Skechers USA Inc (SKX) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the SKECHERS USA Inc.

fourth quarter 2011 earnings conference call.

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

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

(Operator Instructions) Today's conference is being recorded, February 15, 2012.

I would now like to turn the conference over to SKECHERS.

Please go ahead.

Thank you, everyone, for joining us on SKECHERS' conference call today.

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, I would like to turn the call over to SKECHERS Chief Operating Officer and Chief Financial Officer, David Weinberg.

David?

Thank you for joining us today to review SKECHERS fourth quarter and year end 2011 results.

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

Net sales for the fourth quarter were $283.2 million and loss from operations was $103.1 million.

Net loss for the fourth quarter was $57.7 million and diluted loss per share was $1.18.

For the year, net sales were $1.606 billion, loss from operations was $133.8 million, net loss was $67.5 million and diluted loss per share was $1.39.

Our fourth quarter 2011 sales decreased by 37.7% and our annual sales decreased by 20% over the same period last year.

This was due to the difficult comparison against a record fourth quarter and full year sales that included higher price toning sales and lower than expected sales across many of our footwear lines within our key domestic wholesale accounts.

Our international business in this quarter was also impacted by the slowing of toning sales, as well as economic difficulties in many markets.

Our retail business remained fairly solid due in part to increased stores and our ability to quickly turn product.

In the quarter, we launched our new performance footwear line in our key Company-owned retail stores, consolidated North American distribution facilities into one building in Rancho Belago, California, and decreased our selling expenses by $17.1 million.

For the year, we also reduced our inventory by more than $172 million and ended with a strong balance sheet with $351 million in cash or approximately $7.24 per share.

As we move through the first quarter of 2012, we feel positive about the overall direction of our business.

Our new fitness, lifestyle, and kids lines are trending well.

Comp store sales in January were slightly positive in dollars and double-digits in pairs in our concept stores, which are the first to receive our new product.

And we have a tremendous amount of buzz surrounding our new performance product due to Meb Keflezighi winning the US Olympic trials in the marathon wearing our GOrun footwear in mid-January, and our highly rated Skechers GOrun Super Bowl commercial which caused a media frenzy.

Also we are beginning to take our back-to-school orders and, although we've only just started, our backlog is showing signs of improvement.

And we're in the process of adjusting our overhead to be in line with our current sales.

We are eager to move ahead with our business centered around our fresh product and marketing.

We believe we continue to be a relevant brand globally.

In our domestic business, the extremely strong sales over the last couple of years were a difficult comparison and resulted in a fourth quarter decrease of 57.5% in our domestic wholesale business over the same period last year.

This decrease came across our fitness, lifestyle, and kids divisions.

Through the development of the fitness division, we have built a performance arm of our Company and delivered some exceptional product that is being embraced by experienced runners, as well as a larger group of recreational runners.

We are also launching our first true performance footwear line this quarter and have an extensive offering of new lifestyle products for men, women, and kids for spring 2012.

In the fourth quarter, we cut our marketing spend as a percentage of sales while still continuing to advertise on TV with several commercials for kids, our men's lifestyle line, our first Skechers GOrun spot and Brooke Burke, who supported our lifestyle and fitness lines in two campaigns.

We also received tremendous press when Meb was the fastest American at the New York Marathon in November and achieved a personal best running in Skechers GOrun.

He then broke that record and won the Houston Olympic trials last month, finishing in first place and securing a spot on the US Olympic marathon team.

The reception to our product offering, both fitness and lifestyle, during our pre-line review in our corporate offices last month was very positive.

We believe that our business will stabilize this year and we will have new opportunities in the performance segments with new accounts.

Our international distributor and subsidiary business increased by 12% for the year resulting in record annual 2011 sales of $487.3 million.

This growth was in spite of a decrease in international sales of 28% for the fourth quarter which was the result of several factors -- a difficult comparison from a record fourth quarter 2010, the transition from toning to new lower priced products, early delivery of some products in the third quarter of 2011, the slowing down in Europe due to economic difficulties in several countries, the ongoing transition of our business in Japan from one of our largest distributors to a wholly owned subsidiary, and the restructuring of Brazil with new management and a fresh focus on product.

We believe that the majority of our subsidiaries will be up against record numbers in the first half of 2011 and several are facing challenging retail environments that include credit issues in some key accounts.

