Skechers USA Inc (SKX) 2012 Q4 法說會逐字稿

Greetings, and welcome to the SKECHERS USA, Inc. fourth-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 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 2012 results. Net sales for the fourth quarter were $395.6 million, and earnings from operations were $8 million. Net income for the fourth quarter was $4 million and diluted earnings per share were $0.08. For the year, net sales were $1.560 billion, earnings from operations were $22.3 million, net income was $9.5 million, and diluted earnings per share were $0.19.

Our fourth-quarter 2012 sales increased by 39.7% over the same period last year. This was the result of growth in all our revenue channels -- domestic wholesale, international, and our Company-owned retail business. We are particularly pleased with the 72% gain in our domestic wholesale business.

Along with the strong gains in our domestic wholesale business, additional fourth-quarter highlights include a 30% increase in our international business, including 17% growth in our international distributor business, and a 40.5% increase in international subsidiary and joint venture sales; a 16.2% increase in domestic and international retail sales; a 39.4% increase in eCommerce sales; a 9.8% increase in price per pair; and a 56.8% increase in pairs shipped within our domestic wholesale business, with triple-digit growth in our women's, and double-digit growth in our men's and kids divisions; improved gross margins of 42.6%; domestic and international wholesale backlogs improved by over 20%; excluding legal settlements reduced OG&A expenses by $18.7 million.

Financial highlights for the year include a strong balance sheet with $325.8 million in cash or approximately $6.48 per share, and a return to profitability with net earnings of $9.5 million.

Also, in the year, we grew our existing product divisions with new lines for men, women, juniors, and kids, and firmly established our SKECHERS Performance Division, with several new product introductions, and earned eight awards from top running publications in the United States and several countries around the world. With Meb Wear and GOrun, we had our first elite athlete compete in SKECHERS Performance Footwear at the Olympics this past summer.

He has achieved several personal best in SKECHERS GOrun, and his performance at the London Games landed him in the prestigious position of being the fastest American Marathon runner. We believe our product is on target, our marketing is effective, and our operations are more efficient. Our improved focus and execution in 2012 translated into a strong fourth quarter. And as we continue to grow our businesses around the world, we believe the positive momentum will continue, and we will experience a strong first half of 2013.

In our domestic wholesale business, fourth-quarter sales increased 72% or $69.9 million over the prior year. This was due to strong sales in our men's, women's and kids lines, and a 56.8% increase in pairs shipped. This growth also came despite off-price sales in our fashion brands in the fourth quarter of 2011. Excluding our fashion lines, SKECHERS brands were up $73.4 million or 81.6%.

Along with double-digit improvements in our women's active, women's and men's USA, men's sport, kids and work lines, we experienced triple-digit growth in our women's sport and our charitable line, BOBS from SKECHERS. The continued sales growth with BOBS has resulted in more than 3 million pairs of shoes donated to children in need around the world.

We launched our Performance Division in the fourth quarter of 2011 with one style, SKECHERS GOrun. A year later, with numerous lines under our Performance Division, including SKECHERS GOwalk, SKECHERS GOrun Ride, and SKECHERS GOrun2, the GO platform has become a key growth category with triple-digit gains in the fourth quarter. Also, in the fourth quarter, we delivered two new lines -- Daddy's Money for Juniors and Mark Nason by SKECHERS for Men, both of which were very well-received and we believe will be very successful.

We have continued to develop significant marketing campaigns in support of our growing sales, and have done so efficiently, maintaining selling expense at 7.9% of our fourth-quarter sales. During the holiday season, these marketing campaigns included three new commercials for Men's Relaxed Fit, starring sports icons Tommy Lasorda, Mark Cuban, and Joe Montana; a Daddy's Money commercial that aired on MTV; a SKCH Plus 3 spot; and new commercials for Twinkle Toes, Bella Ballerina, Air Mazing, and Mega Flex.

This quarter, we have already aired two new commercials. First, a new Joe Montana commercial for Relaxed Fit, and then a humorous SKECHERS GOrun2 commercial, which debuted during the Super Bowl. The spot, which pitted man against cheetah, and highlighted the speed of this new running shoe, has received a lot of attention in the media, and placed in the top 10 in several Super Bowl advertising polls.

The demand for our performance and lifestyle product has continued this quarter. The reaction to our new offering during our buy meetings at our corporate offices last month was very positive, and we are pleased with the initial sell-throughs and at-once business. We're looking forward to delivering new product across our diverse product platform through the quarter, and further expanding our Performance Division with new lines in the second quarter.

