Skechers USA Inc (SKX) 2009 Q1 法說會逐字稿

Welcome to the SKECHERS USA, Inc.

first-quarter 2009 earnings conference call.

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

Following the presentation, the conference will be open for questions.

As a reminder, the conference is being recorded today, Wednesday, April 29, 2009.

I would now like to turn the conference over to SKECHERS for their opening remarks.

Please go ahead.

Good afternoon and thank you for joining SKECHERS' quarterly financial 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 for 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 not limited to global, national and local economic, business and market conditions, in general and specifically as they apply to the retail industry and the Company.

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 filings with the US Securities and Exchange Commission, including the most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current Reports on Form 8-K, and all other reports filed with the SEC as required by federal securities laws, for a description of other significant risk factors that may affect the Company's business, results of operations and financial conditions.

With that, SKECHERS' Chief Operating Officer, David Weinberg, will begin with prepared comments.

Good afternoon and thank you for joining us today to review SKECHERS' first-quarter 2009 results.

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

First-quarter 2009 net sales totaled $343.5 million.

Net income for the first quarter was $8.2 million, and diluted net earnings per share were $0.18 for the first quarter of 2009.

During the first quarter, we recorded a reduction to our income tax expense of $1.9 million or $0.04 per share related to an overaccrual of income tax expenses from the prior year.

As anticipated, the weak retail environment negatively impacted our domestic and to a lesser degree international business in the quarter.

In spite of this, we were profitable in the first quarter and showed significant improvements over the fourth quarter of 2008.

Our focus in the quarter was on managing our expenses and inventory.

We reduced our inventory by $88 million from year end.

In addition, we reduced our general and administrative expenses by $5.2 million, in spite of 29 more retail stores being operated in the first quarter of 2009 versus 2008, and additional expenses of $3.8 million related to China and Brazil as we gear up our operations in these regions.

We are continuing to manage our expenses and inventory as we carefully monitor the economic environment.

We intend to protect our shelf space and continue to advertise.

We believe we will be profitable in the second half of the year, and we will emerge as an even stronger company due to our well-known and trusted brand, wide range of product at reasonable prices, dedicated advertising support, and our ability to efficiently deliver the right product, and more importantly, when our accounts need it.

The continued downturn in the economy and the impact on retailers and consumer spending habits resulted in our first-quarter domestic wholesale business decreasing by 18% over the same period last year.

It is important to note that SKECHERS continues to either hold or gain shelf space in many of our core accounts.

Several of our SKECHERS and uniquely branded fashion lines experienced solid sales in the quarter, including SKECHERS Sport for Men, Unlimited by Marc Ecko, Zoo York for Women and our fashion kids' collections.

Also, our new brands at BEBE Sport and Punkrose exhibited strong initial showings.

We support each of our brands with targeted marketing that includes print, television and outdoor advertising.

In the first quarter, we launched new campaigns for our SKECHERS men's and women's lines, including a new ad with American Idol winner David Cook; new Marc Ecko print and TV campaigns starring High School Musical star Vanessa Hudgens and mixed martial arts fighter Frank Mir; and new print and TV for Punkrose and Zoo York.

We also developed new TV campaign for kids featuring our animated characters.

We continue to believe that advertising our brands in our unique and targeted manner positively impacts sales.

While we continue to remain one of the top footwear vendors to a majority of our accounts, the reduction in orders we have experienced reflects the extremely cautious stance our retail partners are taking with regard to inventory planning.

Because of this, the current retail environment will continue to be a factor in our domestic wholesale business.

Our lines are experiencing strong sell-throughs at retail now, and we believe our brand remains very relevant and important to the offerings of our accounts.

We are focusing on developing fresh styles in each of our lines and delivering a style-right value proposition that resonates with consumers in the United States.

In our many international markets, we believe that our brands are in great position in terms of shelf space, reputation and image.

Our international wholesale business was essentially flat for the quarter.

This was primarily due to the strengthening US dollar and declining economies in select regions.

Our international subsidiary sales were down 5% on a US dollar basis, but up 8% in pairs shipped in the first quarter.

Two countries did achieve double-digit growth on a US dollar basis -- Germany, currently our largest subsidiary, and Italy.

