Crocs, Inc. (CROX)

Investor Day 2015

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Sep 30, 2015

All right. Good morning and thank you for joining us today. I want to welcome everyone to Crocs Investor Day 2015. For those of you who don't know me, my name is Greg Rebat and I'm the Chief Executive Officer of Directors since June of 2014 I'm sorry. I joined the company as CEO in January of 2015 and I've served on the company's Board of Directors since January of 2014. Today, we're excited to share our transformation plans with you and we're super excited with the progress we've made and our plans for the future. Our main focus today will be to share with you our plans to unlock the full potential of the Crocs brand and to create one of the world's leading casual footwear companies. I want to refer everyone to our Safe Harbor language, which I'm sure you're all familiar with. I also want to note that we plan to post a copy of this presentation over the next few days. Before we get started with the main presentation, we'd also like to update you on our Q3 guidance. As you know, we're focused on aggressively transforming our brand and business for the future. We also have tremendous confidence in the direction we're heading that we'll share with you today. However, for Q3, we're taking our guidance down to $270,000,000 to $280,000,000 based on 2 specific items. 1st, unfavorable changes in foreign currency since July 30, totaling approximately $4,000,000 and second, the company's decision to hold back roughly $6,000,000 of potential shipments to some of our Chinese distributors. Obviously, we are working hard at our near term financial results, while we're aggressively pushing to transform our brand and business for the future. The balance of today will focus our discussion on our mid term transformation plan. Having said that, Andrew Reese and Mike Smith will briefly address both of these items during their remarks. Turning to the main body of the presentation. Our objectives for today are first, to provide an overview of the company second, to share our strategy, our strategic initiatives and some of the great progress we've made to date and third, to convey our confidence and our excitement for the future. Presenting today will be Andrew Reese, President Michelle Poole, Senior Vice President of Global Product Creation and Merchandising Terrence Riley, Senior Vice President and Chief Marketing Officer and Mike Smith, Senior Vice President of Finance and soon to be Interim Chief Financial Officer. I also want to note a few other senior executives in the room, including Bob Monroe, Senior Vice President and General Manager of the Americas Dan Hart, Executive Vice President, General Counsel and Chief Administrative Officer Ann Melman, VP of Finance I think I saw Scott Szekelev, VP of Finance, who may or may not be in the room right now Heather Currier, VP of HR and Claire Conley, VP of Retail. I also want to thank all the folks who helped us prepare for today and much appreciated for all the hard work. And finally, I want to thank Jeff Lascher, who's also here today and sitting in the back, for his 6 plus years of service to the company. We wish Jeff the best of luck as he joins the team at West Marine later this year. In terms of our agenda for today, first, I'll cover a quick overview of the company. Andrew will walk through the strategic framework and some of the progress we're making. Michelle Pool will walk through our product strategy and some of the great work that's going on in product and what we're doing to transform some of our consumer connections through that part of the product engine. Terrence, after a quick break, will discuss the transformative work we're doing in marketing. And then Mike will walk you through our financial plans for the future. I'll then do a recap, and then we'll do a quick Q and A session with the group up here on stage. At the end, we'll also serve a quick lunch for those who are interested. So in terms of an overview for Crocs and kind of taking a deep dive into the business and some of our journey that we've had to date. Crocs has had a quite an exciting history despite our young age. Founded in 2,002 Crocs has gone through 40 4 pretty distinct phases of development since our inception. 1st, introduction second, accelerated growth third, cost cutting and 4th, door expansion. Over the last year, we've been transitioning to our 5th phase of development, a strategic repositioning that will kind of set us up for sustained growth in the future. And that process has been going on really for the last year. What makes Crocs an incredibly exciting brand in business is that we're an extremely democratic brand. We're one of the 10 largest non athletic footwear brands in the world. We have more than $1,000,000,000 in revenue, which we achieved in fewer than 10 years, which is almost unheard of in our industry. We do business in more than 90 countries. We have high awareness. We appeal to the whole family. And despite our size and scale, we have relatively low market share in all of the markets in which we compete. And therefore, when we add the right capabilities, we have significant growth potential across the globe. We also have a very unique and distinctive brand positioning and we've spent a lot of time talking about that in the past and it's a huge asset for us frankly, particularly as we build out those capabilities where we have gaps and areas such as product, areas such as marketing and some of our operational capabilities that have been thorns in our side historically. And the data you see in front of you is based on a 2015 study covering our 6 major markets, the U. S, China, Japan, South Korea, Germany and the U. K. And in this study, what it shows is roughly 12% of the broad population have purchased our product in the last year. Roughly 19% are considerrs. They haven't purchased our product in the last year, but they're considering to purchase our product in the next 12 months. 51% are neutrals. They've neither purchased our product in the last 2 years nor are they planning to purchase our product in the next 12 months, but they're not against it either. And 19% are rejecters. They're not really interested in our product at this point. And a couple of really interesting points to take from this. One is the strong owner consider group, roughly a third of population. Another is the strong rejector group. And that's part of what gives us that distinctive brand positioning. But there's also a huge opportunity with the neutral and considerors. And if you think about, you always can take a step back and your first objective is to do more with your existing customers, the owners, that core group of customers. But by tapping into the considerrs, let alone the neutrals, it gives us significant growth potential in the future. And we're confident that relaxed, comfortable, distinctive and fun, And these are all core to our brand positioning. They're core to what the consumers tell us back about our brand. And they all frankly play in some of the fastest streams of growth in the industry. By tapping into those core traits and attributes and elevating our capabilities, we're confident that we can materially expand the business in the future. So since July 2014, a core part of our strategy has been to address some of the capability gaps that existed in our business model at that time. And there were 3 areas that we had particular focus on. 1st, shifting our focus to profitable growth rather than door expansion. And here, if you look at our global distribution, it forced us to rethink how we wanted to grow as a distribution, it forced us to rethink how we wanted to grow as a company. Likewise, looking at our global product line and some of the decentralization orientation that we