Next month we will be exhibiting in Japan for the first time as a subsidiary.

We have had several key accounts come through our corporate offices in the United States and are eager to showcase the brand in our new Tokyo showroom and at Tenjikai.

As one of our first countries run by third-party distributor and historically one of our largest, we believe we can double our business in the next three to five years in this country, growing Japan to be one of our largest subsidiaries.

Our joint ventures in Asia continue to improve with growth across all our regions -- China, Hong Kong, Singapore, and Malaysia.

We have expanded our retail footprint to 61 retail stores at year end, including 5 SKECHERS retail stores opened in the quarter, 1 concept store each in Thailand and Singapore, and 3 in Malaysia.

In addition, we have approximately 400 shop-in-shops.

Within our distributor business, several of our largest distributors performed well, including Panama, Russia, the UAE, Australia, and Indonesia.

Several of our European distributors grew in the quarter but we believe the economic difficulties in Europe have had a negative impact on several countries.

Key to growing our brand in our distributor business is the opening of SKECHERS retail stores in the regions where they sell our footwear.

At year end, there were 207 distributor-owned or licensed SKECHERS retail stores around the world.

23 SKECHERS distributor stores opened in the fourth quarter, 1 each in Saudi Arabia, Ukraine, Malta and the Philippines, 2 in South Africa, 3 each in South Korea and Indonesia, 4 in Australia, and 7 in Mexico.

One distributor-operated store closed in the quarter.

Our international distribution partners are planning to open 10 stores in the first quarter and another 50 for the year including our first Skechers Kids international store in Indonesia.

We believe there are continued opportunities for growth in many markets given the right product, marketing, distribution and management.

We are pleased with our record international wholesale sales, which represented 30% of our total business for the year.

However, we are now up against a record international first quarter last year and believe our sales will be down for the quarter from the prior year, but in line with our 2010 numbers.

We do expect to be trending positive in the back half of the year as Japan begins to deliver its first product as a subsidiary.

We worked through the remaining toning inventory and deliver fresh new product.

In our Company-owned retail business for the quarter our combined sales decreased by 6% with our domestic sales down by 7% and international retail sales were flat.

For the year, our combined sales were flat, with our domestic sales down 3% and our international sales increased by 22%.

For the quarter, we had negative domestic comp store sales of 15.5% and negative international comp store sales of 10.8%.

For the year, we had negative domestic comp store sales of 11.9% and negative international comp store sales of 2.1%.

At year end, we had 329 Company-owned SKECHERS retail stores.

In the fourth quarter, we opened 9 domestic and 2 international stores, including an outlet store at our new North American distribution center in Rancho Belago, and our 18th SKECHERS store in Chile.

We closed 1 store in the quarter.

This year to date we have opened 2 warehouse outlets and closed 1 warehouse store.

We plan to open another outlet later this week, and while we have no plans to sign additional leases in the near future, we do have another 18 to 20 stores committed for the balance of the year.

Before we move on to our financial review, I'd like to mention our licensing division, an additional profit channel for the Company.

We received $3 million in revenues in the fourth quarter and $7.5 million for the full year from our many licensing partners which include eyewear, kids apparel, backpacks, watches, luggage, and socks, all branded SKECHERS.

This year, leading apparel and accessories manufacturer Li & Fung is planning to launch our new men's and women's Skechers fitness apparel, which we believe could be significant revenue opportunity in coming years.

Turning to our fourth quarter and fiscal year 2011 numbers in more detail, fourth quarter sales were $283.2 million compared to $454.6 million in the fourth quarter of 2010, a decrease of 37.7%.

Fourth quarter gross profit was $112.6 million or 39.8% of sales, which included an additional reserve of $5.6 million on our original Shape-ups product.

This compares to gross profit of $184.2 million or 40.5% of sales in the fourth quarter of 2010.

The year-over-year decrease in gross profit dollars was due to the combination of lower sales volumes and lower average selling price.

Fourth quarter selling expenses decreased by approximately 42% to $23.4 million, or 8.3% of sales compared to $40.5 million or 8.9% of sales in the prior year.

The lower selling expense for the quarter was primarily the result of significantly lower marketing expenses.

For the fourth quarter, general and administrative expenses were $195.4 million or 69% of sales compared to $143.8 million or 31.6% of sales in the prior year.

