Skechers USA Inc (SKX) 2010 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Skechers USA Inc first quarter 2010 earnings conference call.

During today's presentation, all parties will be in a listen only mode and following the presentation, the conference will be open for questions and instructions will be given at that time.

(Operator Instructions).

As a reminder, this conference is being recorded today, Wednesday, April 28 of 2010.

And now I would like to turn the conference over to Skechers.

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

I will now read the Safe Harbor statement.

Certain statements contained herein including, without limitation, statements addressing the beliefs, plans, objectives, estimates, or expectations of the Company for future results or events may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended.

Such forward-looking statements involve known and unknown risks including, but not limited to, global, national and local economic, business and market conditions in general and specifically as they apply to the retail industry and the Company.

There can be no assurance that the actual future results, performance or achievements expressed or implied by such forward-looking statements will occur.

Users of forward-looking statements are encouraged to review the Company's filings with the US Securities and Exchange Commission including the most recent annual report on Form 10K, quarterly reports on Form 10-Q, current reports on Form 8K, and all other reports filed with the SEC as required by federal securities laws for a description of others in the 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' first quarter 2010 results.

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

First quarter 2010 net sales totaled $492.8 million.

Income from operations was $81 million.

Net earnings for the first quarter were $56.3 million and diluted earnings per share were $1.15.

Our revenues, operating income, net earnings and earnings-per-share all represent our quarterly records.

The momentum of the second half of 2009 continued through the first quarter of 2010.

The significant growth was attributable to double-digit improvements in our wholesale, international and retail businesses, triple digit improvements in our e-commerce business and the strength of our men's, women's and kids' brands.

Our record first-quarter sales were the result of high double-digit sales growth in both our international subsidiary and domestic wholesale businesses; high double-digit domestic and international sales growth in our Skechers retail divisions with combined retail store comps up 30%; triple digit growth in our e-commerce division; gross margins of 48.2%, the result of more in-line, in-demand inventory combined with strong sellthroughs; an increase in domestic pairs sold at 10% and an increase in average price per pair of $6.53 or 38%.

Additional important achievements for the quarter include record quarterly sales of nearly $500 million; record quarterly earnings; domestic and international wholesale backlogs accelerating to high double digits; an even stronger balance sheet with approximately $325 million in cash representing $6.69 per share; and current and unplanned inventory to support both our new and existing positions as well as our retail store growth.

As you can see, the efforts and initiatives in 2009 are being realized in 2010.

This has resulted in significant improvements, including our record quarterly numbers.

Based on our key indicators, including our high double-digit backlog, sellthroughs and our own comp store sales, we believe our momentum will continue through 2010 and beyond.

The growth in the first quarter is primarily attributable to our domestic wholesale business, which increased approximately 52%.

While the comparison is to a weak first quarter 2009, which declined by 18% over the prior year, it is still significant and represents a 28% increase over the solid first quarter of 2008.

The increases were the result of double-digit improvement in our women's, men's, and work division with single-digit growth in our kids' business and an average price per pair up 38%.

Driving this growth was our Skechers kids' footwear and new lines within our Skechers men's and women's collections.

We saw broad acceptance of our athletic product with an existing account and the opening of new accounts to support this new offering.

We supported our new men's and women's lines with print, outdoor, [dust] wrap, and television campaigns.

Including the area of spots during the Super Bowl and the Oscars.

We believe this targeted advertising has created a halo affect with our many other Skechers lines, including our men's sport and men's and women's USA, all of which saw growth in the quarter.

We continue to support our kids' division with fresh television campaigns featuring our cast of characters, including Twinkle Toes, Heidi and the High Tops, and Luminators on major cable networks during prime viewing time.

The message was brought in store with compelling visual displays and images that reflect the TV campaigns and feature our animated celebrities.

Our fashion brand sales in total posted a decline in part due to the closing of several lines last year and the changing trends in the market.