had in that area and focus on, A, elevating kind of our orientation towards molded product, adding styling and leveraging a more strategic approach to product line management. And once that was done properly, we could then tap into a marketing engine that we were building at the same time. And then finally, focusing on our 6 most important markets through our direct business model and leveraging partners, best in class partners in the rest of the world. So that's kind of shifting focus to profitable and sustainable growth. The second area that we focused on was centralizing critical functions while building out best in class regional execution. And here the starting point was establishing a global brand identity, while at the same time building out best in identity, while at the same time building out best in class central capabilities in areas like product and marketing. This strategic kind of initiative also enabled us to streamline processes and drive out unnecessary costs. So we have the added benefit of saving money and working more costs. So we have the added benefit of saving money and working more effectively as a result of this. And finally, the 3rd area that we were focused on right out of the bat was adding industry talent in areas where we had critical needs. And a couple of those areas specifically were executive leadership, product and merchandising and sourcing. So we put together a 3 phase strategic repositioning beginning in July of 2014. And this strategic framework starting with started in the early part of 'fourteen with the process of actually creating the strategy and beginning to add talent. And as we kind of transitioned to Phase 2, which was around transformation, which started in 'fourteen and it's on elevating product and marketing capabilities as well as execution. We had to elevate both. And here too is where we're focused on beginning to impact and improve some of our operational capabilities. And we're very excited for Phase 3, which begins in 2016, which is really starting to leverage Crocs as a growth platform for the future and starting to leverage all the hard work, all the scale, all the infrastructure we've established around the world and beginning to drive sustained growth, which we know will materially impact positively impact the bottom line. Since July 14, 2014, we've also shared a series and a set of strategic priorities that we shared internally with the company and we've shared with you guys, the investment community as well. And it started with really rethinking what's the framework we need for the future to transform our business. And 1, developing powerful product stories around the globe and supporting it with effective marketing 2, driving a cohesive global brand positioning, having one brand positioning and really leveraging that around the globe 3, increasing our working marketing spend, getting more marketing dollars against the end consumer 4, growing through wholesale and as a result of that elevating kind of our wholesale relationships around the world 5, while at the same time leveraging this direct to consumer platform that we have already established, begin to grow with that and elevate our capabilities to enhance our ability to not just operate our retail store, but engage with those customers on an ongoing basis. 6th, focusing on our 6 most critical markets and leveraging that through a direct business model and working with best in class partners in the rest of the world. And 7th, streamlining our cost structure, and that gave us the benefit of getting rid of unnecessary and that gave us the benefit of getting rid of unnecessary duplication and complexity in the business. It enabled us to set our business up to operate more effectively while at the same time the added benefit of taking out cost. And more recently, we've added an 8th priority and we shared this a bit on our last earnings call, which is investing to drive supply chain effectiveness and reliability. And this is an area that we've had inconsistent performance in our past, and it's an area of significant focus and effort going forward. So Andrew, Michelle, Terrence and Mike will all cover the work we're doing in these areas throughout the morning. So a core part of the strategy has also been addressing critical org needs. And over the last 16 months, we've added significant talent. We've talked about that a bit. You see much of it in the room today. And while we've reduced overall global salaried headcount by 20%, including the size of our overall leadership team. We've added 15 VPs and above that have more than 300 years of industry experience, and we've been fortunate to hire some great talent in the industry. Here you can see on this chart, 8 senior leaders that have joined the team that have more than 180 years of industry experience. And you can also see some of the broad backgrounds that they come from representing some great companies in the industry. So while we're working through this transition, we've also been addressing pretty significant headwinds ranging from a strengthening U. S. Dollar, which has significantly impacted our business this past year, and Mike will talk to you a bit about this in his section continued challenges in China, which I obviously just mentioned, which impacted our numbers and has been compounded by the recent macroeconomic challenges in that market, and Andrew will discuss that in a bit more detail in a few minutes, to operational issues, which has been something that the company has wrestled with throughout its history and something we're focused on quickly getting to industry standards and beyond in the very near future. In the very near future. So while we're facing these challenges, we're also driving through pretty significant changes in our transformation and beginning to see some positive signs that gives us confidence for the future. Our core global business, which we define as excluding closed stores and exited product lines, in Q2 growing grew in the low single digits. Our direct to consumer business in the second quarter had a comp of +4 percent in the Americas and plus 6% in Europe. And our global e commerce business was up nearly 30% on a constant currency basis. So all really positive signs in the business and give us early indications along with some of the product reads I've shared with you on earnings call that much of the work we're doing is setting a foundation that gives us confidence and excitement for the future. So despite the headwinds I mentioned, the work we're doing really sets the stage for our future financial plans. And as we look at the numbers in the midterm, which we define as really that 2018 plus time frame, we see sales growing in excess of 8% driven by great product and marketing and improved operational performance. We see gross margins in the low 50s driven by molded product and leveraging more effective global line management process, which will offset currency challenges, channel mix between retail and wholesale and rising costs in Asia. SG and A will leverage our established teams and infrastructure around the globe. This will drive to a 10% to 12% operating margin in the next 3 to 5 years. It will take us 2 years to ramp to these levels as we build off our current position and offset some near term revenue and gross margin challenges driven by the currency headwinds that we face as we enter 2016. Mike will walk you through some of this again in a few minutes and we'll share a bit more detail as part of that discussion. And before I hand things off to Andrew, I want to reiterate my confidence and my excitement in the future. We have a great strategy. We have a fantastic team and we're making real, real progress in the business. And so despite the headwinds we face today, we continue to feel very confident