Skechers USA Inc (SKX) 2014 Q1 法說會逐字稿

Greetings and welcome to the Skechers USA, Incorporated quarter 2014 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'd 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 1995 as amended.

Such forward-looking statements involve known and unknown risks, including but not limited to global, national, and local, economic and business 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?

Good afternoon and thank you for joining us today for Skechers' first quarter 2014 financial results.

The worldwide demand for Skechers footwear exceeded our expectations in the first quarter, driving net sales to a new first quarter record of $546.5 million, which was a 21% increase over the same period last year.

The sales gain was a result of double-digit increases in our domestic and international wholesale businesses, as well as our Company-owned retail stores, which included a 5.6% comp store increase.

These improvements came in spite of the unusually cold weather experienced by much of the United States throughout the quarter and Easter falling in late April.

The key product sales drivers were broad-based and came across our men's, women's, and kids offering, and included both lifestyle and performance products.

First-quarter sales and financial highlights include a 20.7% increase in our domestic wholesale business, with a 14.8% increase in pairs shipped; a 26.3% increase in our international business; a 15.9% increase in our Company-owned retail business, which included an additional 46 new stores opened in the last year, 10 of which were opened in the first quarter; earnings from operations of $48.2 million or 8.8% of net sales; gross margin of 44%; net earnings of $31 million and diluted earnings per share of $0.61; in-line inventory, which decreased 12.8% from year-end and were up [23%] from a year ago; a strong balance sheet with $329.4 million in cash or approximately $6.48 per diluted share.

It is important to note that our effective tax rate for the first quarter was 25.7%, which included certain discrete items recorded in the period.

We are estimating our effective tax rate for the 2014 to be between 25% and 28%.

With the increased demand for our products from consumers around the world, we believe the strong sales momentum that we are currently experiencing will continue through the second quarter and the full year.

Our April incoming order rate and revenues are very strong and our backlogs have accelerated since year-end.

The reception from our key accounts to our new product offering gives us the confidence and the strength of our business.

Now turning to our business in detail.

In our domestic wholesale business, sales increased 20.7% or $39.9 million for the quarter, with a 14.8% increase in pairs shipped and a 5.1% increase in average price per pair versus the same period last year.

This growth is due to the continued demand for a diverse lifestyle in performance footwear and the multiple successes we are experiencing.

Each of our team's divisions has produced strong sales drivers and allowed us to expand our offering.

Key to this success has been the comfort innovations we have made across all of our brands.

By gender, we achieved double-digit improvement in our men's and women's business, and very high single-digit growth in our kids business.

The increases came from our men's and women's Skechers USA, sport and work lines, as well as our BOBS from Skechers and sport active lines for women.

Additionally, our men's and women's Skechers Go Performance and casual lines experienced double-digit sales in the quarter.

The performance division was fueled by several noteworthy accomplishments in the first quarter.

Skechers Go Run Ride 3 received the Best Buy award from Runners World, and the Skechers Go Run 3, the Best Value award from Competitor Magazine.

And the Skechers performance division was the official apparel and footwear sponsor of the Houston Marathon.

And, now, already in the second quarter, elite runner and Olympian marathoner Meb won the Boston Marathon with a new personal best in the soon-to-be released Skechers Go Meb Speed 3, a major accomplishment, both for Meb and the brand.

Meb continues to be the face of the Skechers performance division, currently appearing in marketing campaigns on TV, in print and outdoor.

To support our many successful lifestyle product categories, we had multiple TV commercials in the fourth first quarter, including campaigns featuring TV personality Brooke Burke-Charvet, The Voice winner Danielle Bradbery, and sports icons Joe Montana, Tommy Lasorda, and Mark Cuban.

These, along with our other commercials, allowed us to run targeted TV campaigns reaching the right demographics with the right spot.

In addition, we ran print, digital and outdoor campaigns to further drive sales.

The continued success of BOBS, our charitable footwear line, has resulted in more than 8 million pairs of shoes donated to children in need.

We are very pleased with the growth we achieved in our domestic wholesale division, especially given the cold winter much of the country experienced, and Easter moving to late April.

We believe the strong sales are attributable to our innovative product.

And we believe that the demand will continue through the year based on our incoming orders, accelerating backlog, and reports from our wholesale partners.