In the fourth quarter, our total international subsidiary, joint venture, and distributor sales increased by 30%, with our subsidiary and joint venture sales improving by 40.5%, and our distributor sales by 17%. The significant subsidiary growth is attributable to 8 of our 11 regions improving in the quarter, including triple-digit growth from two countries.

Our business in Spain and Italy did not grow in the quarter, which we attribute to the challenging economic environments in the regions. We are remaining cautious about these markets, but are seeing a positive trend emerging in Italy. For both our distributors and subsidiaries, Europe is showing growth, including markets in Eastern Europe that previously had slowed due to the economic environment.

With the new Japan subsidiary contributing in the fourth quarter, the Pan-Asia region continued to be a key driver in our sales growth. Our distributors in the Philippines, South Korea, Taiwan, and Australia/New Zealand, all had positive improvements that, combined, resulted in total growth of approximately 27% in the quarter. Additionally, our Asian joint ventures, primarily consisting of China and Hong Kong, increased by 33%.

The Middle East and Africa regions also showed significant improvement with approximately 115% growth. While each of our distribution partners trended positive, we are particularly pleased with the growth in one of our biggest distributors, the UAE, who continues to open SKECHERS retail stores across the Middle East, with six in the fourth quarter alone.

At quarter-end, there were 257 distributor-owned or licensed SKECHERS retail stores around the world; 106 SKECHERS stores in our joint venture countries in Asia, including those run by licensees in the region; and an additional 21 Company-licensed stores in Canada, Spain, Portugal, Ireland, and the Netherlands.

32 SKECHERS stores were opened in the fourth quarter by our joint ventures, franchisees and distributors. These include one each in Australia, UAE, Oman, Aruba, Estonia, South Africa, Ukraine, Serbia, Malaysia, Singapore, Thailand and Canada; two each in Mexico, Taiwan, Colombia and South Korea; three in Hong Kong; and four in Saudi Arabia. Five stores closed in the quarter, one each in the UAE, Estonia, and Venezuela, and two in Spain.

As in the US, we are seeing an increased demand for our products in many countries around the world, reflected by the growth we experienced in the fourth quarter. We believe this positive trend will continue, based on our backlog, recent international trade shows, and response to our new product, which many of our international partners are now showing in their buy meetings.

We're looking forward to more at-once business and presenting the autumn/winter collections at the upcoming trade shows in Japan, China and Europe. We believe our fresh looks and marketing are on trend for consumers around the world.

For the quarter, total sales in our Company-owned retail business increased by 16.2%, with domestic sales improving by 16.6% and international sales by 14%. This is in part due to an increase of five domestic and three international stores. For the quarter, we had positive domestic comp store sales of 9.9%, and international comp store sales were up 12.6%, for a combined increase of 10.3%, with gross margins up 400 basis points.

At quarter-end, we had 354 Company-owned SKECHERS retail stores. In the fourth quarter, we opened one store each in Puerto Rico, Texas, Utah, and Arizona, and two stores in California. We also opened three stories in Chile, bringing our total Company-owned stores in Chile to 21. We closed one store in Arizona in the quarter. In the first quarter of 2013, we closed six stores. We anticipate closing an additional two and opening another four stores. In 2013, we expect to open another 30 to 35 stores.

Before we move on to our financial review, I'd like to mention two additional revenue channels. We presently have three eCommerce websites -- skechers.com in the US, UK and Germany. While our eCommerce sites are primarily branding tools that allow us to highlight our marketing, showcase the breadth of our SKECHERS footwear, and direct consumers to the nearest brick-and-mortar location, they are also a profitable revenue channel. Total eCommerce sales increased by 39.4% in the quarter.

Our licensing division is also expanding. We've generated $2.6 million in licensing revenue in the fourth quarter from our many licensing partners, which include eyewear, apparel, backpacks and socks, all branded SKECHERS. Men's and women's SKECHERS Performance in sport apparel are expected to launch this quarter in select SKECHERS retail stores.

Now turning to our fourth-quarter 2012 numbers in more detail. As I discussed earlier, fourth-quarter sales increased 39.7% to $395.6 million, compared to $283.2 million in the fourth quarter of 2011. Fourth-quarter gross profit improved to $168.5 million or 42.6% of sales, compared to gross profit of $112.6 million or 39.8% of sales in the prior-year period. The increase in gross profit was due to the combination of increased sales volumes and sell-throughs across all our revenue channels, improved quality of inventory, and more in-line product.