We are addressing the styling and product development in our fashion lines and have already seen improvements in Zoo York, which is up double digits over last year.

We have several key accounts in our Manhattan Beach office this week to review new Skechers product and have already heard positive feedback.

We are looking forward to delivering our back-to-school fall collections and believe the reaction by consumers will continue to be strong.

Our international wholesale business improved by 24% for the first quarter, a significant increase over last year.

The growth was the result of strong improvements in our international subsidiary and joint venture businesses, which were up nearly 42%.

All of our subsidiaries showed growth in the quarter.

Both Germany and the outlying regions showed high single-digit growth.

Brazil showed triple-digit growth and the remaining improved by double digits.

Chile did not have comparables last year as the country transitioned from a distributor to a subsidiary in 2009.

We are pleased with the results in our subsidiary and joint venture countries.

In particular we see tremendous growth potential in Chile which we'll see its first full year of operation as a subsidiary this year.

In Brazil, a country that started heavy on our fashion business, but has rapidly embraced our Skechers line and seen positive results.

And China and Hong Kong, two areas that were reintroduced to our brand recently and are experiencing success.

Our international subsidiaries utilize the proven marketing campaigns we have created domestically, translating them into their local languages.

As a result our campaigns can be heard and read in French for Canada and France, Spanish for Spain and Chile, Portuguese for Portugal and Brazil, along with several other languages.

These campaigns have proven effective, as our brand perception and name have grown in these markets.

To localize the marketing, our joint ventures in Asia have created campaigns with local celebrities.

These images are appearing in magazines, billboards, subways, and on the sides of buses.

The marketing, along with the strong Skechers retail presence of 35 stores, including a new store in Singapore and another in Thailand, have helped position Skechers as a recognizable lifestyle footwear brand in the market.

Already this month, two stores have opened in China and another store in Malaysia, bringing the total count to 38 Skechers retail stores.

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

The challenges we experienced in certain parts of our international business, we believe, are primarily the result of continued softness in the overall global economy -- in particular, Southeast Asia and Eastern Europe.

Our international distributor business was down by 18% in the first quarter.

The decline was largely the result of the transition of Chile from a distributor to a subsidiary and weak economies in several countries.

In spite of the challenges, several key countries have experienced substantial growth in the quarter, including Israel, the Philippines, Russia, South Korea, Taiwan, Ukraine, and UAE.

We believe our distributor business will be positive by the back half of the year, based on the incoming order rates and backlog.

In 2009, we signed distribution agreements in Mexico and India, two countries where we believe we have the opportunity to build both strong wholesale and retail businesses.

India began delivering product in the fourth quarter and we are encouraged by the early sellthroughs, while Mexico will begin delivering products to a market in mid-2010.

The first Skechers stores in Mexico are planned to open in [Leon] later this quarter and in Mexico City in the third quarter.

The first Skechers store in India is planned for Mumbai in the third quarter.

We believe both these important countries 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 118 distributor owned or licensed Skechers retail stores around the world.

10 new distributor stores opened in the first quarter, including one each in Japan, Lithuania and Colombia, two in Venezuela, four in South Korea, and our first stores in Israel and Indonesia.

And five stores were closed.

This quarter an additional three stores have already been opened by our distributors, including our first in Egypt, and another seven are planned.

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

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

While some of our distributors continue to face challenges due to the tough economic climate, we are seeing improved backlogs in order rates, which indicate positive sales in the back half of this year.

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

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 our new business in Mexico and India as well as relatively recent launches in China and Brazil, we believe our international business now at approximately 25% of our total will become a significantly larger percentage in the near future.

Our combined domestic and international retail sales were up 45% for the first quarter, with our domestic sales improving by approximately 40% and our international retail by 132%, which includes the addition of 10 stores from our distributor in Chile.

We realized positive comp store sales on a combined basis of 30% for the quarter.

At year end we had 250 Company-owned Skechers retail stores.

