Skechers USA Inc (SKX) 2009 Q3 法說會逐字稿

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

Welcome to the Skechers third 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 opened for questions.

(Operator Instructions).

This conference is being recorded today, Wednesday, October 21, 2009.

Good afternoon, thank you for joining Skechers quarterly financial results conference call.

I will now read the 'Safe Harbor" statement.

Certain statements contained herein, including without limitations, statements adjusting 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.

User of forward-looking statements are encourage to review the Company's filings with the US Securities and Exchange Commission including the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q and Current Reports on Form 8-K and all other reports filed with the SEC as required by Federal Security laws for a description of other significant risk factors that may effect 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 third quarter 2009 results.

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

Third quarter 2009 net sales totaled 405.4 million, a new record and 1.48 billion for the first nine months.

Net earnings for the third quarter were 24.5 million and diluted earnings per share were $0.52.

For the nine months ended September 30 net earnings were 26.8 million and diluted earnings per share were $0.57.

As discussed in our first and second quarter conference call, we anticipated that the weak retail environment would negatively impact our domestic and international business in the first half of the year.

While the second half of year would be profitable.

This is the case as the their quarter saw a return to profitability and growth in several of our business channels.

The strong profitability in the quarter and much improved gross margin of 45.3% was the result of less closeouts and more in line in demand inventory.

During the first half of the year and into the third quarter we carefully managed our inventory which was reduced by 69.4 million from year-end and our SG&A expenses which increased by 4.3 million from the prior year, which includes 29 more retail stores operated in the third quarter of 2009 versus 2008.

And significantly additional expenses related to our new operations in Chile, as well as our growing business in Brazil, China, and Hong Kong.

Based on our record sales and key performance indicators, which include a healthy backlog, positive retail comps and strong sale through, we believe we are on track for positive results for Q4 and 2010.

Our domestic wholesale business declined 10% in the third quarter and 16% for the nine months.

The decline in sales was impart due to the weak retail environment, the closing of several fashion brands and the decrease of availability of off price merchandise.

The reaction by consumers and accounts to our Skechers full product has been extremely is positive.

While our third quarter sales are not as high as last year, we had more inline full priced product and increase in average price per pair from the third quarter 2008 and less closeouts which resulted in much improved profitability and positively impacted margin.

The growth came across key men's, women's and kids' lines which we belive is the result of continued positive reaction to our core styles and new lines supported by concentrated marketing efforts, strong execution and an attractive and affordable product.

In the third quarter, our marketing included High School Musical star Vanessa Hudgens and a TV campaign for Red by Marc Ecko and our own animated characters who appear regularly in commercials airing on Children's Television Network, such as Nickelodeon, Cartoon Network and the Disney Channel.

Additional print and TV campaign supported our Skechers and fashion brands.

We believe our domestic sales will improve in the fourth quarter though we expect the continued soft retail environment will remain a factor.

We are confident that we will continue to be one of the key footwear vendors to the majority of our accounts and our product continues to be in demand and sought after by consumers who look to us for style and value.

Our International wholesale business improved by 7% for third quarter from the prior year and was down 3% for the first nine months.

The improvement in the quarter is significant in comparison to the first and second quarters which were flat and down 20% respectively.

As in the United States, many International markets are also facing difficult economic conditions.

This has impacted our sales in select regions around the world but we believe that our brand is in a great position in terms of shelf space, reputation, and awareness as we continue to increase our presence around the globe.

Key retailers and consumers are looking to Skechers as key footwear resource.

In the third quarter, our subsidiary and joint venture sales improved by 18.5%.

This was due to growth in most of our subsidiaries including two of our largest, the transition of Chile from a distributor to a subsidiary and the growth of our joint venture operations in China and Hong Kong the addition of Singapore as a joint venture.

Our two lowest subsidiaries are in South America, Brazil and Chile.

We believe Brazil which is now entering its third year of operations will become one of our largest subsidiaries.

