into back to school, what's your thoughts about that, given the fact that in the past it seems like to me retail customers indicated that that drives SKECHERS business.

Any thoughts to that?

I don't think anybody would say we're backing away from the media spend.

Even in Q1, where the expenses were controlled and were slightly down, our media expense was up.

We plan on continuing to advertise and looking for more efficiencies in our other marketing venues.

In the first quarter, we actually cut some of our show expenses, becoming more efficient in the show and cut some of our POP expenses.

So to that extent, I would think that holds consistently for the year.

We'll probably be up in media expense driving the sales, but relatively flat or slightly up due to the control of the other expenses in the marketing lines.

So the selling expense line, does that -- so for Q2, how are you looking at your selling expenses?

We are looking at -- like we said before, we will be within 10% of last year when everything is said and done.

That's helpful.

Okay.

Thank you very much, gentlemen.

Scott Krasik, CL King & Associates.

Let me add my congratulations.

Can you say generally, David, how much or what percent of your sales are now in the fashion athletic category and how you are envisioning those sales?

It seems like a pretty mature category at this point.

Well, the categories are always changing, and they have very broad definitions, and we tend to see them switch from one to the other.

We talk about low-profile and then athletic and then jogging.

We're within that entire mix.

It makes up a significant percentage, but certainly not all of it.

We have a very large kids business.

We have a very big fashion business that has some of those characteristics and some that do not.

We have a work business that's growing and it's growing around the world.

And our men's business, which is only partially in that world, growing.

So I would venture to guess if you don't consider kids part of that realm, that it's certainly significantly less than 40 or 50% of the whole.

And we keep reminding everybody, we're a very flexible group.

As things change in the marketplace or as merchandising requirements change, we're very flexible and can change very quickly and we think our name carries it.

So --

Is your belief though that that category, the low-profile category, will -- the growth will start to [subside] and that they will tend to your sort of internal numbers?

We take it into account as we see them book.

We have new styles that are selling, and some of them crossed over, so it's very difficult to put it into place.

But sooner or later you come into the rules of large numbers and that category and people's tastes tend to change.

So we haven't seen anything that would have a serious negative impact on any of our divisions that are in that.

And some of them have switched to more athletic looking and some of them are cut differently and some of them are different uppers.

But we haven't really seen any slowdown in our men's and women's categories as yet.

Good.

Okay.

And then, Fred, do you know what the total sales of the brands that you discontinued in the fourth quarter, the Avirex and the 310, how much you had in sales in the first quarter and also the second quarter in 2007?

Of the discontinued brands (multiple speakers)?

Right.

Sort of what are we exing out here?

We don't -- I don't know that it's we've given that kind of level of detail in the past.

Well, I guess you said in the third quarter of '07, it was about $8 million and you were beginning to phase it out, so I assume it was something higher than that, but -- just trying to figure out what the apples to apples comparison is.

Just off the top of my head, I would think it's about 3 or $4 million in the first quarter, for that actual -- call it the kids in the Avirex and the Michelle K.

310 is still with us, obviously, on a smaller scale.

And the kids businesses are still with us.

So I would guess it's in the 3 or $4 million category for Q1 last year.

Okay.

Good.

And then, this 33.8% tax rate it's based on this higher international sales level; is that what we should use for the year?

Yes, that's correct.

Okay, great.

Thanks very much, guys.

Sam Poser, Sterne Agee.

Congratulations as well from me.

I just want to understand here that on the domestic -- can you break down more specifically how you are seeing the domestic wholesale business looking ahead?

Is Q2 really because of these shifts, where you're going to see softness?

And do you expect to get that back later in the year?

So far as we know right now, that's what it certainly looks like, given our ordering patterns and our backlogs.

We've seen booked heavier ahead in Q3, and relatively even to slightly down for Q2.

So we take into account in our assumptions for our guidance, that we will have a stronger Q3 than Q2.

But of course, that could change as retail changes in a sense product gets hotter.

But right now, our guidance would be along the lines of increases at our own retail stores, simply because of the new stores and a relatively flat comp and a significant increase in international, which has significant increased backlogs and a big growth in our distributor-based sales, and a decrease in wholesale that we think is going to be made up in the third quarter.

Do you see gross margins staying at that 44 to -- that high level it did in Q1 or are you positioning in a slightly lower gross margin than that?

Well, we plan a slightly lower gross margin across the year.

This is just when we seem to have maximized our international subsidiaries and that mix is at a maximum for gross margin purposes.