The increase in the G&A dollar amount was primarily due to rent and depreciation related to a higher retail store base and the opening of our new distribution center.

The expenses for the quarter include a pre-tax $45 million reserve for potential exposure relating to previously disclosed litigation and regulatory matters.

Also in the fourth quarter of 2011, we recorded additional pre-tax expenses of $5 million in additional legal and professional fees for various legal matters, $3.1 million in impairment charges, and $4.6 million in foreign bad debt reserves.

Total operating expenses for the fourth quarter increased 18.8% to $218.8 million or 77.3% of sales compared to $184.2 million or 40.5% of sales in the fourth quarter of 2010.

We are continuing to evaluate our overhead structure to be in line with our forecasted sales for the back half of 2012.

During the fourth quarter of 2011, we had a loss from operations of $103.1 million compared with earnings from operations of $1.4 million.

Net loss during the quarter was $57.7 million compared to net income of $3.2 million last year.

The net loss includes a pre-tax gain of $9.9 million on the sale of one of our former distribution center facilities in Ontario, California.

Net loss per diluted share in the fourth quarter was $1.18 on approximately 48.9 million average shares outstanding compared to net earnings per diluted share of $0.07 on approximately 49.2 million average shares outstanding in the prior year.

Net sales for the year ending December 31, 2011 decreased 20% to $1.6 billion compared to $2 billion in the prior year period.

Gross margin was $623.7 million or 38.8% of sales compared to $911.9 million or 45.4% of sales in the prior year.

Selling expenses decreased to $152 million compared to $186.7 million last year.

General and administrative expenses increased to $613.1 million compared to $534 million from last year.

Total operating expenses were $765.1 million compared to $720.9 million last year.

Net loss for the year ended 2011 was $67.5 million compared to net income of $136.1 million last year.

Diluted loss per share was $1.39 on approximately 48.5 million shares outstanding compared to diluted earnings per share of $2.78 on approximately 49 million shares last year.

And now turning to our balance sheet, which continues to remain strong.

At December 31, 2011, we had $351.1 million in cash or $7.24 per share.

During the next six months, we are expecting additional cash receipts of approximately $52 million due to US federal and state tax refunds.

Trade accounts receivable at quarter end were $176 million and our DSOs as of December 31, 2011 were 50 days versus 44 days in the prior year.

Total inventory including merchandise in transit at December 31, 2011 was $226.4 million, representing a decrease of $172.2 million from the prior year period.

Long-term debt at December 31, 2011 was $76.5 million compared to $51.6 million for the same period last year.

The increase in long-term debt primarily relates to the financing of our Rancho Belago distribution facility equipment.

Shareholders equity was $892.5 million versus $945.8 million at December 31, 2010.

Book value, or shareholders equity per share, stood at approximately $17.58 as of December 31, 2011.

Working capital decreased $87.2 million to $578.9 million versus $666.1 million in the prior year period.

Capital expenditures for the fourth quarter were approximately $7.9 million, of which $7 million consisted of 9 new store openings and several store remodels.

2011 was obviously a challenging year with the shift in footwear trends, but we are pleased with the advancements we have made to better position our business for the back half of 2012 and beyond.

These include significantly reducing our selling and marketing expenses, consolidating our North American distribution facilities into one building and cleaning up our inventory, which has significantly decreased year-over-year.

We will be working towards getting our operating expenses in line with our top line revenues in the back half of the year while seeking new expansion opportunities in product development and both international and retail sales.

We have many new developments, including our first true performance footwear line, Skechers GOrun.

We've also built on the fitness platform with lifestyle athletic shoes for kids and adults, and are looking forward to delivering the remaining products in spring 2012.

With a lot of media attention generating consumer interest around our 2012 Super Bowl campaign, as well as Meb making the US Olympic team, we are pleased with the attention we are receiving in the market already this year.

We are trending well, comp store sales in January were slightly positive in dollars, but up double-digits in pairs for our concept stores.

And we are pleased that our back-to-school orders for both our domestic and international businesses are showing some positive momentum.

And 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.

Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Our first question comes from the line of Jeff Van Sinderen with B.

Riley & Company.

Please go ahead.

Good afternoon.

David, I wonder if you could just speak to, just for purposes of modeling, where you think sales will fall?

How much you think sales will be down in Q1?

Any thoughts there?