And Chile with 10 retail stores, a solid account base and approximately 800,000 pairs shipped as a distributor in 2008 is a meaningful addition to our international business.

Our International subsidiaries utilize the proven marketing campaigns we have created often modifying them with certain key styles, particularly suited and popular in their markets.

Additionally, they will translate our commercials and often print ads in multiple languages including Spanish for Latin America and Spain, French for Canada and France, Portuguese for Portugal and Brazil, German, Italian and Dutch to support their sales effort.

Unique marketing with local celebrities is utilized in China, Hong Kong and other Asian countries where we have established joint ventures.

The marketing images reflect our brand identity while also embracing the culture in these regions.

We believe our growing markets and presence in Asia will positively impact our international business within the next two years.

Several of our International distributors achieve growth in the third quarter but the transition of Chile from a distributor to a subsidiary and declining economies in several countries, in particular in eastern Europe negatively impacted our overall international distributor business, which was down in total by 16% for the quarter and 18% for the first nine months.

We are excited about our new International distribution agreement in Mexico and India both of which were announced recently.

In Mexico, Skechers is already known to consumers due to both proximity and a previous distribution agreement.

In India, the second most populous country in the world, our focus on style and quality at the right price will be key to building a successful business.

We believe we have the opportunity to build both strong wholesale and retail business in these two important countries and think they will contribute to the international growth and positively impact our business within the next three to five years.

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

At quarter end, there were 102 distributor-owned that license Skechers Retail Stores across South America, South Africa, the Middle East, Eastern Europe, Scandinavia, Asia and Australia.

Nine new distributor stores stores opened in the third quarter, one each in Australia, Columbia and the Philippines and six in South Korea.

And eight closed.

Similar to our company-owned stores these distributors stores serve as marketing tools building brand recognition as well as offering local consumers the 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.

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

Skechers is available in more than a 100 countries and territories around the world including the top five most populated countries with the relatively recent launches in China, India and Brazil and continued growth in many key countries we believe our international business now at approximately 25% of our total will become a significantly larger percentage in the near future.

We currently believe our subsidiaries which have an improved back log will continue to grow into next year.

While we have seen improvements in some of our distributor countries most of eastern Europe continues to have challenges due to the economic issues in the regions.

Several countries in other regions are facing similar challenges including one of our key distributors.

We believe on balance, our International business will be relatively flat or slightly positive for the fourth quarter as compared to Q4 in 2008.

Over the long-term, we see many opportunities to further grow our Skechers and fashion lines around the world and 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 20% for the third quarter, with a positive retail comp of 7% in total same-store sales.

For the nine months, our total retail sales were up nearly 8%.

At quarter end, we had 244 company-owned Skechers Retail Stores.

In the third quarter we opened five retail stores including an outlet and a concept store in Canada and two concepts and an outlet store in the United States.

We have another six stores planned for the remainder of the year including prime locations in London's Convened Garden and downtown Santiago, Chile and have plans to open an additional 20 to 25 Skechers Retail Stores in 2,010.

Planned stores include EastonTown Center in Columbus, Ohio and locations in Portugal, England and Canada.

Turning to our third quarter 2009 numbers in detail.

As I mentioned earlier third quarter sales were a record 405.4 million, compared to 403.2 million in the third quarter of 2008.

The increased third quarter revenues were driven by growth within our international business and double-digit improvement in our retail channel as well as strong growth in online business.

Third quarter gross profit was 183.7 million or 45.3% of sales compared to last years gross profit of 171.5 million or 42.5% of sales.

The 280 basis point increase in gross margin percentage was primarily due to the improved quality of our inventory which resulted in reduced closeouts and strong product sell throughs during the quarter.

We expect our margins to return to the historical range of 42 to 42% in the near future which is in line with our business model.

Third quarter selling expenses as a percentage of sales were virtual flat at 10.2%.

The slight increase in the dollar amount of selling expenses for the quarter was mainly a results of slightly higher marketing expenses largely offset by lower trade show expenses.