We'll have a bigger wholesale -- domestic wholesale component for Q3, which will slightly moderate at that piece; and certainly a growing domestic distributor business, that will also moderate some of that piece, although at a higher sales number.

So I think this is about the peak and we planned it down somewhat.

It's more of a mix change as we look forward to changing the margin than it is essentially by division.

Okay.

And then, to follow up on Scott's question, on the low-profile, the biker product in general, I heard quite a bit that it had slowed down, and then I was hearing a lot of very positive things about the new energy show, the [Delites] and the product of that nature.

Is this a situation where one might have slowed down a little faster than you expected and you weren't ready for the acceleration of the other and part of the Q2, Q3 movement is getting -- is getting into stock in those -- in the Delite or like styles there with the slowdown of lower-profile product?

I don't think so.

We don't have any delivery issues, and it's not like we can't deliver it in June if they want them or July to what we need.

Nor do we have excess inventory we feel in any of those categories.

So we think we are playing it just the way it belongs.

Some things tend to seem slower or faster.

And it's a very difficult retail environment.

But we think we got our hands around it and we haven't seen any significant increase in inventories, nor any significant shortage that would delay deliveries.

It's not us that's making any of this ship.

Are you finding that product like some of the low-profile products is selling internationally while it may have slowed down a little bit in the U.S.?

Well, there's always changes in international.

Some of that is always true in different areas.

The question is what order and what size.

So it's slightly different every place, but our basic styles sell everywhere.

People have a very common fashion look, so the big styles sell pretty much everywhere and there are nuances obviously within each country where we move some of our inventory around.

One of the retailers I spoke with mentioned -- I asked if she was canceling orders from you because of the little slowing down, and she said no.

She said you were actually -- you had actually canceled some orders for her; I assume moved it somewhere else that could sell it; which I thought was great that you are taking such a proactive stance on making sure things worked.

Is that a -- because that sounded -- that sounded like you really took a lot of control of your business, maybe more than you have in the past.

Is that -- am I looking at that correctly?

Well, we think we always are in control of our business.

I think what you are looking at, we are always looking to match inventories and have pushed sell-throughs.

And if we do see we -- we are very close to our customers both domestically and internationally.

If we see them slowing down in one place and increasing sales in the other, we will make the necessary changes without being asked by managing our business.

I think that's always been true of us.

We're in a situation now where I think we are hot.

Our inventories are in line, so it's easier for us to have the flexibility of doing all the right things that we need to.

I mean, yes.

This is, I mean this is as good a job as you've done in a while with you having your inventories in line.

And that's -- I assume that you expect to keep it in that realm, but I expect we also might see a little bit higher at the end of Q2 just because of the amount of goods you are about to ship for Q3.

That's always true.

We count everything and everything in transit.

So if we have a big backlog going into July, it would certainly show up in inventory in June, but that's a very big positive for us.

We like to be ready early just in case -- like you said, we manage our business and it's necessary to have it a couple weeks early.

Okay, very good.

Thank you.

Congratulations again.

Jeff Mintz, Wedbush.

Can I go back for a second?

On the Q4 call, you had given guidance and said that your domestic business was down significantly in the fourth quarter because things had shifted to the first quarter.

And the first quarter obviously didn't come in that strong.

And I'm wondering, did you see a further deterioration in the U.S.

domestic business just in general?

Yes, I think it's fair to say that we came out of Q4 and into a very strong January, which we announced in our Q4 conference call.

But I don't think it's any secret that the last two or three weeks in March were pretty devastating at retail.

And a lot of shifts were made back in March.

I think it's fair to say at the end of January going into February, we were looking very good and if March would have held up, we would have been significantly at the top end of our range.

Okay.

Great.

And then, back to the gross margin question, are you still in terms of the shift you've seen so far and how fast your international business is growing, are you still expecting gross margins kind of longer-term to be in the 42 to 43 range, or do you think they could end up above that based on the new mix?

We plan on 42 to 43, but obviously, if international, our subsidiaries especially, if there's no significant deterioration in the dollar, and significant growth, it could go up from there, by 50 or 100 basis points on modeling for a considerable period of time.

There is a benefit in the international margin from the exchange, from the low dollar here.

So it depends on -- some of that will depend upon how the dollar goes.

Okay, but in terms of your business, you are still modeling the 42 to 43 range?

Yes.

Yes.

Okay.

And then on the new distribution center, which I guess is being pushed out about six months or so, can you talk about just what the potential impact is on your business in terms of how your current distribution center is running, and also what the CapEx impact is?