in the direction we're heading and confident in the opportunity to unlock the full potential of the Crocs brand and to create one of the world's leading casual footwear companies. So now with that, let me turn things over to Andrew Reese. Thank you. Can everybody hear me okay? Great. Thank you very much, Greg. For those that don't know me, my name is Andrew Rees. I'm the Brand President at Crocs. I joined Crocs in June of last year. And I'm really excited today to share with you some details and some elements around the strategic framework and the plan that we put in place that we feel very confident will turn around the Crocs brand and really unlock the potential of the brand for the future. Greg outlined this framework with to you. This is a framework that we put in place early last year to really outline some of the key elements that we think will allow us to unlock the potential of the Crocs brand. I'm not going to take you through it on this slide, but I'm going to go through each of these elements and outline some of the strategies that we put in place and some of the results and impact that we believe those are already starting to show. So the first is developing powerful product stories supported by effective marketing. The foundation of our strategy to rejuvenate the Crocs brand is a significant refresh of both the product line, but also the way we approach merchandising and the way we approach line development. I don't want to take a lot of Michelle's thunder, she's going to take you through this in a much more eloquent, colorful and exciting fashion. But it is important to understand some of the critical elements that lie behind what she's going to tell you. Firstly, we want to drive consistent product and a consistent line across the marketplace. And this is in contrast to a company that historically essentially took to market 3 separate lines in 3 separate geographical regions, leading to dramatic SKU proliferation and inefficiencies in terms of the way they develop products and the way they sell the market product. Secondly, we want to focus on re energizing core molded. Core molded is the heritage of the company. It's where the company started. It's where we have significant competitive advantage in terms of developing, producing footwear and a significant cost advantage. At the same time, as developing key casual platforms that allow the customer to purchase beyond molded wearing occasions. So the combination of those two things allow us to grow both the molded arena of footwear plus also more casual footwear. Fourthly, we want to embrace trends. I think the company historically took it as a point of pride to stand at a different point in the marketplace, not to embrace fashion trends to bring new and unique things to the market. But that left us in a place which was inconsistent with fashion trends and made the product hard to purchase and hard to wear, been very impactful, is extended spring summer season. We have a strong heritage in the spring summer arena. That's where the brand plays best in terms of close to the water, at the beach, etcetera. And we had artificially limited our exposure that season by breaking the year into 2 seasons, breaking into 2 equal parts, the fallwinter and springsummer. By extending the springsummer season, delivering products early, playing to the warm doors of our U. S. Customers, playing to our southern hemisphere customers, play into significant parts of the globe where fallwinter product is not required, we extend the ability to sell that product. Next, in terms of effective SKU management or lifecycle management, Michelle will take you through this in a little bit more detail. But as we look at spring summer 2016, we reduced our SKU total SKU portfolio by over 40%. A lot of this has come by reducing the overlap or increasing the overlap between regions and reducing the differentiation between regions. So if you sit in the U. S, for example, as a customer, as a wholesale customer, you still have as much choice as you had historically, but we have not we don't have the complexities and the issues associated with developing 3 different lines. And lastly, as a company and as a brand that has delivered tremendous comfort right from day 1, We've really developed strategies to tell more coherently and consistently our comfort story and really get credit for the comfort that we've delivered for a long period of time and is a very important trend in the marketplace. The result of all the hard work and product innovation is extremely encouraging. And I wanted to share with you the signs that we're seeing and some of the early indications that we've got from the marketplace relative to our spring summer 2016 line. Our wholesale customers have reacted extremely well. They've reacted well in the family channel in North America. They've our key distributors in Southeast Asia have reacted well and our department stores in Korea have also shown significant increases. The fastest growth we see is in both the Americas and in Asia, where we believe our spring summer 2016 line will allow us to grow at wholesale in today's dollars at low double digit rates. If we look in aggregate across whole world, again at wholesale and in today's dollars, we believe we can grow our wholesale business by high single digit rates in the spring summer of 2016. So I think this is tremendously gratifying for Michelle and her team and for the whole company as we think about the reactions that we're getting to the REJUVINATED product line and bringing that to the marketplace. Next, let me turn my attention to marketing, where we had a number of objectives. The first of which was around driving a cohesive global brand positioning. Terrence will bring this to life later with a lot more, again, a lot more color and excitement, but I wanted to hit on some of the key strategic elements. Late in 2014, we made an important decision and that was that we needed to put a stake in the ground and we needed to drive a consistent global marketing campaign starting in 2015. This was deliberately timed before we had significant new products to show the marketplace and so we strategically chose to orientate that campaign around the iconic clog. It was a product that founded the company, it's still extremely relevant in the marketplace and represents a very significant portion of our sales. As we thought about that campaign, we really established 3 critical objectives. The first was to reignite excitement and relevance for the Crocs brand. The second, give consumers permission to engage with the brand. And the third, establish Crocs as a modern meaningful icon. Based on our recent brand study that we completed in the last 2 months, which is based on a sample of over 9,000 customers across our 6 major markets, we really feel like we have made meaningful progress. The number of past owners that indicated that they're considering a Crocs purchase over the next 12 months increased by 1100 basis points to 65%. The proportion of the population that considered the Crocs brand or who are neutral to the brand increased by 300 basis points to 70% of the population. The percent of the population that associates a clog with Crocs increased also by 1100 basis points to almost 80% of the population. Now you all know that marketing investment is cumulative and this was the first time that Crocs has really initiated or really put in the marketplace a global campaign with a consistent set of messages with a clear strategic focus. But I think you'd agree that the movement we've seen relative to consumer perception of the brand, the product and the objectives we set up was definitely meaningful as a first step. Thirdly, we will focus on increasing global marketing spend. When I started last year, it was quick we quickly identified