Skechers USA Inc (SKX) 2014 Q4 法說會逐字稿

Greetings and welcome to the Skechers USA, Inc.

fourth quarter and year end 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.

As a reminder, this conference is being recorded.

At this point, I will turn it 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 Security Litigations 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, express or implied by such forward-looking statements will occur.

Users of the forward-looking statements are encouraged to review the Company's filings with the US securities and exchanges commission including the most recent annual report on Form 10-K.

Quarterly reports on Form 10-Q, current reports on form 8K, and all other reports filed by the SEC as required by federal security laws.

For a description of other significant risk factors that may affect the Company's business, results of operations and financial conditions.

it's results and financial conditions -- affect.

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 to review Skechers' fourth quarter and fiscal year 2014 financial results.

Our sales for the fourth quarter were $569.7 million, a 26.4% increase over last year and the highest fourth quarter sales in the Company's 22-year history.

This growth followed record first and second quarters and the third quarter that was our highest quarterly sales ever.

This led to an annual sales record of $2.378 billion for the full year 2014.

The outstanding fourth quarter was the result of double-digit increases in our domestic and international wholesale and Company owned retail businesses which benefited from the broader appeal of our diverse men's, women's and kids footwear collections.

Further in the quarter our average price per pair increased by 7.4% in our domestic wholesale business.

We saw a 8.6% increases in our global Company owned retail business.

We achieved double-digit increases in many key countries that were negatively impacted by currency issues.

All of these factors are a testament to the increasing strength of Skechers.

Fourth quarter sales and financial highlights include.

Record fourth quarter revenues.

A 24.3% increase in our domestic wholesale business with a 15.7% increase in pairs shipped and a 7.4% increase in average price per pair.

A 37.9% sales increase in our international wholesale business with a 31.3% increase from our distributors and a 41.1% increase from our subsidiaries and joint venture partners.

A 22% sales increase in our Company owned retail stores which included an additional 59 net new stores opened in 2014, 17 of which were opened in the fourth quarter.

Earnings from operations of $33 million.

Gross margin of 45.2%.

Net earnings of $21.9 million and diluted earnings per share of $0.43.

Inventories up 26.7% from a year ago and in line with expected sales.

And a strong balance sheet with $466.7 million in cash or approximately $9.15 per diluted share.

It's important to note that during the fourth quarter of 2014, our net earnings were negatively impacted by approximately $7 million or $0.14 per diluted share, of which $4.7 million or $0.09 per diluted share was the result of negative foreign currency translations and transactions, and $2.3 million or $0.05 per diluted share was the result of foreign and domestic bad debt write-offs.

Full year highlights include record annual sales, being named 2014 Company of the Year by both Footwear News and Footwear Plus, achieving the position of the No.

1 walking footwear brand in the US and the No.

2 footwear brand, increasing our combined international retail and wholesale business by 46% to approximately 35% of the Company's total business which is well on our way to a three to five-year goal of international being 50% of our sales.

The opening of the 1,000th Skechers' branded retail store in the fourth quarter bringing us a total of 1,042 Skechers stores world wide at year end.

Signing two global recording artists; Demi Lovato to reach young women, and Ringo Starr targeting adult men.

The fourth quarter saw continued momentum which was the result of global demand for our innovative footwear.

We shifted our full 2015 bi-meetings with key domestic accounts as well as our meetings with our international distributors into the fourth quarter two months earlier to allow us to meet the incoming order rate for our new product.

With record domestic and international bookings in the fourth quarter, our year-over-year worldwide backlogs are up 60% at December 31, 2014 which we believe is a clear indicator that our momentum will continue.

Now turning to our business in detail.

In our domestic wholesale business, fourth quarter sales increased 24.3% or $46.9 million as compared to the prior year period with a 15.7% increase in pairs shipped and a 7.4% increase in average price per pair.

For the year, sales increased 24.4% or $195.8 million which included a 19.1% increase in pairs shipped and a 4.4% increase in average price per pair when compared to the prior year period.

The growth was the result of double-digit increases in our women's and men's footwear offset by a single-digit decrease in our kids offering.

Our sales increases were broad based.

We achieved double-digit increases in our men's and women's' Skechers sport, Skechers USA and Skechers work line and our woman sport active Skechers GO and women's winter boots as well as single digit gains in our women's On The Go line.

Our relax fit business benefited from TV campaigns with Pete Rose, Joe Namath, Joe Montana and Brooke Burke.

Additionally we supported our adult lifestyle business during the quarter with commercial for women's Skech Air and our Skechers sport and Heritage boot collection.

We believe we are also bridging the gap between adults and kids by targeting teens with multi-platinum recording artist Demi Lovato with her Skechers colorful comfort print television and YouTube campaign.

Demi's fresh style relates to teens and tens of millions of followers on social media.

While we experienced the single-digit decrease in our kids footwear in the quarter, we had a single-digit increase for the year.

As in the third quarter, the decline is due in part to the planned decrease within one account in the south.

We believe our kids business has stabilized and we are well positioned for growth with year-over-year double-digit increases in our backlog at December 31, 2014.

The renewed strength in our kids footwear is in part due to our light weight sport collection, new developments within Twinkle Toes and Z-Strap, the innovative new game (inaudible) line which fear as built-in memory gain and the co-branded Star Wars collection for boys which will launch in fall, 2015.

