Skechers USA Inc (SKX) 2009 Q4 法說會逐字稿

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 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' fourth-quarter and year-end 2009 results.

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

Fourth quarter 2009 net sales totaled $388.6 million, a new fourth-quarter record, and $1.436 billion for the full year.

Net earnings for the fourth quarter were $27.9 million, and diluted earnings per share were $0.58.

For the year ended December 31, 2009 net earnings were $54.7 million and diluted earnings per share or $1.16.

As discussed on our previous 2009 quarterly conference calls, 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 the year will be profitable.

This has been the case as we achieved strong momentum and record sales in both the third and fourth quarters.

Our record fourth-quarter sales are the results of high double-digit sales growth in both our international subsidiary and domestic wholesale businesses, high double-digit growth in both our domestic and international SKECHERS retail divisions with combined domestic and international retail store comps up 17.4%, high double-digit growth in our e-commerce division, double-digit improvement in our women's, kid's and work divisions with single-digit growth in our men's business, greatly improved gross margins of 48.7%, the result of less closeouts and more in-line, in-demand inventory combined with strong sell-throughs, an increase in pairs sold of 8%, and an increase in average price per pair of $5.27, or 27%.

Key achievements for the year include annual sales of over $1.4 billion in a difficult retail environment, domestic and international backlog up 40% at year-end, and an improved balance sheet with approximately $296 million in cash and short-term investments representing $6.12 per share, and current and on-plan inventory to support our new divisions and retail store growth.

Based on our key performance indicators, which include backlog up 40%, positive double-digit retail comps and strong sell-throughs, all of which continue into the first quarter, we believe we will see continued product and brand momentum through 2010.

During 2009 SKECHERS was a key footwear resource for our retail partners in the United States as both they and consumers gravitated towards a well-known brand with compelling product that met their needs in terms of style and price and supported by relevant marketing.

Our domestic wholesale business increased approximately 38% in the fourth quarter and decreased 5% for the year.

The improvement in domestic wholesale revenues in the quarter is particularly significant in comparison to the earlier quarters in the year, which saw declines of 10% in the third quarter, 20% in the second quarter, and 18% for the first quarter.

The quarterly improvement is the result of strong sales in key SKECHERS men's and women's lines, the continuing growth of our kid's lines, and an average price per pair up 27%.

We saw broad acceptance of key new adult styles, which increased our SKU position in existing doors and resulted in the opening of new accounts.

We supported our women's and men's lines with print, outdoor and television campaigns along with grassroots marketing, creating a buzz across America and inspiring considerable press coverage.

With the support of numerous TV spots featuring our cast of characters, our boy's and girl's lines saw double-digit improvements.

The 5% decline in domestic wholesale for the year was primarily due to a combination of the liquidation of inventory at reduced prices in the first six months, the challenging retail environment, and the closing of several fashion brands.

The recent reaction by key accounts to our SKECHERS spring products has been extremely positive during our pre-line meetings over the last five weeks and at the recent trade shows, WSA and FFANY, which leads us to believe our domestic wholesale business will continue to be strong in 2010.

Our international wholesale business improved by 8% for the fourth quarter from the prior year and was down slightly for the year.

The challenges to our international business are primarily the result of the overall global economy, particularly the difficulties in Asia and Eastern Europe.

In the fourth quarter our subsidiary and joint venture sales improved by 86%.

This was due to double-digit growth in nearly every subsidiary, triple-digit growth in two subsidiaries, the transition of Chile from a distributor to a subsidiary in the second quarter of 2009, and the growth of our joint venture operations in China and Hong Kong, and the addition of Singapore.

We are particularly pleased with the significant quarterly growth in the UK, Germany and Canada, our largest subsidiaries, gains in market share in Spain, France, Italy and the Alpine region, and the steady growth in Brazil, which we believe will become one of our largest subsidiaries.

With 10 SKECHERS stores and a growing account base, we also see Chile as a great opportunity to grow our business in South America.

2010 will be its first full year as a subsidiary, and we look forward to building our business in the region.

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

Additionally they will translate our campaigns into multiple languages to support their sales efforts.