In the first quarter, we opened four stores, including our first in Portugal.

This quarter, we opened an outlet store in Santiago, Chile and in East Midlands in the UK, and we have approximately 10 scheduled to open before the end of the quarter.

including an airport store in Orlando, Florida, and our first stores in Austria and Italy.

We have another 15 stores scheduled to open before the end of the year.

We view our retail stores as living catalogs, a place where 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.

Given the profitability of these locations, we plan to continue to grow our domestic and international retail business with approximately 25 additional stores this year.

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

Though it remained a relatively small part of our total business, our e-commerce revenues showed a significant improvement of 143% for the quarter.

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

We are investing in improved software and redesigning the shopping experience to be more user-friendly for consumers, and we are looking at expanding our e-commerce business to international countries where we directly handle the distribution of our product.

Through selectively licensing our names and images, we are extending our brand into new categories to make it eventually possible for men, women, and kids to dress head to toe in Skechers.

Skechers Kids Apparel launched in the first quarter in the United States and Skechers Eyewear just launched in America at select countries around the world.

Along with Kids Apparel and Eyewear, we also have Skechers branded socks and scrubs available and have licensing agreements for Skechers bags, leather goods, belts and watches.

Now turning to our first quarter 2010 numbers in detail.

As I mentioned earlier, first quarter sales were a record $492.8 million -- the largest sales quarter in our nearly 18-year history compared to $343.5 million in the first quarter of 2009.

The 43% increase in first quarter was driven by significant growth across our domestic wholesale and international businesses, our Company-owned retail stores as well as our online business.

First quarter gross profit was $237.4 million or 48.2% of sales compared to last year's gross profit of $125.4 million or 36.5% of sales, an increase of over 1100 basis points.

The increase in gross profit dollars of $112 million on incremental sales of $149 million speaks to the broad strength of our business.

A very significant increase in gross margin percentage was due to a variety of factors, including improved quality of our inventory which resulted in reduced closeouts, strong product sales [group] and higher margin product mix.

First quarter selling expenses were $34.3 million or 7% of sales compared to $21.5 million or 6.3% of sales.

The increase in the dollar amount of selling expenses for the quarter was mainly due to increased advertising and promotional expenses and higher tradeshow costs in the prior year.

For the first quarter, general and administrative expenses were $122.5 million or 24.9% of sales compared to $98 million or 28.5% of sales in the prior year.

The increase in the D&A dollar amount was primarily due to increased store count, increased expenses in our foreign operations and a return to historical employee incentive programs.

However, on a percentage of sales basis, expenses were down significantly, due to increased operating leverage.

Total operating expenses for the first quarter were $156.8 million or 31.8% of sales compared to $119.5 million or 34.8% of sales in the first quarter of 2009.

Given the addition of 26 retail stores and several new international initiatives such as Chile, Brazil, Hong Kong and China, we feel that we have done a solid job managing our costs while building our global infrastructures to position the Company well for the future.

During the first quarter of 2010, we saw operating income grow to $81 million, an increase of nearly $75 million from a year ago on incremental sales of $149 million.

This represents an operating margin of 16.4%.

Net income was $56.3 million compared to net income of $8.2 million last year.

Net earnings per diluted share in the first quarter of 2010 were $1.15 on approximately 48.7 million shares outstanding, compared to a net income per diluted share of $0.18 on approximately 46.5 million average shares outstanding during the first quarter of 2009.

The first quarter 2010 earnings are based on an additional 2.3 million shares and a higher tax rate of 31.5%.

Income tax expense was $25.8 million during the first quarter of 2010, as compared to a tax benefit of approximately $750,000 during the same period last year.

We are modeling at 32% tax rate for 2010.

A lower tax rate in this quarter was due to a discrete item.

Turning to our balance sheet, which remains very strong and continues to improve, at March 31, 2010, we had approximately $325 million in cash or $6.69 per share.