General and administrative expenses were 110.5 million or 27.3% of sales, compared to 106.5 million or 26.4% of sales for the third quarter last year.

The increase in G&A expense was due to a combination of slightly higher expenses in wages, distribution and rent, partially off set by reductions in temporary help and travel expenses.

Total operating expenses for the third quarter were 151.7 million or 37.4% of sales compared to 147.4 million or 36.6% of sales in the third quarter of 2008.

Considering the addition of 29 retail stores and several new international initiatives such as Chile, Brazil, Hong Kong and China we feel we did a solid job managing our cost while positioning the Company well for the future.

During the third quarter of 2009 we returned to profitability and saw income from operations grow to 32.4 million and increase of over 31% from a year ago.

Net income for the third quarter was 24.5 million compared to 28.3 million last year.

Net earnings per diluted share in the third quarter of 2009 was $0.52 on approximately 47.1 million average shares outstanding compared to net earnings per diluted share of $0.60 on approximately 46.8 million average shares outstanding during the third quarter of 2008.

Income tax expense was 10.2 million during the third quarter of 2009 as compared to a tax benefit of 3.6 million during the same period last year, due to an advanced pricing agreement reached with the Internal Revenue Service.

Net sales for the nine month period ended September 30, 2009 were 1.48 billion compared 1.143 billion in the prior year period.

Gross margin was 431.8 million compared to 500.9 million.

Operating expenses decreased to 401.9 million, compared 409.6 million last year.

Selling expenses decreased 97.6 million from 105 million.

General and administrative expenses were flat at approximately 304 million from last year.

Net income for the nine months was 26.8 million compared to 75.8 million last year.

Diluted earnings per share were $0.57 on approximately 46.6 million average shares outstanding compared to diluted earnings per share of a $1.62 on approximately 46.8 million shares last year.

Our balance sheet continues to be very strong.

At quarter end we had approximately 276 million in cash and short-term investments or $5.86 per share, which should provide us with sufficient capital for our initiatives and to fund our future growth.

Trade accounts receivable at quarter end were 205 million and DSOs at the end of September 2009 were 50 days versus 46 days at September 30, 2008.

Total inventory on September 30, 2009 was 191.8 million representing the significant decrease of 69.4 million from December 31, 2008 and a decrease of 58.3 million from the same period last year.

The decrease in quarterly inventory includes an addition of 7.2 million in inventory for our new subsidiaries in joint ventures, Brazil, Chile, China and Hong Kong.

We believe our inventory is now clean and well positioned for both the remainder of the year and into 2010.

Working capital increased to 529.8 million versus 413.8 million at year-end.

Long-term debt was 15.8 million.

Shareholders equity increased to 716.7 million versus 671.9 at December 31, 2008.

Book value or shareholders equity per share was approximately 1520 as of quarter end.

Capital expenditures for the third quarter were approximately 4.3 million which primarily consisted of five new store openings and several store remodels and 1.4 million for warehouse equipment for our new distribution center.

Excluding the distribution center which we now expect to be a 2010 event we believe that our total capital expenditures for the remainder of 2009 to be between 5 and 7 million.

In summary, 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 achieved this goal and are performing extremely well.

The combination of our focused approach to our global footwear business including the development of new International distribution agreements in India and Mexico, new product initiatives, strong execution, additional distribution channels, and more Skechers Retail Stores have allowed us to grow sales and increase profitability.

Our third quarter sales reached a new record high driven by sales growth in the high single-digits in our International business and double-digit improvements in our retail channel along with improvements in our domestic business.

Our growth in operating margins also improved meaningfully in the third quarter due to our ability to manage our expenses and inventory.

Furthermore, we have improved our cash and short-term investments to 276 million and introduce successful new products for men, women, and children back by effective marketing.

We believe the combination of our ample liquidity, clean inventory and fresh product in the market position us well and will allow us to capitalize on new growth opportunities as they arise.

While the global economy continues to show signs of weakness, we believe are business is on track and continue to strengthen based on our record third quarter sales.