Fourth-quarter selling expenses increased $7.7 million to $31.1 million or 7.9% of sales compared to $23.4 million or 8.3% of sales in the prior year. The dollar increase in advertising and marketing expenditures was to support both our new and existing product lines, and the growth of our business in the United States, as well as overseas, including our new joint venture in India and our new subsidiary in Japan.

For the fourth quarter, general and administrative expenses, excluding legal settlements, decreased to $132.1 million or 33.4% of sales compared to $150.9 million or 53.3% of sales in the prior year. The decrease in G&A was largely due to the significantly lower professional fees, including legal; lower research and development costs; reduced bad debt expense; as well as increased efficiencies from our domestic distribution center.

During the fourth quarter of 2012, earnings from operations were $8 million compared with a loss from operations of $103.1 million in the fourth quarter of 2011. Net income during the quarter was $4 million compared to a net loss of $57.7 million last year. Net income per diluted share in the fourth quarter was $0.08 on approximately 50.3 million average shares outstanding, compared to a loss per diluted share of $1.18 on approximately 48.9 million average shares outstanding in the prior-year. Income tax expense was $3 million or 44.7% for the fourth quarter of 2012.

Now turning to our full-year results. Net sales for the 12-month period ending December 31, 2012 decreased 2.8% to $1.56 billion compared to $1.61 billion in the prior-year period. Gross profit increased to $683.3 million or 43.8% of sales compared to $623.7 million or 38.8% of sales in the prior-year period.

Selling expenses decreased 11.2% to $134.9 million or 8.6% of sales compared to $152 million or 9.5% from last year. General and administrative expenses, excluding legal settlements, decreased 6.5% to $532.4 million compared to $569.2 million from last year. Net income for the year was $9.5 million compared to a net loss of $67.5 million last year. Diluted earnings per share were $0.19 on approximately 49.9 million average shares outstanding, compared to diluted loss per share of $1.39 on approximately 48.5 million shares last year.

And now, turning to our balance sheet, which continues to remain very strong. At December 31, 2012, we had $325.8 million in cash or approximately $6.48 per share. Trade accounts receivable at quarter end were $213.7 million, and our DSOs at December 31, 2012 were 46 days versus 50 days in the prior period.

Total inventory, including merchandise in transit at December 31, 2012, was $339 million, representing an increase of $112.6 million from a year ago. We believe the increase in inventories is appropriate, based on our current backlogs, sell-throughs, additional store count, and the opening of a new joint venture and subsidiary.

Long-term debt at December 31, 2012 increased $52 million to $128.5 million compared to $76.5 million in the prior-year period. The increase in long-term debt primarily relates to reclassifying our construction loan from short-term to long-term debt, as we extended the term of our loan on our distribution facility for an additional three years.

Shareholders equity was $919.1 million versus $892.5 million from a year ago. Book value or shareholders equity per share stood at approximately $18.28 as of December 31, 2012. Working capital was $647.8 million versus $578.9 million from a year ago. Capital expenditures for the fourth quarter were approximately $24.3 million, of which $3.3 million consisted of six new store openings and several story remodels, and $19.9 million for our new domestic distribution center.

In summary, 2012 was a remarkable year for SKECHERS. We returned to profitability and saw sales increase across all our revenue channels in the fourth quarter, including gains of 72% from our domestic wholesale business. The strong domestic wholesale growth, plus low double-digit positive comp store sales in our Company-owned SKECHERS stores, are evidence of the broad acceptance of our new product offering.

Our products and marketing also translated to countries around the world, as we saw growth come from the Americas, Middle East, Africa, across Europe, and the Pan-Asia region. During the year, we were highly focused on growing our existing product divisions and broadening our offering to consumers with several new product lines. We established an award-winning Performance Division, and further grew our heritage business, all while adding new features and technologies that consumers desire.

Further, we've improved backlogs by over 20% for our combined domestic and international wholesale businesses, and a strong first quarter to date. We are confident that our growth trend will continue in 2013.

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

(Operator Instructions). Jeff Van Sinderen, B. Riley & Co.

Let me say great work. Congratulations on a solid return to growth. It seems like your invigorated product should continue to drive growth for 2013.

Maybe you can talk a little bit more about the sales progression you experienced at your own retail stores for holiday. Was it erratic or anything there to speak about? And then how promotional were you versus original plan for holiday?