Trade accounts receivable at quarter end were $292 million and our DSO at the end of March 31, 2010, was 47 days versus 54 days in the prior year.

Total inventory including merchandise in transit at March 31, 2010, was $189 million, representing a decrease of $35 million from December 31, 2009, and an increase of $16.1 million from the first quarter of 2009.

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

Working capital increased to $609 million versus $558.5 million at year-end.

We currently have no long-term debt and shareholders equity of $818.6 million versus $749.4 million at December 31, 2009.

Book value or shareholders equity per share stood at approximately $16.79 as of March 31, 2010.

Capital expenditures for the first quarter were approximately $6.6 million which primarily consisted of four new store openings and several store remodels and $1 million for IT equipment and other upgrades.

2010 marks a new decade and a new phase of growth for Skechers.

With record sales, operating income, earnings and earnings per share, we are meaningfully expanding our global Skechers footprint.

With $325 million in cash and a new 1.8 million square foot distribution center in development and fresh product lines getting shelf space at key athletic department stores and independent accounts, as well as being embraced by consumers, we believe we are well-positioned for growth.

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

We are now focusing on developing our new distribution businesses in India and Mexico, building our joint venture operations in Asia and our newer subsidiaries in South America, as well as looking at turning the few underperforming countries into the strong regions that we believe they can be.

We will also add approximately 25 Skechers retail stores this year including several in new international locations.

And we are in the process of redesigning our Skechers.com e-commerce website to further grow its sales domestically and select international markets where we handle the distribution of our products.

We believe the three consecutive record quarters we have experienced and the significant growth in our domestic and international subsidiary businesses is the beginning of a strong trend.

We are delivering more new relevant men's, women's and kids' products for back-to-school in June and July which can result in a shift in revenue between the second and third quarters.

But based on our many positive factors including strong April sales in our wholesale and international businesses, double-digit retail store comps, accelerating backlog and strong sellthroughs, we believe the momentum will continue in 2010 and we are confident that we are well-positioned for continued profitable growth.

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

(Operator Instructions).

Scott Krasik with BB&T Capital Markets.

Question on sort of the backlog.

You talked about accelerating backlog, you talked about double digits, high double digits.

Can you clarify that any further what the backlog looks like?

And also given all of the pre-order business or the books business, what does your [at once] business look like?

Well, we need a couple of definitions for that, but when I was a banker we defined high double as past 60%.

So, we accelerated from what was 40 some odd percent at the end of the year to an excess -- certainly an excess of 60% backlogs across the world at the end of March 31.

As far as at once, obviously we have a small percentage of at once business, but we still have some.

We are -- we've committed to inventory.

We always do, it is moving along.

And if you count at once inventory as less than our 90-day cycle, we still have some.

Certainly not as big on our percentage basis as in years past, but we continue to have an at once business as well as an increased backlog on future business.

Okay.

That's helpful.

Anything to take or any further deep dive on the distributor business?

When that should pick back up?

We are increasing our backlog.

Their backlogs are actually higher than last year and usually that would indicate deliveries in the second -- in the third and fourth quarter.

So I think it is fair to say that by the back half of this year they will be showing positive comps.

Certainly as a group in most of those countries.

So should international be running the growth ahead of domestic by the end of -- by the second half of the year?

Well, it will certainly get closer.

I don't know.

Domestic is growing pretty quick now.

I would think it would be close.

Sam Poser with Sterne, Agee.

On the Q1 call you commented --.

This is the Q1 call.

I mean on the Q4 call.

Excuse me.

On the Q4 call, you commented that you expected the Q1 business to be up at least 30% and that was probably going to be conservative for the front half of the year.

Considering the 43% increase in the quarter, how should we be thinking about revenue?

And you basically said you didn't have any visibility into the third quarter at that time.

So looking at the second and third quarter combined, how should we be thinking about it?

Looking at the second and third quarter combined, I don't really see anything right now that would indicate that our growth would be less or significantly less than the 40% that we saw in Q1.

