Skechers USA Inc (SKX) 2012 Q3 法說會逐字稿

Greetings and welcome to the Skechers USA Inc.

Third Quarter 2012 Earnings Conference Call.

At this time all participants are in a listen-only mode.

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

At this point, I would 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 and 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 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 SKECHER's Chief Operating Officer and Chief Financial Officer, David Weinberg.

David?

Thank you for joining us today to review Skechers' third quarter 2012 results.

Net sales for the third quarter were $429.4 million, and income from operations was $20.3 million.

Net earnings for the third quarter were $11 million and diluted earnings per share were $0.22 onapproximately 49.9 million average shares outstanding.

Our third quarter 2012 sales increased by 4.2% over the same period last year.

This was the result of growth in our domestic wholesale, international distributor and company-owned retail businesses.

We are particularly pleased with our international distributor business as we achieved growth despite the transition of one of our largest distributors, Japan, to a subsidiary, which was completed at the close of the second quarter.

These improvements were offset by decreased sales in our international subsidiary business, which were negatively impacted by the challenging economic environments in Europe, the Euro exchange rate, the restructuring of our Brazilian business, and labor strikes in Brazil, as well as toning sales in the same period last year.

Third quarter sales and product highlights include a 7.2% increase in domestic wholesale revenues, with an additional 9.1% of pairs shipped,a 10.9% increase in international distributor sales, a 13.9% increase in domestic and international retail sales, a 22.2% increase in e-commerce sales,the addition of Japan as a subsidiary with three Skechers stores, and the launch of Relaxed Fit footwear for men, and the expansion of our performance division with new lines.

Third quarter financial highlights include improved gross margins of 43.7%, reduced selling expenses by $3.6 million,and total SG&A expenses by $5.1 million, and a strong balance sheet with $307.9 million in cash or approximately $6.17 per share.

We believe our performance in the third quarter, improved backlogs, and the positive response we are seeing from our retail partners to our product lines are key indicators to the significantly positive trend of our business and the strength of our brand in the fourth quarter and into 2013.

In our domestic business, third quarter sales increased 7.2% or $11.6 million over the same period last year.

This was due to strong sales in our kids and performance divisions, and in many of our women and men's lifestyle lines, and a 9.1% increase in pairs shipped.

This growth also came despite our close-out sales in our fashion brands in the third quarter of 2011.

Excluding our fashion lines, Skechers' brands were up $22.8 million or 15.2%.

Along with double-digit improvements in our women's sport, women's active, kids and work lines, we experienced triple digit growth in our charitable line BOBS from SKECHERS.

The continued sales growth with BOBS has resulted in more than two million pairs of shoes donated to children in need around the world.

We are also very pleased with the continued demand for our performance division, which for the quarter was almost equal to the sales for the first six months of the year.

In the performance division, we have built on our initial and successful Skechers Gowalk and Skechers GOrun offering, with Skechers GOtrain and Skechers GOtrail, both of which were delivered in the second quarter, and the zero dropstyle Skechers GObionic, and the enhanced cushioning of the SkechersGOrun Ride, both of which launched in the third quarter.

We began airing a Skechers GOwalk campaign for back-to-school and Skechers GOrun Ride was supported by two television commercials.

The first featuring career highlights of elite marathon runner, Meb, and the second was a sequel to our successful SuperBowl spot, and starred the French bull dog, Mr. Quiggly.

We were also extremely proud of Meb's accomplishment at the London games in August, wearing Skechersperformance footwear, he was the first American to finish and came in fourth overall in the marathon.

The growing acceptance of our performance product with the core running community, including the influential publication Runners World, which named Skechers GObionic Editor's Choice in the UK,gives further credibility to our technical footwear.

We are looking forward to the launch of the next-generation of performance footwear which we will begin delivering holiday 2012.

We supported our lifestyle business with several commercials in the quarter and released Twinkle Toes The Movie on DVD at major retailers nationwide, continuing to grow the popularity of our most successful children's character.