The combination of the many positive indicators we are seeing including healthy domestic and international backlog, positive retail comps and strong sell throughs gives us confidence that we are well positioned for continued profitable growth.

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

Thank you, sir.

(Operator Instructions).

First question comes from the line of Chris Svezia with Susquehanna Financial Group.

Congratulations.

Thank you.

Handful of questions.

Can you quantify it on the backlogs.

And walk through domestically and internationally and put perspective around the increases if you could.

They both remain low double-digit increases over this time last year.

Okay then, on the International piece, if you strip out, what impact does currency have on that.

It has a slight currency, actually if you look at it.

It is fairly consistent to last year.

It is a little bit of loss in the pound.

The Euro, the Swiss franc and the Canadian dollar are not significantly different than last year even though flection, in backlog anyway not significant change because of currency.

Okay.

That's good.

One thing you didn't talk about is shape ups.

Talk about incremental benefits of the third quarter your thoughts as you look further out, door growth and put some perspective around what it is and what it means, what you guys are doing et cetera.

I don't know that in and of itself it means anything more significant than what it is as part of the overall.

We have been doing very, very well.

And obviously, its impact on the third quarter is not significantly higher we are down 10% in domestic sales.

It as piece of what we do.

We have a number of products and it is just an increased part and good beginning and just the beginning.

And know one knows what it will bring and we have other products.

Kids, means, women's that are big piece of the backlog.

In the past we talked about.

That you were doing a test.

And retail has talked pretty highly of it.

Can you talk about where you are in the test phase.

And the number of doors to some degree that you are in.

And what it looks like.

Is this more of a spring business or potentially build for holiday.

Any perspective around that.

Really can't tell yet.

It is getting some reception and Q4 is the next iteration of the test.

(inaudible) And it is too early for us to tell.

What it really mean.

Most of the product is hot.

And I don't know that it is a good time to pull it out and segregate it.

It is like we said in the past, we are very good as pace changes and merchandising pace changes and something will come at the ends of the year and right now.

It is a good beginning.

And only a very small piece of what we have done for Q3.

Do you have that internationally.

It is further behind internationally it is only getting first introductions now.

When you talk domestic to approve the wholesale piece as you go into fourth quarter, is that mean you can be positive in the fourth quarter on the wholesale side.

I would anticipate -- last year doesn't have a tough number to bet given the environment.

And given the environment of a year ago.

If I had to put it in perspective last year's third quarter was our best top line quarter ever.

And this one is better, that third quarter last year started to slow down obviously in September and moved into the fourth quarter.

This year we accelerated through September and expect acceleration in the fourth quarter.

It is very different than last year and we are anticipating domestic wholesale to show an improvement from last year.

Last question , on the gross margin.

Very strong here in the third quarter and inventories are in good shape going into the third quarter.

When you sit back and think about 42, 43%.

Fourth quarter is a lower gross margin quarter.

Is that applying to the quarter and think further out to spring.

Where you usually can be better than that.

I am curious about your

I think we will not be able.

The reason for the higher margin is significantly about some the new products we are offering and the fact that there are no closeouts.

The margins were higher because weigh didn't have close outs.

If you take apples to apples comparison and given the amount of closeouts we did last year as opposed to this year.

When do we get back to a normal cycle.

I don't believe we will catch all of it and not in the 45 plus range or like you said.

It is smaller.

There is some possibility to be historically perspective.

And we are building inventory aves and we plan on being closer to the 43% historical.

Thank you very much.

Thank you.

Our next question is from the line of Scott Krasik with CL King Associates.

Go ahead.

David, have your retail comps accelerated since the third quarter?

Percentage basis?

Yes.

Yes, of course.

Last year October is when things started to happen.

You would anticipate the first couple of weeks of October have been higher than they were for Q3.

So double-digit comps is a reasonable assumption.

Certainly.

Can you quantify what the ASP increase or what the difference is there.

That is clearly where Shape Ups is having a big impact.