We continue to support our kids business with commercials targeted to kids including new sports for Twinkle Toes, Z-strap with Skech Air and light weight sport.

Key drivers in our performance lines, were the updates to our Skechers go walk platform including the successful Super Sock and the introduction of Go Walk III in the fourth quarter.

Both of which were supported by commercials.

Expanding the platform to teen girls we also aired a go walk commercial targeted towards juniors.

The fourth quarter saw the launch of Skechers go run 4 at the New York marathon within an accompanying marketing campaign featuring elite runners Meb and Kara Goucher both who have competed at the celebrated event with Meb being the first American to cross the finish line.

In support of Meb, as well as performance running line, we aired a new commercial featuring Go, run for by Meb.

We will continue to run many of our existing commercials this spring including our Demi Lovato campaign and review commercial including strech weave for women, stretch fit starring Brooke Burke and the new unisex sports sport.

In January we shot the new Ringo Starr relaxed fit print and television campaign which will launch this spring.

And we plan to shoot recently retired New York Yankees closer Mariano Rivera this spring.

We believe Ringo will not only help elevate our men's business in the states but also around the world.

Based on a domestic wholesale backlog and our continued focus on delivering innovative product and relevant marketing, we believe we will again achieve strong gains in 2015.

In the fourth quarter, our total international subsidiary joint venture and distributor sales increased by 37.9% as a result of the strength of a diverse product initiatives.

Our subsidiary and joint venture sales improved by 41% and our distributor sales improved by 31.3%.

We are pleased with the continued growth in our international business especially given the head winds from foreign currency exchange rates in some key markets.

With the combined 41% growth for the quarter, and 40.4% for the full year, our subsidiaries continue to perform extremely well.

In Europe where we faced currency issues, we achieved increases of 38.3% for the quarter and 50% for the year.

The highest dollar increase came in our largest subsidiary, the UK which shipped more than 2.7 million pairs in a year.

With a wholesale and Company owned retail stories combined, the UK surpassed $100 million in sales for the year.

A significant achievement.

To continue to grow our business in the region and capitalize on the success we are experiencing in the first quarter of 2015, we announced the transition of several distributors in central eastern Europe to a wholly owned subsidiary that will oversee 14 countries including Croatia, the Czech Republic, Hungary, Romania and Serbia with headquarters planned in Budapest and smaller satellite offices in select countries, we believe this will positively impact our European operations in 2016.

We completed the installation of the initial phase of the automation equipment of our European distribution center in the fourth quarter.

However, we have found it is not sufficient for our expected growth in the region and we are currently planning additional phases and growth expansion which will be substantially complete by the end of 2015.

Additionally we are pleased that Chile had double-digit sales increases in the quarter despite currency losses.

We have established the company-operated distribution center to more efficiently handle our business which now includes a strong wholesale base and 29 retail stores at year end.

Our southeast Asia joint ventures continue to perform very well with combined growth of 59.9% for the quarter and 41.7% for the full year which includes increases in China of 129% in the quarter and 87.7% for the year.

The growth in China is primarily due to go walk and our light weight sport footwear for men and women as well as the addition of a strong kids business with launched with shopping shops throughout China.

All indications are that our sales in China will continue to grove at this accelerated pace and become well over a $100 million business in 2015.

Our international distributors also achieved strong growth in the quarter with 31.3% and 54.1% for the year.

The quarterly increases were primarily the result of triple-digit growth in the Middle East with 2.8 million pairs shipped for the year and double-digit growth in Australia, New Zealand, Mexico, the Panama region, the Philippines, Scandinavia, South Korea, Taiwan, across Eastern Europe, as long as strong results from many other countries.

To showcase the brand and our complete offering, most of our international distribution partners have opened Skechers retail stores and we have a growing network of licensed Skechers stores.

At quarter end, there were 593 Skechers branded stores owned and operated by our joint ventures, licensees and distributors outside the United States.

Of these, 388 are distributed owned or licensed Skechers retail stores.

173 Skechers stores in our joint venture countries in Asia including those run by licensees in the region.

Additionally, there are 32 Company licensed stores in Brazil, Canada, France, Ireland, Portugal and Spain.

Countries where we directly distribute our product through subsidiaries.

54 distributor and license stories open in the fourth quarter including one each in the new markets of Nepal, Romania, Slovakia and Zimbabwe.

Additional Skechers stores in existing markets include ten in China, eight in Mexico, four each in Australia, India and Malaysia, three in Russia, two each in Kenya, France and South Korea and one each in Canada, Denmark, New Zealand, Georgia, UAE, Estonia, Israel, Taiwan, Vietnam, Saudi Arabia and Ireland.

Two stores closed in the quarter.

Six third party Skechers stores have opened to date in the first quarter and another 145 to 155 are expected to open during the remainder of the year including our first stores in the Czech Republic and Sweden.

International is fast becoming in sync with our new product launches and marketing.

Kids and men's are growing in countries worldwide mirroring the product mix in the United States.

Wherever you go around the world, you will see the same strong looks in every market.

And in Asia we have also reintroduced one of our heritage styles which has caught on with young men and women.

Our advertising campaigns are translated into numerous languages appearing on TV and magazines around the world.

With double-digit backlog increases, the strong growth planned in many countries including the UK, China and the UAE, we believe this momentum will continue through 2015.