To support our new Relaxed Fit from Skechers footwear line, this quarter we began the first of three television commercials; Dallas Mavericks owner Mark Cuban in October, baseball Tommy Lasorda will start next week, coinciding with the World Series, and football legend Joe Montana will follow in November.

In addition, we have extended our agreement with Dancing with the Stars host Brooke Burke through 2014.

We believe we have been very efficient with our recent marketing campaigns and have been able to create tremendous awareness for our footwear lines while still reducing our selling expenses by 9.4% to 8% of our net sales.

The reception to our new performance and lifestyle product during our buy meetings with key domestic accounts this month has been very positive.

We are continuing to update our product divisions and are looking forward to the introduction of some new initiatives in the fourth quarter and in the first quarter of 2013.

In the quarter, our international distributor sales increased by 10.9%, while our international subsidiary sales decreased by 14.6%, for a total decrease of 8%.

We are particularly pleased with the double-digit growth in our distributor business, as this increase came without the benefit of any revenues from Japan, which fully transitioned from one of our largest distributors to a subsidiary at the end of the second quarter.

The Pan Asian region is a key driver in our sales growth.

In total, with subsidiary, JV, and distributors combined, Asia is up 35%.

The Pan Asian distributors; Philippines, South Korea, Indonesia, Taiwan and Australia/New Zealand, together increased by approximately 21.5% in the quarter.

Additionally, our [razor] joint ventures increased by 25%.

The Middle East also continued to grow and Eastern Europe is improving, though they are still showing some signs of impact from the economic crisis.

In regards to our subsidiary business -- the decline in total sales was due to a combination of several factors;very difficult comparisons against a record third quarter 2011 for our international subsidiaries, toning sales with higher ASPs in the same period last year, the Euro Zone crisis and challenging economic environments in the region, the impact of a weaker Euro, and labor issues in Brazil.

There were several bright spots in our subsidiary business.

First, we are excited about Japan as a subsidiary.

In addition, we have taken over three existing Skechers stores and we're looking forward to building our business in the region.

Canada and Chile both grew in the quarter, and we believe this momentum will continue for the balance of 2012 and into 2013.

Key to growing our brand worldwide is the opening of Skechers retail stores.

At quarter end, there were 100 Skechersstores in our joint venture countries in Asia, including those run by licensees, and 237 additional distributor owned or licensed Skechers retail stores around the world.

25 Skechers stores were opened in the third quarter.

One each in Costa Rica, Ireland, Hong Kong and Mexico, and two each Australia Indonesia and the UAE.

South Korea, one of our leading distributors, opened15 Skechers stores in the quarter, bringing their total freestanding Skechers store count to 72.

Two stores closed in the quarter, one each in Costa Rica and the Baltics.

Overall, we are pleased with the direction of our international business, especially across Asia and the Middle East.

While some countries are still facing economic issues, we believe we are holding our own in the troubled global environment and are seeing signs of improvement in quite a few markets.

We are looking forward to receiving the remainder of our spring orders over the next months and are excited to be delivering many of the fresh looks, that are now in the United States, to countries around the world.

For the quarter, total sales in our company-owned retail business increased by 13.9%, with domestic sales improving by 13.2% and international sales by 18%.

This was in part due to an increase of 23 domestic and four international stores.

For the quarter, we had positive domestic comp store sales of 6.3% and international comp stores sales were basically flat, for a combined increase of 5.5%, with gross margins up 230 basis points.

At quarter end we had 346 company-owned Skechers retail stores.

In the third quarter, we opened two stores in Texas and transitioned three distributor owned Skechersstores in Japan to company-owned stores.

We closed three stores during the quarter, one each in London, Paris and Salem, New Hampshire.

Currently in the fourth quarter, we have already opened another store in Texas, a store in Puerto Rico and one in Chile.

We expect to open an additional six stores in the fourth quarter.

Before we move on to our financial review, I'd like to mention two additional revenue channels.

We view SKECHERS.com,our e-commerce website, primarily as a branding tool that allows us to highlight our marketing, showcase the breadth of our Skechersfootwear, and direct consumers to their nearest brick and mortar location.