that the marketing function was an issue. The company had historically essentially communicated different brand positioning, marketing messages in different regions. As you all know, it's an increasingly global world. Consumers travel. They see media from different regions and this obviously created tremendous confusion. It was also a very inefficient structure with different agencies, resources in different parts of the world essentially reinventing some of the same fundamental DNA and some of the same fundamental questions. So what we were able to do is do 2 things. We want to grow centralization and consistency around marketing and marketing direction. The second is we took dramatic steps to cut significant overhead, significant redundancy around agencies, etcetera, and drove a 50% increase in marketing spend. So while spending a little bit more, 20% more in aggregate, we drove a 50% increase in working marketing. Working marketing defined as TV, digital, out of home. It's the message that actually reach the consumer. And if we look at the impact that that has had in terms of ad engagement, again based on the same study of 9,000 people across our 6 core markets, we can see that brand desirability increased by 28% and brand purchase consideration increased by 27%. And these are measuring how consumers that saw and recall the advertising compared to consumers who did not see or did not recall the advertising. So those that saw it, saw a significant increase in their affinity for the brand and purchase consideration. So I think in summary, from a marketing perspective, we're extremely pleased with our first steps in this arena. We know we have work to do and we plan to follow that up and Terrence will elaborate on that later, but we see a lot of positive momentum from a marketing perspective. The 4th item on our strategic set of priorities was wholesale engagement. If I looked at the company when I joined and its recent past, it's been very, very focused on door growth, been very focused on building its own stores around the world, it has grown its footprint to over 600 stores around the world and that had been its strategic priority to drive revenue growth. The consequence of that is that it really lost engagement with its key wholesale customers. Obviously, that's a little threatening potentially some of your key wholesale partners and hadn't put the energy and excitement that needed against his key wholesale partners. So it was one of our immediate strategic priorities to change that and develop an engagement model that allowed us to connect with, work with key wholesalers, and particularly the wholesalers in the more sophisticated retail markets here in North America and Europe. And if you look at this model, we really feel like we've made very substantive progress against the key engagement elements, top to top with 10 of our most important customers on a global basis, real pre lines. And so what I mean by that is, is Michelle and her team meeting with some of these partners who frankly both extremely important and extremely knowledgeable about the marketplace and where the consumer is going and getting real feedback such that our product works for them, can be showcased on their floor and we can actually make adjustments to the line based on that. And thirdly, bringing our product to the marketplace as we did as we have this fall with both a strong product presentation, but a coordinated marketing activity. So our customers know how we're planning to support that product when it gets to the marketplace in spring, summer 2016. If we look at the later end of that engagement model associated with best in class delivery and sell through, that's an area that we're focusing on very hard. We know we have work to do there. We've had very frank discussions with a broad range of our wholesale partners about what we need to do. And as Greg highlighted, we brought in some key resources to help with that. And we're very confident that the product once it reach shelf or sell through. Clarity around channel roles. Again, an outcome of focusing exclusively on your own door growth was a lack of clarity around the roles that all of your different channels play, how they can play together to drive overall growth and profitability as a company. So one of the things we focused hard on was both priority and the role of those channels. The first is really clear and we've talked about it a few times. Our priority for growth is wholesale. Our priority growth in wholesale is because we've got very broad based partners with large points of distribution with sophisticated marketing, customer connectivity and CRM and the customer intrinsically in the more developed markets wants to make a branded choice. They want to shop in a place that's multi branded, have choice across brands and we believe our products and our brand can stand out well in that environment. And we think this gives us a significant runway for growth and significant runway for profitable growth. Then we turn our attention to DTC and the role that that can play. Within our retail arena, there's really 2 parts. There's a full price chain and there's an outlet business. As we looked at our full price business, we felt like it had been overextended. It had been overextended too rapidly and I think we've talked about and you've seen historically we've dramatically reduced that portfolio. But there's an important role that your Full Price business can play. It showcases the breadth of the brand, it allows you to tell brand stories, allows you to introduce new products and it allows you to really move the brand forward in a way that's harder to do in wholesale. So we needed to trim that portfolio and we needed to manage our full price stores in a way which was synergistic with the wholesale business as well as telling our brand stories. Now within that direct within that retail arena, we also have an outlet business, which is very well developed in the United States and is extremely profitable. And we felt was underdeveloped in Asia, where we have an opportunity to grow our outlet business, outlets are growing in the broader Asia market and that allows us to keep our inventories fresh at the same time as profiting from net venture. E commerce is sort of obvious in many ways. The consumer is trending that way significantly. If you look at every statistic in every market, e commerce is growing extremely rapidly and taking shopping occasions and share from bricks and mortar. This is an opportunity for us, A, to benefit from that transition and talk directly to the consumer through our e commerce platform. It's an opportunity to grow extremely rapidly. But probably more importantly, again, we can tell our total brand story. We can be the preeminent flagship for the brand, and we can do that in a way that is both creative to the top line, but also the bottom line. And lastly, distributors. Distributors are again extremely important to us. By focusing on our 6 major markets and really putting our time, attention, marketing and resources into those markets, we are distributed in many countries beyond those markets. And we see our distributors as important to have best in class partners to allow us to penetrate those markets, to exploit those markets and grow them to a point where they can provide a future growth engine. And as we thought about that, it was extremely important to make that clear to our distributors, make it clear that the role that they play, how important they are and support them as well as driving our other pieces of business. So it was really driving clarity across all the different channels and making sure that we're clear on what we intend to do and what we want others to do as we drive our global business model. And we've made a lot of progress in this area. Firstly, I think you've all seen and we've talked a lot about the restructuring of the fleet. We closed over 148 stores over the last 18 months. We've closed 9 e commerce sites to allow us to focus back on our scale sites and really drive efficacy and efficiency in those sites. We brought in talent, which we felt like was something was lacking to run our DTC business, elevating Adam Michaels to be Head of our e commerce function, Claire Connolly here is running North America and Neil Parker in Asia running DTC and also franchise. And I think if you look at this year and this transition year, we're really focused on the nuts and bolts of running a retail business, enhancing assortments, driving in stocks and service. And then in terms of growth, we see our DTC business growing in 2 areas. 