Now at 34.5% of our total sales, we expect international to become 50% of our total business in the next three to four years.

Worldwide sales in our Company owned retail stores increased by 22% for the quarter with domestic sales growing by 15.5% and international sales by 56%.

This included positive comp store sales of 6.7% domestically and 19.1% in our international stores for a total of 8.6% comp store sales increase worldwide.

At the end of the quarter, we had 449 Company owned Skechers retail stores around the world including 87 outside the United States.

In the fourth quarter, we opened 19 stores of which 12 are domestic and 7 were international.

These included new stores in Arizona, California, Hawaii, Idaho, New York, Nevada and Texas.

The international locations opened in the quarter included five in Canada, and two in Chile.

We closed one domestic and one international store in the quarter.

We have opened three stores in the first quarter-to-date and we have another 6 to 10 planned through the remainder of quarter with another 40 to 45 Company owned stores expected to open for the full year.

We should reach the 500 Company owned store milestone by yearend.

Domestic e-commerce sales decreased 4.5% for the quarter and are slightly down for the full year.

We are in the midst of revamping the Skechers.com site to a responsive design ideal for mobile devices which will also include user generated content.

Now turning to our fourth quarter and full year 2014 numbers in more detail.

As I discussed earlier, fourth quarter sales increased 26.4% to $569.7 million compared to $450.7 million in the fourth quarter of 2013.

The significant growth from the prior year period was the result of double-digit improvements in our domestic and international wholesale and retail businesses, all of which benefited from our universally appealing men's, women's and kids products.

Fourth quarter gross profit increased to $257.6 million or 45.2% of sales compared to gross profit of $200.6 million or 44.5% of sales in the corresponding prior year period.

The increase was due to combination of stronger sales throughout our distribution channel.

Fourth quarter selling expense were $40.2 million or 7.1% of sales compared to $33.5 million or 7.4% of sales in the prior year.

The dollar increase in advertising and marketing expenditures was to support all of our diversified product categories both domestically and internationally.

For the fourth quarter, general and administrative expenses were $186.6 million or 32.8% of sales compared to $153 million or 33.9% of sales in the prior year.

The dollar increase in G&A was primarily due to increased salaries, lent from the 59 additional stores, increased warehouse and distribution costs related to higher sales volume and the completion of the initial phase of our automation upgrade at our European distribution center and the establishment of a Company operated DC in Chile.

Of the $33.6 million increase in G&A, $9.6 million was due to increased expenses related to our international operations and $8.1 million was related to operating the additional stores when compared to the prior year period.

During the fourth quarter of 2014, earnings from operations were $33 million or 5.8% of revenues compared to $17.1 million or 3.8% of revenues in the fourth quarter of 2013.

Net income during the quarter was $21.9 million compared to $14.2 million in the prior year period.

Net income for diluted share in the fourth quarter was $0.43 on approximately 51.4 million average shares outstanding compared to $0.28 on approximately 50.7 million average shares outstanding in the prior year period.

It is important to note that during the fourth quarter of 2014, our net earnings were negatively impacted by approximately $7 million or $0.14 per diluted share of which $4.7 million or $0.09 per diluted share was the result of negative foreign currently translation answer transactions and $2.3 million or $0.05 per diluted share was the result of foreign and domestic bad debt write-offs.

In the fourth quarter we recorded the income tax expense of $2.8 million compared to approximately $377,000 in the prior year period.

Net sales for the 12 months ending December 31, 2014 increased 28.8% to $2.378 billion compared to $1.846 billion in the prior year period.

Gross profit was $1.72 billion or 45.1% of sales compared to $818 million or 44.4% of sales in the prior year period.

Selling expenses were $181 million or 7.6% of sales compared to $153.5 million or 8.3% last year.

General and administrative expenses were $690.9 million or 21.1% of sales compared to $579.4 million or 31.4% of sales last year.

Earnings from operations were $209.1 million versus $93.6 million for the same period last year.

Net income for 2014 was $138.8 million compared to $54.8 million last year.

Diluted earnings per share were $2.72 on approximately 51 million average shares outstanding compared to diluted earnings per share of $1.08 on approximately 50.6 million shares last year.

Our effective tax rate for the year ending December 31, 2014 was $20.5% which was down from the forecasted rate of 22.6% at the close of the third quarter 2014.

The decrease in our effective tax rate was due to increased international profitability combined with slightly decreased domestic profitability.

We expect improved international sales and profitability to continue to have a positive impact on our 2015 effective tax rate which is forecasted to be between 20% and 25%.

And now turning to our balance sheet.

At December 31, 2014 we had $466.7 million in cash or approximately $9.15 per diluted share.

Trade accounts receivable at quarter end were $272.1 million and DSOs at December 31, 2014 were 38 days versus 43 days at December 31, 2013.

Total inventory including merchandise in transit at December 31, 2014 was $453.8 million representing an increase of $95.7 million from December 31, 2013, and an increase of $90.8 million from the third quarter.

Given the strength of our business including our extremely strong backlogs and increased retail store count we are very comfortable with our inventory position.

Our long-term debt at December 31, 2014 decreased to $15.1 million compared to $116.5 million at December 31, 2013.

The decrease is primarily due to the reclassification of long-term debt to short-term debt on our distribution center and distribution center equipment.

