Skechers USA Inc (SKX) 2009 Q2 法說會逐字稿

Welcome to the Skechers USA Inc.

second-quarter 2009 earnings conference call.

(Operator Instructions).

As a reminder, the conference is being recorded Wednesday, 22 July, 2009.

I will now turn the call over to Skechers for their opening remarks.

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 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 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.

Thank you for joining us today to review Skechers' second-quarter 2009 results.

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

As anticipated, the weak retail environment continued to negatively impact our domestic and international business in the second quarter.

Net sales totaled $299 million for the second quarter of 2009 and $642.4 million for the first six months.

Net loss for the second quarter was $5.9 million, and diluted loss per share was $0.13.

For the six months ended June 30, net earnings were $2.3 million, and diluted earnings per share were $0.05.

We have responded strategically to the challenging retail environment by continuing to manage our expenses and inventory and further strengthening our product offering and balance sheet, which at quarter end was $257 million or in excess of $5.50 per share in cash.

We reduced our inventory by $70 million from year-end and our SG&A by almost $7 million from the prior year, despite more than 32 retail stores operated in the second quarter of this year, an increase over last year, additional expenses related to our new operations in Chile, and our growing businesses in Brazil, China and Hong Kong.

During the quarter we secured a new $250 million credit facility, which we believe is an indication of the strength of our Company and further bolsters our strong liquidity.

We are in great position to capitalize on new opportunities as they arise, and as a trusted brand, we are maintaining our position in the global footwear market.

Given the combination of our expense management, well diversified global business and what appears to be some stabilization in the economy, we are on track to be profitable in the second-half of the year.

Our domestic wholesale business declined 20% in the second quarter due to the continued weak retail environment and the closing out of inventory.

The closeout activity in the early part of the quarter resulted in significant margin pressure which improved in June as the majority of the inventory was cleared.

It is important to note that we have received very positive feedback and strong sellthroughs from the Skechers product in the marketplace, leading to stronger margins in the back half of the quarter even though sales continue to lag due to the overall environment and shipments moving closer to need.

Furthermore, our average per price pair actually increased for the first quarter in 2009 and is flat with the second quarter 2008.

We continue to believe that marketing is important to our success, and therefore, we will support each of our brands with a multiplatform approach that may include print, television and outdoor advertising, visual displays, PR, viral marketing and the power of celebrities.

In the second quarter, we continued with 2008 American Idol winner, David Cook, for Skechers and High School Musical star, Vanessa Hudgens, for Red by Marc Ecko.

And we launched the Nothing Compares With Family charity campaign starring actress Brook Burke and her family.

Also, in the quarter we developed three new Skechers animated children's commercials, as well as news spots for Men's Skechers USA and Sport, Women's Skechers Active and Sport, Unlimited by Marc Ecko and Red by Marc Ecko which features Vanessa Hudgens.

Many of these key TV campaigns are continuing to air on networks nationwide for the back-to-school and fall selling period.

We believe the soft retail environment will remain a factor in our domestic wholesale business as retailers stay cautious in their orders.

But based on our recent and ongoing pre-lines with these accounts over this month, we believe we will continue to gain shelf space and that consumer spending will be stronger over the coming months and into the first half of the year.

We remain one of the key of footwear vendors to the majority of our accounts and believe our brand remains very relevant and important to their product offerings and continues to resonate with consumers who look to us for style and value.

As in our domestic markets, we have become a leading footwear resource for many key retailers around the world.

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

But, as in the United States, many international regions are also facing difficult economic conditions.

Our international wholesale business declined 20% for the second quarter and was down 9% for the first six months.

The strengthening of the US dollar negatively impacted our subsidiary sales, which were down almost 14% in the quarter on a US dollar basis, of which 93% of the decrease was related to negative currency translations.

Pairs shipped were essentially flat for the quarter.

In the second quarter, we transitioned our operations in Chile from a distributor to a subsidiary.

Chile is a meaningful and proven market for Skechers with approximately 800,000 pairs shipped last year and 10 Skechers retail stores.

It is important to note that the conversion of our Chilean business from a distributor to a subsidiary resulted in a timing shift of what would have been revenues of $4.2 million in distributor sales in Q2 to approximately $7.5 million in subsidiary sales in Q3.

We believe Chile will continue to be a vital part of our growing business in South America, which includes both distributors and subsidiaries.