So I would tell you that to model somewhere between on a combined basis now 35% or more, because the retail stores are going to have separate comps.

To go for the next two quarters, probably wouldn't be significantly out of line.

Just remember to leave room for the transition from Q3.

I do believe the bigger opportunity is in the third quarter.

As we get into back-to-school, as you get into July, August, September, while there could be some movement back in the second quarter, I think the opportunity, certainly given the numbers that are on the street, last I looked, about [490 in] Q3 and 85% would have -- would be -- seem to be very conservative and have some upside.

Thank you.

And then looking at the whole selling -- first of all, the selling and distribution classed with the marketing.

I mean you spent $13 million more than last year in the first quarter.

Is that a good run rate or was the first quarter sort of exceptional given the Super Bowl and the Oscars?

I think the first quarter was obviously because it is such a small quarter for us it shows increases.

But I think the real dollar increases are pretty much in line.

I mean, we got very good results and, to the best we can measure, the advertising is working very well.

It is one of those situations now where we have product that, when advertised and tested and worn and tried on by people, seems to explode.

So I think it's safe to say the dollar increase in advertising will carry through the second quarter at least.

And then on the G&A I mean is $120 million a quarter, 100 -- is that like $122 million?

Is that like a good run rate too, may be slightly higher going towards the back half just because of the new stores?

I think it is slightly higher in the back half.

A, because of the new stores and because we have concentration of shipment between June and July.

So it is a little pressure on distribution centers and they make them slightly less efficient.

We are more even in the first quarter but I would say that is a good place to start with some increases, depending on how high volume really gets.

Okay and then, lastly, on the gross margin line, I mean you said that, the previous call, that you thought about 47% was a good number, but you came out of the gate quite .

Strong and it doesn't sound like anything is slowing down.

I mean, how should we be thinking about

Nothing is slowing down, but you know there is some pressure starting to build from the [REN] and there is some dollars getting stronger.

So there is some currency issues.

I'm still the most comfortable being in that 47% range to give some room for some of these forces that will sort of come to bear in the next six to 9 months.

But with the expanding retail, though, that should offset some of that, correct?

It offset some of it, but even retail is subject to increases in the REN and increased freight rates and things overseas.

So while not currency so much, there's certainly price increases that get moved across to retail.

Could we flow through the beat in the first quarter -- I mean the above in the first quarter, do you think?

I mean --

I think 48.3 would be on the high side.

No, no, I understand that.

I mean what I'm saying is if you think about it like 47 to 47.5 for the balance of the year and flow it through that way.

You're leaving the 48 alone.

Yes, I would leave the 48 alone for the time being, model 47, 46.5, 47 for the balance of the year.

Good.

Thank you.

Continued success.

[Claire Gallagher] with Capstone Investments.

Congratulations.

Thank you.

You are the first one that said that.

I was waiting for that.

So my question.

Last quarter, you mentioned that your backlog increased at a double-digit rate for all of your lines.

For men's, women's, kids', whatnot.

Are you still seeing that across all of the lines?

Yes.

And then for the new accounts that you are seeing here, the domestic wholesale, are you -- are these accounts across different channels?

Or is it primarily sporting goods or department stores?

Is it primarily focused on a certain specific type channel?

Well, just for clarification, it's obviously we are growing more or at a higher percentage rate with athletic specialty because we were the most underutilized there.

And I don't know if there's significant new accounts other than the moms and pops, but we certainly have increased penetration and have some significant imaging now in some of those accounts in athletic specialty.

But we are gaining shelf space.

If you go away from percentages and you want to know real dollar shelf --, we are gaining real dollar shelf space.

Probably at a higher rate even in some of our family footwear channels and some of the department stores.

So we continue to increase both store count and shelf space just about from top to bottom.

So on the family store, I mean is that because of your children's footwear or what is driving that?

A little bit of everything.

Shelf space, everywhere.