In 2009 Chile utilized a well-known Chilean actress appearing in their print and TV campaigns.

The re-launch of our business in Hong Kong, Malaysia and Singapore as a joint venture is resulting in increased brand presence and sales in the region.

In 2009 we added an additional seven stores in Hong Kong, Malaysia, Singapore, and another three in China, with one store closing in China, bringing our total in the region to 33 at year-end.

Later this quarter the fifth store will open in Singapore and the second in Thailand.

In China we are focusing on increasing our points of sale, which are now at approximately 100.

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

The marketing image reflects the SKECHERS identity while also embracing the culture in these regions.

Our international distributor business was down by 38% in the fourth quarter and 20% for the year.

This was the result of several factors including the transition of Chile from a distributor to a subsidiary, and declining economies in several countries, in particular in Eastern Europe and Asia.

We have seen improvements in several of these regions, including our largest distributor, and believe our international distributor business will improve significantly in the second half of 2010.

We are excited about our new distribution agreement in Mexico and India, both of which were announced in 2009.

India began delivering product in the fourth quarter, and we are encouraged by the early sell-throughs.

Mexico recently hosted meetings with key accounts and will begin delivering product to the market in mid 2010.

SKECHERS stores are also planned for later this year in Mexico City and Leon, marking our first in Mexico.

We believe we have the opportunity to build both strong wholesale and retail businesses in these two important countries and think they will contribute to our international growth and positively impact our business over 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 112 distributor owned or licensed SKECHERS retail stores across South America, South Africa, the Middle East, Eastern Europe, Asia and Australia.

13 new distributor stores opened in the fourth quarter, including locations in Panama, Colombia, Venezuela, Korea, the Philippines and Ukraine, and seven stores closed.

This quarter an additional six stores have already been opened by our distributors, including our first in Israel, with another nine planned this quarter.

Similar to our company-owned stores, these distributors stores serve as marketing tools building brand recognition as well as offering local consumers a more complete assortment of the SKECHERS brands and products.

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

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

While some of our distributors continue to face challenges due to the tough economic climate in their countries, we believe most will improve their SKECHERS business in 2010.

We believe our subsidiaries will continue to grow based on an improved backlog, reaction from key accounts during January pre-lines, and the broad acceptance of our new product offering.

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

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 future.

Our combined domestic and international retail sales were up 31% for the quarter and nearly 14% for the year.

We realized positive comp store sales of 17% for the quarter and 2.5% for the year.

At year-end we had 246 company-owned SKECHERS retail stores.

In the fourth quarter we opened two retail stores, including a flagship store in London's Covent Garden and in Huntington Beach, California.

This quarter we have five stores planned to open, including our first in Porto, Portugal and concept stores in Valencia, California and Columbus, Ohio.

We're planning to open a total of 25 to 30 stores this year, including three in the UK, two in Canada, and our first two in Italy.

We are also planning to open our first airport store in Orlando, Florida.

We view our retail stores as living catalogs, a place consumers can shop the largest collection SKECHERS has to offer in a uniquely identifiable SKECHERS setting.

For this reason they are tremendous marketing and branding vehicles, key to growing our business in cities or countries where we are not as widely known as -- or available.

Given the profitability of these locations, we plan to continue to grow our domestic and international retail business.

Before we move on to our financial review, I'd like to mention two additional revenue channels, e-commerce and licensing.

Though it remains a small part of our total business, our e-commerce revenues improved significantly for the quarter and the year.

We are investing in improved software and redesigning the shopping experience to be a more user friendly and pleasant for consumers.

Like our retail stores SKECHERS.com is an opportunity to see a very broad range of merchandise for men, women and kids, and to speak directly to the consumers through social networking and e-mails.

We plan to continue to grow this business in the United States and possibly overseas area.

Through selectively licensing our name and images, we will be able to extend our brand reach into new categories, making it essentially possible for men, women and kids to dress head to toe in SKECHERS.

We are excited about the launch of our SKECHERS kid's apparel this quarter in the United States and the global launch of SKECHERS eyewear later this year.

We are in the process of signing additional agreements for several other categories and believe they will continue to profitably build our brand.