1 is e commerce. You've seen that this year with a 30% growth rate in Q2 from our e commerce business, both driven number 1 by some increased traffic synergistic with our marketing, but probably more importantly dramatic increases in conversion rate relative to being in stock, relative to telling those stories more effectively, relative to merchandising the site more effectively. So we see continued growth in e commerce on a global basis, as well as growth in outlets, particularly in the Asia region. If we turn our attention to the prioritizing our largest markets and international strategy, Crocs today is sold in over 90 countries across the globe. And really that was driving a fragmentation of the company's efforts around the globe. When we really analyzed our distribution picture, it was very clear that 6 markets represent 70% of sales and roughly 70% of our profits. Those are the United States, China, Korea, Japan, United Kingdom and Germany. So our strategy is to focus our attention and by that I mean our company's attention that's our marketing resources, that's our product development resources, that's our direct distribution, that's our DTC efforts on those markets and continue to scale those markets. As Greg mentioned in his remarks, our market share even in those markets is in the low single digits. So our So our opportunity to grow and scale in those markets is dramatic and that drives dramatic improvements in terms of profitability. Outside of those markets, as I talked about in terms of our channel strategy, our plan is to really embrace our best in class partners, our distribution partners, work with them more effectively, work with them more synergistically and coherently and drive growth through distribution partners. Turning our attention to China. China is a market that has required a deeper strategic transition as we looked at the business And we approached that on 2 levels. Firstly, a tactical level. As we looked at the business in 2014, what we saw let me step back for a second and give you a little bit more history. If you look at China over a 3 or 4 year period leading up to 2014, it's been an extremely successful market for Crocs. We've grown kind of over 800 points of single branded distribution with 48 different distributors and historically was both fast growing and extremely profitable. Coming into 2014, it was very clear that with the slowdown in the Chinese economy, our distribution partners were challenged in terms of dealing with that. They were undercapitalized, and they were over inventoried. So we initiated a plan really on 2 levels. The first level was very tactical, which was around helping to support them to sell through their inventory with incentives, with discounts, with promotions. And the second was slowing our sell in to them in the 1st part of 2015. And I think we've talked about that on a number of our quarterly calls about how we deliberately stepped back the sell in into our Chinese partners. I think that was effective in terms of helping manage helping some of those partners work through the inventory, but not all. As we kind of step back on a more strategic level, we're looking at the market with a slightly more long term view. And we've really developed a strategy around consolidating a partner base to fewer, more better capitalized, more effective partners at the same time as owning critical channels of distribution. Number 1, e commerce number 2, outlet so that we can always keep the market clean and fresh and number 3, what we call kind of Tier 1 markets. So as we kind of manage through that more strategic transition, we've obviously got some changes coming up and we'll keep you informed as those take place. I think the last thing I'd say about China is if you kind of step way back to the 50000, 60000 foot level, the brand is extremely well positioned. The brand works extremely well for the Chinese consumer and a rapidly emerging middle class. And although China is experiencing a broader macroeconomic impact currently, I think everybody in this room will probably agree over the long term will be a powerful economic growth engine in the world. So we feel very strongly that it's a place that we're going to continue to play. It's a place that's going to be very important for Crocs and it's a place where we can drive meaningful growth and meaningful profit in the future. Element 7 was around streamlining our cost structure and reducing duplication and complexity across regions and the corporate center. And we've made very significant progress in this arena. If we look at our kind of annual run rate of cost reductions, they are today they stand today at in excess of $40,000,000 This come from closing stores and eliminating the SG and A associated with those stores. It's come from corporate in the Americas and overlap between those regions and it's also come from our international regions both China, so both Asia and Europe. Now that has the obvious benefit of improving financial performance, but as we've made these changes in various parts of the organization, we've also seen significant benefits from streamlined organization, improved decision making, clarity around roles and responsibilities. And we think this represents a very important step function change and platform that will drive and help the company be more effective in the future. Lastly, although we've added it more recently, we've also made a lot of progress around investing to drive supply chain effectiveness and reliability. And there were really 3 critical themes here. The first is adding talent and capability to improve reliability. So adding a number of key people and the supporting costs around them to ensure that we have effective management of our supply chain and we can count on its reliability as we go to deliver our new season. Secondly, simplifying the model, and we've made a number of critical steps and I'll highlight one around direct shipments whereby historically a very high proportion of our product was prepared and packed in factory and shipped direct to our end customers. In an ideal world, that's a tremendously efficient supply chain. It's also an extremely complex supply chain. When that customer frequently changes their mind around the makeup of that assortment, the VASA they want to apply to that assortment and a whole variety of things. And that adds a significant complexity on our side to deal with that. So by simplifying our supply chain, by flowing more of the product direct into our DCs and then being able to pick from that and supply to our customers, we drive significant simplification and improve our potential reliability. The third theme is really around making more strategic use of our assets and relationships with key partners. We have some important sourcing and manufacturing partners in Asia and we have also a number of our own factories. And as we think about what product we make where, we can make more we believe we can make more strategic decisions that allow us to