We expect to refinance the distribution center building before the end of 2015.

Shareholder equity at December 31, 2014 was $1.1 billion versus $979.9 million at December 31, 2013.

Book value, or shareholders equity per share, stood at $22.23 as of December 31, 2014.

Working capital was $780.7 million versus $704.5 million at December 31, 2013.

Capital expenditures for the fourth quarter were approximately $15.5 million of which $8.3 million was related to 17 new stores and several store remodels and $3.7 million was related to continuing phases of the automation upgrades of our European distribution center and $4 million for additional equipment upgrades at our domestic distribution center.

We expect our capital expenditures for 2015 to be approximately $60 million to $70 million which includes 50 to 60 retail store openings, equipment upgrades at our European and domestic distribution centers, and an additional real estate purchase.

In summary, 2014 was an exceptional year for Skechers in terms of financial and operating results, global growth in our key distribution channels, stemming from our product and marketing execution.

We've achieved four record quarters including the highest quarterly sales in the Company's 22-year history with I resulted in a new annual sales report of $2.378 billion.

For a wholesale business in 2014, the highest rate of growth in dollars and percentages came from international with most of our key countries achieving double-digit increases in the full year including more than 50% in two of our largest markets, the UK and China, and triple-digit growth in another key market, the UAE.

Give the significant increase in our backlogs, we expect this momentum to continue as we look to international to become 50% of our total business in the next three to four years.

Key to the international success is the growth of our men's and kids businesses alongside the successful women's business and the opening of Skechers retail stores.

In the fourth quarter, our 1,000th store was opened in Mexico.

At the end of the year, there were 676 Skechers branded stores outside the United States.

87 of which are Company owned.

We expect to reach 700 international stores in the first quarter of 2015 and to open stores in new markets such as Sweden and the Czech Republic.

We expect to open another 50 to 60 Company owned stores this year and with the planned growth from our distributors and licensees, we expect to have approximately 1,250 Skechers stores around the world at year end 2015.

Within the United States, we are continuing to see our product resonate with consumers as Skechers became the No.

1 walking brand and the No.

2 footwear brand in America with orders already in for fall/winter for 2015 we are able to deliver more product in a timely manner.

From a product standpoint, the key sales drivers around the globe were consistent and were comprised of our stylish comfortable footwear, and, of course our light weight sport, casual and walking lines.

We are introducing new lines for adults and kids this year including the Star Wars co-branded line for boys that will be available in the United States and select markets around the world.

From a marketing standpoint, we are continuing to support all of our key lines with campaigns that include TV, print, online and in-store initiatives.

We are pleased to have two global recording artists on our roster, Demi Lovato and Ringo Starr as well as the much beloved lead runner and Olympian, Meb.

The strength of the Skechers brand, innovations in our broad-based product and targeted marketing led to record annual sales in 2014.

As we continue to innovate our product lines and build our infrastructure, coupled with our retail growth trajectory and accelerating back logs, we believe we will achieve a new quarter sales record of $690 million to $710 million in the first quarter of 2015, and earnings per share of $0.95 to $1.05.

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

Thank you.

(Operator Instructions).

Our first question is from Corinna (inaudible), of Citi.

Please, go ahead.

Hi, David.

I was wondering if we could start off with FX and how much impact is included in your guidance through the first quarter and also how are you thinking about it for the balance of 2015?

And then also if you could just kind of walk us through how FX is expected to impact your top line versus growth margin and SG&A lines?

Well, it's difficult to talk about the year in total because we think we're going to have pricing power as we get into the back half of the year certainly as we deliver our newest products so that remains to be seen.

But in our guidance we just assume a currency rate equivalent to where it is now with no significant change to either side.

So we're taking that into account and of course putting it in with our model for how much volume we'll do in each place which, you know, is open to fluctuations.

There are a number of places that don't have significant risk line China and southeast Asia and our distributor whose sell in dollars and even in Europe, which it probably our biggest concern as far as volume, the UK is our biggest market and they don't seem to have quite the same swings as the Euro.

We have taken into account Canada which is a big swing but we think we'll have pricing power there as well in the back half of the year.

So from everything we can see broken down, we've just taken the new currency exchange.

We haven't raised prices in the first quarter as yet since they were committed to prior to and whatever we see as far as overhead and margin decreases or margin hits, are in our assumptions but we don't see in the overall that it moves gross margin that significantly since we are growing everywhere including our store base.

We may see 100 to 200 basis point decrease in gross margin in the first quarter should everything be equal and there's a possibility that it could be somewhat less as we go somewhat faster in other parts of the world.

Okay, great.

And then maybe you could just walk us through the decision to take central and eastern Europe back so early in the year.

Can you talk about what you're seeing in that market in terms of demand and maybe why you would do it so early and what other kind of investments that you still need to make in that business this year and just general thoughts on the macro environment in Europe as we go into 2015?

Europe has held up very, very well for us other than the currency.

As we said in our prepared remarks, the fact that we have to now expand our distribution center after having just finished it given the demand we see in just western Europe from where we are now.

As we move east, it's always been easier for us to go to countries and parts of the world where we've had very good distributors prior to because the brand is known even though they can't grow quite as quickly as we feel we can.

The timing is just effective because that's when the distribution agreements were running their course and they either had to be renewed or we had to move in.