We are currently in the process of transitioning our operations in Chile from a distributor to a subsidiary.

With approximately 800,000 pairs shipped last year and 10 SKECHERS retail stores, Chile is a thriving and growing market.

Our joint ventures in China, Hong Kong, Malaysia, Thailand and Singapore are continuing to perform well.

We believe these joint ventures will positively impact our international business within the next two years.

We currently have 14 stores and over 90 points of sale in China; six stores and 11 points of sale in Hong Kong; and five stores in Malaysia and Thailand.

Our international distributors sales improved by 16% for the first quarter, primarily due to significant growth in one of our largest distributors who covers multiple countries in Central and South America, as well as growth in Greece, Japan, Russia and several Eastern European countries.

These improvements were partially offset by flat or small declines in other countries.

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

At quarter end, there were 99 distributor-owned SKECHERS retail stores across South America, South Africa, the Middle East, Eastern Europe, Scandinavia, Asia and Australia.

Four new stores opened in the first quarter, one each in Saudi Arabia and Russia, and two in the Philippines.

Similar to our Company-owned stores, these serve as marketing tools, building brand recognition as well as offering consumers a complete picture of the SKECHERS brand.

The majority of our distributors use the marketing campaigns we create in-house to support our brands in their regions, while a select few create ads that reflect the local flavor and utilize the power of local celebrities to increase awareness in countries including Chile, Japan, Australia and South Africa.

At quarter end, international wholesale was approximately 29% of our total sales, increasing from 26% of the total in the first quarter of 2008 and 24% of the total for all of 2008.

This percentage of total sales translates into $100 million in revenues for the first quarter as we become an increasingly global company.

In the remainder of 2009, we currently believe our subsidiaries will maintain their position in the marketplace.

But we would like to note that certain regions handled by our international distributors, especially Eastern Europe and Russia, are experiencing declining local economic conditions that we believe will negatively impact their sales during the year.

Over the long term, we see many opportunities to further grow our SKECHERS and fashion lines around the world, and we will continue to focus on improving our existing business and building the brand in promising new areas.

Our combined domestic and international retail sales were flat for the first quarter.

We had a negative domestic comp store sales of 7%.

We believe our soft retail sales were the result of the global economic environment combined with the stronger US dollar.

In the first quarter, we opened eight retail stores, including concept stores in Burbank and Tucson and an outlet in Scotland.

And we closed two stores, on Los Angeles' Melrose Avenue and on San Francisco's Market Street, bringing our total to 224 domestic and international stores at quarter end.

We continue to believe our SKECHERS stores serve as an important brand builders, as well as profit contributors to our overall business.

But we have fewer store openings planned for 2009 than in recent years.

We have opened one new store this quarter, an outlet in Commerce, Georgia, and we have another nine stores planned for the balance of the year, including two in Canada.

The new Canadian stores, in Alberta and greater Vancouver, will bring our Company-owned stores in Canada to five.

We're confident that our Company-owned retail stores will continue to be an important and profitable growth engine over the long term, yet we remain cautious with regard to seeking out new retail locations currently.

Now to Fred.

Thank you, David.

Turning to our first-quarter 2009 numbers in detail, as previously discussed, first-quarter sales were $343.5 million compared to $384.9 million in the first quarter 2008.

This expected decrease in revenues was due to the continued weakness in the global retail environment, which affected our domestic and to a lesser degree our international business.

As David mentioned, we were profitable for the first quarter through a combination of slightly better than expected sales, as well as careful management of our expenses.

First-quarter gross profit was $125.4 million or 36.5% of sales compared to last year's gross profit of $172.2 million or 44.7% of sales.

The decrease in gross margin percentage is primarily due to the aggressive planned reduction of our inventory levels from year end.

However, we did experience significant improvements in our gross margin from the fourth quarter of 460 basis points to 36.5% and believe our gross margin percentage will return to our historic levels in excess of 40% later in 2009.

First-quarter selling expenses decreased 15.8% to $21.5 million or 6.3% of sales compared to $25.5 million or 6.6% of sales in the first quarter of 2008.