To further this strategy, we launched an e-commerce site in the UK in the fourth quarter of 2011 and in Germany into the third quarter of this year.

Though primarily a marketing vehicle, it is also profitable, with total e-commerce sales increasing by 22% in the quarter.

Our licensing division is also expanding.

We generated $1.8 millionin licensing revenue for the third quarter from our many licensing partners, which include eyewear, apparel, backpacks, watches and socks, all branded SKECHERS.

Men's and woman's Skechers performance in sports apparel are expected to launch in spring 2013.

Now turning to our third quarter 2012 numbers in more detail.

As I discussed earlier, third quarter sales increased 4.2% to $429.4 million compared to $412.2 million in the third quarter of 2011.

Third quarter gross profit improved to $187.8 million or 43.7% of sales, compared to gross profit of $175.2 million or 42.5% of sales in the prior-year period.

The increase in both gross profit and gross margin was due to the combination of increased sales volumes, improved quality of inventory, and more inline product, as well as strong product sell-throughs in our retail stores.

Third quarter selling expenses decreased 9.4% to $34.4 million or 8% of sales, compared to $37.9 million or 9.2% of sales in the prior year.

The $3.6 million or 9.4% decrease in selling expenses for the quarter was primarily the result of lower advertising and marketing expenditures from the prior-year period.

For the third quarter, general and administrative expenses also decreased to $134.9 million or 31.4% of sales, compared to $136.5 million or 33.1% of sales in the prior year.

The decrease in G&A was primarily the result of reduced salaries, lower professional fees, primarily legal, lower research and development costs, as well as cost efficiencies in our warehouse and distribution areas, due to our new distribution facility.

These decreases were partially offset by increased store operating costs from the additional 27 domestic and International company-owned stores, along with approximately $2.5 million of additional depreciation expense, and $1.5 million of additional rent expense.

It is important to note that our G&A expenses were relatively flat for the second quarter to the third quarter, while our sales increased by 12% in the comparable period.

During the third quarter of 2012, earnings from operations increased to $20.3 million, compared with earnings from operations of $2.2 million in the third quarter of 2011.

Net income during the quarter was $11 million compared to net income of $8.3 million last year.

Net income per diluted share in the third quarter was $0.22 on approximately 49.9 million average shares outstanding , compared to income per diluted share of $0.17 on approximately 49.4 million average shares outstanding in the prior year.

It is important to note that currency translations reduced our net income by $1.4 million during the quarter, which reduced our after-tax diluted earnings per share by approximately $0.02.

Net sales for the nine month period ending September 30th, 2012 decreased 12% to $1.16 billion compared with $1.32 billion in the prior year period.

Gross profit was $514.9 million or 44.2% of sales, compared to $511.1 million or 38.6% of sales in the prior year period.

Selling expenses were $103.8 million compared to $128.6 million from last year.

General and administrative expenses were $401.2 million, compared to $417.7 million from last year.

Net income for the nine months was $5.6 million compared to a net loss of $9.8 million last year.

Diluted earnings per share was $0.11 on approximately 49.8 million average shares outstanding, compared to diluted loss per share of $0.20 on approximately 48.3 million shares last year.

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

At September 30th, 2012 we had $307.9 million in cash or approximately $6.17 per share.

Trade accounts receivable at quarter end were $241.2 million.

And our DSOs as of September 30th, 2012 were 49 days versus 53 days in the prior period.

Total inventory, including merchandise in transit at September 30th, 2012 was $302.1 million, representing an increase of $75.7 million from December 31st, 2011 and $63.8 million from a year ago.

Long-term debt at September 30th, 2012 was $70.2 million compared to $79 million in the prior year period.

The decrease in long term debt primarily relates to payments made on our distribution facility equipment.

Shareholders equity was $916.3 million versus $943.2 million from a year ago.

Book value, or shareholders' equity per share, stood at approximately $18.35 as of September 30th 2012.

Working capital was $601.8 million versus $523.3 million from a year ago.

Capital expenditures for the third quarter were approximately $5.6 million, of which $2.2 million consisted of two now store openings and several store remodels.