While a relatively new market for Skechers, Brazil is rapidly moving up the subsidiary ranks in terms of total sales.

Our subsidiaries utilize the proven marketing campaigns we have created, often modifying them with key styles in their markets and translating our commercials into multiple languages.

Consumers can now see Skechers brand at premier football league games in the United Kingdom, which are broadcast around the world; at malls in Canada that feature our images on kiosks; on billboards in Santiago and Sao Paulo; and in our commercials translated into Spanish, German, French, Italian, Portuguese, Dutch and other languages.

Skechers' images are also now present in the busiest underground station in China and on outdoor billboards in Hong Kong to support our joint ventures in China, Hong Kong and Malaysia, Thailand and Singapore.

Combined we believe these markets will be a driving force for Skechers across Asia and positively impact our international business within the next two years.

Several of our international distributors achieved growth in the second quarter, including one of our biggest in South America.

But declining economies in many countries negatively impacted our overall international distributor business, which was down in total by 30% for the second quarter and 10% for the first six months.

Many of our key distribution partners continue to open Skechers retail stores in regions where they sell our footwear.

At quarter end there were 93 distributor owned Skechers retail stores across South America, South Africa, the Middle East, Eastern Europe, Scandinavia, Asia and Australia.

Two new distributor-owned stores opened in the second quarter, one in Seoul and one in Dubai, and one is opened in the third quarter in Bogota.

The total count of our distributor operated stores includes the change in ownership of the 10 stores in Chile to Company-owned stores.

Similar to our Company-owned stores, these distributor stores serve as marketing tools, building brand recognition, as well as offering local consumers complete pictures of the Skechers brand.

The majority of our distributors use marketing campaigns we create in-house to support our brands in their regions, while a select few create ads that reflect a local flavor.

Currently Japan, South Africa and the Republic of Korea are using the power of local celebrities.

Year-to-date international wholesale was approximately 25% of our total sales, up from 23% of the total in the first six months of 2008.

In the remainder of 2009, we currently believe our subsidiaries, which have not improved backlog, will maintain their position in the marketplace.

While the next month will give us a better picture of our distributor business, we believe it will stabilize in the back half of the year, ending flat compared to 2008.

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 up 1.5% for the second quarter with a negative domestic comp of 6.6% in the same store sales.

We believe our retail stores were impacted by the overall weakness in the global economic environment combined with a stronger US dollar.

In the second quarter, we opened five retail stores, including a concept store in Pembroke Pines, Florida and outlets in Los Angeles and Vacaville, California, Commerce, Georgia and Sparks, Nevada.

Included in our total Company-owned and operated store count, which was 239 at quarter-end, are 10 existing Skechers concept stores in Chile.

We have opened one new store in the third quarter in Roseville, California and have another six planned for the remainder of the year, including a concept store in Miami scheduled to open this Friday and two stores in Canada, one in Calgary and one in greater Vancouver, which will bring our Company-owned stores in Canada to five.

We continue to believe our Skechers stores serve as important brand builders, as well as profitable growth engine over the long term.

We will continue to selectively open retail stores where we believe they make good strategic sense.

Now to Fred.

Thank you, David.

Turning to our second-quarter 2009 numbers in detail, as David previously discussed, second-quarter sales were $299 million compared to a record $354.6 million in the second quarter of 2008.

This expected decrease of approximately 16% in revenues was primarily due to the continued weakness in the global retail environment.

Second-quarter gross profit was $122.6 million or 41% of sales compared to last year's gross profit of $157.2 million or 44% of sales.

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

Second-quarter selling expenses decreased 9.8% to $34.8 million or 11.6% of sales compared to $38.6 million or 10.9% of sales in the second quarter of 2008.

The decrease in the dollar amount of the selling expenses for the quarter was mainly a result of reduced tradeshow and web samples expense.

We have also adjusted our advertising and promotion levels to be in line with our current revenue.

General and administrative expenses were $95.8 million or 32.1% of sales compared to $98.9 million or 28% of sales for the second quarter last year.

This dollar decrease was largely due to reductions in warehousing, distribution and labor expenses, partially offset by higher rent on our increased store base.

Total operating expenses for the second quarter were $130.7 million or 43.7% of sales compared to $137.4 million or 38.8% of sales in the second 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 overflow of income taxes in the prior year.

Net loss for the second quarter was $5.9 million compared to net income of $14.6 million in the second quarter of 2008.