The decrease in the dollar amount of selling expenses for the quarter was primarily a result of reduced commissions, reducing our advertising and promotion expense levels to be in line with the current revenues.

General and administrative expenses were $98 million compared to $99.2 million for the first quarter last year.

This increase is primarily due to reductions in bad debt, travel and entertainment, and warehousing and distribution expenses.

This was partially offset by increases in costs of operating 29 more stores in the first quarter 2009 versus 2008, additional expenses in the first quarter of $3.8 million relating to the launch and building of our businesses in Brazil and China, an increase in temporary staffing in our European distribution center, and an impairment charge of approximately $800,000 on three retail stores.

Total operating expenses for the first quarter were $119.5 million or 34.8% of sales compared to $124.8 million or 32.4% of sales in the first quarter of 2008.

During the first quarter, we recorded a reduction to our income tax expense of $1.9 million or $0.04 per share that related to an overaccrual of income tax expense in the prior year.

Excluding this discrete item, we expect our income tax rate for the year to be approximately 18%.

Net income for the first quarter was $8.2 million compared to $32.8 million in the first quarter of 2008.

Net earnings per diluted share in the first quarter of 2009 were $0.18 on approximately 46.5 million average shares outstanding compared to net earnings per diluted share of $0.70 on approximately 46.7 million average shares outstanding during the first quarter of 2008.

Our balance sheet continues to remain very strong.

At March 31, 2009, we had over $150 million in cash and investments on the balance sheet, net of all reserves of $17 million on auction rate securities, which we expect to be redeemed at par in June.

Including the auction rate securities at par, our cash represents approximately $3.60 per share.

Trade accounts receivable at quarter end were $229.9 million, and our DSOs at the end of March of 2009 were 54 days compared to 48 days at March 31, 2008.

Inventory at March 31, 2009, was $172.9 million, representing a decrease of $88.3 million from year end 2008 and at $5.5 million less than the first quarter last year, in spite of increases -- 29 stores and additional inventory for our joint ventures in the Brazilian subsidiary.

Working capital slightly decreased to $410.9 million versus $413.8 million at December 31, 2008.

It is important to note a few things with regard to our cash, accounts receivable and inventory balances.

February was a strong selling month, and because of that we had a relatively high accounts receivable level at March 31.

Since the end of the first quarter, we have collected on much of that amount, and our cash and auction rate securities now stand at well over $220 million.

Long-term debt was $17.1 million.

Shareholders' equity increased to $676.2 million versus $671.9 million at year end 2008.

Book value of our shareholders' equity stood at $14.55 per share as of quarter end.

Capital expenditures for the first quarter were approximately $16.4 million, which primarily consisted of eight new store openings and several store remodels, and $14.6 million for warehouse equipment in our new distribution center.

We now expect capital expenditures for the remainder of 2009 to be between $20 million and $25 million.

And now back to David.

In the first quarter, our focus was on managing our balance sheet and expenses while maintaining our strong position in the domestic and international footwear markets, with a goal of returning to profitability in the second half of the year.

We have made significant improvements in our inventory, shown growth in several key international markets, and had a profitable quarter.

We consider these positive achievements to be an indication of the focus of our global team and the strength of our brand.

We firmly believe our brands are maintaining their position, and in some places gaining market share.

We continue to be a key footwear resource to our accounts and consumers as we deliver a diverse offering of fresh product at a reasonable price and support it with consistent marketing efforts.

Along with controlling our expenses and inventory, we are continuing to invest in our business by launching a new subsidiary in Chile, further establishing our brand in Brazil -- a relatively new market for SKECHERS, continuing to open new points-of-sale in China and Hong Kong, and selectively opening SKECHERS stores in the United States and additional countries as well.

While we believe the economy will remain a factor in the near term, we continue to believe that we will fare well in this difficult environment.

We have an extremely strong balance sheet, strong liquidity and a significant cash position.

We're also a company with compelling products, talented people and dedicated partners.

With more opportunities to grow our international business and a portfolio of well-recognized brands, we believe that SKECHERS is well-positioned for the long-term profitability and growth.

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 on a great cost reduction during the quarter.

Nice job there.