get the best cost for high volume core product, at the same time give us flex capacity and chase capacity to react to key changes in the marketplace. So in summary, I've given you a number of these points of there's proof points or evidence. But in summary, what I'd like to do is kind of just take you through the core eight strategies and where we've seen evidence or we believe we have strong proof points that we're making significant progress. The first around product, I've talked about 40% SKU reduction of our springsummer 2016 line. I talked about the sell in and an anticipated sell through of that product in terms of driving high single digit growth rates in our wholesale business. And I think we've received a significant feedback from our wholesale customers about the presentation of products and associated with marketing and how it all makes a lot more sense. Driving a globally cohesive positioning, obviously, I think a lot of you've seen our marketing this year. We've really brought to the table in a very short order a globally consistent campaign around findyourfun and increased brand consideration by about 27%. We've increased marketing spend by a significant amount by 50% this year and we believe we'll see another increase in working marketing spend next year. We're again focused on driving greater simplification of our marketing organization and putting more of that money in front of the consumer. And I took you through our wholesale engagement model. And I think the real the point of realization and the litmus test in terms of the effectiveness of that model was really the support that we're receiving for our wholesale customers around our springsummer 2016 line. This is a very significant step change for the Crocs brand. They've really supported us with incremental orders as we kind of look forward. And that's against the backdrop where I think if you were to speak to them, they would tell you that not only was our product anemic this year, our delivery performance was not where it should be. And so we've made significant commitments to them about how we intend to improve that, but they continue to support us in a meaningful way. And then I think we've taken you took you through a really significant renovation of our retail portfolio, both our portfolio, both stores, e commerce, plus also adding talent as well as focusing on the role of those assets and how we can maximize that role to both tell the brand story, enhance the brand positioning as well as make a meaningful contribution to the bottom line. We're very focused on prioritizing our investment. We've got a lot to do. The things I've outlined to you today against these eight strategies is a significant amount of work, but we've got to focus our efforts on the 6 major markets while embracing our distributors beyond that. Cost structure, dollars 40,000,000 in run rate savings as we stand today. As we look forward, I think there'll be opportunities to further fine tune the cost structure, but the dramatic impacts are probably opportunities to further fine tune the cost structure, but the dramatic impacts are probably behind us. And in terms of supply chain, we're getting started on making sure that as we look at our spring summer 2016 season that we're absolutely certain that we can deliver on time and to our customers' expectations. So let me sum up by saying before I hand you over to Michelle that as a kind of look at the plan that we have in place, I think we're confident that we have the right strategies and the right initiatives. We feel like we're making significant progress against each of those. At the same time, we recognize there's work to be done, and we're very focused on doing that work. But I can tell you that myself and the whole management team is extremely excited and energized by where we are today and where we think we're going to be in the future. So with that, I'm going to hand you over to Michelle Poole. She is our SVP of Product Creation and Merchandising. And thank you very much for your time. Good morning. Thanks, Andrew. So this morning, I'd like to take the opportunity to provide some additional color to our first strategic priority, which is to develop powerful product stories. The focus of my presentation this morning is to share my initial observations on the key areas that we needed to address and how we're moving forward in evolving the product engine, allowing us to ultimately unlock of the Crocs brand. So as Andrew said, just over a year ago, I joined the Crocs brand August 2014. And I quickly made some observations as to what was happening in the product creation engine. I thought it might be helpful to share those observations to best understand our challenges at the time and how much progress we've made. So the first key challenge was that we had very inconsistent global product strategy. We essentially lacked a clear point of view. We had a real lack of focus on our molded product and our core icon. As we chased a lot of new ideas, we allowed our molded product to get sales. We also took our eye off the ball on our core iconic clog. We had a low awareness of global trends. Essentially Crocs was playing outside of the trends. And what that led to was really product that was misaligned to consumer and market trends. We had very poor SKU management in place and heavy SKU proliferation. Our SKU counts were really out of control and our line was over inflated. We failed to come to market with cohesive global product stories. Less than 30% of our line was globally aligned. Each market essentially selected their own line and over 40% of the Spring 15 line was in a single region. We had a fundamental issue around our pricing. The line was not designed to cost targets, which led to margin erosion and price value challenges. We had a pretty weak discipline around our milestone management. Array of issues ensued including late samples, which really impacted our sell in. We had a self imposed shortened springsummer selling window. We're essentially missing 2 to 3 months of springsummer selling. So here we are a year later and we've done a great deal of work laying out and implementing 7 critical merchandising strategies for success. Let me take you through those strategies. A key and first step is establishing a globally consistent product strategy. Our customers expect our product to have certain key attributes that are globally consistent. We believe those attributes are colorful, relaxed, comfortable, distinctive and fun. And we have the opportunity to leverage these around the world in our product. A fundamental strategy shift is to focus to refocus on building out our core product, putting our iconic clog at the heart of the Crocs brand. This slide demonstrates the opportunity we have in just building out the clog alone and will give us tremendous ammunition for future growth. So if you look the top right corner, Built for Her, this is where we take everything the consumer knows about Crocs, the molded product, comfort, lightweight and we bring feminine silhouette. So examples like the Free Sale clog, you've heard Andrew and Greg talk about those in prior quarters, has been performing incredibly well by virtue of a much more feminine last. On the top left, we talk about Built for Him. This is a similar strategy where we take more masculine looks into molded products into our core iconic clogs and it's been working very well product like the Swift Water clog, the Off Road and the Yukon. The bottom left we talk about active style. Now to be clear, Crocs is not trying to be an athletic brand. We're not a sneaker brand. But where we take ingredients from the athletic and active world, where we take DNA from that world and we infuse it into Crocs product, it works incredibly well. So product that's on the floor right