Now turning to our fourth-quarter and year-end 2009 results in detail.

As I mentioned earlier, fourth-quarter sales were a record $388.6 million compared to $298.1 million in the fourth quarter of 2008.

The 30% increase in fourth-quarter revenues was driven by significant growth within our international business and double-digit growth in many markets, including our retail channel as well as our online business.

For the year ended December 31, 2009, net sales were slightly down at $1.436 billion, compared with net sales of $1.441 billion for the prior year.

Fourth-quarter gross profit was $189.3 million, or 48.7% of sales, compared to last year's gross profit of $95.0 million, or 31.9% of sales.

The nearly 17 point increase in gross margin percentage was due to a variety of factors including significant less closeouts, strong product sell-throughs, and higher initial margins during the quarter.

Gross profit for the year was $621.0 million, compared to $595.9 million in the prior year.

And gross margin for the year was 43.2% in 2009, compared to 41.4% for 2008.

Fourth-quarter selling expenses were $31.4 million or 8.1% of sales, compared to $21.9 million or 7.3% of sales.

The increase in the dollar amount of selling expenses for the quarter was mainly the result of increased marketing expense associated with some new product categories.

For the full year 2009 selling expenses were $129.0 million or 9.0% of sales, compared to $126.9 million or 8.8% of sales in 2008.

For the fourth quarter, general and administrative expenses were $116.8 million or 30% of sales, compared to $109.1 million or 36.6% of sales for the fourth quarter last year.

The increase in G&A expense was primarily due to increased store count, increased expenses in our foreign operations, and a return to year-end historical employee incentive and benefit programs.

However, on a percentage of sales basis expenses were down significantly.

Total G&A expenses for 2009 were $421.1 million or 29.3% of sales, compared to $413.6 million or 28.7% in 2008.

Total operating expenses for the fourth quarter are $148.2 million or 38.1% of sales, compared to $130.9 million or 43.9% of sales in the fourth quarter of 2008.

For the full year 2009, operating expenses were $550.1 million or 38.3% of sales, compared to $540.5 million or 37.5% of sales in 2008.

Given the net addition of 22 retail stores, including 10 already existing locations in Chile, and several new international initiatives such as Brazil, Chile, Hong Kong and China, we feel we have done a solid job managing our costs while still positioning the company well for the future.

During the fourth quarter of 2009 we saw income from operations grow to $41.7 million, an increase of over $76 million from a loss of $35.1 million for the same period a year ago.

Net income for the fourth quarter was $27.9 million, compared to a net loss of $20.4 million last year.

Net earnings per diluted share in the fourth quarter of 2009 were $0.58 on approximately 48.3 million average shares outstanding, compared to a net loss per diluted share of $0.44 on approximately 46.1 million average shares outstanding during the fourth quarter of 2008.

Income tax expense was $12 million during the fourth quarter of 2009, as compared to a tax benefit of $12.9 million during the same period last year due to an advanced pricing agreement reached with the Internal Revenue Service.

Net income for 2009 was $54.7 million, versus net income of $55.4 million in 2008.

For fiscal year 2009, diluted earnings per share were $1.16 based on 47.1 million weighted shares outstanding, versus diluted earnings per share of $1.19 based on 46.7 million weighted average shares outstanding in the prior year.

Income tax expense was $20.2 million, compared with $7.3 million in the prior year.

Turning to our balance sheet, which continues to remain very strong, at December 31, 2009 we had $295.7 million in cash and short-term investments, or $6.12 per share, which should provide us with sufficient capital for our many exciting initiatives and to fund our planned future growth.

Trade accounts receivable at quarter end were $219.9 million, and our DSOs at the end of December 31, 2009 was 50 days, versus 43 days in the prior year.

Total inventory, including merchandise in transit at December 31, 2009 was $224 million, representing a decrease of $37.2 million from December 31, 2008.

We believe our inventory is clean and well positioned for the remainder of 2010.

Working capital increased $[558.5] million versus $413.8 million at year-end.

Long-term debt was $15.6 million.

Shareholders' equity increased to $745.9 million, versus $668.7 million at December 31, 2008.