Yes, we have some thoughts but we historically, and certainly in recent times, have not really been giving guidance.

So I think it's fair to say that they'll be down.

But it's too early to say exactly what they could be down in Q1.

We continue to book some at-once business and the stores are starting to turn a little positive.

So I think it's kind of early for us to give a real number.

Okay.

And then turning to the back half of this year, I think you spoke to some confidence that your business will turn up.

Maybe you can just talk to what you're targeting for growth in second half, which segments of your business do you see driving that growth, and then maybe order of magnitude.

Is it possible 10% growth, 20% growth in the second half?

Obviously, Q4 is an easy comparison for you.

Maybe you can just touch on that.

Given that we're not giving Q1 guidance, giving Q3 guidance is probably not in the cards right this minute.

I would tell you right now if you do your channel checks domestically, and from what I've heard coming out of the shows in Vegas, that we seem to be gaining momentum across the board.

Out fitness product is starting to sell better, pick ups week-on-week, and I know it's very early.

Our own stores are showing the same thing with significant increases in units at the concept store level, at least for this particular time of the year.

Our basic business, our active sport, both men and women's sport and our men's USA along with our kids seem to be gaining traction, as well.

So I can't really give you an opinion right this minute on order of magnitude in the second half.

But a lot of things are possible and a lot of things will be fueled on what happens as the weather continues to get warmer and we get into spring and see what spring selling is going to be.

Right now I would think the most logical case would be that most of our customers are under-inventoried should we have any kind of ignition.

But I can't really go into detail as to how much I think and where it could go.

Okay.

And speaking of that, obviously, the GO product line has been a pretty significant focus for you in terms of new product launches, and just wondering, at this point I know it's still early but is there more you can speak to in terms of sell-throughs?

I think you've given some qualitative comments.

The product has been on the shelf for a little while.

Is there more you can say about maybe how sell-throughs have been through some of your retail partners like Finish Line and others, versus rates of sell-through you're seeing on GO in your own retail stores?

Anything you can tell us about that.

Well, GO is just being delivered at the back half of '11 and right now to our retail stores.

I would leave you to your channel checks to see how they are doing.

My impression is that they started very well for the winter season, which is not a strong season for them.

Now as the weather is turning a little warmer and the word is getting out and possibly even because of the Super Bowl advertising, I hear week-on-week on those customers that have it in significant quantities or a number of doors are increasing significantly.

If that continues, obviously, that would bode well.

In our own stores where we showcase them, where we've had enough inventory, they remain in the top two or three SKUs that we sell in our concept stores as they are delivered, especially in warm-weather stores.

The initial reception has been very, very good.

Okay.

One more question and then I'll let someone else jump in.

Just curious to know if you can give us any more granularity on where you're reducing expenses this year, where you're investing to grow this year, what you think that's going to mean for SG&A dollars or percentage of sales in terms of SG&A.

In other words, are there cost reduction programs being implemented that you can quantify for us?

And what's the offset in increased investment to support some of the new product development and marketing you're doing?

Well, marketing is an open item.

I think it's fair to say first quarter is a very difficult comparison because it's our smallest marketing dollar.

So the dollar amount won't be significantly less than last year, although it will be less.

There's more opportunity in Q2 and depending on how we book and go in there, we're very flexible, there'll probably be a significant dollar decrease in the overall marketing, or the selling line that we speak to.

On the G&A portion, I think if you picked up in our prepared comments, we have no real significant investments planned for this year other than what we've already announced.

We have Japan which, obviously, we'll have to pick up the rent and personnel until we deliver in the back half of this year.

That would be something.

Other than that, we've decided not to entertain any new leases for the time being, only to the ones we've committed.

So there will only be 18 to 20 stores opened the balance of the year which will take significant pressure off the growth in G&A.

The balance we'll be looking for and anything is open.

It's obviously in the development cycle and personnel.

And I don't think before we get into too much detail on personnel and development and stuff like that that we'd make it public until we can move along and get further into the process.

But I'm sure by the time we finish first quarter and get into second quarter, a lot of that will become evident.

Okay.

Fair enough.

Thanks very much and good luck this quarter.

Thanks.

Thank you.

Our next question comes from the line of Scott Krasik with BB&T Capital Markets.

Please go ahead.

Hi, thank you.

This is Kelly for Scott.