Our focus for the past year has been on cleaning up our inventory, carefully managing and reducing expenses, returning to profitability, building a reputable performance division, and growing our signature Skechers looks while branching out into new trend right styles.

We are pleased to have achieved those goals but believe this is just the beginning.

We are continuing to focus on managing our expenses to profitably grow.

We feel we are still in the early stagesof our growing performance division.

Having Meb, one of the greatest American marathon runners, wearing our footwear on the cover of Runners World this month is a remarkable step for a brand so new to the technical arena.

And when we look at our showroom walls, we see both amazing product coming in 2013 and the opportunity to grow further across our diverse account base.

Now in our 21st year, we are proud of all we have accomplished, including a strong profitable third quarter, and we're looking ahead to the many opportunities we see.

With improved gross margin, a strong balance sheet, the ability to grow in key international markets, and product we believe will result in additional shelf space domestically, we believe the positive momentum will continue in the fourth quarter and into 2013.

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

Thank you.

(Operator Instructions).

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

Please proceed with your question.

Let me first say congratulations on the improving trends.

Thanks.

David, can you talk maybe a little bit more about what which segments you're seeing bookings up in?

And I guess how those bookings have trended over the last couple of months?

And if you can just talk about domestic bookings versus European bookings, just to give us a little more color there?

Well, domestic is obviously the strongest bookings piece for us right this minute.

It has all the new product.

And it's very difficult to segment it out and tell you which ones are not doing well.

We're doing well everywhere.

Some of them are actually -- if you would have thought about it a year ago, seems surprising.

Just about every division between performance, active, sport, both men's and women's, BOBS, certainly -- we don't have very many divisions now that are not booking well.

Now, we are coming off of a very weak quarter last year.

But domestically speaking, I don't think there's any of our large customers that are planning us anything but up double digits, both for fourth quarter and first quarter and certainly going into 2013.

So domestic will be a stellar performer for us and I think it's just going to start beginning in Q4.

Okay.

Good.

And then in Europe -- I know Europe obviously is tougher -- that's probably the toughest region for you now.

Maybe you can touch on that.

Is there anything there is that shows any stabilization in any countries?

Or anything you can point to there that gives us -- ?

Yes.

As a matter of fact, as we see the bookings start to increase in the back half of the year, we think we're going to make some significant progress in the first quarter.

England has held up very well for us, and in units, even though we have lost some things in prices, obviously ASPs are down with the different product categories and because the currency -- they've held their own.

They're actually going to come in quite equivalent on units shipped for this whole year.

And they have made up a bunch in the back.

And they will actually have positive backlogs going into first quarter.

The biggest problem for us this year because of -- simply because of its size, was Germany.

And they seem to be picking up.

They will certainly have a possibility of turning positive in the first quarteragainst this year, which was a more difficult year -- maybe even better.

So the two big countries for us are showing very positive signs in Europe.

And the rest is -- probably as you have imagined and read, Spain and Portugal, Italy, very difficult for us and I'm sure for everybody else.

It's just difficult for retail to take hold and grow just on a macro piece.

But we can grow -- Switzerland for us has picked up very well.

So the little ones -- so we think we can actually -- if Germany continues this trend, be overall net slightly positive next year, just for Europe, which will make international even more so.

Okay.

Great to hear.

And then as far as your own company retail stores, maybe you can just talk about what's the driver behind the comps and your concept stores as transactions -- maybe if there's any product lines to point out there.

Any other color you can give us on your retail comps.

Actually that too is across-the-board well.

Performance performs very well for us because it's front and center and that's obviously one of the biggest performers in our own stores.

We have it a little bit everywhere.

We have sport and active and men's sports, and even our USA is picking up.

As you can tell, not only were we up over 6% domestically but we had increased margins of 230 basis points.

So that's like a double hit to the efficiencies and the profitability of the stores.

And it just gets easier this quarter.

There's no one here that doesn't feel we'll have a minimum of low double-digit increases through this quarter.

And it could be even more than that, because we are certainly moving along quite well.

Okay.