And then maybe you can talk about how comps have trended in your stores for the first half? Has it been pretty steady there? And then, also, more or less promotional so far in the first half of Q1. And then any color you can give us on what you're seeing in terms of traffic in the last few weeks? And how much of the comps you think is really -- just really being driven by great new product?

That's a lot. (laughter) I've got to write all that down. A whole lot. I don't even know if I got it all. But I will tell you, you know, the comp store sales in the fourth quarter, we certainly never went beyond any plan for promotional activity. We don't promote significantly in our stores, other than seasonal merchandise and an occasional in our outlook stores.

We protect the brand, and we are predominantly a wholesale -- wholesalers by nature, so stores are at somewhat of a disadvantage by not going on sale. So it's not promotional. When we sell, and we show as well as we do now here and around the world, it's always based on product and demand from the consumer level.

As to traffic patterns for fourth quarter, I don't think they're any different than what you've read about -- you know, some weather, certainly, in the East Coast and as things changed up and down, but, we felt, pretty consistent. You know, we were up against easier comps to begin with. So -- and the product being so light, I don't think anything dramatic changed.

And we find the same progression going into the first quarter, although January is never really the strongest month of the quarter to begin with. So I don't know what that all means, but so far, we've continued. We've got great demand for our product.

We're shipping well. We still feel sell-throughs are going well. As I said in the report, we've gotten great feedback from all our larger customers as they come through for their buy meeting. So everything we think or feel and seems to remain on plan and on a progression with all this product that we're developing and bringing in.

Okay, so you really haven't seen any sort of traffic-related slowdown in the last few weeks? It sounds like it's been pretty steady. Is that fair to say?

Yes, we're pretty steady. When you're doing as well as we're doing, I think it's been fairly steady -- other than some weather patterns in some districts around the country that, obviously, change things.

Okay. And then maybe you can just give us more color on the running category, since that's been one that's been talked about a lot lately. Obviously, you've got great new innovative product there, and I'm sure that's driving your business. But how do you feel about the backdrop of running? And do you think that that category is maybe slowing growth? Or do you think you can still take market share? Anything you can give us there would be helpful.

Well, obviously, we always think we can take market share or we wouldn't be here. We're brand-new to the category. And as much as it's grown and as successful as it's been, we've only, we think, scratched the tip of the iceberg. But it all fits into all the product we develop. It's not only running; it's the whole SKECHERS GO family that's gone beyond running now.

And it's all the rest of the product we've brought to the marketplace. We have lightweight in our active and our sport, both men's and women's. Our kids product is growing. So we continue to innovate, and we anticipate taking shelf space and market share across all our categories -- not just that one.

So, that's just one of that's doing quite well and new for us. So we think it will -- it certainly has the biggest growth potential over the number of years and certainly worldwide. But we're pretty much moving all categories into significant increases of shelf space.

Okay. And then I know you don't give guidance per se, but maybe you can just talk a little bit about how we should think about Q1. Obviously, I think you said your bookings are up more than 20% to pretty much every segment of your business -- domestic, international, wholesale, retail. It's all up.

So how should we be thinking about revenues for Q1? I mean, does that translate into something order of magnitude 15% to 20% growth? Or any color there? Then, also, maybe you can just touch on how we should be thinking about SG&A for Q1 and any color there.

Well, it's one of always order of magnitude, so I would tell you that -- and since we don't usually give guidance -- we will grow. We will be significantly larger. Numbers like 15%, 20% in first-quarter don't scare me at all. I think that may be a middle number or a lower number. I mean, if the numbers I had seen on The Street, which are in the 20% range, I mean, from low to high, certainly the averages, we wouldn't significantly change them at this particular point. While there's a long way to go, we're still feeling very good about them.

As far as the expense line is concerned, I think our G&A remains fairly stable from year-to-year. Only should be increasing from new stores and maybe expenses some operations and some new subsidiaries. And there could be, given currencies as a trend, there could be some currency issues for slight changes there.

From the selling line, I think, obviously, we expect significant growth, so it will be going -- I think the order of magnitude of the increase will be somewhat less than just short of $8 million we saw in Q4, but certainly higher than last year.

Right. But it sounds like you should be able to get -- you should be able to generate pretty good leverage in the P&L in Q1?

We anticipate significant leverage from the G&A line and somewhat less leverage from the selling line.