Just want to talk about your international business.

What are the inventory positions looking like for your international distributors?

And when should we see a return to growth there?

It depends where you're looking.

I think we should see a return to growth, certainly by the back half of this year.

Easier comparisons as you get into fourth quarter.

Our subsidiaries are very clean in inventory.

We've cleaned them up even better than we have in the United States, not having been as deep as some of the product that has slowed down overseas.

As far as inventory is concerned, it's very, very clean.

We're starting with a very clean slate in Brazil.

We'll be starting from scratch in Japan.

Our European business is very clean.

Our distributor business has held up very, very well.

As a matter of fact, if you take the shortfall of Japan away from the analysis of our distributors going through this year, we'd probably be fairly even in Q1 and Q2, the first half of the year for distributors, other than the shortfall that we're anticipating in Japan because they're going to through transition.

So if you pick that up, we anticipate that we'll have a lot of possibilities, especially if the product shows as well or sells as well overseas as it does in the States by the back half of the year.

Okay.

And then in terms of their inventory position with the distributors, is that --

Well, the distributors are never that particularly thick in inventory.

We don't own it, so I only get it second hand and anecdotally.

The distributors seem to be very clean and very strong in the new inventory.

Those that are doing very well like South America and southeast Asia away from our joint ventures are all very clean and all absorbing new product and buying it at a very high rate.

Okay.

Great.

And then just turning to domestic wholesale, we've been hearing that there's been questions around the health of some of your domestic wholesale customers.

Some might be planning their footwear down for this year.

I was just wondering how that impacts their ordering to the extent that you have visibility into 2012?

We're at the beginning stages of, and from what I hear, I think actually, Scott is in Vegas.

I would ask him.

I think we've heard some good things and some better channel checks as we go through and people looking to move up.

It's too early for this process to have turned into significant amounts of orders or into significant backlog.

But I hear some very positive things at our wholesale retail partners, so I'm waiting to see exactly what that means into size and scope of the shelf space, and I know none of them are ordering enough for back-to-school given the breakout in the last couple weeks of sales.

If that continues, we should see some acceleration.

Too early to tell how much, though.

They'd have to tell you that first.

Okay.

And then I know we've talked about expenses already, expense cuts.

But could you just maybe give us a little more color about the pace and the magnitude specifically to G&A throughout the year?

Well, we're trying to pace it to get into the back half of this year so it will be done as we go into third quarter.

The order of magnitude will depend on how we book over the next month or so, and it's too early to tell.

If I gave you the order of magnitude, I would have to give you some sales forecasts for the back half.

We will be saving significantly on some G&A there.

There are some plans beginning in motion, but it's too early for us to go public with them.

Okay, and just one last, just to clarify.

You're saying that the DC, the roll-off is that at the end of Q1?

Actually, the DC is fully operational as of Q4, November.

Are you still running some expenses --

Sorry?

Are you still running expenses simultaneously and I think you talked about some of those expenses rolling off in Q1?

Right.

Everything is now done except for one building.

The building we sold in Ontario.

We have a lease back provision that runs out at the end of February.

As of March 1, there will be absolutely no duplicative costs in the new distribution center.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Claire Gallacher with Auriga USA.

Please go ahead.

Hi, David.

Hey, Claire.

Question on the new GO product.

When did your retail partners receive that product?

Did some receive it in Q4 and some in Q1, or how did that work?

Some of it, I think, came in Q4 but very little, but you have to remember how cold it was.

It was really meant to be tested in warm-weather stores.

So while they got some, nothing was significant.

And obviously there were weather issues there that were more boot concentrated.

There's been some out there.

But I think right now is when we're seeing the true test.

Okay.

And then in your own Company-owned stores, did the GO product meet your expectations?

Or what did you kind of learn from your own stores?

We learned that people like them.

They're hot and they are growing and they are the highest percentage and the highest unit sellers in those stores that are in any kind of warm weather that have any significant quantity.

Okay.

We've had trouble keeping them in the first few deliveries.

We're just growing it now.

Okay, great.

And then as far as your costs looking over the next couple quarters, can you give us a sense of, are your costs still expected to be up versus last year or where does that stand?

Are you talking about G&A expense?

Yes, just like your input costs.

Input product costs?

Yes.

Product costs, I think are starting to stabilize some, although we are still under somewhat pressure for price increases.