We weren't prepared to commit for a significant period of time because we think the Skechers branded stores there and the potential wholesale business as well as our potential for retail are just significant.

And after we finished the expansion of our distribution center in Europe by the end of 2015, by the time that part of the world is ready to go, we should have significant capacity and should leverage the new parts of the distribution center quite well.

As far as capital required, it's very small.

We don't have a big purchase price as the distribution agreements were expiring, so it's a matter of just opening the office and hiring personnel and getting in some samples and certainly some overhead with that but nothing outrageous and getting them started on selling.

And we will be looking for more retail space so to the extent we find some, obviously that will be an expense but nowhere different that anywhere else in the world and we should be able to build those stories in the same timeframe as everywhere else.

The commitment is not outrageously large certainly given our size.

We think we have the capacity that we could leverage a significant investment in the distribution center and the timing just happens to be right for us because we're growing everywhere in the world and there's no reason to think that we won't continue there.

Okay, great.

And then just lastly, if you could give us a little bit more detail on that 60% backlog number.

How much of is that increase can be attributed to shifting your fall 2015 order period earlier and do you know what the backlog number would be if you stripped that out?

I don't think any of it is attributable to the fact that it's early.

We only book out six months.

So the fact that they saw it early, I think it's more a factor to have of sell-throughs and commitment to the brand on a worldwide basis.

It grows everywhere so we really are only out until the end of June, early July as far as the December 31st backlog is concerned, and it's everywhere in the world.

I think it's part and parcel to what we said at the end of the third quarter when the backlogs grew is that we have a very big commitment for first quarter and that's where it is.

We said when the backlog was so big that we would do better in the first quarter than fourth quarter simply because that is the way the backlog had broken down.

So I think what you see is that the commitment has increased, if anything, for the first quarter and now has moved into the second quarter as well and I think that's attributable to sell-throughs and product and people's perception of how we will do as we get into the back half of the year.

Okay.

And breakout between international and US backlogs?

We don't usually give that much.

I don't want to get into the too much detail but fair to stay that international is higher than domestic.

Domestic is slightly lower than the overall number and international is higher.

Okay.

Thank you so much.

Thank you.

The next question is from Sam Poser of Sterne Agee.

Please, go ahead.

Good afternoon, David.

How are you?

Hi.

I'm doing pretty good.

I can imagine.

Anyway, a couple things.

A clarification to the last question there about gross margins.

What are you expecting the gross margin to be in the first quarter?

Was it just going to be down in those markets where you're most affected or was that a total down?

I just wanted clarification.

That was a total down.

When I said the 100-200 basis points maybe?

That's my case right now for the overall.

It would be down somewhat more I think in Europe but certainly not in England and certainly not in Switzerland.

England probably maybe up a good 20% of, it's certainly our biggest market, 20% of the European marketplace, and Switzerland has another small piece so it really only central Europe that is where the Euro.

So depending on how it breaks down and where the currency ultimately ends and how much pricing power we have in the back half, it's only a Q1 estimate right this minute.

So in your expenses then, you're going to benefit?I mean that's the only way you get to your guidance, just so I understand.

Yes, of course.

You get the same benefit for the expansion and everything that flows through as far as rent is concerned out there and we do have some big rent and personnel.

So to that extent you get somewhat of an offset.

That wouldn't come through our gross profits.

No, of course.

Because of the strength of the dollar, are you pulling some of you were international such as European initiatives forward, infrastructure-wise?

I mean are you being a little more aggressive there because you're able to say, do it for less money?

No, that's not a considerable thought process.

The thought of moving it up considerably is because the demand has grown significantly faster than we even thought six months ago.

The fact that we got to $100 million in England was way beyond the scope what we would have thought this time this year, going into the area even as hot as we were getting and it seems to be continuing.

Germany has come back very strong.

Italy, Spain in those places where you wouldn't anticipate significant growth is the very, very good and we're starting to book for the second quarter and into the third quarter and I think it continues there and moving on and taking central eastern Europe I think seas a good time to move forward.

The fact that we'll get a benefit from the currency on the build is almost secondary.

I would rather have the margins than worry about the cost of the build but at the end of the story when it comes to financial reporting, it's just something that will be built in Euros and we'll have to reclass it as far as dollars concerned for depreciation charges as we go forward.

So I get a break in cash, I don't know if it's a P&L break forever.

I would take a slightly weaker dollar as far as the European marketplace is concerned.

Understood.

Can you talk a little bit what your seeing at the West Coast ports right now?

I see a lot of boats.

I can't quite see them out of my window but there's a lot of boats out there.

No difference than anybody else.

It's slow.

We think we're somewhat behind.

We could be doing better.

Unfortunately when we reported those inventory increase, if you look at our position at the end of December, domestically the biggest piece of our inventory growth is in transit so it all has to come through the port.

So it all takes longer than anticipated.

Right now we are on time.

We try to get as much in early as we can so things are coming in earlier which certainly increases the size but it's slow but certainly workable.

We're hoping for a resolution as quickly as possible and that's certainly would help but right now we're making due but we have no more insight than anyone else over what happens the next couple of weeks.

From goods leaving China right now, is that something where you might reroute them somewhere else to help make sure you get them through?

I don't even know where that would be.

I'm open to suggestions.