Net loss per diluted share in the second quarter of 2009 was $0.13 on approximately 46.3 million average shares outstanding compared to net earnings per diluted share of $0.31 on approximately 46.8 million average shares outstanding during the second quarter of 2008.

As David mentioned, we believe that we will return to profitability in the back half of 2009.

During the second quarter, we were able to secure a new $250 million credit facility.

We believe it is a testament to our strong financial position, operating history and significant position in the global footwear market.

In addition to this new bank facility, the remaining 95 million of auction rate securities were redeemed at par.

At quarter-end we had approximately $257 million in cash, which should provide us with sufficient capital for our initiatives and to fund our future growth.

Our liquidity has never been stronger.

Trade accounts receivable at quarter end were $193.7 million, and our DSOs at the end of June 2009 were 52 days versus 49 days at June 30, 2008.

Total inventory at June 30, 2009 was $191.3 million, representing a significant decrease of $69.9 million from the December 31 and a decrease of $42.9 million from the same period last year.

We believe our inventory is now clean and well positioned for the second-half of the year.

Working capital increased to $500.6 million versus $413.8 million at year-end.

Long-term debt was $15.9 million.

Shareholders equity increased to $689.2 million versus $678.8 million last year.

Book value or shareholders equity per share stood at $14.72 as of quarter-end.

Capital expenditures for the second quarter were approximately $10.5 million, which primarily consisted of five new store openings and several store remodels and $3.4 million for warehousing equipment for our new distribution center.

Excluding the distribution center, which we now expect to be a 2010 event, we believe our capital expenditures for the remainder of 2009 will be between $5 million and $10 million.

And now back to David.

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

We have continued to make improvements in all these key areas during the challenging second quarter and managed to be slightly profitable in the first half of the year.

Our inventory is now clean, and our expenses are in line with our current business.

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 shelf space.

We continue to be a key footwear resource for our accounts and consumers as we deliver stylish product at a great value, and we're beginning to see positive trends in both domestic and international markets.

We are pleased with the positive reaction to our first styles during our extensive prelaunch with key accounts in our Manhattan Beach corporate offices over the past month.

We believe there is a buzz developing on some key initiatives that will have a positive impact on our sales in the back half of 2009 and into 2010.

We have also seen strong performances out of our largest distributor and out of our new international subsidiaries and joint ventures.

We believe these countries -- Brazil, Chile, China and Hong Kong -- will add significantly to our international business in the near future.

We have a strong portfolio of diverse brands, dedicated partners and a team of talented people.

With strong liquidity and a cash balance in excess of $5.50 per share, we are in a great position to capitalize on opportunities as they arise and to further grow our business around the world.

As a well recognized and financially strong brand, trusted by consumers and our wholesale partners, we believe we are well positioned for the current economic climate, as well as for profitable growth when the global economy begins to improve.

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

(Operator Instructions).

Chris Svezia, Susquehanna Financial Group.

I guess, David, can you maybe just flesh out your commentary about improving trends you are seeing domestic and international?

After being down 20% on domestic wholesale slide, is that what -- are you talking about specifically at retail, or are you talking about you are starting to see a lessening of the decline on the US side of the business in terms of wholesale?

Just can you talk about what you mean by that?

Yes, I think we are seeing increases.

Anecdotally we are hearing about big increases in sell-throughs and good performance of our new products.

From our side, our backlogs are starting to improve.

While they are not in positive territory, they still are improving every month.

June actually was a very good month margin wise, incoming order wise.

Our retail stores started to perform better.

Their comp store sales, while not even yet, are certainly better than the average for the month.

Our backlogs at international have now broken through to be positive on a dollar basis, not just a local currency basis.

So we are seeing improvements both anecdotally and statistically throughout all of our divisions.

Okay.

And when you talk about that you are gaining shelf space, can you maybe just talk about where you are gaining shelf space?

I guess more specifically men's, women's, kids.

You know, your women's business has been a little bit more of a challenge in some aspects of it as you kind of cycle through some product.

Kids has been pretty good for you.

Maybe just talk about where you are gaining that shelf space.

I think it is all.

Women's product is coming back very strongly both on the Active Sport USA side.

Our kids business has held up very well and continues to gain market share and continues to come back, and our men's probably is the toughest, most stable.

I think that's the toughest marketplace for us simply because the men's business has not shown any strength at all yet this year.

So we see it a little bit everywhere.

It's like we're not one product specific.