I guess just first of all, on that subject line, could you just go through again the expense reductions you saw during the first quarter, kind of just more plainly where they came from, where the buckets were?

And I guess more importantly, I know you're making still some investments here.

How sustainable, I guess, is that trajectory in terms of that G&A expense line?

A little color on that would be helpful.

Well, I think it's a little bit of everyplace.

We have -- basically, all areas where we deal, all our expense lines came under review, whether they were retail, wholesale, the Orient, domestically.

So I think it is fair to say that a little bit of it was everywhere.

Even more so if you think that we had $3.8 million relating to China and Brazil, which is not significantly profitable, that we picked up just increasing our exposure there.

And if you think about the number of units we had to move in the first quarter to decrease our inventory by $88 million and realize that that savings, that efficiency should flow through our distribution network as we color inventory and become a little more efficient versus less units to move around.

I think it is positive to say, or did say that it's certainly possible, depending on the scope of our business, to maintain this structure through these volumes.

And we will see what happens to the economy as we move forward and we see how things develop as we get through the second and third quarters and see exactly what the changes are going to be.

But I think what we have done and where we stand will remain constant through the second quarter.

We're watching our overhead in all places.

We continue in Brazil and China.

But obviously, we will start to comp those expenses fairly soon.

So we don't expect any big increases, although China will continue to open stores.

So I think what you see is what we are in the near term.

Okay.

And then just on the inventory, how clean -- I mean, you guys seem to be pretty clean.

I mean, a commendable job on the inventory here.

How clean is retail at this point?

It seems like most of your major channels in distribution are very clean.

ASPs seem pretty solid.

Any areas of which you are hearing in terms of how your inventory position looks as it pertains to the product that you had to get rid of coming out of fourth quarter?

Is that completely done at retail?

So far as I know.

I mean, it is moving through.

It's not all at retail domestically.

It's not like you will walk out someplace and see it all hanging.

We have had multiple channels and it is a worldwide effort.

I think most people have been risk-averse to their inventory.

And inventories, depending on what the economy looks like and how sales will look like going into back to school, seem to be in line, which means that if it gets worse, then certainly we are still slightly over inventory.

Nothing like last year, but if it gets a little bit better or stays status quo, we think ourselves as well as some of our retail partners may be under inventory.

So right now, we think we are set.

We think inventory through the retail channels and our own are certainly lean.

And it will depend now as to what happens at retail.

Your comment with regard to gross margins, and I guess piggybacking off of that about how you see yourself profitable in the second half of the year, if your inventories are as clean as they are, what level of confidence -- where do you see gross margins as we go into potentially the second quarter?

Is that too much of a challenge, just depending on how product ships between June and July?

I'm just trying to get an idea.

You're talking about 40%.

Where does that happen?

Is that strictly in the second half or is there an opportunity here in the second quarter?

Well, there are always opportunities, but I think the opportunity is more so in the second half.

Obviously, as you get to the second quarter, we get no real benefit from retail or our international businesses as they move forward.

So you don't get any of those benefits.

It's strictly what happens in the United States and what moves through.

And if the reorder business remains light and some of that moves into second half, then it is certainly possible that we don't get back to historical margins until second half, although anything can happen as we move towards back to school and we see what happens in the economy.

Okay, that's helpful.

And just on the backlogs, any color at all in terms of trend, what's happening, what maybe the US retail customers have said about your pre-lines for fall?

Any color in and around backlog trends, US, international, in terms of what you're seeing?

Internationally, and especially in our subsidiaries, we continue to trend up in local currencies, only held back by the dollar denomination.

And obviously, it will take us a little while to get margins back there as well.

Domestically, we have lost a few customers, so it will take a while for that volume to pick up through our existing customer base.

I think for the most part, nothing is across the board.

Our product is very well received.

Our product is selling.

New product is selling in a lot of places where it's been placed.

[At some level], it's all a matter of test and react and see exactly where the consumer is going to be at back to school.

But I think as we said in our comments, it's fair to say that the brand has held up very well.

The new products are being received very well.

And it's only an order-of-magnitude issue to see what happens at retail as we get into back to school.

Okay.

And last question I have, just on the CapEx number, you said $20 million to $25 million.