In the first quarter, our total international subsidiary, joint venture, and distributor sales increased by 26.3% as a result of the strength of our diverse product initiatives.

Our subsidiary and joint venture sales improved by 27.7% and our distributor sales improved by 21.9%.

This increase came in spite of the continuation of political and currency issues in Ukraine and parts of South America.

We have seen a strong rebound in our business in Europe, and believe the demand for our brand is at an all-time high across nearly every region where we directly distribute our product, resulting in double-digit growth in all but two of our subsidiary countries.

We also would like to note that we expect to complete the upgrade of our European distribution center by the end of 2014, increasing our capabilities and efficiencies in the region.

Our Southeast Asia joint ventures continue to perform very well, with combined growth of 18.7% for the quarter, which includes a more than 50% increase in our China business.

We expect our joint venture regions to continue to grow at this type of rate.

Our international distributor business performed much stronger than expected, especially given the Easter shift and ongoing political and currency issues in a few key markets.

The double-digit increase was primarily the result of triple-digit growth in Indonesia, Turkey, and Taiwan, and double-digit growth in Australia, New Zealand, South Korea, Mexico, and the UAE, as well as strong performances from many other regions.

We believe that the strategy of opening retail stores serves as both a marketing tool and profitable distribution channel, and is an integral part of building a sustainable business around the globe.

At quarter end, there were 497 Skechers stores owned and operated by our joint ventures, licensees, and distributors outside the United States.

Of these, 327 are distributor-owned or licensed Skechers retail stores, 140 Skechers stores in our joint venture countries in Asia, including those run by licensees in the region, and an additional 30 Company-licensed stores are in Brazil, Canada, France, Ireland, Portugal, and Spain, countries where we directly distribute our product.

In the first quarter, 22 stores opened, including our first stored in Belarus.

Additionally, we opened three each in the Philippines and Saudi Arabia, two each in Malaysia, India, and Taiwan, and one each in Costa Rica, Mexico, South Korea, Indonesia, Russia, Brazil, France, Wales, and Croatia.

A store in Australia closed in the quarter.

Four distributor joint ventures or licensed Skechers stores have opened to date in April, and another 80 to 90 are expected to open during the rest of the year, bringing out total to approximately 600 distributor, joint venture or licensed Skechers stores by year-end.

As I mentioned, our international product delivery is moving more in step with our domestic delivery, creating a more synergistic and cohesive approach to our brand globally.

Importantly, this means the momentum that we are experiencing in the US is also occurring in virtually all of the international markets where our product is available.

The double-digit growth in international is a reflection of the strength of our product, marketing, and brand.

Based on our accelerating backlogs, the reaction to our key initiatives, and the opening of additional retail stores, we believe that our international business will be up double digits for the second quarter and the year.

For the quarter, total sales in our Company-owned retail stores increased by [15.9%], with domestic sales improving by 10.7%, and international sales by 48.8%, which included positive comp store sales of 5.8% domestically and 5.6% worldwide.

We are especially pleased with these increases given the timing of Easter, as well as the extremely cold weather experienced in the US in the first quarter.

At quarter end, we had 399 Company-owned Skechers retail stores around the world.

In the first quarter we opened ten stores, nine of which are domestic and one international concept store in Chile.

These included new stores in Arizona, California, Florida, Maine, Maryland, Nebraska, New York, and Puerto Rico.

We closed one domestic concept store in the quarter.

We have opened three stores this month, one each in Iowa, New Jersey, and Texas, and we are planning to open another 15 to 17 in the second quarter, including one this week in Chile, and an additional 30 stores are planned in second half.

Domestic e-commerce sales were flat for the quarter, which we believe, in part, is due to low inventory of [tee] styles as a result of stronger than expected sales.

Now turning to our first quarter 2014 numbers in more detail.

As I discussed earlier, first quarter sales increased 21% to $546.5 million compared to $451.6 million in the first quarter of 2013.

This marks our highest first-quarter sales ever and second-largest sales quarter in the Company's 22-year history.

The increase is due to the strong product successes we are experiencing across our multiple product categories, which have resulted in double-digit increases in our wholesale businesses both domestically and internationally, as well as in our Company-owned retail stores worldwide.