In other words, will there be any CapEx for that, do you see this year now or is it all shifting to '09?

Not sure yet.

Chances are there will be some CapEx towards the end of this year just to accumulate the equipment.

The equipment starts going in before the building is even 100% complete.

And it has moved out some, [more] for entitlements than anything else.

The one here and the one in Europe is pretty much on schedule, so there might be some CapEx this year, but it's not defined yet.

We have to still get online to see what the production requirements are at the suppliers of these things to get the actual dates that we have to be online to meet the commitment dates we have for the distribution center.

So we should have more clarity on that when we give the second quarter conference call; we'll be able to give you significant more detail.

Okay, and then any concerns with -- your business is still ramping nicely.

Any concerns about the operations at your current D.C.

as you increase the level of business?

Not right now.

Part of the efficiencies we saw in the G&A is efficiencies in our warehouse.

All those problems we had last year in assimilating the extra building here domestically, and the actual labor seems to have been taken into account and we've actually had some efficiencies and some gains to the G&A line from running the warehouses.

So we are fine domestically.

We probably will have to get some extra capacity and some off-premises help to our distribution center in Belgium for the first quarter of next year, which is our biggest quarter out of Belgium, and I think that shouldn't be a problem.

We have about six, nine months to ramp up for that and it shouldn't be that extensive.

Okay, great.

And then finally, on the CapEx number you just gave, which was about $51 million, obviously up from the number on the Q4 call.

Is that based on the real estate that you're planning on purchasing or were there other incremental CapEx costs this year?

No, it's primarily the building.

It's about a 14 to $15 million piece of property that would add to our complex here in Manhattan Beach that we ultimately will build on down the road to give us some more office space as we continue to grow.

Okay.

Thanks and continued good luck.

Sasha Kostadinov, Shaker Investments.

On the marketing side, have been noticing more advertising.

Can you quantify the delta year over year in your advertising spending?

It's up slightly.

I think it's up about 10%.

About 10%?

And can you quantify for -- I know you mentioned in the press release that comps were negative in the U.S.

Can you quantify how negative they were?

I think we said low to mid single digits.

Low to mid single digits?

Yes.

Can you talk about if there's been any change in that trend?

Yes, I said -- I answered somebody's question.

The last couple of weeks seemed to have picked up significantly once the Easter shift and everything was done.

And we started to comp against the end of last March.

So the last week or ten days has seen some pick-up.

But obviously the question is how long it lasts and is it the beginning of a trend.

It certainly feels like it is, but it's kind of early to tell.

Have your compares eased or --?

I'm sorry?

Have your comparisons eased?

Was your early April easier last year than March was?

I don't think so.

I think early April last year was Easter.

It was actually a bigger month.

(multiple speakers)

Okay.

Difficult to comp against.

But moving away from that first week or ten days that included Easter, subsequent to that when there was no Easter and after that it was just April seemed to have come up -- been doing significantly better.

Okay.

And your China joint venture, can you talk about how that's going to be accounted for?

Well it would be accounted as a joint venture with a minority interest, so --

We consolidated the joint venture and -- but I don't know that it will be that significant in total accrual this year.

It's hard to say until we get further into the year, but it will be consolidated with minority interest.

How many stores do you plan on having in the joint venture this year?

Well in China, we talk more in terms of points of sale, both stores, stops-in-shops and franchises.

Okay.

We would anticipate on a number starting to approach 100 by the end of the year.

Oh, really?

Okay.

Some of those are -- those aren't all stores.

Those are locations.

Okay.

Locations.

Okay.

And your position on auction rate securities, what -- other than putting them on your balance sheet as a long-term asset, what else have you explored?

Does the broker who sold you these have any liability in your mind or --?

Are you just waiting for the credit line (multiple speakers)?

That's a very long-term situation.

Right now, we think they're secure as far as collateral is concerned.

They are all municipal bank.

We don't have any of the questionable ones.

And our biggest supplier of them, not necessarily the broker, has already announced a refinancing of part of them.

So we are still of the opinion somewhere down the road that it is a liquidity issue and not a credit issue.

And we keep getting good interest on them.

So right now we've taken the costs of -- like everybody else [or the SEC lead], moving it to a long term and accumulating interest, but we do anticipate that it's a liquidity issue and that they will be redeemed at par somewhere down the road.

Okay.

Okay.

Thanks a lot, guys.

Adam Comora, EnTrust Capital.

Just a couple of quick ones.

First, congratulations on the expense management.

It's very encouraging to see you guys drive the bottom line.