That excludes your material handling component?

Well, we've got a big piece of our material handling component in what we had committed to, and the rest will be done as the building gets built.

And since we have now moved out probably into 2010 before we move it, the biggest piece will now move into 2010.

So what we have spent, we have already spent.

There's probably a few million dollars more in stuff that was going to be delivered that we are committed to.

And as we build the building, the rest of it will move into 2010.

Okay.

All right, thank you very much.

Sam Poser, Sterne, Agee.

A couple things.

Can you give us what the average selling price and unit changes were in the domestic wholesale?

I think we were up just under $1.

In ASPs?

Yes.

Okay.

And then, I just missed it.

The retail comps were?

Minus 7.

And your e-commerce?

Was up slightly.

Can you give me the dollars there?

You want the exact dollars of e-commerce?

It doesn't move the nickel that much, but --

For both retail and e-commerce.

We were relatively flat at retail and down just slightly at e-commerce on an overall basis.

The comp is obviously not the whole retail number.

So if you put them all together, it is basically flat.

Okay, cool.

And then are you taking -- what kind of reserves are you still taking against doubtful accounts right now?

We are taking what we see.

We don't have any big items that are specifically identified.

We're using historical basis and our best bet on the smaller guys.

When we review our big accounts, if there's something out there, we tend to use that number.

But we usually just use a historical basis, and then specifically I can identify anybody large that may be an issue.

So we don't believe that we are identifying any specifically large issue, just the general economy on the moderate-sized accounts.

Got you.

And then you had said on your last call that you expected the first two quarters to basically be flat earnings.

Now that you have had such a good increase and your inventories have really gotten clean, going back to the question on gross margins, you have run between a 43% and a 44% gross margin over the last few years in the second quarter.

I mean, are we looking at another -- with your inventories as clean as they are, are we looking at another 400, 500-plus decrease in those gross margins, basis point decrease?

Well, let me say, we think we get back more to normal margins in the second half.

If you think about it, we still have a burden of whatever dollar-denominated countries we deal in as a strain on margins.

And retail can only help so much because we are not into a strong retail selling period.

And a lot of the new product is probably going to be delivered the end of June, which could move into July.

So I would say it is safer to bet that we get the benefit of margin enhancements in the second half.

It's possible to get some in the first half, but I think it is more likely it will all move into the second half as the new product gets here and is distributed.

Well, you used the word, David, 40-plus as a margin percent.

Does that presume that we will be under 40% gross margin in the second quarter?

I think we will be somewhere around.

It could be under.

It depends on what our shift is for June and July in the new product.

So it is too early for me to tell that.

And then could you walk through some of the other areas, like women's active and men's USA and the other areas on how they did for you?

We have -- we think we have 19 or 20 divisions that we deal with.

Some certainly --

But the big ones, or women's active, women's sport?

Most of them performed fairly well.

Women's obviously had the most pressure.

It was our biggest piece.

We have new product coming in that seems to be picking up well.

Men's has been received very well.

In kids, both SKECHERS and fashion brands continue to hold their own.

I don't think there's any outliers anywhere.

We're a very broad-range company, and it seems that new product across numerous ranges are doing well.

I know we will have an open house in June at FFANY, that everybody can see what this product is and make their own determinations as we get into back to school, because I think it's still -- we are still in the testing phase.

Okay.

And one last thing.

As I remember, you guided $1.2 billion to $1.3 billion for the full year, if I remember correctly.

Are we still looking at that same guidance?

We're not changing anything right now.

Okay, thank you very much.

Jeff Mintz, Wedbush.

If I could just follow up on Chris' question on inventory, do you feel that your inventory, which obviously you brought down a lot, do you think that still needs to come down further as we get into the second quarter, or do you kind of feel your inventory is where you want it to be?

Well, we are very reactive to inventory.

So we will be monitoring it and obviously evaluating it as we go forward.

I think it is fair to say that there is a little more of the inventorying that happened in the first part of April, because they're just left over from shipments that were just moving out the door from March.

And now we think we have the right product in the right place.

Now it is a matter of testing and evaluating the new product and our orders and our on-hand and what happens at retail.