First-quarter gross profit increased to $240.4 million, or 44% of sales, compared to gross profit of $192.7 million, or 42.7% of sales in the corresponding prior-year period, an improvement of 130 basis points.

The increased profitability and higher gross margin during the quarter were due to a combination of higher sales and strong sell-through of our product, as well as an increase of 5.1% in our average price per pair.

First quarter selling expenses were $36.7 million or 6.7% of sales, compared to $37.7 million or 8.3% of sales in the prior-year.

The 160 basis point decrease was primarily due to lower advertising and selling expenses.

We made a decision to shift some of our media budget from the first quarter to the second quarter because of Easter falling in late April.

For the first quarter, general and administrative expenses were $158.5 million or 29% of sales compared to $141.5 million or 31.3% of sales in the prior-year.

This represents a 230 basis point improvement in operating leverage.

The dollar increase in G&A was primarily due to a combination of factors, including our increased store count, which resulted in higher salaries, rent, employee benefits, as well as increased warehouse and distribution costs related to the higher sales volumes.

Of the $17 million increase in G&A, $8.9 million was due to increased expenses related to our international operations and $5.4 million was related to the increased store count.

During the first quarter of 2014, earnings from operations were $48.2 million or 8.8% of revenues compared to $15.3 million or 3.4% of revenues in the first quarter of 2013, more than a threefold increase from the prior year.

Net income during the quarter was $31 million compared to $67 million (sic) -- $6.7 million; sorry -- in the prior-year period.

Net income per diluted share in the first quarter was $0.61 on approximately 50.8 million average shares outstanding, compared to $0.13 on approximately 50.5 million average shares outstanding in the prior-year period.

Our effective tax rate for the three-month period ending March 31, 2014, was 25.7%.

In the first quarter, we recorded an income tax expense of $11.4 million compared to $2.3 million in the prior-year period.

For the remainder of the year, we estimate the effective tax rate to be in the range of 25% to 28%.

And now turning to our balance sheet.

At March 31, 2014, we had $329.4 million in cash or approximately $6.48 per diluted share.

Trade accounts receivable at quarter end were $312.3 million and our DSOs at March 31, 2014, were 45 days versus 50 days at March 31, 2013.

Total inventory, including merchandise in transit at March 31, 2014, was $312.2 million, representing a decrease of $46 million or 12.8% from December 31, 2013, and an increase of $58.5 million or 23.1% from March 31, 2013.

Long-term debt at March 31, 2014, decreased to $113.4 million compared to $116.5 million at December 31, 2013.

The decrease is primarily due to payments made on our distribution center and distribution center equipment.

Shareholders' equity at March 31, 2014, was $1 billion versus $979.9 million at December 31, 2013.

Book value or shareholders' equity per share stood at approximately $19.93 as of March 31, 2014.

Working capital was $743.4 million versus $704.5 million at December 31, 2013, and capital expenditures for the first quarter were approximately $11.4 million, of which $8.4 million related to 10 new domestic store openings and several store remodels, and $2 million related to a corporate property purchase.

In summary, we are very pleased with our sales growth in the first quarter of 2014, the positive reception to our product globally, and the direction of our business.

Our record first-quarter sales and our second-highest annual sales ever is a testament to the strength of and the demand for our brand.

We are especially pleased that the 21% first-quarter sales growth came despite a severely cold winter in the United States and the shift of Easter to late April.

Paramount to the growth in the first quarter was the simultaneous success of multiple key product initiatives around the globe, including our Skechers Go Walk, Relaxed Fit, Skechers Sport, and Skechers Kids Footwear.

Our subsidiary business in the Americas and in Europe both achieved combined double-digit increases and our combined joint venture operations in Asia also increased by double digits.

This mirrors the growth by several of our key international distributors around the world, and with the accelerating backlogs leads us to believe that our international sales will continue to grow double-digits in 2014.

To further grow our business, we are planning on expanding our Company-owned retail operations with another 50 to 60 stores worldwide.

Our international distributors, joint ventures, and licensees plan to open another 80 to 90 stores this year, bringing our total projected Skechers store count at year-end 2014 to approximately 1070.

Given our retail growth trajectory, accelerating backlogs and incoming orders for April and at-once business, which remains at the same levels as last year, we believe we are well positioned to continue to grow in 2014.