Got it. Okay, great. I'll let somebody else jump in. Thanks so much and good luck for the rest of the quarter.

Thank you.

Scott Krasik, BB&T Capital Markets.

Good quarter.

Yes, it was.

So just a couple questions on sales. You didn't go into some of the other European countries -- the UK, Germany. How are those in the quarter? And how do you expect Europe to do in the first half of '13?

Germany -- all of them except the two countries that were down that I alluded to in my prepared remarks were obviously Spain and Italy, that we called out. And they were down significantly. All other countries had some growth, whether it was low to middle-single digits and some into the double digits.

I think that continues into first quarter. We are anticipating that we will show volume increases in Western Europe in the aggregate, although I don't believe that Italy and Spain will show any growth. And Germany will show some growth, but it will probably be modest. And everybody else is continuing on. So we still anticipate significant growth out of Europe, and growth out of the international in general.

So you've restocked, I would say, in North America, right? You had some really low numbers. You're going up against -- are you still in that restocking mode in Europe? Are you just -- are these types of growth rates filling to the sell-through demand? Should we see that accelerate the way we saw North America accelerate?

I don't know that we'll get to a 70% increase quarter, although it might be possible. There's just too many taste levels in Europe. But, yes, I think we accelerate through.

We're delivering the new product. It's, obviously, slightly behind, although not that significant any more, the deliveries in the United States. So, yes, I think some of the product we're delivering is just beginning there, and we're showing some good sell-ins in the first quarter. And if they're as successful as we anticipate, and they continue to work, obviously, we'll see acceleration through the back half of the year as well.

So if I have to read through what you're saying -- so, Q1, you know, domestic wholesale still very strong, maybe not as strong as Q4; but Q1 international (multiple speakers) should be higher?

Yes, we don't think it's going to be 80%. Q1 in international will be probably on the same order of magnitude maybe within plus or minus a little bit from Q4, as far as order of growth percentage. Obviously, somewhat higher number, since it's a much stronger quarter -- certainly for the subsidiaries. And we still anticipate our retail will be up comp store in that low-double digit range. So (multiple speakers) we're still moving along.

Okay. No, no, that's great. Then in terms of the gross margin, what is this 42.5% gross margin really say? Does that say that's the ongoing level? Was it lower because you ran some Pogos? Because -- I mean, I guess your subsidiary business was actually up pretty good, so that should have helped.

Well, our subsidiary business was up good. I think what it shows is that we had growth in the United States. And the United -- usually in Q4, and when we've been very strong as far as margin is concerned, retail has been a bigger percentage. Obviously, with a 70% growth in domestic wholesale, a big piece of that being kids. We get back to the more normalized margins. And we said we'd be in that 42%, 43% range as we get more normalized.

We did have some inventory, some colors and things, that we moved out through the quarter. So I think this is becoming a more normalized margin for the relationship as they exist between our operating division.

Okay, well, good luck.

Thanks.

Sam Poser, Sterne Agee.

A few questions. Just -- you said in the press release that the inventory increase was basically in line with your expected growth. So (multiple speakers) --

Well, it's a two-fold thing. And the growth is sometimes filling a pipeline. Just so we don't get too far ahead of ourselves. Pieces of it, I would tell you that 20% or 25% of the increase in inventory itself is based on new stores, new subsidiaries, new joint ventures that we pick up that's just stocking getting the inventory there to begin with.

And part of the US is because we're so hot and first quarter is growing, and because of Chinese New Year, some stuff has to hit the water earlier that hits our numbers. So it's in line with our forecasted, but I don't want to make too close comparisons between percentages here and there.

It's just the timing. Had some changes. We have Chinese New Year. We have more seasonal product in the first quarter and we're hot. So, we think we're very much in line with where we should be, and we don't see any real excesses in the inventory right this minute.

Well, that actually led to the second question. You talked about inventory on the water, and I guess that's that inventory that had to ship early because of Chinese New Year. Could you give us some idea of the magnitude of that inventory that's in transit right now?

In transit at any time could be somewhere between 10% and 20% of the inventory that exists.

Well, I guess what I'm asking is on a year-over-year basis, do you have more goods on the water now because of the shift of the -- because of the early Chinese New Year, or more goods there? And you mentioned as one of the contributor to the higher number. So, is that a higher percentage than it was a year ago, leading to a higher number than it would have been?

I would tell you that the amount being shipped in December, and on the water at the close of December 31 in transit and arriving in mid-December, is certainly higher than it was last year.