My first question is on the international.

What are you guys sort of anticipating in the first quarter international doing in your guidance?

It's growing very nicely.

But it sounds like you are anticipating that it's growing double digits or slower than what it had been historically?

No, I think it's growing what it has been historically.

We said that that number we felt would hold through the year and I don't think anybody's changing that yet.

Okay.

And then just to flush out a little bit more what's happening out there in April; do you think all of retail in general is getting a balance?

What are your customers telling you?

And can you give a little more color about how your April comps are running so far?

Is it sort of up mid singles or even better than that?

We don't really quote comps that diligently.

They were down in the first part of the month.

They were up in the second part of the month.

We hear the same from a lot of our retail customers, although it's a mixed bag out there, so I don't know if it's a barometer.

But it does seem from what we hear anecdotally and what we've seen in our stores, to be turning and becoming positive to some degree, but it's way too early -- it's only the 23rd of April -- to put a long-term prognosis on it yet.

Right.

got it.

Thanks a lot.

(OPERATOR INSTRUCTIONS).

Scott Krasik, CL King & Associates.

Just a few follow-ups.

David, have your thoughts on cost increases coming out of Asia changed at all?

I think you had said about 10%.

No.

I think we are still online to what we had said in the past, and I think it shows in the margins we've had we are reporting.

We feel very comfortable.

We think whatever we're getting, we're sort of sharing with some of our suppliers.

There will be some increases.

We think we have some pricing power in the states and certainly internationally.

So we're still comfortable in maintaining margins even with what we see coming out of the Orient.

I assume the price increases are being passed through for third quarter.

Are they being accepted by the retailers?

Yes.

That shows in our backlog.

Our backlogs are continuing and our order rates coming in and we certainly are anticipating a strong year.

So we wouldn't do that unless it was being accepted and the orders were being booked.

Okay.

Do you want to give us numbers on domestic and international backlog?

Not particularly.

But they are obviously stronger internationally than they are domestically.

We historically don't publish backlogs but once a year when we are required to.

Okay.

Is it up double digits for the next six months in U.S.

or no?

Wouldn't be yet anyway.

It's too early.

We're still booking for the season, so I doubt it.

Especially buying closer to the vest, the fact that it's up at all is positive.

Right.

Okay.

And then just, what are you finding in international in some of your more mature subs, whether it's France or Germany or England?

Are you still getting meaningful additional door expansion or is it comp growth with just taking share from some athletic retailers?

Where is that growth coming from in your more mature --?

I think it's a little bit of both.

We're getting door expansion and still some new accounts.

Our business, our subsidiary business, especially in Europe, while we have been there a year, has taken us a while to get started, and now that it is unfolding, we're getting door expansion, some within existing accounts, just moving out the door accounts, some new doors that we haven't been in for quite some time, and certainly shelf expansion, because this kind of growth requires all three of those, I think.

So you wouldn't really consider yourself mature in any sub you are in at this point?

Not even close.

Right, good.

Great.

And then just lastly, maybe talk about Cali Gear; obviously the category seems to have peaked a little bit.

What's your outlook now for the year internationally and domestically?

Well, it's different.

It's obviously selling better in some places than others.

It's just one piece of our category.

And while it may be the same size, slightly smaller, slightly larger in some places than we had anticipated, there's nothing outrageous about it, nor do we think it impacts our overall business.

In some places, it will pick up some and we will move inventory there.

In some places it will slow down some.

I think the kids business, certainly overseas, has held up and we plan on having it as a piece of our kids business as we go forward.

So it may not have the acceleration we once thought, but we're certainly replacing it with other things and it hasn't impacted our growth either domestically or overseas.

Just as an absolute number, do you want to give a target for 2008?

No, I think it's too early.

We've got to wait for some more warm weather around the world before we find out exactly what's what in each region.

Okay, thanks.

Sasha Kostadinov.

Did you guys disclose what your cash flow was during the quarter?

What element of cash flow?

Operating cash flow?

Yes, operating cash flow.

Cash flow from operations when we filed our Q was about that should be about 30 -- a negative -- it's actually -- during the quarter, it was a use of cash from operating activities of about a negative $29 million.

$29 million?

Yes.

Okay.

Thanks a lot.

Mr.

Greenebaum, there are no further questions.

Please continue.

Thank you for joining us on today's 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.

Have a good day.

Speak to you next quarter.

Thanks.

Ladies and gentlemen, this does conclude the SKECHERS USA first-quarter 2008 earnings conference call.

Thank you for your participation and you may now disconnect.