Further, we remain comfortable with the current consensus estimates for earnings in the second quarter, though there may be some upside in the revenue forecast.

Finally, we are excited to share in the accomplishments of Olympic medalist and Skechers performance division spokesperson, Meb.

Just yesterday, Meb won the Boston Marathon and achieved a new personal best while competing in Skechers Go shoes Go.

Meb's emotional victory also breaks a nearly 30-year shutout of American winners in this event.

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) Danielle McCoy, Brean Capital.

Congrats on an amazing quarter.

Thanks.

Felt real good, too.

I guess my question really relies around on performance.

Can you give a little bit more color on performance and the opportunity to enter the sporting goods channel, how things are going with Dick's?

And I have recently seen some Skechers in Modell's as well, if you could just elaborate on that for us.

Well, we have always had some in Modell's.

They have been a big supporter and have always come back to try.

Dick's is just at the beginning stage.

So we have taken the tact with our performance product and not be an also-ran or an also -- just like the other ones that are running.

We are taking it very slow, building it with Meb and some other runners, the high performance until there is a high enough demand to break into the sporting goods channel.

So, right now, we are still at the very early stages, but obviously the possibilities are very, very large.

Great.

And have you noticed any differences between the full price and outlet channels, and maybe just a little bit more color on how the outlet business is doing?

For our own stores or in general?

Your own stores for outlets and then I guess any general trends that you've seen difference between full price and outlet.

We haven't seen much difference.

The outlets, obviously, started later.

They had easier comps, so there is comping up, but their relationship to our full price hasn't changed dramatically.

We seem to be selling very well everywhere we are, and that is both domestic and international.

Actually, Europe has come back very strong and the comps there are just continuing to increase month over month.

So, no, I think it is a demand for the product, but we don't have much dated product in any outlet channels, simply because we haven't had much and we have been in great demand, and so far haven't had a closeout.

Our third-party outlet channels don't have significant amount of product and we do not have much old in our own, certainly not multiple seasons worth.

So, right now, everything seems to be working quite well and in tandem.

All right.

Great.

And then, just lastly, can you give us a little bit more color on some of the expenses that you shift into the second quarter and how we should look at that?

For lack of a better word, we took about $3 million -- $3 million and change from first to second quarter.

It was a small piece.

We had originally planned that each quarter would be up about $3 million, $3.5 million in real dollar terms over last year, which would obviously give us leverage.

So I would plan that in Q2, over last year, we probably have a $6 million, $7 million increase in media spend that we are committed to around the world.

Great.

Thank you so much.

Good luck, guys.

Jeff Van Sinderen, B. Riley.

Let me add my congratulations as well.

So maybe you can just delve a little bit more into the performance segment.

Interested to know any color you could give us by gender, particularly on the women's side, either for Go Walk and some of the other product, and maybe you can also touch on any new products that are slated to hit this year where you feel like you've got a pretty good runway.

Well, when you come see us in June, we will show you all the new products that are coming out we are showing.

We are actually in prelaunch right now, but we have a lot of confidence in a lot of the things that are coming, very difficult to just talk about them without showing you what they really are.

We actually have a lot of platforms that are working very, very well.

As far as the performance -- to break down to men's to women's, it is certainly larger women's than men's, but it is certainly getting traction in men's, especially from the performance end on the Go.

On the Go it's certainly much bigger for women, but they are both growing quite nicely and it is somewhat skewed towards women at this stage, but I don't know that that will continue that way.

Okay.

Do you think that that -- I mean, the whole women's trend and the whole activewear thing that is going on, how much of that do you attribute to what's going on in apparel?

And, obviously -- I know you have an apparel business that is, I believe, through Li & Fung.

So maybe you could just touch on what you are seeing there as well.

Well, our apparel business is quite new and I am not really sure.

We are an accessory and I think there is a trend towards athletic footwear, certainly colorful athletic footwear in the marketplace.

It probably comes from a lot of places, not just activewear, but it is certainly a trend now.

And we are selling it through all our price points.

But our kids and black and brown business have held up very well and have grown slightly as well.

So I think it's a good time for us in all directions, but the fact that it is a trend towards athletic footwear is certainly to our benefit right now.