So what -- can you say to what degree? Or how much? I mean, or what percentage that combination is of that inventory that you have?

You know, if you want to sit and I'll talk to you and break it out for you. But --.

But it's material. I mean, you were -- it was enough to call out, so it is material?

It's enough to call out. Well, I will tell you we have a smaller percentage in process after that stuff moved to get out. And it was higher. I have to look at the exact relationship of in transits to physical inventories that sat here and around the world, and pull out what we stocked on for the new countries. And I'll get you a number. So if you call me, I'll work it out and give you exactly what we had in transit outside those countries.

All right, thanks. The go forward -- assuming you're profitable, and with the mix that you perceive, what tax rate should we be thinking about for 2013?

We still believe that our normalized tax rate is probably in the 33% range.

Okay. And then, lastly, the G&A from the DC, I mean, it came in well under in dollars what I expected. What -- how should we think about that on the dollar rate going forward? Is like -- is the [132] a number? Or should we use like [135] as the number? I mean, what -- it doesn't vary very much, so what kind of numbers should we --?

Yes. I was just going to say it hasn't varied very much from quarter-to-quarter this year with the increase in volumes. So I don't think it varies significantly going into next year as well.

So it's like [135] a good number on a quarterly basis?

That's the whole G&A. Yes. (multiple speakers) I would tell you --

(multiple speakers) The G&A part of it, correct?

Yes. I would stick with [135, 137], depends on the volume and how much the stores do, and obviously, comp store sales, because we process them one pair at a time. But in that range, I would say in the [135, 140] range probably, unless there's a concentration of store buildup in any significant quarter, which could put pressure on that. It's probably a good place to be.

And on a year-over-year basis on gross margin, I mean, you had a good gross margin at 44.3% in the first quarter of 2012. Is that -- I mean, should we think of basically gross margin basically in line with last year? I mean, were you expecting to get some gross margin growth?

I don't think it grows. I think we're more in the 43% -- 42%, 43% range than the 44% range.

Even in the first quarter?

Even in the first quarter.

Okay. All right, well, thank you very much and good luck.

Thanks.

Chris Svezia, Susquehanna Financial Group.

Nice job. I'm curious, just to go back to the gross margin for one second, I know mix plays a factor, but as you think about going into Q1 and that sequential move from Q4, international becomes a bigger piece. It does have higher margins relative to US wholesale. Why would it maybe gross margins tick up slightly sequentially in that 42%, not -- no -- maybe come close to 43% -- break for the 43% slightly, just because of the mix?

I said 42%, 43%, but I think a part of that is, while it's true that international does have a slightly higher margin, and it's stronger in the first quarter, if you look at the growth -- while I don't anticipate certainly 70% growth, but if you grow even at 25% for domestic wholesale, I think you get to a point where it's still a slightly higher percentage and does even out the margin.

So, yes, I'm not that exact. I'm not telling you 43% is not a good number. I'm saying it's more in that realm I would anticipate that 44%, but we could still get to 44%. I mean, we could explode internationally as well. So it's just my best case now is we're more normalized and I'd be closer to the 43% or so than the 44%. But that doesn't say I take it off the table completely.

Okay. Since you're not giving guidance, (laughter) I just -- so if you think that international could grow at roughly at similar rate you saw in Q4, and you think Company-owned retail can grow at a similar rate, the plug-in is at US wholesale. And I'm getting a sense that it's got to be close to a 30% kind of growth rate. You're pushing sort of 25% -- a little over 25%, 26% for the total Company. I mean, is that -- am I -- guaranteeing that's going to happen, but that seems logical? I mean, it's just kind of plugging in the numbers. That's sort of where it's coming to.

Well, you've got to more redefine the numbers and currencies. But I would tell you right now, I'm being more comfortable with a flat 20% for the Company, because it's a tougher comp for next year. And that's where I would be, not to give too significant guidance.

(laughter).

Which is where the numbers are on The Street. Like I said before, I think the consensus number is [427]. But the high is [448], which I think is an outlier, which is kind of high, and the low is [394], which is obviously too low. If you take the average of those two, you're at [421]. So, we're in that range -- [420 to 425, 426]. I think pending seeing exactly how the weather turns and sell-throughs, and an at-once piece, is not a bad place to be right this minute.

Okay. Let me -- can I -- so, on inventory, where do you expect to end Q1? I mean, where you see that inventory trending intra-quarter in Q1 at this point?