I think as we sit here today, we feel in very good shape, ready to go into this next period.

Okay, great.

And then could you talk a little bit about -- obviously you probably don't know until it happens, but can you talk about what you are hearing from your retailers in terms of the potential of products shifting between June and July?

Obviously, it has been a trend over the past couple years more towards July, but anything you could help us with that you know right now would be helpful.

Like you said, I don't know anything until they really tell me.

But I think it is safe to assume that unless things change at retail, people will want it as close to the selling season as possible.

So there still is a tendency to shift out rather than in.

Okay.

And then finally, in your own stores, have you seen any kind of recent trends just in terms of traffic pattern or improvement, say, even as we have gone into April, suggesting maybe some kind of a shift in the consumer, or at least your consumer?

I haven't seen anything definitive yet.

I mean, the biggest thing we saw was the shift of Easter from March to April.

But I think when you put it all together, it remained relatively the same.

Okay, so kind of a negative mid- to high-single-digit comp range seems to be where the consumer is right now?

So far.

Okay, great.

Thanks very much and good luck.

(Operator Instructions).

Maggie Gilliam, Gilliam & Co.

David, could you talk a little bit about your international [event and] taking over the operations in South America and some of the ones in China?

Well, the only one that will be new is Chile.

Chile is an existing concern.

So in the past, we've usually started from scratch.

We have taken over some subsidiaries in Europe, but nothing on the magnitude of an infrastructure that exists in Chile.

So Chile had 10 stores, which represents about 20% of their volume, and 80% of their volume is represented in a wholesale account.

We have a third-party distribution center that we will be using down there, so we won't be starting anything of our own.

And we do already have in place the people that work in the stores that will shift to SKECHERS employees, as well as the salesforce and the back-office room.

And we are training them now in our system.

So they will be up and running probably sometime in the next week or so, and as a SKECHERS subsidiary.

Probably won't see any real significant impact until July, which is their big shipping season at wholesale.

Remember, they are in a reverse season.

Right.

Are they -- is it a profitable operation?

They are profitable on their right as we take them over.

So --

Is it an entree into other countries, or how do you see it?

Not particularly.

If you take a look at South America now, the only country that we are not in between what we own now and our distributors is Argentina.

So it may be an entree, but it is not necessarily the same culture we have.

Our big distributor in Panama, who is probably the largest we have now, that does Colombia and Venezuela and Peru, we are in Brazil, and now we take over Chile, which is the biggest piece.

And all that is really left is Argentina as an entree.

So I don't know whether that means any major expansion going forward, just a solidification and growth of the new ones, which would be Brazil and Chile for us.

Well, it is a great growth area.

(multiple speakers) Brazil is phenomenal.

Brazil, we think, is -- Brazil and China certainly have the two largest populations where the biggest opportunity to sell footwear is.

So over the next couple years, we anticipate that they will become quite accretive to our sales and profitability.

Okay, good.

Thank you.

Dave Turner, Avondale Partners.

Just a couple questions, mainly housekeeping things.

There was an item in the P&L that was not in the P&L last unit, and my guess is it's tied to the JVs.

And it didn't amount to much this quarter, but if you annualize it, it could.

The noncontrolling interest, is that $800,000 or close to $900,000, is it going to maintain that level throughout the year?

And then -- you know, asking you to forecast, but as far as you can tell?

We hope it starts to -- well, A., turns into a positive and it starts to grow to significant numbers.

You're right, that absolutely relates to the joint venture, and it's their interest in the net profit and loss, since we're the controlling member of the joint venture.

So that has an economic interest of about 50%.

So while we pick up all the sales and expenses, we dole them out 50% of the profit or 50% of the loss.

So you could see that at 50% of the loss, we just move to them.

So hopefully, that number starts to turn positive and hopes to get as big as it can be.

And then Fred had mentioned an 18% tax rate this year.

And my guess is that that is largely based on shift.

I think you are up to 29% of sales coming from overseas now.

Or is there more than that to it?

And I guess, is that going to be a sustainable rate, not just -- for modeling purposes, not just for this year, but looking into as far as you can tell right now, obviously, is that a sustainable rate?