Okay.

And then, if you look at your own retail store business, are you seeing it led by -- the comps led by athletic and then sort of black and brown as a secondary growth mechanism?

We are seeing it led by athletic, but not necessarily 100% for performance.

We had some very well selling product in our active and our old sport line, both in men's and women's.

So it is the athletic look, but it is not only performance.

Actually, our athletic lines -- our moderate price points are growing at the same rate and are still significantly larger than the performance division.

So we have a lot of opportunity because we have a lot of pieces that are working very well for us now.

Okay.

That is great to hear.

And then, as far as the booking trend, I am just wondering if there is anything to call out in domestic versus international, if the booking trend also reflects kind of a leaning toward faster growth in athletic.

Any color that you could give would be helpful.

It certainly hasn't changed significantly by product category this quarter -- going through this quarter.

But everything is working.

We actually had increased shipping -- I know there was some questions out there about BOBS and how it would hold up.

You know, BOBS actually showed increases in the first quarter and we had an increase on our BOBS category in double digits with no decline in gross margin.

So the redo, the comfort factor, all of it is really working.

It is not overwhelmingly in any one piece.

Okay.

Good to hear.

Thanks very much and best of luck for the rest of the quarter.

Sam Poser, Sterne, Agee.

A couple of things.

Number one, can you talk about the Go product -- the Go Run price, specifically, and how it is differentiated between the US and internationally, because I think you mentioned in the past that it is getting sort of -- the higher end product is getting a better response internationally.

Are you still seeing that?

I don't know if it's better, but it sells well around the world in some distributor countries, not necessarily subsidiaries where they have had it at a higher price point because of the additional markup they have in there -- it shows very well.

And, in some countries, they just enjoy the colors and it is not as many runners, but I think we enjoy Go Run and the whole Go platform.

It is building around the world at a pretty good pace.

So it is here as well as in most places where we are.

Like I said in the prepared comments, between Europe and Southeast Asia, and the Middle East, multiple categories and they all seem to be growing in tandem.

Thanks.

And then, two other things.

How do we think about gross margin, the big increase?

How do we think about that for the next quarter and the rest of the year?

And, you gave specifics on backlog the end of the fourth quarter of 30%.

Can you give us where it stands right now?

And you said you saw continued momentum in the order flow through April.

So can you be more specific so we can compare it?

Well, if we wanted to be more specific, we probably would have mentioned it.

But, okay, I will give you this time -- so I forgot the first part of the question, but our backlog has increased -- we were up 30%.

They are at least 20% higher than that, so they're north of 35% as we ended March.

And our booking rate for April has already exceeded last year, so chances are our backlog will increase as we end the year, unless something dramatic happens in the last week.

As far as gross margin, we had gross margin change because international, both the joint ventures and the subsidiaries, had a significantly larger piece and they have somewhat higher margin.

So I would -- don't expect too much of a change, although I don't think there is significant upside -- too much of the change between Q1 and Q2.

I would probably model more in the 43%, 44% range -- slightly higher than I would normally simply because we seem to be doing that well.

And, historically, April is our weakest month in the quarter.

And we seem to be powering through that, so I don't know that there will be any deterioration this quarter either.

But last year, your gross margin was 45.5%.

So (multiple speakers)

Yes.

I think that is because Easter was in the fourth -- in the --

It was in Q1.

In Q1.

I think just last year, I am not sure why -- I think it was predominantly currency in some of the places around the world.

I think our Southeast Asian, which is the highest margin business, was probably the biggest growing.

And Europe, which was -- started to come back some, there was no closeouts there at all.

So I think it was just retail still continued.

We had very big comps in retail last April.

We were up significantly in the double digits, so it carried through the quarter and I think it was just a bigger percentage.

There is no way that retail can grow as a faster pace as compared to the rest of that Company, just given the constraints of the four walls, as the rest of the Company.

Once domestic wholesale and international starts to grow into the 20% range, retail becomes -- we will probably become a smaller percentage and therefore not regain that push for the overall gross margin.

Thank you very much and continued success.

Chris Svezia, Susquehanna Financial Group.

Nice job.

I am curious.

So DTC, any color at all about how April might have trended?