(inaudible) Well, Seattle is as backed up as we are and the boats are well up to San Francisco and the last time we tried that, it took longer because of the increased impact on places like Seattle and Vancouver and even south as you went into Mexico to get because there aren't enough chassis and there aren't enough movement.

Barring a catastrophically long-term strike even if there was a closure tore two to three week, we're still better off leaving it come through the port right here.

I don't know if there's any room.

When this place closes, there's not enough port space in the rest of the United States to cover what's going to happen here.

Okay.

And when you look out for the rest, you talked about you expected the momentum and the international business to continue, based on what you're seeing right now and you've said it a few times.

Can you begin us the indication of the kind of growth rate you might be looking at through your international business?

Going into the first quarter we're looking a the at least equivalent to last year and maybe some acceleration but we're waiting to see what happens with currencies and some of those other items around the world.

So, you think that we would be safe to say that 25% to 30% revenue growth for the full year would be a reasonable number at the starting point?

Sure.

Thank you very much.

Good luck.

Okay.

Thanks.

Thank you.

The next question is from Danielle McCoy of Wunderlich.

Please go ahead

Hi.

Thanks for taking my question.

Always.

I was actually just wondering about if you could talk a little bit more with where you're seeing the distribution expansion in the US, if you could talk a little bit about the sporting good channel and what you're seeing in the specialty running channel?

We're no different.

Our big business is still in the family footwear channel and some of the specialty stores.

We're doing significantly better in the running stores and not significantly different although we have some tests but nothing that would move the needle as far as the sporting goods stores are concerned.

Nothing has changed other than we're getting bigger everywhere and we resonate in a lot of places so we're expansive whether it's door count or where we sell, we have more categories where more styles and certainly some pricing, our average price has gone up some.

So we seem to be resonating and getting our piece to where we're the strongest.

The growth is not coming to any significant degree, although maybe to a minor degree from any new distribution in the United States.

Okay, great.

And then, what should we be assuming for the impact of the closure of target in Canada?

I'm not sure yet.

I mean it was not the biggest piece of our business and it was relativelynew for us.

I don't know over the year whether with what the loss is going to be for receivables, if any, although I anticipate there will be some.

And the business wasn't more than a couple million a year.

It's not anything that couldn't be picked up by target domestic should it resonate.

It was too early in the game.

So while it may be an opportunity cost for somewhere along the line, the actual year-to-year change won't be significant at all.

Okay.

And then just lastly, at the last show I noticed that you guys were using a lot of the same or similar technologies that you're using in your Go walk and some of your other categories.

Should we going forward look at this as increasing the volume and inn that particular technology and possibly saving on the cost in those areas?

I don't know that you save on the cost significantly by using them.

Obviously we are always developing new technology.

You'll probably see some as you come to the show and I think if you told our guys that Go walk was a similar technology that the new Go walk is not significantly different an better than the old, they would take it personal.

But we're always developing or always trying to move it throughout our product offering.

I don't know that anything is so stagnant that you would say it's just going to make money just on volume.

We're constantly developing.

We're constantly moving through our product lines and the new technologies will give us better pricing power as they come onboard.

All right.

Great.

Thanks, guys.

Good luck.

Thanks.

Thank you.

The next question is from Jeff Ban Sinderen from B. Riley.

Congratulations on your continued business momentum.

Thank you.

David, let me ask you this.

I know you mentioned pricing power with new product in the second half.

Maybe you can talk a little bit more about how you see that developing?

Just wondering, what elements you see there and then also I think you said gross margin you thought the declines could lessen throughout the year.

Just wanted to make sure we got that right?

Yes, we're talking in that particular perspective as far as Europe is concerned where the currencies are the weakest.

I think all people that sell our product lines and to those parts of the world are dollar denominated or certainly make them in the same parts of the world and there's going to be some price increases and inflation just because of the deterioration in the local currency whether we make it all back or not, I'm not really sure yet.

We'll see as we go along.

But I think the fact that we are so much in demand and that there's going to be some price increases across the board with some people that don't do as well that we will have some as we go forward.

I don't know anything specific right this minute.

We're just getting everything in our costing together to see what goes on.

But I would certainly be surprised if we didn't have some pricing as we go forward.

As far as Europe is concerned.

Okay, good.

And then in the discussion about growth, I think 25% to 30% was talked about and I just wanted to clarify.

Were you okaying 25% to 30% overall revenue growth for the whole Company, or were you just referring to international there?

I think that question was about international, but I would probably be okay with that for the whole Company too.

So certainly in the 20 plus range so far, maybe even more.

If you look at it, we're up significantly higher.

We're going to let's say the middle part of the range is $700 million from what was 545, 550 so that's certainly in the ballpark.

I don't know that we're going to see any kind of slow-down.

I don't see any yet so that's a good place to start.

Okay, great.

That's great to hear.

Thanks very much.

Thank you.

The next question is from Chris Svezia of Susquehanna Financial Bank.

Hi, David, how are you?

I'm good.

On the backlog up 60% this.

That increase, you guys do that in dollars, it's not in local currency, correct?

That's correct.

If I did it in local currency, it would be significantly higher.

Okay.

Fair enough.

Just to clarify the 26% to 30% revenue growth for the first quarter, can you just maybe talk about the US wholesale business?

Does that have to accelerate sequentially from what you did in the fourth quarter north of 25% if international is only up call it 26%, 27%?