It can't have that big of an impact since volume was down.

But I understand the perspective.

And with the lack of closeout business.

Our ASPs were up in the dollar range on domestic wholesale.

That is pretty significant.

In your own retail stores.

Even more than that.

Well, because it is wholesale.

It is probably not as significant.

It is up.

I am not that sure.

It is a dollar and dollar and change as well.

G&A was higher than we were expecting in this environment where people are cutting to the bone.

You guys seem to have put up a record G&A quarter.

Any thoughts or direction.

Is that going to be coming down.

I know you are opening stores.

Maybe it won't.

That depends on the growth.

And the only real differential was the non-US and even the the old subsidiaries.

And this is the first full quarter of Chile in season as a subsidiary.

And they only really ship extensively and have build ups in Q1 and Q4 and we are looking to flatten that out and move it out.

And the distribution cost of consolidating a distribution center and distributing the volume in one quarter.

You pick up a significant amount in Q1.

And Q3 actually from Chile.

We have had increases in China.

And increased prices in Brazil and so, there is more points of sale and on the domestic basis, G&A is department in line.

And that is as far as Europe is concerned as well.

It depends on the growing and the growth of the subsidiaries and we are not planning increases over than what is necessary to increase the volume as we go forward.

Depending on how they do.

And how much volumes increases we have domestically and in Europe, we will certainly and how many stores we tend to open.

And that will be the telling tale for what G&A does in the near-term.

You are talking about 25 stores next year.

That's with a we are talking about and if we can find them given what the rental environment is and how hot the brand is and our returns at retail, we could do more.

Find good locations at reasonable rent.

Okay.

Just lastly, on the technical, on the tax rate.

You guys were doing some stuff with the transfer pricing, I think.

And internationally you have the tax rate down.

Well, the forward.

We are still looking at it.

And we are looking at 30% for the year.

And around 30% for the fourth quarter.

The main dynamic and the taxes is how much is earned domestically and how much is earned overseas.

The last year we have been earning more money overseas and it did have a positive impact on the tax rate.

It is fair to say coming into Q1, we will have significant increases in our domestic businesses as well.

And the rate of acceleration and profitability between domestic and International will be the telling tale.

I think it is fair to say use your own models and if you accelerate domestic business significantly higher you may take their tax rate up a few percent.

If you think International is growing faster, you can take it down a few percent.

Just last, and you are mentioning the backlogs are up.

Low double-digits am and at this point going into 2009, you were really starting to feel the pain.

And I mean, is it where you would like it to be.

And to fill it out once.

Well, I think you have to think about it as a 2-fold thing.

The backlog as it existed in December 30, 2008 it is not as solid as it is and what we anticipate today and the cancellation and moving out of orders.

We didn't get as a good bang for our Buck.

It is stronger per dollar.

And if the word is accurate and continues to grow in October.

It accelerates from here and being you mean.

And having it solid and starting to accelerate.

That's a good place for us to be.

Okay.

Thanks.

Thank you.

Our next question is from the line of Sam Poser with Sterne Agee.

Hi, David.

I wanted to follow up on just clarification on the gross margin for Q4 and the components of SG&A one more time.

I am sorry, I just want to clarify what you are thinking relative to Q3.

I think Q3 was very good as far as gross margins are concerned.

We anticipate having positive impact on gross margin.

And I think given the shape of our inventory and what we currently see at retail we have some up side for the normal Q4 deterioration in gross margin.

And as far as G&A is concerned, same metric is hold, should stable to last year.

And we have to pick up the store's and our International, don't see any major shifts as far as G&A are concerned.

As we look into next year, that is growth along the sides of the growth of the store base and the and the all the subsidiary changeovers and whatnot.

I think that is true and as volume picks up we have in real dollar terms.

Obviously, over head that has to do with increased volumes as it picks up.

The question is how big the volume is going to be.

And how efficiently we handle it.

We don't see any major changes in the core infrastructure.

And we don't have the final number of the plan.