I would assume there was a pickup with the weather and the Easter shifting.

Maybe add any color about that, if that is possible.

You are talking about at retail or just in general?

No, no, no.

Your retail DTC; your stores.

Our stores are comping very well over the last three weeks and, obviously, there is a shift out of Easter, but we are well into the double digits.

We are moving along quite nicely.

And we are even -- we will make up -- we will comp positive this week even though we had three-quarters of the stores closed on Easter Sunday.

We still think we will comp up enough to be positive for this week, probably do quite well.

So we think we seem to be comping up.

Everything seems to be moving along.

We are booking well, we are shipping well, and our stores are holding up well around the world.

So we do talk about second quarter and you say there could be some slight upside, I guess, relative to where people are in terms of the number, and given the fact it doesn't really seem like things have slowed as we come into the second quarter, are we still looking at closer to 20% growth?

Or is it more?

I am just trying to gauge what you mean by upside on that revenue number.

Yes.

I think we are talking somewhere in the -- close to 20%.

I think the number on the street is about [490].

We are closer internally to the 20% number, probably in the [505, 510] maybe range.

Okay.

You know, the issue is that Q2 is never that big and it is very dependent on movement from between June and July.

Now, there could be a big movement between June to July or July to June, depending on what the overall retail environment is, so there is a lot of flexibility in there.

But right now -- and it is not that big of retail -- I mean, not that big an international quarter.

So there is only so much upside you can have around the world.

But, right now, I think we would be pretty comfortable in that [505, 510] range.

Okay.

And G&A, I guess, for lack of better, still holds as just shy of [160] kind of number.

Is that how we should think about that?

Yes.

You will only get the pickup from new store openings, depending on how many stores opened and what we have to run through, and the potential growth in some of the joint ventures where we have to build infrastructure as the growth comes.

Okay.

And then what -- I mean, how do you interpret this?

As you think about back to school and any -- I know it's a little bit early.

But just as you sort of talk to retailers and how they are thinking about that key third quarter, I know a lot of things could move around.

But that has the potential to be a pretty big quarter for you guys.

So any thoughts about how you are seeing things unfold now and how that backlog looks -- how it is placing for that third quarter?

It is going quite well.

What we are booking now in April, certainly at the rates we are booking, it is not at once piece.

It is more for back to school.

While there is some fill-in, and we do have that one.

So right now this accelerated booking is the middle of what we would book for back to school.

So right now, it's quite positive about back-to-school.

Like I said, we are going through prelaunch now so we look at the final story as we go forward, but to book this solidly in a month like April bodes very, very well usually for back to school.

And, international, when you talk about double-digit growth, are you still talking about this as above 20% between subsidiaries, JV, and distributor for the balance of the year?

Is that how we think about that?

We certainly could.

We haven't really gone out that far, but certainly for Q2, which is not that big of a quarter, I would anticipate to be in there with slightly easier comps for us in the back half that it would hold through Q3.

But they book a little later here, so we won't know that until April, May.

Okay.

Fair enough.

All the best to you and good luck.

Scott Krasik, Buckingham.

The distributor sales growth this quarter was actually up against a big number last year and then the comparisons get much, much easier.

So are we going to see very large numbers out of distributors in the next three quarters given the easier comps?

We will probably see higher percentages, but they don't make up -- they are probably one-third the size now of what our subsidiary joint venture business is.

So it can only have so much impact.

But, yes, I think it does continue to -- well, maybe not in Q2 so much, because it is not that big a quarter all around, but certainly in Q3 I'm expecting some big things.

And I wouldn't shy away from Christopher's question, is it 20%, but I think anything is possible.

If we continue to get sell-throughs the way our stores are performing there and the way they are booking, even though it is a small sampling size for April, it bodes very, very well.

We just don't want to get too far ahead of ourselves for back to school.

Okay.

And then, in terms of the comp in your own stores again, April is up double-digits.

You should have some pent-up demand given that the weather is just finally breaking.

So any reason why you wouldn't comp up double-digits in the second quarter in your own stores?

I don't think so.

I mean, we have a very good start for April.

May is a very difficult month in retail.

You never know.

That is more a macro piece and June.

, so as we get into the holiday period.

But I don't anticipate that we will have any issues at retail.