It would be in that ballpark.

Okay.

What was the acceleration DTC comps January?

I think they were up 16 or 17.

Is that just seasonal product, is that new product?

What's driving that in your stores?

That's everything.

That's across the board.

It probably has something to do with what we're comping to last year as far as concerned.

But I think our store based both domestically and international has accelerated from what was December which is never a strongest time for us.

We usually have our weakest comps either it's because we started strong in December and it remains that way.

But this year, going into January, and to date so far in February, we've been double-digit comp increases consistently week-to-week and over the six-week period.

So it's obviously everything.

We have a lot of new stuff in there.

We don't have a lot of seasonal.

Because we're not a big boot company to begin with so it really is our core product.

Okay.

The increase in the backlog, a lot of that you made a comment that a lot of it was basically for Q1, that Q1 built for shipment for Q1.

How much visibility do you have to that Q2 and Q3 given the fact that you shipped back to school product typically at the very tail end of June anyway?

I know it's early but you have to be getting some visibility to that.

We have good visibility into June.

Somewhat less visibility obviously July and over but like I said, we're pretty consistent.

I don't see anything that would concern me right this minute.

We seem to resonate and I don't see any real changes.

We continue to book.

We had record incoming orders for the whole fourth quarter.

Almost on a monthly basis.

Our incoming order rate is just big everywhere in the world.

That domestically and internationally and internationally converted to dollars and we had a very strong incoming order month in January so there is nothing that changed and nothing that would lead you to believe there would be changes further on in the year.

Okay.

Last thing I have is just on the material handling, the short term debt that up have.

Why not pay it off with the cash that you have?

Is it just because money is cheap and why not just refinance it?

Just, thoughts behind that.

Well, the plan right now is to pay off the equipment certainly and that's probably in the $25 million to $30 million range as it comes due through the end of the year.

The building is not 100% ours so we don't have that choice.

If it was ours, we would have paid it off.

But we have a joint venture partner so there are other criteria and he's a real estate holder so he's got different needs and different that will help to come to terms or that we will come to terms with as we finance the building going forward.

So it's only because it's not all ours.

Okay.

Understood.

And last thing I just have is when you guys think about taking pricing increases on the international side and I assume you're commenting that you'll probably do that for the second half so I assume that's beginning third quarter.

Is it fair to say that it will cover the majority of what you've lost from a FX conversion perspective, or partial or just depends on the marketplace?

That will depend.

Whatever we do, I think even more currently and as we continue going into the back half of the year, we're going to continue to increase our earnings simply because we're going to have so much scale and we're going to grow regardless of that.

So I don't know that we've passed it all.

(inaudible) we're still in the formative stages of that decision.

We have our sweet spot in the marketplace.

We intend to stay there so a lot of it will depend on what happens with currencies as we move forward and what happens competitively as we move forward but we plan on keeping our place in the marketplace and continuing to grow.

So that decision is not made yet

Okay.

Understood.

Okay.

All the best.

Thank you very much.

Thanks.

Thank you.

The next question is from Scott Krasik of Buckingham Research.

Please go ahead.

Thanks for taking my question.

Hi, Scott.

So just a couple clarifications.

So the comp, what are you expecting in the comp in your 1Q guidance in retail?

Originally coming up, we expected somewhere between high singles and low doubles going into the quarter.

Okay.

That's helpful.

And I know it's small but just e-commerce, how much do you think about that not just for 1Q but throughout the year?

Well, we continue to use it.

We do quite well with it.

We don't compete on our e-commerce site.

We never compete on price and it's more of a showcase for us.

While we have a massively large e-commerce business that's not under our own banner because we do support a lot of people and we're not looking to make it significantly large because we make no product to date that is unique to the website, nor do we compete on price.

So we only do it as a convenience item where there's more colors.

Newer items as they come in, some things that may not be fully held at retail because they get hot and none of our customers have realized it.

So it's more convenient and to keep it going.

It seems as we continue to move along and our wholesale and online business grows with our third party people around the United States, it has some kind of impact but we love the views we get and the number of people we get and the people that will comparative shop on our site to see what's going on.

So we get a lot of unique views and we get a lot of visitors and a lot of people interested in what the brand is doing and what the brand looks like and even what the commercials are so we think it's a net positive around our entire business.

And then, is it safe to safe say that you can do 25% to 30% revenue growth in the 2015 that maybe you're taking up your domestic?

Originally it sounded like domestic would be growing and maybe the low to mid teens but now maybe that would be growing like 20% for the year?

That's the way it is in the first quarter and that's what I see with the rate going forward so I have no reason at this point if it doesn't but I don't want to go that far out since we haven't with guidance in the past.

I will tell you there's nothing about the incoming order rate, the sell-throughs I hear.

If you guys come to Vegas next week you will be able to talk to some of the customers and see why they're ordering so much.

I don't see any slow-down yet.

And then, any change obviously you're not giving Q2 guidance but if we don't have pricing actions taken in Q2 currency, it doesn't change a whole lot.

Would Q2 gross margin be down a similar amount to 1Q or does mix affect things differently?

I think mix affects things differently.

We are taking a closer look at that.

Our European business is the lightest in the second quarter.

So the shift to distributors and what may not be as big an impact but it's too early to tell.