And what we think.

Especially as you get back to school next year and what the growth can be.

And in Q4, you said, International wholesale you expect to be flatish, up a little.

International in its entirety, when you take what we think -- It is never a big quarter for International any how.

It only moves the needle so much but what we anticipate now is the subsidiaries will be up and the distributors will be down to different than we have seen through this year for a net relatively flat slight positive for Q4.

Where did the total International for Q3.

That was up high single-digits.

Total International was up high single-digits and we would expect that --

Relatively flat now in Q4 on a much smaller base, not a bigger piece of their business year.

And look ahead in 2010, do you foresee, are you planning to double-digits or where are you thinking about 2,010 right now for increase.

Of international?

Just in total.

I don't know.

I don't think we can make the assessment yet.

You have done a good job of controlling expenses and doing a lot of marketing against the Shape Ups relative to the size the business, we see it on sides of busses, on television.

And so on on so forth.

I'm sure you see much Twinkle Toes on there too, we are not one dimension.

We see lots also.

This is the first time that you have been in a position where you basically are short product of some the best sellers.

You are chasing some of these down from the retailers.

Are you planning.

And when do you catch up?

When do you think you are going to cap up there?

I don't know.

It depends on how much they want.

How big it is.

It never takes us that long.

Our infrastructure is solid.

I don't know there is going to be shortages in the marketplace for a significant period of time.

And like I said, it is too early to tell.

All right.

Thank you, David and good luck.

Thanks.

Ladies and gentlemen, if there are any additional questions press the star followed by the one on your touch-tone phone.

If you are using speaker equipment, you need to lift the handset before making your selection.

Our next question is from the line of David Turner with Avondale Partners.

Thanks, David.

Curious about a couple of things.

Gross margin related.

Any meaningful change given it is so lean coming into the quarter or was it enough of a spike in the business to impact gross margin trend?

And given that you are lean for Q3, will that have an impact as well.

In both cases, as we said in our prepared comments the fact that we had significantly less closeout inventory available and certainly didnt;t ship it had a positive impact on gross margins.

And like I said.

I think it does have a possibility of increasing gross margins from the normal decrease in Q4 for Q4 '09 and given that we are still in inventory and still high demand for the product.

I got you.

Second, International business.

I don't know if you can.

And maybe ballpark.

The change in door count.

And you said.

International was up high singles overall and how about doors to sell ins and existing accounts.

How did you get to the high single-digit.

And trying to figure out how much share you are taking is what I am ultimately trying to get to.

Part of the increase is Chile which is one customer to begin with it is now a whole country.

And Brazil and China are growing because they are brand new but it is fair to say that our backlogs in western Europe and Canada, they are up as well.

Or up significantly.

And we anticipate growth.

And the biggest.

That's a combination of door count and taking shelf space within.

And we are growing there, we are not as established as we were in the United States.

I think that's fair to say that where we are directly subsidiaries and joint ventures we expect to continue growth, both door count and shelf space and couple areas where their distributors where the economy is tough but it is starting to show signs of improvement and we can show improvement there for 2010 as well.

And I guess, just for housekeeping.

You mentioned.

In your early in your prepared comments, you were talking about domestic wholesale being down I think you said there were some brands that were clothes, couldn't figure out if you were talking about internally within Skechers or retail accounts that you ship to.

No, internally within Skechers.

How much of that 23ish percent decrease in inventory did that account not having those brands on the books, how much did that account for?

Those were small.

Small pieces to begin with.

When they, just to continue that.

Did they use a lot of resources from a marketing perspective so that will be elevated in Q4 or even in 2010?

I don't think anyone would think we would had problems reallocating the marketing resources to wherever there are to what exist.

I don't know.

You will see a decrease in there.

Obviously, everything has resources but we are picking it up with growth in Skechers brand those will catch on and we will make up the difference.

There is the transition out and take a small amount of resources and they had some inventory and some volume.

Probable more closeout volume at the end of the year and the beginning of this year then real volume and stress on the infrastructure.