Book value, or shareholders' equity per share stood at approximately $16.10 as of year-end.

Capital expenditures for the fourth quarter were approximately $4.1 million, which primarily consisted of two new store openings and several store remodels, and $0.5 million for warehouse equipment for our new distribution center.

Capital expenditures for 2009 were approximately $35.3 million, which primarily consisted of 22 new store openings and several store remodels, corporate real property purchased, tenant improvements for our new corporate headquarters, and $19.9 million for warehouse equipment for our new distribution center in Rancho Belago, California.

Excluding the distribution center equipment and building, which we now expect to be spread over the second half of 2010, we expect ongoing capital expenditures for 2010 to be between $15 million and $20 million.

2009 began as a challenging year for us as we faced a difficult economy but evolved into a dynamic year for SKECHERS as we developed unique, well-accepted, fresh products and launched new initiatives supported by strong execution and our global infrastructure.

This approach resulted in significant growth in the second half of the year with record third and fourth quarters and relatively flat annual revenues.

We also improved our gross and operating margins meaningfully in the fourth quarter due to our ability to manage our expenses and inventory, deliver more in-line goods, and the strength of our increasingly global retail business.

Our focus in 2010 is on delivering strong products and marketing coupled with inventory and expense management and growth in our domestic, international, retail and e-commerce distribution channels.

We are continuing to develop exciting new product, much of which we'll be launching in spring and fall of this year and believe that consumers will embrace these new styles.

Our new initiatives are allowing us to grow our presence in existing accounts and to expand into new channels in the States and overseas.

In regard to international, we will focus on developing our new distribution businesses in India and Mexico as well as build our joint venture operations in Asia.

In 2010 we will expand our store base with another 25 to 30 stores planned for the year, including five international locations.

And we are in the process of redesigning our SKECHERS.com e-commerce website with enhanced and more efficient software while exploring the possibility of launching e-commerce in select international markets where we handle the distribution of our product.

To accommodate this growth, in 2009 we expanded our European distribution center by 250,000 square feet to an adjacent parcel next to our existing facility in Liege, Belgium.

For our US distribution facility, we will transition from 1.6 million square feet of distribution space across five buildings in Ontario, California to a more efficient, automated, single 1.8 million square foot facility in Rancho Belago, California.

We expect to break ground in the first or second quarter on what will be one of the largest LEED certified buildings in the United States, and expect to have the new distribution center operational in 2011.

We believe that back to back record quarters and significant growth in our domestic and international subsidiary business is the beginning of a very strong trend.

Based on the reaction to our product at our recent domestic and international meetings with key accounts and distributors, as well as our key performance indicators, which include continued healthy domestic international backlogs of 40%, positive retail comps and strong sell-throughs, we expect to see ongoing product and brand momentum through 2010 and beyond.

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

(Operator Instructions).

Chris Svezia, Susquehanna Financial Group.

So a couple questions.

I guess first on the backlog, up 40%, how much of your business right now after everything you've gone through is -- are you doing now on a backlog basis?

In other words, you have a retail business that's -- call it 25%.

I'm just curious how much of your business right now you book based upon those backlogs at this point.

You are saying, is there a change in breakdown between our (multiple speakers) at-once components and our backlogs?

In a sense.

In other words, is it now 65% of your total business balance is now done based upon your backlogs?

Or -- just trying to get an idea of where that is?

In fourth quarter actually there wasn't a significant change.

We actually had an as high and maybe even a slightly higher at-once business.

We are now obviously going into first quarter with this backlog, and there still remains demand for products, so I'm not sure how it will end up.

But I don't believe there's going to be a significant change in that structure of the business.

Let me ask you this, how are the backlogs at all -- now that you have done pre-lines with a lot of key accounts, how have your backlogs looked just directionally?

Have they continued to accelerate?

Have they been pretty stable relative to that 40% as you've gone into the first quarter?

I think as we indicated in the prepared remarks, they are accelerating as we go into first quarter.

So they are increasing significantly from that, using 40%, at that baseline for December 31.

Okay.

When you guys look at -- just to switch gears for a second -- the gross margin line, how should we be thinking about that as we move forward?