And then finally, I think in the past -- I'm not sure if you have given this out recently, but do you guys have a revenue and gross margin breakdown by segment?

Maybe I missed that in the press release.

We do have it.

It'll come out the in the Q.

Okay.

But we have our three big segments, both domestic wholesale, retail and international will be broken out in the Q. It will be out in about a week.

Got it.

All right.

Very good.

Thanks very much and continued success.

Thank you.

Thank you.

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

Please proceed with your question.

Good afternoon,David.

Hi.

A couple of questions.

Number one, can you talk -- you rode through those percentage changes so fast at the beginning, I think that's why Jeff wanted to get more color on them -- but if you could it would be greatly appreciated.

Number two, can you talk about where you are -- I mean it sounds like -- can you give us some idea of what you're thinking about for the fourth quarter?

And sort of where your inventory levels are today?

Because the inventories were up probably a little more than what I would have liked to have seen.

But how much of that has shipped, given that you're expecting this big acceleration in the fourth quarter since the end of the quarter.

If you can sort of give us some color there?

We're getting our production in line.

I'm not sure how to give you all the increases or the percentages I gave you.

I think it's fair to assume, and what will continue into the fourth quarter, is that our domestic wholesale was up the most.

It was up about -- over 7%.

It was up 15% if you take out the close-outs we did for the non Skechers brands.

And we were up 9.1% in pairs shipped, so that obviously relates to, I think, a 30% or 35% decrease in ASPs.

Distributor sales were up almost 11% and domestic -- and total retail sales of our own, which is our own owned, not the franchises or the other ones, were up just short of 14%.

So those are the key metrics and I think you will see us building on them into Q4.

As to what we're expecting in Q4, it's hard to tell.

And we don't usually give that much guidance, but to give you some color, I was going through the numbers on the street, and I think the high number on the street was $340 million.

And I think I would tell you right now, today, from my perspective, that number is conservative.

And I think we'll be ahead of that.

So I think we'll be above what today is the high number on the street.

And for -- how should we -- I mean you will do more retail during the fourth quarter, so should we see the gross margins be better than what we saw in Q -- should we see like Q2 gross margins in the fourth quarter, especially now that you've liquidated most of that stuff?

Well, we still have some.

I don't know that it works quite that way.

While Q4 is our big quarter and we expect some significant increases, our domestic wholesale business will be up significantly more than our retail business, as it's planned right now.

So the margins will revert more back to norm because domestic wholesale will be by far the biggest unit sales, even for Q4.

When you're looking it -- and one last thing, when you're looking that $340 million number that you think is conservative, can you give us some idea of sort of how you conservative you think that might be -- ?

It's not that conservative.

I was certainly not going in the $370s and $380s.

So I would tell you that $340 million plus or minus $5 million is probably where I would start.

I think there's some upside to that if things continue to perform as they have.

It's kind of early, October is not a great retail month, and it's hard to tell where everybody is going into need fill-in.

So assuming we don't have any slippage in the domestic retail end from fourth quarter into first, and without significant movement of first quarter back into fourth quarter, which had happened to us, certainly if we get hot enough, then we would be in that $340 million, give or take $5 million or so.

Okay.

Thanks very much and good luck.

Thanks.

Thank you.

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

You've got this for the questions for the rest of it?

Sam, hang up your phone.

Now joining Scott Krasik with BB&T.

Please proceed with your question.

Wow.

Hey, David.

Hey, Scott.

Are you in with Sam?

No.

We are lucky we didn't hear the unedited version.

So you actually won the pool.

You werethe closest one for Q4 revenue so far.

I appreciate that.

Okay.

So just looking backwards for Q3 for a second, in gross margin I just really thought, given the lack of close-out business that you still had, that you could be above 44%.

Was that just because international was trending down and domestic was trending up that you were in the 43%s?

Yes.

Historically our domestic is at the lower end of that so it -- and our subsidiaries are significantly higher than distributors.

And when you have that switch, that sometimes happens and it impacts the margin.

I think also what you have to keep in mind is that our kids business is growing dramatically.

And has taken an increased percentage of the amount of -- or percentage of the domestic business so -- and that obviously has lower margins.