Well, it's usually higher at December 31, because of the in transits and stuff. And with the earlier Easter, I wouldn't expect any significant growth in inventory at March 31.

Okay, so is it likely it could be still be up 50%? Or has it come in a little bit?

From last year? Yes, yes. It will always be up from last year, because there's more stores and more countries that have more base inventory that didn't exist last year. So I think China continues to grow. It's a good season for them. I think Japan will have inventory that didn't exist last year.

India will have inventory that didn't exist last year. And there will be about 20 more stores in inventory in the warehouse to accommodate those 20 stores as you go in through the mid-month.

So it is always going to grow up from where it was. And we have more divisions to support, so there's obviously -- we were so lean and mean last year, we were risk-adverse to inventory. We're getting to a more normalized piece now. And we have a bigger infrastructure. So, yes, it's going to grow year-over-year. I don't think there's any question about that.

Without -- so I know we're just starting the year, but if you just think optically about your biggest opportunity, whether it's US wholesale or international, and you think about leverage -- because beforehand, it seemed like if most of your growth was US wholesale, there's not really a lot of cost to put into that. So the leverage opportunity was significant.

I mean, do you still think that's the case, even if you get international subsidiary growth in existing markets and an existing distributor markets, that that leverage ability is pretty significant still?

Yes, I think while we're going to grow, I think domestic wholesale has a headstart, certainly. So when you start growing 70% and even 20% or 25% or more in the first quarter on a base that that's large, the numbers get significant, and we certainly have leverage ability to the G&A line here. So that continues.

If international then picks up and starts moving in even bigger paces in Q2 and Q3, we'll leverage even more. Because they'll all be -- there's not a lot of infrastructure to build on, or they don't leverage quite as well to the G&A line. That will be leverage on top of the leverage we'll get in the United States. So it will turn out quite nicely.

Okay. Okay, and just one last thing. Just on product real quick. I'm just curious about Daddy's Money and SKCH Plus 3 -- just where you are in that? What you're seeing? What's the response at retail? I mean, some retailers have come back to us saying, it's been a little slow to pick up. Maybe just seasonally it's not the time to be selling this stuff in January necessarily. Maybe it will pick up in the spring. But just what's the feedback you're getting on those?

In our own stores, in warm weather stores, we see them doing quite well. Like you said, they're out of season and they're relatively new. And the weather has been pretty crummy in a lot of places around the country. So it's tough to say how they start.

We see them in our stores, in the warm weather stores, where we show them, then we have SKECHERS customers, that they've started off very nicely. And SKCH Plus 3 we think does very, very well. So we anticipate that everybody will get that as the weather gets nicer when we get into real spring. You're getting out of the close-out season in January and into new product in February and March, and we anticipate they'll do quite well.

Okay. All right, sounds good. All the best to you.

Thanks.

Take care. Bye bye.

(Operator Instructions). Corinna Freedman, Wedbush Securities.

Great quarter. Just wondering if you could comment on the retail store openings? I think you said 30 to 35. If you could talk about the cadence of that. Is that net of closures? And that's the first question. (multiple speakers) What comp are you planning to for the retail business?

The store opening numbers is just the store opening number, and it depends on availability of leases and things like that. I think the biggest closures we'll have are the ones we just announced for the first quarter.

So I think on a net basis, we should still be up year-over-year as the year ends, somewhere in the low 30s, unless there's difficulty in finding the correct locations at the correct pricing. Now if more stores become available to us in the back half of the year, as we continue to comp well and the stores do well, we may -- we certainly reserve the right to open more. So we're in search of, and that's just the best guess right at this point.

Okay, and what comp are you planning to for that business?

Like we said, we're planning low-double digits for the first quarter.

Okay. And then just a question about the apparel rollout. I think you said retail only. Is there any plans to roll that out into wholesale and (multiple speakers) --?

Yes, I think we're using Li & Fung for that. And, obviously, they're big and they have potential to supply as many people as wanted. We're just doing a test -- to take early deliveries. They're out selling it now to wholesale, so we'll see what the reception is.

But we want to get our own check early, so we've converted a dozen stores or so to accept apparel, so we can get an idea of how our SKECHERS customers relate to it. So we're just taking early deliveries. It will roll out wholesale-wise in the back half of the year.

Okay, and how big do you think that business could be?

Oh, I hope it's about $1 billion, but I have no way to know. I mean, apparel is pretty big and it could be -- and obviously, Li & Fung have the capacity to be whatever it is, and have a lot of connections. And we will take it out worldwide if it's successful.