We have to do it across a broad base, and I think that is happening.

Could you just maybe talk about what is going on with Shape Ups, how that's -- the feedback has been pretty good at retail.

Can you just talk about is that -- was that incremental at all in the quarter, or as you look to the back half of the year, is that a piece of what is happening at retail in terms of why you feel that much better about what is going on domestically?

Can you just maybe put something around what is going on with that business?

What is a Shape Ups?

I'm sorry.

Actually Shape Ups is just one of the new products we have developed.

I think it is part of a positive buzz, but in and of itself really does not have too much significance yet in the quarter.

While it has gotten a good reception and it is testing very well, it is too early in its formative years to say that it has major league impact.

We have just seen some MTD reports that Skechers is selling very well and has shown growth through this second quarter, and there are not any significant Shape Ups in the marketplace yet.

So it is just another one of those products as we have always said, when things change, it is positive for us because we jump on new trends that we've brought to the marketplace and has tested very, very positively but too early to really have a major incremental increase certainly in the second quarter.

It has had obviously a slight impact in backlog because we are trying to get some orders out so we can test it, but I don't even know that it is going to have an outrageously significant piece in the third quarter yet.

It is just very early in its cycle, and we are a big company.

These things don't start that quickly.

And the last question I had here is just on the gross margin.

Inventories are where they are.

I assume, as you kind of go into this third quarter, it is an opportunity to possibly see sequential expansion in that gross margin, just given what is going on in inventory and where you are seeing growth.

Is that pretty fair?

I mean can we get back into it?

I think in the past you are talking about 41 -- I think 43 or somewhere in that range.

Is that possible as we go into the back half of the year?

Sure.

I mean if you look at it, second quarter was obviously sequentially higher than first quarter.

But even more so the beginning part of the second quarter which was April and the beginning of May was even worse than the quarter in general.

The improvements June -- for June we were back to pretty close to historical margins.

As I said in my comments, we were significantly higher than the -- well, we were higher than the 41% we showed for the quarter.

Even though volumes were down, that what we ship is new product and did increase margins.

I'm just saying that there is -- I know we will get an answer, so I might as well use this opportunity -- inventory for shipped between second and third quarter, and historically June has been our largest shipping month of the year and by order of magnitude of somewhere in the $15 million, $20 million range for the last 10 years.

And this year the potential is that July will be bigger than June for a couple of reasons.

A) consumers buying closer to need.

All the quarters obviously will have some step back, but because of our cleaning out of inventory, some of our new product is coming in later in this season.

So this will be the first July in 10 years potentially, or it certainly looks that way now, that will be larger than June shipping wise.

Jeff Mintz, Wedbush Morgan Securities.

David, if I could just follow up on the last answer you just gave, is July generally the second largest month?

Is that generally how it falls out?

Yes, July usually is on order of magnitude something like February and March depending on where Easter falls.

So yes, it is like second but not by that wide a margin.

Okay, great.

And then could you talk a little bit about -- you talked about ads kind of holding up, and in advertising spend obviously we see it.

Is that kind of holding up at a similar level as a percentage of sales as historically?

Is that kind of still how you are benchmarking it?

Yes, it is actually probably slightly higher as a percentage of sales, but it has come down slightly in real dollars.

And I think it is important to note that it really is not a significant change in media spend.

We are becoming more efficient in how we produce them and in our POP obviously as it moves through in our in-store promotions.

And then our trade shows is probably a bigger savings than it has been in media.

But it is something that we are watching all the time and obviously getting more under control.

Okay.

So if your media spend is holding up then, are you finding that you're getting more impressions per dollar given the environment for the media companies?

That is probably true, but we have changed the focus though.

We are doing more TV this yea.

R so I think it is fair to say on an equivalent basis we are still getting more time per dollar than last year.

Okay.

Great.

And then you said that you expected your distributor sales to be flat.

I just wanted to clarify, was that flat for the second half or flat for the full year?

Flat for the second half.

There probably will be slightly down for the full year.

Okay, great.

And then the revenues in the first half were down about 13%.

You obviously have not talked about guidance for revenues for the second half, but given all your commentary, is it safe to assume you expect a lesser decline in the second half than the first-half decline in revenue?

Well, that is a tough question to answer before back-to-school, which is obviously a key to what is happening.

But, as I sit here today, unless something really bad happens in back-to-school, I would say that is a pretty fair assumption.

Okay, great.