Okay.

The kids business is -- and it's growing well.

I mean we've had a resurgence of our kids, our girls and boys and Twinkle Toes -- very dramatically.

And I think that carries even more so into the fourth quarter.

Yes.

No.

We've heard the same.

That's great.

And then on the Q3, the selling -- I mean you had guided or told us last quarter you thought it would look like Q2.

It came in about $5 million less than Q2.

Was that something you change on the fly?

Is that a statement that you don't think you need to spend at that level?

How should we think about that?

What happened in Q3 and then also for going forward?

I think what happens is we gear more and we look at the media spend.

And while it was down a little bit, we left ourselves some wiggle room.

I think it was the sideline thing, the trade shows and in-store, and internationally we got some benefits from currency for the advertising we spent that brought it down and kept it within that parameter.

And then in terms of going forward, obviously you're not going to put dollars to it.

Do you expect to get leverage on selling over the next few quarters?

As a percentage.

I would tell you in Q4, we haven't gone much further than that.

Dollar wise we will probably be up a little bit because we've allocated some money for Japan.

And it was such a small quarter that it really can't come from anywhere.

So we wanted to get Japan going so we allocated an additional $1 million or $1.5 million.

And that should be the delta for Q4.

Okay.

So obviously, the percentages are coming way down.

Right.

And then I think the -- you had said that for some reason there was a comp thing that wasn't recurring in Q4, so your G&A, even though it's usually higher than third quarter doesn't have to be.

Is that still accurate?

That's still accurate.

What we have is, we put in place about three years ago a restricted stock plan that we've been amortizing at about $1 million a month.

That ends October 31st.

So we actually have a decrease of $1 million a month.

Now, it may be offset a little bit by some matching of 401(k) that we didn't do last year and some small bonuses that will offset, but we do have -- and we'll have significantly more volume.

So that may increase some of the G&A, but we certainly have that flexibility and that head start for Q4.

Okay.

And then just a couple others.

Do you have big orders visibility to BOBS for spring 2013?

How does the BOBS order book look?

BOBS continues to grow dramatically.

I don't know how else to put it.

Dramatically is like strong double digits?

Dramatically is -- could double again next year if -- from what we see now, if it continues.

Okay.

Is -- wow.

That's a big thing.

Is that a US business?

Has that hit internationally?

It hits in some places.

It's more -- it's not consistent throughout the world.

It's biggest, certainly, in the United States, and there's some countries around the world that use is very well and some countries that just don't.

So it's primarily the US, with very limited amounts outside.

And it just doesn't translate, you're saying?

It doesn't translate or there's price points or there are different taste levels, I guess.

But we continue to try and bring it out.

We think if catches in the States, it will catch overseas very big, too.

All right.

And lastly, I'm sorry, I just missed your comments.

So Germany, you said, was the biggest drag, but you thought that could turn positive in Q1.

Your other subsidiary business -- or your subsidiary business in total -- was that what -- were you referring to that, too?

Yes.

I said for next year we could certainly positive, depending on the drag of places like Spain and Switzerland.

If Germany picks up and becomes significantly positive, along with England that's held up very well, they could carry the whole European piece up.

Which would -- even if it's relatively flat, will have major increases in international, because Brazil is starting to pick up with this restructure and Japan will there, and certainly Canada and Chile are picking up very well and the joint ventures, which we account for like subsidiaries, are growing and will continue to grow.

So we think it will still be a very positive time for us next year in international.

Alright.

Good luck, David.

Thanks.

Thank you.

Thank you.

(Operator Instructions).

Thank you.

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

Please proceed with your question.

Hey, David, how are you?

Hey, Christopher.

Just a couple points of clarification.

When you -- when Scott was asking about the selling expense line, you're talking about a couple million dollar increase, that's year-over-year, correct?

He was talking about second quarter to third quarter, I believe.

Okay.

But if we look at fourth quarter -- last year we were at $23 million.

You're talking about a couple million dollars increase off of that?

Or are you talking about from third quarter?

No, no.

From fourth quarter.