Obviously, our athletic product and [of] the new product we've just developed in some of the new categories increasing shelf space, but they are not taking away from anything that exists or any of the categories that have been been hot.

So everything seems to be growing and new categories seems to be incremental business.

Okay, great.

Thanks so much.

Chris Svezia with Susquehanna-Roseland Group.

Hello.

Congratulations.

Thank you very much.

I do appreciate it.

So one question.

I was just on the kids' business.

I think I don't know if you said, is it the backlog trend or the revenue trend was up single digits?

I'm just curious if we can talk about that.

We hear a lot of great things about your kids' business.

That's the sales end.

Remember.

There aren't that many new products in kids.

So having them up in the double-digit range is pretty good because they were -- they overperformed for the last year as well.

(multiple speakers)

And then in terms of the backlog trend, is that accelerating as we go into the second half, as we get ready for back-to-school on the kids' side?

As a percentage?

Yes.

I think that would be fair to say.

And on the international side, when you guys think about the toning business, Shape-ups, Tone-ups, etc.,.

starting to ship in that -- or be in that market, more prevalent in that market, can you just add some color in terms of what you're seeing, what is happening with that product being sold overseas?

What we are seeing is that it's the very early stages.

It is about a year behind where we are in the United States.

So if you move it back a year and realized that we don't have the same owned retail store base to develop and launch it with, that is where we are.

It's -- we have gotten great tests and we've got expansions.

It has all tested very well and we have got expanded door counts, certainly in our subsidiaries, even a little further behind in our distributors.

Obviously they have had their own financial issues for the most part.

And what we're seeing now that the weather is starting to get nice is decreasing sellthroughs of bigger at-once piece, bigger demand for whatever, how once pieces are available and certainly higher plans almost across the board.

So while the order of magnitude is still about a year behind and smaller, certainly compared to the States, we are starting to see that beginning of that very quick acceleration that we saw here last year.

Okay and of the -- when you look at -- you say your average price per pair was up 38%.

How much of that --?

If you can strip it or you can talk more specifically about your core business, obviously the toning business is significant higher ASPs.

I'm just curious if you separate the two of them in terms of what is going on in the core business as well?

The core business showed increases as well.

You have to remember last year in the first quarter was a big closeout period for us.

That is when we cleaned out our inventory and really started to deliver new product in the back half of the second quarter.

So I think it is fair to say that we've had price increases in every category in all of our groups, because everything we have is brand-new product.

(multiple speakers)

And even if you move forward, David (technical difficulty) in the backlog trend.

Sorry.

Say that, I didn't hear it.

Say it one more time.

As you move forward in the backlog trend as well?

As far as it's holding, the dollar increase certainly.

And then on -- my question just with regard to -- looks like wherever these numbers shake out for the year which continue to move the, probably wherever they go in excess of three dollars or thereabouts in terms of earnings, but you will start to throw off a decent amount of cash.

And I guess one question is, how much -- can you just clarify what you are doing with the distribution center?

Or how much CapEx that is?

And what it is to make this CapEx piece this year?

In reverse order.

The maintenance cap was $1 million in the first quarter and I think it is fair to say that it will be somewhere on that same running rate.

It could be $3 million, $4 million or $5 million pretty much.

As far as the distribution con center is concerned, it is converted -- I'm sure you read through the joint venture.

So our contribution to the joint picture from a capital perspective was $30 million and that has been paid.

The insides or the automation -- it stays in the same place.

It is in that $75 million to $80 million range of which we have already paid $40 million.

So as we sit here today there's about another $40 million to pay over the next year until it becomes functional in the first week of April, we hope of 2011.

So since the end of March -- since the end of the quarter, March 31, that would require another $70 million in CapEx from the end of the first quarter until we occupy in next April.

Okay and then the CapEx related to stores?

That remains the same.

That is in the 20 million range.

As long as we say of the 25 stores, the remodeling and the store openings is in that $20 million or so range on an annual basis.