Obviously you've cleaned up a lot of inventory.

Inventories are down, and you have a 40% backlog and increasing.

Are you short product?

Are you just being a little bit more efficient?

Do you have less closeouts?

Just talk to us about how we should look at inventory and gross margin rates as we go into 2010.

I never know how to answer that question.

I think our inventories are in great shape.

I don't believe we've missed any significant sales.

Our backlog growth as it grows from the end of the year into first quarter is as much a statement of future, second and third quarter, as much as it is filling an at-once pipeline.

Obviously as we move forward I think our margins obviously will come back more in line with historical perspective as we start to -- if we build inventory and as lines change and if there's closeouts and depending on new product offerings and their initial margins, but I would say that's a future event.

That's something to speculate about.

There's nothing that would indicate a significant change, other than like talk about always, a structure of the business.

If the kid's business starts to grow faster or retail grows faster or distributors grow faster than subsidiaries, would change that slightly.

But other than that, there's no indication that there's going to be a significant downdraft for margins, certainly not in the first quarter.

But at least as you look at the first half, sit here and look at a 40 -- against the comparisons last year to look at a 46%, 47% gross margin rate, would it be out of the realm of possibility?

I think that would be quite in the realm of all possibilities.

The last question I have is just as you look at second quarter -- and I know it's further down the pipeline, but in terms of the product that you have, Tone Ups and what you're doing in Shape Ups, your kid's business, your men's business, the work business, typically second quarter has been a tougher quarter for you guys seasonally.

Just how do you guys think about second quarter now that you're strong as you are, your backlogs are in the shape that they are in?

Could second quarter finally be a very strong quarter?

Could we potentially see that strength continue into the second quarter?

I know there's been ships because of back to school, but I'm just kind of curious how you're looking at that second quarter [at this time].

Well, it's kind of early, and we are not as taken with a June/July shift as you guys are because of the quarterly reporting, but it looks now that as we are continuing to build inventory into Q2, we certainly will show increases in Q2.

The question of how good can Q2 be this year I think is an order of magnitude one -- not to get too far ahead.

We show a big piece of the increased backlogs are for Q2.

They are certainly not all for Q3, so there will be significant increases.

We have the shift of Easter, I believe, into April this year, so that's bodes well for Q2.

And our distributors are figuring to increase as we go into Q2 -- and Q2 is historically a strong quarter for them -- and as they get out of their doldrums and our backlogs with them pick up, so I believe -- I don't know if that's true consensus, but I believe we are going to have a good fourth quarter.

But like I said, it's an order of magnitude issue.

Second -- I said fourth.

Second (multiple speakers)

Second quarter.

Okay.

Hey, fourth quarter too?

(multiple speakers)

I wish I knew.

It's certainly not going to be Q1 or Q3, but I think we are going to have a very solid Q2 as it's building up right now as we go through this whole new product cycle.

All right, thank you, and good success.

Sam Poser, Sterne Agee.

I just missed what you said about the wholesale -- domestic wholesale business was up how much in the quarter?

It was up double-digits.

We had a very good (multiple speakers)

You called out a number in the prepared remarks.

I don't remember what it -- I think it was up 30 some odd percent.

Hold on.

We had it -- it was up 38%.

38.

Thank you.

And then just to follow -- when you're talking about Q2 and the revenue in Q2, you're talking about in absolute dollars won't be as strong.

The increases could still be there; correct?

Absolutely.

Increases actually because there was a smaller base could have equivalent percentages or more.

They could be higher.

And then when we are looking at the year, are you -- do you think -- you had a 30 plus percent increase in the fourth quarter.

Could we be looking at that -- are we looking at those kind of run rates right now?

Given the 40% increase in backlog and the momentum of the brand, are we looking at that kind of potential increase?

Or even better going into the first half of the year?

A 30% increase in the first half?

Or --

Yes.

-- were you saying the whole year?

Well, whatever you want to talk about.

(laughter) Well, I think it's obviously easier to plan on the first half because they're such easy comps.

When you're talking the whole year, that's a significantly larger number.

I guess that's $1.4 billion.

If you're up 30%, you're up $420 million.