But what we have priced for the first six months this year and probably what we have for sale for back-to-school already has, the best we can tell, in them.

So we don't think there's any significant margin pressure or shouldn't be significant, we hope, between now and the end of third quarter.

And we're constantly working on it.

Okay.

So assuming your pricing holds, and whatnot, you don't expect any kind of major gross margin issue?

Correct.

Okay, okay.

And then just my last question, so your inventory levels obviously came down nicely.

Do you feel like they're clean at this point, there's no unproductive inventory, in the inventory number?

I'd love to say that, but we still have that million-plus pairs of the original toning that we just took down with that $5 a pair, that $5.5 million reserve.

So we're comfortable with that.

We think we've had it at a price where it sells all day and all night.

We're just going to wait until the marketplace clears up a little bit.

There is some product and I think most of our customers that have the product are getting clean.

So we think we're sitting in great shape.

Other than that product, we are, if you listen to most people, probably too clean and we're starting to build a little bit.

Because if we start getting hotter now as the stuff starts to sell through, we'll have to be in chase mode which could be a nice thing for the back half of the year.

But it's still too early to tell.

Okay, that's great.

Thanks, David.

Thank you.

Our next question comes form the line of Sam Poser with Sterne, Agee.

Please go ahead.

Good afternoon, David.

I have a few questions.

Number one, on the charges that you mentioned, the additional $5 million of legal, the $3.1 million impairment, and the $4.6 million in bad debt.

If I'm understanding that correctly, the $5.5 million and the $3.1 million would come out of the G&A, and the bad debt would be added back into the -- would be decreased from the cost of goods.

Am I thinking about that correctly?

I think you got it wrong.

The only thing that comes out of cost of goods is the $5.6 million for the inventory reserve.

Everything else flows through G&A.

Okay, so that all comes out of G&A.

But that inventory reserve, it's not necessarily one time in nature.

Because it's a cost of doing business, God forbid, you might have to do it again?

Well, this particular reserve is for specific inventory.

It's above and beyond what we would normally take as a, what we feel, is a running business.

It's equivalent to what we took in Q2.

The balance of it.

It's actually whatever balance is remaining down another notch.

So our wholesale price shows a relationship to what they're selling through at retail today at a pretty good rate.

So I think it's a one-time charge.

If it's not a one-time, it's once in many quarters.

Okay, fair enough.

How should we think -- you talked briefly about the royalty income that you had.

You had a nice lift there.

How should we think about the royalty income by quarter, let's say, in 2012?

Relative to this change.

I think the $7 million for the annual is a benchmark.

I think it goes up from there.

A lot of it will depend on -- a lot of the stuff is new in the marketplace, so it's filled a channel.

It will start to level out.

We've signed a number of new ones, and obviously, the big issue will be Li & Fung as they come through.

They obviously, have more potential than anything we have out there.

We're hoping that the $7 million is a benchmark and it grows significantly from there as we move through the year.

Okay.

And then when we're -- I know you don't want to give guidance -- but relative to the fourth quarter decreases of 57% in the US and 28% in the international business, are you expecting Q1, how are you thinking about Q1 and Q2, from what you know today how are you thinking about that change in those businesses going forward?

Are they going to be down but not down as much?

Are you thinking they could be down in a similar amount for the first half of the year?

Can you give us a general idea?

It's hard for me to tell right this minute.

But I would think it's -- the fourth quarter is the most difficult one and has shown the, what I would anticipate as the biggest drop domestic wholesale-wise, but certainly things can change as we go forward.

I don't anticipate that they would go down the same amount.

The only caveat I would tell you is that our inventories are so clean and in our numbers historically, as we go forward, there's a lot of close-out business.

There is absolutely no close-out business, other than the remaining toning footwear, that we have that potentially could go out in Q1 and Q2.

So to that extent there is some impact, although it's certainly low-margin impact on the top line.

So you have to take both of those into account.

I think fourth quarter is absolutely the peak.

But we will be impacted top line-wise, if not margin-wise, because there's absolutely no close-out other than the toning product available form us in the first six months, at least.

Okay.

And then lastly, just back to the G&A and so on, so basically, you're not, just so I understand it, you're not expecting the G&A to be down very much in the first half of the year.

But once we -- or at least not for the first quarter.