All right.

Thank you very much.

Good luck.

(Operator Instructions).

Camilo Lyon.

Hello.

Congratulations as well.

I guess, going back to the pricing question on the Shape-ups.

We've noticed you have taken price up anywhere from 10 to 20% on the products.

Have you seen any sort of shift at all or any reluctance in demand for that in the face of that price increase?

What increase --?

Are you talking about on [light] product or on new products?

On new products.

Yes, no, we haven't seen any [resistance] yet.

New products is just being introduced.

So the original product still carries the same pricing and doesn't seem to be deteriorating.

And the new tests we have with the new product, which has more value for it as the new price is at least starting very well.

It is only the beginning of delivery cycle, but it is getting good reception.

Great.

And then switching over to the international business, how do you think about the advertising in front of what will be some of the deliveries for the Shape-ups and the Tone-ups product?

In other words, are you starting to invest in advertising in those markets right now to generate that demand?

Absolutely.

I mean, we have always advertised and as the sales pick up and as we continue, we are having a very good month of April on an international basis.

So we do reinvest that and it is part of our budget to reinvest that in advertising.

So it is fair to say they will get their fair share as we move to the back half of the year.

So then, you can expect that there will be some sort of pickup in that, in the sellthrough, as that advertising starts to hit home and catch up with product deliveries?

Yes.

I think -- I wouldn't make the assumption that we haven't been advertising.

I think part of the success of Shape-ups and toning and all of our product, the kids' product and the new men's and women's product, even around the world, is because in our subsidiaries and even those distributors that are starting to come back, to continue to advertise.

And part of the $13 million increase in the first quarter, advertising certainly went to international as is the new spends for the balance of the year.

So it is not just starting.

It has started.

It is showing.

It is increasing sellthroughs.

The product is getting good acceptance and it is just gaining momentum.

Okay.

And how would you divide the international portion of the advertising versus the domestic?

We divide pretty much on a volume basis.

So while the percentage may be slightly higher at international because there's smaller volume, they are fairly equivalent on a percentage basis.

Between domestic and international (multiple speakers)

International (multiple speakers) volume.

It's -- since international is 25% of our volume and some of that is distributors, it is fair to say they get a little less than 25% of the advertising budget.

Got it.

Okay.

Thanks very much.

Good luck to you.

Scott Krasik with BB&T Capital Markets.

Just wanted to clarify a few things.

Your selling expense increase of $13 million is off a pretty low base because you cut that 20% year over year in the Q1 last year.

So when you said that the dollar increase will be consistent in Q2, you are still referring to that $13 million increase?

Pretty much.

Okay.

That's helpful.

And then just to clarify, also, because you were speaking quickly at the beginning, ASPs increased 38% and unit volume increased 10%?

That's correct.

Good quarter, hmmm?

It's a -- well, it's an interesting dynamic.

I mean, what does that mean though?

I would assume that Shape-ups were probably 10% of the units for the quarter, so does that mean that all your other businesses units were down?

Well, it is possible if you think about it.

We had a lot of closeouts last year so there was a lot of low-priced product and a lot more units that were left over.

So I think it's better to assume for that quarter that some of those had less and I'm not sure Shape-ups was quite 10% of the unit.

It could be certainly a bigger piece of the dollars, but units are a different issue.

So yes.

I think it is fair to say that we have a lot more closeout volume and a lot of cheaper volume, if I remember the product categories from last year.

Okay.

But the backlog in some of these core categories USA and women's, sport, and things, those are up and that gives you confidence that the core business is accelerating as well?

Absolutely.

It's up because we are selling all clean product.

You can obviously sell less units and when the units start to catch up, you get a double bang, so to speak.

Is that a Q3 phenomena?

Yes.

Yes.

Okay, thanks.

Good luck.

And at this time, there are no further questions in the queue.

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.

Ladies and gentlemen, that does conclude the conference for today.

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