Just part of the clean up process.

Yes.

You have done it before.

Two more.

You mentioned the DC is now 2010 event.

And just for house keeping.

And is there a bet are, mid, late, early, 2010, it seemed a little later than what was initially proposed.

And is there something structurally going on or timing is off, a skew or what ever you want to call it.

We had various issues and now the economics have changed.

We are revisiting the economics and we won't have a final day until the shovel goes in the ground.

We are anticipating no earlier than the last quarter of 2010 and possibly even the first quarter of 2011 before it is up and running.

So, lastly.

Given the growth in your retail business and the domestic wholesale business.

It is, the environment is weak and lagging.

Do you feel there is any tradeoff.

Is the retail.

Your retail.

Company retail stores taking share away from the domestic wholesale business.

Well, it is a little true in Q3 and we don't anticipate it happening from Q3 and forward.

Our wholesale business will be picking up the slack.

We anticipate it growing, certainly in Q4 and first half of next year.

Yes.

Hearing nothing but good things on the closeout .

Good luck with this

We appreciate it, thank you.

The next question is from Scott Krasik with CL King Associates.

There is usually a selling decline in selling expenses and Q3 and into Q4 and making a big push for holiday.

Should we expect that seasonal again.

Yes, absolutely.

You might see some growth in real dollar terms from last year, small like you see the year as we have gone forward, but we are in the going to push it to the Q3 levels.

Not even close.

And do you envision, it is obviously early.

Selling and marketing.

Our trade show cost will continue to come down.

And selling expense and marketing expense and what is going to move that next year .

We haven't finalized and that is not the biggest advertising time any how so we are still working on that I think it is fair to say.

I am not sure how much we can decrease the trade show expense we are constantly looking into it but I wouldn't anticipate any back increases back into it next year, certainly.

And marketing will depend on what we anticipate our volume is going to be as we sit with our backlog through the end of October and into the holiday selling season and we anticipate Q1 and Q2 and some of back to school will be working on the marking budget.

Obviously they are related to each other and it is too early to come up with a number.

On the backlog, any differences between women, kid's and men.

You mean from historical levels.

No, is your men's back log positive or negative?

Men's backlog is getting much better than the it was at the beginning of the year.

Women's has been the strongest.

Men's is the most difficult this year.

Kid has held up the best.

And therefore growth is different and we remain the biggest piece women's and then men's and kids.

Women's and kid's certainly holding up better than men's.

Any change you are expected to spend 30 million on the distribution center in CapEx.

To the end of next year.

Okay.

Thanks very much.

You're welcome.

Our next question is the follow up question from the line of Chris Svezia from Susquehanna Financial Group.

Just on the retail store piece, did you talk about what is going on with maybe renegotiating some leases, co-tenant violations if any, when you talk about 20, 25 stores the potential for the rents to be down, can you talk about a little bit about that.

You guys were growing into the height of the real estate boom and I am curious about what you are seeing out there and on your existing real estate portfolio.

I don't think we are different than anyone else.

However, when you have longer-term leases and most of our stores were open in the last few years it is difficult to renegotiate.

Where it is possible we certainly will and are looking for new space.

We are looking to see what empty space is around.

We can do better deals.

I wouldn't swear to it, that is what we are looking for in today's environment.

And so, I don't know that you will move the needle significantly on rents.

New rents should be on a relative basis better than old , 20 stores won't move the average rent significantly.

Although we are working on

When you look at retail stores and talk about acceleration in comp, what is driving it.

Is it evenly split or some colors between the two concepts and warehouses.

Which once are growing the fastest?

The concept stores come back the quickest.

They have all the new product and follow through there, followed by outlet and lastly by box stores because they have the most difficult economics and are in the most difficult areas for the economy is hurting now a days.

So, that is pretty much as you would image, concepts first, then the outlets, then the box stores.

Thank you very much.

Thank you and ladies and gentlemen, that is all the time we have for questions today.

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.