That gets to $1.850 billion, which is a little higher than anybody would be comfortable with.

If you're asking me if it's possible, I would tell you certainly it's possible because we don't know the magnitude.

We have a lot of new product out there that is testing so, so well we don't even know the size or order of magnitude.

It's just kind of too early to commit to that -- I would tell you -- yet.

But first half, when you're only talking about $600 million, $650 million, can we be up $200 million?

Yes, I think that is very doable.

That might even be a little bit conservative.

And then since nobody's asked about the Shape Ups and so on, you're -- when do you launch the extended fit products?

Well, I don't know if we are making any announcements on their launches.

We will be delivering new product, as we said, starting at the end of -- probably at the end of Q1, early Q2, all the way through back-to-school.

And you commented -- and are you -- you're -- but you're seeing -- where is this -- what categories are giving you the biggest momentum right now?

-- if you could break it out.

You talked a little bit about kids, and -- but -- and I know you've broken out the whole Shape Ups group or toning group into a separate like area.

Can you talk -- can you give us a little bit of detail on how you're looking at some of those different businesses going forward?

The SKECHERS businesses, men's, women's, kid's and all the derivatives -- so men's sport, women's sport, active USA, if you look at our current backlogs, there's not one of them that's not showing increases or significant increases year-over-year.

So one is only an order of magnitude, and some are more developed business and some not, but I would tell you that the opportunity for us is across the broad spectrum of the whole SKECHERS family, which makes it so exciting for us right now.

It's -- there is no place that doesn't have significant potential that could move the needle, both domestically and worldwide.

With the potential very large growth of gross margin in -- into 2010 -- and again, is it -- could you foresee running -- doing like a 47% gross margin for the full year?

-- number-one,

Sure.

I could.

I don't know what's happening in the back half yet, but if I use my crystal ball I could certainly see at.

But you're comfortable on a 47%, 48% based on -- for the first half based on what's going -- what happened in Q4?

Yes, I would -- comfortable.

I would say those are the numbers I would use personally to model more towards the 47% than the 48% typically because we are moving into stronger times.

There will be some closeouts, and there will be some new product that's hitting, and sandals are a bigger part of spring, so there is potential for some hit on the initial margins, sandals being a more seasonal kind of business.

But certainly in that 47% range I don't have any issues.

And then how should we be looking at SG&A and your selling expenses, marketing and so on?

That's still something to be decided.

We obviously kicked up advertising at the end of Q4 with tremendous, tremendous results.

I can't even begin to tell you how well the advertising campaign in the end of December and the Super Bowl ad worked, from the spikes we saw from orders on our own online sites, from what anecdotally we've heard from our customers, so obviously we are, continue to remain advertisers.

I would say the real dollar advertising spend is obviously increasing, the percentage probably not as much, we probably might -- we might have slightly higher percentage advertising as we go through this year and when we evaluate what we think we need on a worldwide basis.

There should be, as there was in Q4, significant leverage opportunities on the G&A line, because obviously with such a big price per pair increase, [but of course] the number of pairs moving is certainly leverageable in our system, both domestic, international and at retail.

So we will get that, and I think -- no different than what you saw in Q4 between the two lines broken out.

Okay, cool.

Then one last thing -- I'm sorry there's so many questions.

Once you get the new distribution center up and running in 2011, sort of like if you could pull that into 2010, if it was run -- if it was working right now, how much do you think that efficiency would add, potentially add to the kind of numbers you're looking at?

Especially on the -- I guess on the G&A line?

We anticipated -- and we are going to have to go redo these numbers in a while, but we anticipate at the current levels of distribution, the current number of pairs moving through the system, that we will initially get savings even net of the new depreciation charges of somewhere between $6 million and $9 million a year.

All right, cool.

Well, thank you very much, good luck.

Susan Sansbury, Miller Tabak.

I guess a specific question about Shape Ups and your other new product categories.

Is this business big enough now to have been instrumental in moving up your average unit retail that you specified in the fourth quarter?

And could you shed any light on how significant the margin -- how much you expect average unit retail to go up this year as a consequence of having this new business grow as a percent of total?