Okay.

That's what I thought.

And then on G&A, just so I'm clear about something, how do the puts and takes -- because last year's fourth quarter, there was so much going on in that G&A number.

But if you look at Q3 and you did $135 million, I mean is that fair proxy for Q4, when everything is said and done, as a baseline -- assuming $340 million in revenues?

Yes.

Okay.

And then gross margins returning more normalized levels that's 42%, 43%?

Or is it more 43% and change?

Because you've been doing so much better, the inventory has been clean.

Just trying to get a sense what that means.

Yes.

It's harder to tell because, like I said, domestic is going to grow outrageously significant portion.

I would be more in the 42%, 43% range.

Maybe 43% and change.

I mean it's too hard to tell now exactly what's going to fits where.

But if you model, 43% is not a bad number to use.

Okay.

And then when you look at the international piece for a second, when you think about the subsidiary business -- if Europe continues to be a little bit of a drag here as you go into the fourth quarter it's not a big number here for Q4.

But still the subsidiary piece, because of what's going on in Japan, could be a positive increase year-over-year.

Is that fair to say?

We anticipate our overall international business will be up.

Although I don't think it will be up double digits.

I think it will be up mid-to-high single-digit as an overall basis for international, in general.

Okay.

And then just -- when you guys think about -- and I know you're not going to talk too much about next year because there's so many moving parts, but if you think about -- what are the increases as it relates to G&A, assuming -- I will throw a number out there, you grow 20% topline growth.

You hit $1.8 billion.

What are the increases in moving parts on G&A?

Is it stores, D&A, maybe incentive comp?

What else is in there?

I'm just trying to get an idea.

I think you touched on it.

The only big expense items or the increases we would anticipate are store growth, if we increase the number of stores that we opened from the norm, a 30 or 35.

There may be some comp increases or comp changes, but we don't have any real structural changes.

As we've said in the past, we have no major projects on the drawing board.

So assuming it goes as we see it today, where the biggest growth will be domestically, both in domestic wholesale and our retail domestically, some with comp store gains, we will leverage our distribution center quite well.

And don't have a lot to add personnel wise.

Although given the number of lines we're developing now, we may have some personnel things that we may have to expand our Q&A and our offices in China.

But certainly the current structure and the current growth where it is would lead us to believe that we have significant leverage available to us for 2013.

And then when do you -- when you end this year, where do you stand from a cash perspective?

Is it a $340 million, $350 million number?

I'm just trying to gets a sense.

It depends how strong we are when inventory starts coming in.

I thinks probably not significantly different than now,in the $315 million, $325 million range.

Okay.

And lastly, just on gross margin.

This year you had such clean inventories that definitely helped you, obviously in the first half of the year.

As you think about going forward -- retail is obviously a gross margin driver and that has opportunity to improve, but can you sustain a 44% level or do we revert a little back into this 42%, 43% or call it somewhere in the 43% range as we think further out?

I have said most of the time in the past that we will revert to the mean, which is 42% to 43%.

We haven't done it yet because we continue to be stronger and bring more product lines into the marketplace that have success than one would anticipate going in.

I would have never really thought that BOBS or -- by the way, Skechers +3 was just delivered to our stores and it's doing phenomenally well, and we're getting a younger customer with that -- so we're moving and all the pieces seem to be moving very well.

So at what point we level out, I'm not really sure.

Ultimately we will go back to 42%, 43%.

It may be a little later into next year, cause as we're bringing this product out it's still in very high demand.

And we're building inventory, but we have a lot more of it spoken for as Q1, because we're increasing units and we're trying to increase our production base.

So right now I would tell you we're going to be on the higher end.

We ultimately will, but I'm not sure it will happen in the first -- in the next six or nine months.

Okay.

Fair enough.

Thank you very much, David.

Best of luck.

Thank you.

At this point, we have no further questions.

And at this time, I would like to turn the conference back over to Skechers for any closing remarks.

Thank you again for joining us on today days 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.

Thank you.

This does conclude today' presentation.

You may disconnect your lines at this time, and have a wonderful day.