Yes.

We think that's -- we tend to sit it at the rate we think we could pick up going forward.

All the major pieces are now in place, so there shouldn't be any significant changes.

You could model yourself by where you think the biggest growth and opportunity and profitability is going to be, whether it is domestic or internationally.

But -- so I guess it is mostly shift having more (multiple speakers)?

It is two things.

It is shift, and then as we announced last year in the quarter, we had this APA given to us about our -- for a tax benefit.

And based on that, that is already in place.

So that is partially shift and partially just newer tax ruling.

And the biggest piece you will see now is shift.

Okay.

That's all I had.

Thanks.

Chris Svezia, Susquehanna Financial Group.

David, just two follow-ups.

One, just give us an idea of what concerns you most internationally -- you referenced Eastern Europe.

There's a lot of rumblings that that continues to be a pressure point.

Can you just kind of go through what is going on in Europe, what is going on in Eastern Europe specifically, where your concerns are?

Just kind of talk to that point.

Eastern Europe is a concern.

Their economy seems to be slowing dramatically there.

Their currency is very difficult to deal with.

Their banks are very difficult to deal with, which makes it difficult to open LCs and get things going.

So we had a commitment for inventory to be built there and we think we have some pretty strong partners.

But I think it is fair to say that the economy and the banking environment there are significantly more difficult certainly for us to deal with than here.

So it will mean that it is something we have to watch closely and probably will be challenging at least for the next three to six months.

Okay.

And what about in Europe in general?

You referenced Italy was good for you.

Germany I know has been good for you.

Anything on the UK, just kind of what's going on there as well?

I think UK is a little twofold.

UK had a bigger economic, I think, issue than the rest of Europe, which was part of it.

And they've had more credit issues.

And obviously, their currency has more impact to us than the currency on the mainland, either the euro or the Swiss franc that we deal in.

So in both of those things, they are relative -- even with their economic crisis and their credit issues, they are relatively flat on a local currency basis, which means they took the biggest hit for us on a dollar basis.

Going forward, we seem to have picked up some.

Our customer base there has seemed to stabilize some, on somewhat of a smaller level.

So we anticipate that they will start to pick up and go into the back half of the year starting to pick up steam.

Whether they can make it back to be flat on a dollar basis is difficult.

But we think they will be at least ahead as far on local currency.

So Western Europe for us has held up to this point very well.

Okay.

And the last question I have was just on cash.

I mean, at the end of the year, just kind of given how CapEx looks like it might flow and where inventories might end up, could you potentially see cash in the $375 million range, or is that too -- just kind of gives your thoughts about that kind of number.

Boy, I would love to see that.

I don't know where you get the $375 million from.

I don't think we have --

$275 million, I'm sorry.

Huh?

$275 million.

Oh, okay.

Geez.

(multiple speakers)

Well, you guys got all that real estate.

You can start selling some of that real estate, do some sale leasebacks.

Well, okay.

I didn't say -- we couldn't do a lot of things, but on a realistic basis.

Yes, I think that number is certainly a playable number.

Like Fred said, we are up to $220 million now and we continue to collect receivables.

And we think we will be certainly the next cash generator until we get into back to school.

And then back to school will tell what it is, what run rate we have, and if there is to be an inventory build or anything through that.

So, yes, we are at $220 million.

We expect to continue to build cash.

Obviously, we haven't had a lot of purchases of inventory that are significantly high until we get into May and June, when we start to receive the stuff for back to school.

So we anticipate that we'll generate cash significantly through the end of April and May, and then we will see.

So starting with a $220 million base and, like you said, given the CapEx that we have announced, certainly think it is going to grow significantly from here.

Okay.

Thank you very much.

Appreciate it.

Thank you.

And ladies and gentlemen, that does conclude our question-and-answer session for today.

I would like to hand back to SKECHERS for any closing remarks.

I think that -- we appreciate everybody on the call, and I certainly appreciate (multiple speakers) -- and like we said, we will be at FFANY in June with the new product.

People are more than welcome to come.

And we're certainly available for questions.

And I guess that is about it.

Thanks for joining us.

Thank you again for joining us today on the call.

We 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 great day.