now today, the City Lane, the Bump It, the Duet Max has been working very well. Our consumers respond to this product all over the world. The bottom right, we talk about licensed and FunLab. So we have a tremendous opportunity in the licensed world that I'm going to talk about in a few minutes. FunLab speaks to technologies like lights, which never grow old for parents and kids alone. And at the bottom of the slide PFD, this is our professional work division, a great opportunity for us to meet the needs of the working consumer. And we have tremendous loyalty from that consumer for our product, great upside. So this slide alone, just putting the clog at the very heart of what we do demonstrates a great pipeline for future growth. Our second core product strategy is to build out our line beyond core and really harvest the wider casual product opportunity. So every one of these segments on this page represents an opportunity for expanded market share across men's, women's and kids and across year round categories. So from the top sandals, casual shoes, flats for women and girls, wedges, active products and boots including Reigns and fully functional products. So we have a great again a great pipeline for future growth just staying within our perimeter fence of casual products. A key factor in realizing our growth potential is our ability to deliver trend right product to our customers and our consumers. From spring 2016 onwards, we're truly embracing the global trends and we're elevating our style. Our team is now immersed in the marketplace and style is being appropriately infused throughout the line. This has resonated incredibly well with our key accounts as we previewed the line. Elevating our style means elevating our brand. As I spoke about and Andrew talked to it as well historically we were imposing a shortened springsummer window on ourselves and our customers through our internal booking windows. We've taken a fresh look at our seasonal delivery windows to fully maximize our potential in this season by extending our spring summer to a full 8 months. Starting in December for warm regions that are ready for fresh spring product, we're going to flow product all the way through the season, all the way into July to ensure stores have fresh products and we're telling fresh stores throughout the 8 month window. This is a major shift for our brand and is we believe is a key strategy to unlock the full potential. I want to talk a little bit more and put a little bit of data around SKU Management. And for a product person, this is actually a very exciting slide for me. And it's not often you see product people getting excited about data. But this slide really speaks to the progress we're making. It's very exciting. In spring 2015 and prior, as I said, our SKU management was poor. We had really low levels of global alignment and an over inflated line. For spring 2016, we've made significant improvements in the line and in the life cycle management, which we've achieved over 40% reduction in SKUs. In real terms, that's going from 2,000 SKUs in spring 2015 that we took to market down to 11.50 SKUs with an additional 2 months of delivery. We really edited the line for strength. We have 70% newness in the line. So with a line that's half the size of the prior season, the retailers are really feeling that they have a lot more ammunition. And even more importantly, we're moving from 28% alignment global alignment to 65%. And what this does is allows us to tell singular marketing stories around the world. So I think this slide alone speaks to some of the very fundamental shifts that have happened in our business in the last 12 months. We're really encouraged by the progress we've made. And then as a result, we're obviously seeing significant improvements in SKU productivity, which delivers an array of benefits, not least of all focused storytelling, globally aligned key collections, planning and forecast accuracy, fit and quality improvement, sample improvements, lower tooling costs. And overall, this is going to be a huge enabler in our end to end supply chain simplification, which is priority strategic initiative number 8 Andrew spoke about just now. The final key merchandising strategy I want to share with you is to simplify and amplify our comfort storytelling. So those of you who are aware are very well aware and studied the footwear market comfort has become a very key buzzword in the footwear market and is something the consumer is being trained to look for. Frankly, we haven't done a great job of telling our story and getting credit for something that's core to our DNA. We have some of the most comfortable products in the world and we haven't been letting our consumer know. So starting in spring 2016 and beyond, we're introducing a very simple 3 tier comfort story iconic, dual and triple. Iconic will be our single layer of cross light. Think about the classic clog that will be iconic comfort. Dual comfort is where we have 2 layers of cross light and different densities, which really enhance the comfort. And top of the range is going to be our triple comfort, which is 2 layers of cross light with a pillow top of memory foam. Right now, we have products such as the Santa Cruz Luxe performing double digit sell throughs at retail with the Triple Comfort. So we know already the consumers responding to this. The story is going to come to life in our stores and in our point of sale and on our packaging. It's really time to make sure the customer knows that we have a real comfort story to tell the real deal. Obviously, our success isn't just about doing well in 1 season. It's about building a framework for repeatable success season after season. I want to share a couple of key product strategies that we've put in place that are proving to be working very well so far. The first is this notion of evolving our core product. And I just want to pause here and talk about our molded product. Many people think of Crocs as just a clog. But in fact, we sell many millions of pairs of other molded products a year. I believe we have an amazing opportunity to add style to our molded product and bring a new consumer to our brand without losing our existing customer. I want to share 2 examples that are working. The first is the presale clog. So by taking a more feminine approach to the styling of a core clog, we're bringing a new more feminine customer to the clog, someone who would perhaps never have worn our classics. The second example is the Sienna Flat. So we've taken the DNA of our molded flat, which by the way have done phenomenally well in the past with a much more kind of voluminous comfort driven last. And we value the more feminine style forward look to it. Three results are really coming from this. We're elevating the value of the product, the perceived value of the product from the consumer. We're bringing new consumers to the brand and we're maintaining and building our margins. Obviously, our core molded product delivers incredibly strong margins for us. The second key platform of future growth is focused franchise development. Again, those of you who are familiar with the branded footwear world know that this is a standard best practice in the footwear world. Launching an idea and platforming it out into broader collections with shared DNA and attributes. Here you see one example. You see the City Lane clogs. This is a style we launched in fall 2015 performing incredibly well double digit sell throughs at retail. As we move into spring, we've fully expanded this. So you can see we have fabric wrap clogs which launched in spring 16, a fully molded twin gore that's really making a style statement, women's molded slats, flip, cut and sew lace up twin gore and down into kids. A second example of successful franchise