I think in the first quarter they'll be close to what they were in Q4.

And to go back to the original part of your question, I think it's certainly a contributing factor to the increase in unit pricing.

I think closeouts is a significant piece as well.

The lack of closeouts, the lack of old inventory, new product offerings that are selling well in the marketplace, and average unit increases, not only in one division, but most of our divisions with the new product have slightly higher average pricing.

So all of those are contributing, and all of them move the needle, including the new category.

I think the same holds true for the first half at least.

Obviously they're tougher comps in the back half.

I think there's still significant opportunity in Q3.

We're booking well and we'll sell some -- while we had a very good Q3 this year, and obviously the toughest opportunity is Q4, but given the strength of our product, I think what you'll see is not quite as much unit price increases as volume increases as you get into Q4 and the product takes hold around the world.

Is there any order of magnitude or way to describe how much closeout or markdown inventory or clearance inventory -- how much it was down or how much it was down in fourth quarter and for the year?

We'd have to -- it's difficult because we have to quantify closeouts in a different way.

I would say off-price merchandise sales in fourth quarter as compared to fourth quarter last year was down probably -- and I'm guessing now -- probably in somewhere between 60% and 75%.

Last year was a big -- obviously -- closeout both in fourth quarter and first quarter, and this year it's almost de minimis.

It's very small amounts, colors here and there and some fashion brands that we're moving around.

So the differential is significant.

And you said if the business continues to strengthen you will build inventory, and as a consequence there will be more clearance inventory.

Do you have any plans in place to keep a type -- tight -- from strategically, keep it tight rein on that?

Or do you have new planning and assortment systems in place that will allow you to reduce cycle time or do -- you said that you intended to do more in-line business.

Can you give me any description of (technical difficulty) any of the above?

It's -- we haven't changed significantly.

We are not looking to take on risk and build inventory out of hand to try to capture that marginal sale at the end of the story.

I think during a normal cycle as we're a bigger company and there are bigger offerings, you will always have colors that have to close out and new product offerings and new products that replace old products, even within the existing categories.

So as you get into that cycle and it gets mature, you're always going to have a little more closeouts.

We are not planning on building any anymore significantly than at any time in our past.

It's just part of the normal cycle as you clean out things.

You have to remember, this cycle is brand-new and comes from an over exuberant cleansing process that happened last year in the fourth quarter and first quarter.

So we think we will get back to normal.

It will take a while, simply because we've developed so much good merchandise that it's taken longer to reach its point in the market cycle.

I mean, we just -- we haven't reached the peak of saturation or anywhere close to saturation in most of our categories as we go through Q1.

So it's hard to tell when that -- how long that cycle will take to unfold.

I appreciate it, thanks ever so much.

(Operator Instructions).

Elizabeth Montgomery, Longbow.

Congratulations on a really good quarter.

I had -- well, actually Susan and Sam got a lot of my questions on the Shape Ups, but I wondered when did that business really start taking off for you guys?

And have you seen any sign that some of the other companies that are trying to get into this space might be really -- not -- certainly not taking market share from you guys, but might be becoming more competitive?

Tough to answer, quantify those timetables.

I think -- we still think the category is still beginning.

It's only the start of a lot of that category, and a lot of the category is in our men's business and our kid's business, they are all just beginning.

We've only been at this for -- developing new products since third quarter, fourth quarter.

So we are very early in most of that cycle in developing new product anyway.

So --

And as to how well the competitors are doing, there's always competitors.

They -- unless I know exactly what the order of magnitude or how big the categories are, so I know what piece we're anticipating taking or what size -- I know the category for us is bigger than we anticipated, and that's true of all.

Even our kid's business is much bigger than we anticipated six months ago.

So there's always competitors, and they'll always have a piece, but we think we are right in the heart of all our product offerings and should do very well over the next six months.

And then internationally, are Shape Ups -- are you disturbing those internationally?

Or I would think that that category internationally is still extremely small.

It's smaller and certainly newer.

We usually have international run about six to nine months behind what we do in the United States, so you can use your own timetable and realize it's even more at the beginning of that process outside of the United States.

Okay, all right.

That's great.

Thanks.

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.