And then it should steadily go down in absolute dollars on a year-over-year basis?

Yes, I think it could be down in absolute dollars in the Q1 as well.

By the way, depending on how -- I'll leave you guys to read the K and make all the calculations of what are on-time charges or not one-time charges.

But if you take into, some of those one-time charges that we spoke about, you would have G&A on a real dollar basis somewhat decreased in Q4 and that still had some duplicate costs.

Also as we do cost cutting, sometimes that concentrates the G&A expense in Q1.

So that would certainly help it for the balance of the year, but it might concentrate in Q1 as we take a year's worth of expenses on some things we are either closing out or terminating.

But again, those would be one-time in nature and not -- they wouldn't repeat, so on a non-GAAP basis they wouldn't be there?

That's right, and I leave you to evaluate non-GAAP any way you see fit.

Gentlemen, thank you so much.

All right.

Well, thank you and good luck.

Thanks.

Thank you.

Our next question comes from the line of Faye Landes with Consumer Edge Research.

Please go ahead.

Yes, hi.

Can you comment on the gross margin which came in meaningfully lower than what you guided on the third-quarter call.

That's even when accounting for the $5 million-plus.

So what changed --

I think if you put the $5.6 million in, we came in at 41.5% or 41.6%, 41%-something like that, which we thought was right in line with the 40% to 42% we were talking about.

As far as the quarter was concerned.

I believe, hold on, that you talked about, last time you said, I'm quoting, last quarter you said that you expected to remain, I'm quoting, "importantly, our gross margin for the quarter trended back to our historical range of 42% to 43% and we expect it to remain at this level going forward."

Well, I think when you talk about 41.6% as opposed to 42%, 43%.

I don't know if that's an outrageous miss.

Probably the differential would be our kids business held up somewhat better and the outlets were kind of bigger than the concept stores for a big part of the year.

And then there was some currency and clean-out of inventory in South America, predominantly Brazil that brought it down.

But I think all of that, if you take it back and put it in we're still pretty much where we anticipated we would be.

Okay, good, thanks.

Also you said comps are positive in the concept stores.

How many concept stores do you have in total?

Can your just remind me.

We have 120 concept stores.

Okay.

And how many stores in total?

280 in the United States.

Okay.

So the other -- so the non-concept stores' comps were presumably negative, is that correct?

Correct.

How deeply negative are they at this point?

As a whole, our own stores are in the high-single-digits for January in dollars.

Somewhat less than that in units, while the concept stores were slightly positive in dollars and double-digit positive in units.

So in total, down high-single, I just want to make sure.

Correct.

Okay, and also just in terms of the decline in the US, can you give us some color on toning, obviously, not obviously, presumably, is a highly negative number, much, much lower.

But the rest, the minus 57%, are there, can you just give us some color on the different components of that in addition to toning?

I think we were down pretty significantly in most of what we had here.

I think it's very difficult to pinpoint any one item.

I think shelf space was at a premium.

Most of our customers, domestically anyway, were over-inventoried and some product slowed down, predominantly toning.

And Twinkle Toes, as far as girls were concerned, both flattening out which slowed down their sales, which gave them less shelf space available as they moved through.

So it is fair to say that most of our larger customers are coming into the year with significantly lower inventories than last year, and still liquidating some of their inventory both in toning and some of the kids shoes.

I think what you find for those -- what I've heard back from Vegas and from some of the pre-lines that we've gotten here is they're all getting cleaner and they are starting to show some significant increase in sell-throughs on the newer products.

So we'll wait and see what happens.

And so in addition to GOrun are there any other products that you think are gaining special traction?

Yes, they're very significant.

I wish I could show them to you.

They come pretty much in every division we have.

Our men's USA, which is our black and brown business in men's, has been redone and has been getting some very good tests and results.

And our very basic women's sport and active, as well as men's sport, has some very new product in it and some lightweight product in it at a lower price point.

That seems to be checking and starting off very well.

I think we're at a point right now where we've, as in past, and as is somewhat our nature, I guess, is reinvented or have new offerings in every division.

And we have some very positive groupings in each division.

If you want to come out for pre-lines we'll show them all to you.

Okay.

I would love to do that.

So can you just give us some sense on the gross margin?

Should we be thinking in terms of the 42%, 43% going forward?

Yes.