And even though the comps get more difficult to compare against, I still think we will be in the high single, low double-digit comp stores.

Okay.

And so I will just go back to the gross margin question that Sam asked.

I mean, it just seems like if retail, it will actually probably be a bigger percentage of the mix.

Don't you think that the gross margin from last year does not seem like that big of an obstacle?

Well, retail will be a smaller piece of the business.

It is already down more than 100 basis points as a percentage in Q1.

It won't have that strong a Q2 other than April.

Domestic wholesale will start growing at a faster pace and that is a much smaller gross margin thing.

So while I wouldn't take it off the table, is it possible?

I wouldn't say it was the most likely scenario.

It's very difficult for me.

That was very much to the top end of what is possible for us as far as gross margin is concerned.

Okay.

And then, in terms of the selling, do you still feel comfortable with that $3 million, $3.5 million in the quarter and in the back half of the year or quarter?

Haven't looked that close.

It might go higher depending on how much we accelerate.

We have more categories NOW around the world.

I think if there is any upside to that it will be on international and it will be covered by their growth, because they are growing so quickly.

We may expand our advertising.

So we'll defer a little bit to the back half until we get more about bookings in and see what places we need to push a little bit.

(Operator Instructions) Corinna Friedman, Wedbush Securities.

Congratulations on a great quarter.

Thank you.

I have a quick question on inventories.

They are up [22%].

I know you indicated topline could be a little bit better than that double-digit that is in consensus right now.

If you could just speak to the composition of that inventory; how you are planning for that for the back of the year, and was that an Easter timing shift in those numbers?

I think part of it has to do with Easter timing.

We shipped a lot more as a percentage.

April will hold up better.

And obviously if you ship in April, the strong shipping that you show for April ends up in inventory in March, certainly, and certainly in transit along the way.

We have significantly more stores that we need to do.

We have Japan is growing, has more inventory.

So -- and we have average price points that are increasing as we go to the back half of the year.

So I will tell you that come from a units perspective in our domestic warehouse, which is where the biggest piece is, it is not significantly different than it was last year.

It might even be down some.

So the increase in the inventory is where it should be.

It is around international where they are growing and they needed the inventory.

And it is later in the year with Easter falling a little later to support our own stores, which will have significant increased unit push through April than they did last year.

And it is all very good and very new.

We don't have anything significantly excess that we could tell right this minute.

Bill Dezellem, Tieton Capital Management.

I had two questions.

First of all, would you provide us an update on the apparel business?

It is still at the very beginning stages.

We're going to roll it out to a few more of our own retail stores, waiting to see if we hit it right and we get consumer demand.

So, nothing that would move the needle and nothing other than way, way at the beginning stages right now.

And, secondarily, would you please remind me the dynamics that would lead to your gross margin being down in the first quarter relative to the fourth quarter when you have higher revenues in Q1?

It depends where the revenues come from and the product mix.

Products in the fourth quarter are usually heavier, more black and brown, have higher margin.

It depends on where around the world, if kids are a bigger mix than sports and what kind of markdowns, what kind of inventory you happen to be moving.

And so it just seems, historically, we take most of our closeouts and whatever we have, we try to push them through at the end of the year.

So there is just differential.

It just have to do with product mix, country mix, currency mix, and retailers related to wholesalers to move through the year.

And this year, in particular, what was the biggest factor that led to the first quarter margin being down sequentially?

I thought this was a pretty good margin.

It is up year-over-year, so I think the margins for us were up across every category.

It is just we just had a much bigger distributor business, which has lower margins.

Some European countries -- there is some drag down in South America from currency.

So it is just a combination.

There is no one piece that you could identify that would be the contributing factor for the shift.

Great.

That's helpful and fantastic quarter.

Thank you.

Sam Poser, Sterne, Agee.

Just a quick follow-up.

Of the inventory, what percent of the inventory is in transit right now, or at the end of March?

It usually, this time of year, I think it is -- I don't remember off the top of my head.

I would think it is about 10%, 15%.

If you hold on I will see if I can -- it represents about 20% of the inventory.

(multiple speakers)

Okay.

Thanks very much and, again, continued success.

Thanks.

At this time, I would like to turn the conference back over to Skechers.

Thank you again for joining us on today's 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.