And then family you said your ASPs were essentially flat year-over-year in the quarter.

What is kind of the pricing environment for you as you go into the second half?

I mean are you pulling back on prices for like product, or are you kind of maintaining those prices right now?

Well, I think for us it is usually what type of products we are involved in because our margins will be held relatively stable.

In some cases they are more expensive shoes, in some cases less.

So I could tell you that our margins are holding up, and we are not changing pricing significantly that would impact our margins.

Okay.

So if I -- when I see similar product to what you had on the shelves last fall, it should be at similar prices, I guess, would be the easiest way to ask it?

That is correct.

Okay, great.

Well, thanks very much and good luck.

Sam Poser, Sterne, Agee.

A question on your marketing spend, on how you're looking at marketing for the back-to-school period.

Could you walk through it?

You said it was going to probably be up as a percentage.

What are we looking at there?

I think the easiest way since -- we are not really talking about top line for back half, and there is no guidance out there.

I think it is fair to say there will be equivalent or less dollars on media and less dollars on the overall category because of trade shows and in-store promotions and POP and things like that.

But still probably a deleverage due to lower sales?

Deleverage as a percent, I don't know what that means.

I mean it depends what the sales decrease is and exactly how much we save on marketing.

So I don't know how to relate to the percentage without giving you a sales number or a marketing dollar spend.

I think for modeling purposes whatever you have as the top line and given what you feel about back-to-school, the real dollar spend from that selling portion of the line, which includes most of it, should be down slightly from last year.

(multiple speakers)

I'm sorry, Fred?

For Q3.

Okay, for Q3.

And then can you talk a little bit -- you say you're going to be profitable in the back half.

You said you were going to be flat in the front half and did slightly better than that.

Can you give us some degree of profitability?

I mean are we looking you're going to earn $0.50; you are going to earn $0.20; you are going to earn $1.00.

Can you give us some ballpark of what you are thinking?

Are you going to earn $0.03 and that is profitable?

Well, I don't know about $0.03.

I think we are not ready to give guidance.

I think $0.03 would be too close for us to call.

If we come out with a statement that says we are going to be profitable in the back half plus or minus $0.03, you understand for us $0.03 is $1.5 million on what was last year $400 million sales in the quarter.

We are not that smart nor can we calculate that closely.

So given that whatever cushions, whatever we know if we think we are going to be profitable, it certainly would be more than $0.03.

Thank you very much.

Good luck.

Sorry.

I think you are low man on the totem pole, so that is not a bad place to start.

(Operator Instructions).

[Maggie Gilliam], [Gilliam & Company].

David, you did not give a cash flow statement and you normally don't in the release.

But there was an investment of something like $81 million at the end of the second quarter.

Could you tell us where that went?

Those were the ARSs.

You know, we had very specific, if you read the old literature, accounting requirements for ARSs because they were illiquid and not considered cash -- (multiple speakers)

Right, right, I remember now.

Right and that has now converted back to ARSs in cash.

So it is now all confirmed back, all reserves are taken off, and it's in that $257 million cash number.

Yes, right.

Okay.

Well, that was obviously where a lot of the cash came from.

But --

Well, it is only $95 million.

We actually --

Well, no, I mean it was inventory.

Receivables was a big one, too.

Yes, okay.

Well, that is good.

Thank you.

That was all I had.

(Operator Instructions).

Sam Poser.

I know you have a lot of cash now, and you know we are always wondering what you're going to do with all that cash.

So I wanted to be the one to ask you.

Funny you should say that.

You know, we thought about converting them into pennies and putting him into the warehouse since we have excess room but less inventory, which would be secure given all the stuff in the marketplace.

I think now it is a little too early to tell.

We are waiting to see what happens through back-to-school.

We are open to certain opportunities, and we will be looking as we go down the road to invest them.

But right now there is no specific plan, nor are we ready to announce anything as to what those expenditures will be.

So we could not expect a buyback I gather?

Well, I would have to announce it first, and I'm not going to announce it on a phone call, so not this week I don't think.

I mean anything is possible.

We hate to take it off or be glib about it.

We talk about it all the time, and these are very difficult times.

And we do have a lot of cash and there is a lot of possibilities and a lot of potential, and I think most of us when we look at it would like to use it as an opportunity to grow to take advantage of whatever may come in the marketplace.

Because it is difficult times for some small companies to raise cash and some niche players to raise cash.

And we are certainly open to it.