We're still thinking in terms over the low-40s, 42%, 43%, unless something significantly changes.

Including in the first half?

Including in the first half.

Okay.

All right, good, thanks.

Okay.

Thank you.

Yes.

Thank you.

(Operator Instructions)

Our next question comes from the line of Matthew Berry with Lane Five Capital Management.

Please go ahead.

Hi, David.

Hi.

David, two very quick questions.

Firstly, how much in the fourth quarter were you running in duplicative costs?

I don't have an exact number.

It probably for the quarter came up to be about, including the move, probably about $2.5 million or $3 million.

Okay.

Okay, thanks.

And secondly, with regards to selling expenses going forward, it was a big drop, 42% year-over-year this year.

I'm just -- I'd like to understand a little bit more about what you did specifically to reduce that number.

And whether or not there's actions that you can take, or the actions that you are taking there will negatively impact sales going forward?

Well, we certainly don't want to do anything in our planning that will impact sales.

I think part of what you see is production costs that we've gotten a handle on.

We do less trade shows.

And we've done less point-of-purchase material.

So some of it has been some of the extras that we've always done.

As far as media is concerned, it's down, but it's not down as significantly as a percentage as the overall category.

So far, our imaging out there, and I think if you take our commitment to the Super Bowl and things like that, we're not looking to go away, nor will we be dark.

That's why I say in Q1 there's only so much room to cut because it's a smaller quarter to begin with.

In Q2, if you take a worldwide perspective, we've always had a significant amount of advertising and a significant amount of media.

I think we could be a little finer with the pencil there and still be in everybody's sight.

So I don't anticipate that we'd be losing any imaging as we go through this.

Okay, all right.

Thank you.

That's all for me.

Thank you.

Our next question comes from the line of Daniel Friedman with Corsair Capital Management.

Please go ahead.

Hey, I was wondering if you could give some more color on two things.

One was the credit issues that you had with your customer, I believe you said Brazil.

If you could give us any more color there.

And then second of all, thanks for the color on your inventory, but I was wondering if you could talk a little about the trade receivables, or sorry, just the net receivables that you have.

It looks like it was down from $245 million to $176 million as of December 31, so it looks like a pretty big decrease.

I understand there was some cleaning out the inventory and what not.

But in terms of looking like it's tracking revenue.

Historically, we haven't really seen that relationship where it's dropped off as much.

And at the same time, your cash accounts have gone up.

So if you could just give me a little sense of what -- how to think about that going forward?

And then also in terms of, if any terms of the receivables agreement or anything like that might have impacted it?

Okay, I don't think -- the receivables, obviously, track sales.

There's no way other than that.

And our DSOs are up a little bit.

But I think that's the mix because there's more international than domestic, obviously, with the decrease.

And it sometimes has to do with the timing.

Now, for international, the receivables were a combination.

It was about $4.6 million in receivables, internationally we had a big bankruptcy in England.

We had a moderate-sized bankruptcy in Canada, and the balance, which was 1 million and change, in Brazil to clean up some old receivables and transition.

We have a new management team.

And, obviously, the old ones weren't taking care of receivables or had given out significant amounts of discounts that were unknown to some of the managers.

But we've cleaned up our receivables in Brazil.

It's all part of the redistribution programs, cleaning out the old customers' inventory receivables.

The balance was in England and just a bankruptcy, I think that's a sign of the times.

As far as inventory is concerned, it was our stated goal to redevelop and re-merchandise all our brands, clean out the old inventory and come into 2012 with all new inventory, which I think we've done.

And I think that's shown in the inventory balances we have.

And the clean-out and the cash, obviously, comes from the liquidation of the receivables in the inventory.

All right.

That makes sense.

I just need to so some work, I guess, around those receivables because it seemed like a pretty big -- I understand it is [detracting] sales but to some degree it should reflect the growth that you have in the GO product.

So--

Yes, but you have to go through overall sales.

If you have 57%, whatever the number was, decrease in domestic sales, you don't have a 57% necessarily decrease in receivables.

They do track the sales other than on a timing basis.

So GO is just part of that mix, it's still part of the same dollar sold.

So keep that in mind when you do your analysis.

Okay.

Thank you very much.

Thank you.

That's all the time we have for questions today.

I'd like to turn the conference back to SKECHERS at this time.

Thank you, again, for joining us today on the call.

We would just 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.