So, I really don't have a number right this minute; that's outside of my real expertise as apparel rollouts are, certainly worldwide. But we certainly anticipate, given the quality of Li & Fung operation, that it can be a very big piece of our business.

Okay, and lastly on the [$6.50] in cash that you say you have on the balance sheet, how much of that is in the US? And is there any plans to return that cash to shareholders?

Right now I think about 60% or 65% of it is in the US, and we haven't announced any plans on repurchase or anything. It's not quite our way. We still have some infrastructure to build and some international. We think there's nothing we're ready to announce right this minute.

Okay, great. Thanks for taking my questions.

Thanks.

We have time for one more question today. And it is a follow-up question from the line of Scott Krasik with BB&T. Please proceed with your question.

David, just a couple of follow-ups. What's been the impact of Penney's in these domestic wholesale numbers? And what's your expectation for Penney's in '13?

Good question. Penney's has certainly moved down -- our business is actually down with Penney's. So what that means I'm not really sure. I'm not sure if people -- other people are taking share from their business, but Penney's is the only one in our top 10, certainly one of the few businesses we do with on a regular or a sizable nature in the United States, that it's down year-over-year.

Not sure what to expect on '13. I hope they're quite successful and that his plan does work out well. We still anticipate some decreases in Q1, although, obviously, with this decrease based -- the order of magnitude decreases are certainly less percentagewise.

Right, okay. And then two more. What was the -- I just missed -- what was the store count at the end of the year?

We had 300 domestically and 350 worldwide that are ours.

Okay, 350?

350 or 354, I think, something like that.

Okay. And then from a -- you have FFANY. You've had WSA.

(multiple speakers) Oh, we're not going to WSA -- we're going to MAGIC next week, if you'd like to come see what's there.

Right. The -- so what is -- I never miss a chance to see it -- so what is -- what's the backlog sitting at right now for the back half of the year? And what does the pricing look like in the back half, for the back half of the year in the backlog?

We're just starting to book for -- this is a big booking season for back-to-school. I don't know that I have any real insight or anything that would mean anything, as far as backlogs for the back half of the year certainly starting July 1. Because going-back-to-school shipments start in June and we're just filling that in as we speak. So from a timing perspective, so I don't know what to tell you.

Pricing is based on the product we deliver. I don't know if there's significant pricing pressure in the Orient, but obviously, we've got more technologies, and we've increased some of the pricing, as we mentioned, in the back half of last year. So we'll see the demand for our product is based on which products sell-through. Obviously, the average pricing for things like BOB, and things like GObionic are significantly different. So we have to see how it works out. But I think pricing, from where we sit today, is relatively stable by product category as we go into the middle of the year.

I'm sorry, but I mean, so AS -- are you -- I mean, you had a nice increase in ASPs. Will you continue to see that throughout '13 (multiple speakers) --?

Well, I don't know if we go up $1 into the back half of the year or where we're going to start increase. We'll see increases obviously in the first half.

Right. And then I would think last year at this time, you had probably nothing in the backlog, because of the state of the brand. So I thought maybe you would even show some good (multiple speakers) --?

I don't know that that's true. We didn't have such a bad first and second quarter. We did $730 million. It wasn't all retail. So we had backlogs. I mean, backlogs are backlogs, whether they're full price or close-outs or just very basic shoes, we did have. But we're up 20%, and that's all going to -- for the most part, as we stand today, full-price products. So I think it bodes well.

You know, you have to take into account that the quality of the products that you have in the backlog, just like stores -- we said the stores were up just over 10% worldwide, that would relate to the 350 stores, which is not a bad comp increase. But when you compound that also with the fact that we're a 400 basis points in gross margin, you see the quality of the product, and what you're really selling in there, and the average price points. So you've got to take both into account.

So, while we have 20% increase in backlogs, it's, A, a stronger backlog. It's a healthier backlog from a gross profit perspective, and we're at an average price perspective. So we -- the backlog has improved on many levels.

Okay, well, thanks again.

Okay.

At this time, I would like to turn the conference back over to SKECHERS for any closing remarks.

Well, I don't think there's much more to say. Other than as we lay out we're very confident and feel very good about going into 2013. We will know more, I believe, over the next few weeks, as we finish platform next week, and we do our international shows.

So, more information to come. It's still very positive. And we appreciate everybody's participation in the call.