But ultimately down the road, we think we're going to be major cash generators as we get into the back half and into next year.

We will constantly talk about it and certainly have not taken anything, including a stock buyback, off the table in perpetuity.

Thank you.

Scott Krasik, CL King.

Can you tell us what your US or domestic wholesale backlog is actually at the end of the second quarter?

At the end of the second quarter, we are down low double digits.

Okay.

So given that you said I guess the subsidiary wholesale backlog is up.

Your inventory position of being down 18, is that in excess of the sales that are an outlook that you can pinpoint right now?

No, I think actually if I was to look at it, depending on how back-to-school goes, because remember this is always a fluid number and growing.

We think we are inventoried either right or too low because (technical difficulty)-- is obviously brand-new inventory that has tested very, very well.

A lot of it is spoken for, and we are certainly ready for some although not an exorbitant amount of reorder business as it goes through back-to-school.

But obviously back-to-school won't start for a couple of weeks.

I think as we get to WSA for those of you that are out there that talk to our customers as we will and see what's going on, have a better idea of where we stand and what will happen for back-to-school.

Okay.

So given -- I assume you took some pricing at the end of last year and said the costs were coming up, the costs coming down.

I mean are you in a position then to put up gross margins that are better than even the third quarter a year ago or historical?

It is certainly possible.

It depends on where the mix comes because we are obviously stronger in international, and that is a currency play.

So margins are slightly lower there than last year simply because of the currency translations unless something specific happens to currency.

And we have been the strongest and held up the best in kids' shoes, which historically has the slowest margins.

But we think margins are increasing at the retail level to the extent they hold up, and they should go back to historical levels or higher as far as domestic wholesale is concerned.

So depending on the mix, it certainly is possible, but a lot depends on how good or how well received back-to-school is domestically.

Okay.

And then you said operating expenses are in line with sales.

The $3 million decline from Q1 to Q2 in your G&A, was that just seasonal, and is the $95 million, $96 million, is that a decent run rate to use for G&A for the next couple of quarters or next quarter at least?

Yes, I think it goes up -- some of it is seasonal, and it does get slightly higher in real dollar terms in Q3 from Q2 simply because for an extended period of time there's more units to ship, and retail is certainly a little more expensive because back-to-school you need more help on the floor.

So I think just a slight takedown from Q3 last year because we will be operating more efficiently is the good way to go.

And what is appropriate since you are making money in the back half of the year, what is the tax rate that we should be using?

I think we get back to that historical 30%, maybe 30% or lower, under 30%.

Whatever we used the last part of last year or the first quarter this year.

The closer you get to breakeven, you get some pretty -- you know, the closer -- the lower earnings number, the tax rate moves kind of -- (technical difficulty)--

It is kind of skewed because of all the --

When you're talking -- it is difficult to predict.

Depending on where we -- how profitable we are, I think in the first quarter we said that you should use around a 20% rate.

And I think that our rate should be low this year depending on how profitable we end up.

Okay.

And then have you been hit by any customer bankruptcies either in the UK or Karstadt in Germany?

Are you selling there?

Not yet.

We were involved in the Barratts at the end of last year, but that is all taken care of, and actually there are some recoveries coming and he is doing better.

We are not part of the Karstadt problem.

Okay.

Thanks very much.

Good luck.

[Corey Armand], Rice Voelker.

I just had a quick question.

Did you book a gain or did you have to reverse an accrual that you had on the long-term investment since you ended up redeeming it at par and had already written it down?

The write-down went directly to OCI.

So the gain or the write back up to $95 million also went through OCI, so nothing affected earnings.

(Operator Instructions).

[Catherine Spurlock], Rice Voelker.

I have a quick question about the Shape Ups.

How many doors do you expect for those to be in this fall?

This fall, that is hard to tell.

We are still in the formative stages, and people are ordering and testing and growing.

So it is too early for me to tell.

You know every time we bring a new product to the marketplace and it starts to test well, we assume we will maximize it and it will go to the maximum amount of doors.

But it is just too early right now for us to give any real clarity on that.

In one article I found that you guys mentioned that you might put these in the likes of JCPenney and Famous Footwear.

Is that something that you are considering going forward?

I believe they are already being tested there, so yes, that.

Okay.

All right.

Well, that is what I wanted to know.

Thank you.

I'm registering no further questions at this time.

I would like to turn the conference back over to Skechers for their closing remarks.

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.