It would be that and so hot that people will move up their shipments even in Europe and will continue to take them longer.

It's way too early.

We were any a territory where we are and trying to supply all the needs and we get a lot of requests and that historically is it a very light period for international.

So I don't know.

It shouldn't be any worse.

It might be somewhat better in Q2.

Okay.

And then just last, I've been getting some questions about in the filings, you obviously record a lot of earnings out of Jersey which I think is a low tax jurisdiction.

Is it your distributor sales that are captured on that?

Is it a portion of both subsidiary and distributor?

How do we think about that?

It's portion of our international so there's various places around the world.

That's a big piece finally.

We do, by the way, just not to give any a wrong idea, pay tax in every jurisdiction in which we do business.

But the biggest piece of the ownership flows mostly out through Switzerland and then after that, there's a slightly buffer to jersey.

It's not the biggest piece but it's certainly a piece and all of our international business through either Switzerland or Jersey.

Okay.

So it's not necessarily Europe goes there or one or the other?

No, all our international.

Everything outside the United States and Canada goes through Switzerland and Jersey.

okay.

All right.

Thanks.

Good luck.

Thanks.

Thank you.

The next question is from Jim Chartier of Monness Crespi Hardt.

Thanks for taking my questions.

Could you just go over what the bad debt expense was related to in the quarter?

Yes, we had a distributor, the biggest piece is a distributor in Russia that's been having difficulties.

We wrote off just short of $2.5 million.

The reason the impact was so large was that being international, it was only impacted by a 11% tax rate so most of that is the biggest piece of the nickel.

And we had a company in the United States called Duck Wald that went, that was $500,000 but that's totally taxed benefited in the United States so not quite as large.

The biggest piece is because of Russia.

We had a big distributor in a Russia that just not making it through this tough time.

Okay.

Sorry if I missed this but did you say what the FX impact was on revenues in fourth quarter?

No, we didn't get into revenues around the world.

Just the overall bottom line earnings per share.

Okay.

And you mentioned that some of your international sales are denominated in dollars.

Can you quantify how much of your international business is denominated in dollars?

The business we do at our distributors.

It varies throughout the year.

I think it represents probably somewhere between 25% and 30% of our international business.

Okay.

And then on the European distribution center, do you expect to leverage your international distribution or European distribution center expenses in 2015,or is it now pushed out to 2016?

No, we expect some, no, we should have some.

We're just getting it up and running so it's not as efficient as we would like.

We would like to think that we're going to leverage part of it starting in Q2.

Certainly we will a get some leverage although not the total amount because of the increased volume in Q3, and certainly by the end of the year and first quarter of 2016, unless growth continues at an exorbitant pace should get the full benefit of this investment.

okay.

And then you mentioned January comps being partially because of what you're up against last year.

What were January comps last year?

Last year they were double-digit too.

There was a lot more weather.

It's hard to believe on the East Coast last year as far as domestic is concerned but it's not that big an issue.

Okay.

And then, how much was incentive compensation up in 2014, and did you kind of max out bonuses for the year and what's planned for 2015?

We're on the same bonus compensation.

I would have to look at that.

I haven't taken a look at the overall.

It wasn't significantly different than last year since it's based on growth and we continue to grow year-over-year.

Certainly on a percentage basis.

So I don't know that it was significantly different but I would look at the exact numbers if you want.

Okay, thank you.

Best of luck.

Thanks.

Thank you.

The next question is from Corinna Freedman of BB&T.

Hi, David.

Most of my questions have been asked and answered and I had a question about your cash.

It seems like you're saving for quite the rainy day and when the confidence that you have in your 2015 outlook, do you have any changes on the return of that cash maybe to shareholders or repurchase or special dividend?

If there's update you can give us?

I will tell you it's something we've talked about but nothing we're ready to announce today.

Okay, great, thank you.

Thank you.

We have time for one final question.

It comes from the line of Sam Poser of Sterne, Agee.

Please, go ahead

Just a quick follow up.

The bad debt expense, that's not going to repeat itself it sounds like?

No, that guy is done.

It would have to be somebody new to do that.

So, he's finished.

So, arguably that's a one-time non-recurring charge that you just didn't break out as such in your release?

Yes.

It's not big enough but it's such an oddity because we don't have significant credit issues.

We have them from time-to-time.

We had the one in England a year or so ago.

Usually our customer base is quite good so to that magnitude, I would consider it's a non-recurring certainly.

But it was a nickel in earnings, it was a nickel in earnings so I mean that's a little bit better than where you were.

We think we're in a great place.

You guys worry more about the nickel than I do.

But yes, it would have added a nickel would have been nicer.

But we had told everybody not to get too carried away with Q4 while we're growing significantly.

We had a lot of investments to make and if the truth be known I would have rather put a lot more money into the distribution centers earlier not realizing just how fast they were going to continue to grow here.

But yes, Q1, we will recoup a lot of that.

It looks, at 700 million, it's a nice place to start for us.

All right.

Very good.

Thank you very much, and good luck.

Okay, thanks.

Thank you.

That concludes the question and answer portion.

I would now like to turn the conference back over to Skechers for closing remarks.

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 SEC.

Again, thank you and have a great day.

Thank you, ladies and gentlemen.

This does conclude today's tele conference.

You may disconnect your lines at this time and thank you for your participation.