development is the Swiftwater program. We launched the sandal in spring 2014 in the U. S. It's a great combination of relative functionality and comfort and at an accessible price point. Since then, we've really built out the collection across clogs, sandals, mocs and hikers. It will be one of our biggest collections for spring 2016. So again, you see the hybrid sandal in the middle. You see a flip, a molded clog. We then took the molded clog into leather. We introduced kids. For spring 2016, we have a mock extension, a casual mock. And for fall 2016, we're launching a casual hiker. So this is something that's working very well for us. We're going to continue to build upon. As Andrew and Greg mentioned, we're seeing some very encouraging results with our spring 2016 sell in and I'd like to take you through some of the key highlights of the collection. If you have some time after the meeting, the new spring line is set up on tables behind you, so please feel free to browse. So here you see some of the key stories for spring 2016 season. This is a key shift for spring 2016 and beyond, which is creating key consumer facing stories and identifying marketing styles ahead of time before we go to market, collaborating with marketing throughout the development of the season and being truly truly market ready. As a result, we can get behind a small number of big ideas to market globally. Terrence is going to talk about that a little more. So I'm going to start with some of the big successes in spring 2016 on women's. So the Isabella collection is our largest new collection for spring 2016. This is a real area of strength for us where we can have a lot of fun. It really brings fun, style at accessible price points. We've done well with this type of product in the past. You might have heard us talk about the Horace program, but we failed to update the sales frequently enough. So after 3 years of the same product in the market and we saw rapidly declining sales, the team was kind of flummoxed as to why the line wasn't performing better. And the fact is that life cycle management is incredibly critical throughout our line, but never more so in women. Women rarely buy the same shoe over and over again one season after the next. So it's our job to make sure we're refreshing products at the right cadence. And I think we really hit it right here. The retailers responded incredibly well. We took the line down into girls as well. And we know we have a huge opportunity for the family assortment. So mommy and me and daddy and me assortments are going to be part of our pathway for the future. The next collection I already mentioned the women's Sienna. So this is where we took new Stylite molded flat collection to market and it's selling in incredibly well. This category of product performs really well in the family channel. Traditionally we've offered product that is more suited to a pure comfort consumer. But as we took this to market, the buyers really remarked on our ability to bring a new consumer to the brand with this type of product and they're excited about our expansion in this area. It also delivers exceptionally high margins. Wedges have been a successful category for us in the past. Our challenge was that we failed to update the product and again it grew stale on the shelf. However, the formula of style and comfort is a really compelling one for Crocs and for our consumers. So for spring 2016, we refreshed our wedge collections and we've had a great response from our retailers. Style is right, fresh colors and graphics, tremendous comfort underfoot. It's a great recipe. Another item we've had great response to is the Karin clog for women and kids. So taking the trend for women's fashion clogs particularly the wooden Scandinavian clog that we're seeing in the fashion market, we took that we fused new style into our clog collection again delivering nice healthy margins fully molded product. I spoke earlier about the City Lane. The City Lane continues to be driving great success for us as we go through our spring 2016 sell in. It's a key highlight in our core molded collection. And this is an interesting kind of example of how we're evolving our clog business. So again, it doesn't have the traditional DNA of our classic clogs, but it combines contemporary styling with recognizable clogs DNA and is offering something much more style relevant in the market, drawing off the athletic market influences athletic product influences. So for spring 2016, we build out the collection as I said into a contemporary twin gore, a slip on, a fabric wrapped clog and a classic slip and all are selling in incredibly well. So the Swiftwater, I spoke about this earlier, this successful franchise. It's an outdoor inspired active casual collection. We're not trying to be high performance, but where we get appropriate functionality and relevant styling it really works. So this is one of our largest programs for men and our number one new item for kids. So again that opportunity to play the Daddy and Me collection storytelling. And as we plan our spring 2017, we're going to be rounding out the full family opportunity and expanding it into women's and girls. Flips and remain a huge opportunity for us. They represent around a third of all footwear sold in the world as a silhouette. And added to that, over 60% of our customers think of our brand when going to the pool or the beach. So those 2 combine to make for a big growth opportunity in the future. By providing style right comfortable sandals that are priced right, we can gain increased shelf space and share of closet in spring 2016 and beyond. We're already getting great traction with the refreshed product we're taking out for spring 2016. A key highlight in our kids line for spring is the new Bump It collection. We launched the clog in 4/15, to some great success. We added for spring a sandal and some fun graphics to the collection that's performing very well. It's a great example of how we can bring market right styling to our line in a Crocs way and really appeal to both moms and kids. One of the highlights of our spring 2016 kids line is the licensed assortment, where we really bring fun to life. We have a tremendous portfolio of licensed properties with Disney, Lucas, Marvel, Warner Brothers and many others giving us access to evergreens like Star Wars. If anyone hadn't noticed there's a Star Wars movie launching in a couple of months. Mickey Mouse, Minnie Mouse, Hello Kitty, as well as new properties like the blockbuster Frozen, Teenage Mutant Ninja Turtles and launching next June Finding Dory, which is the finally the follow-up to the very successful Finding Nemo movie. These provide us incredibly high energy points in the line, endless pesto power for kids, increased price point opportunities and a price and a pipeline of product for the future. New movies are coming out every season and can give us an endless stream of ammunition. I'd like to turn your attention to the fall season for a moment and how we plan on building out the brand to be truly year round. So as we talked about spring summer is now going to be an 8 month season for us. However, we still have a significant opportunity to improve our full performance by narrowing our focus around 4 key areas of product and really editing for strength. Fall 2016 will see a further 50% SKU reduction. The Reign is an underexploited opportunity for the Crocs brand. Reign is an underexploited opportunity for the Crocs brand, especially in women's and kids and very intuitive to the Crocs brand. A select assortment of transitional casual products for men's, women's and kids will be part of the full line. And then finally, a tight assortment of fun and stylish functional boots. Fun and stylish being the critical words here. We're not trying to be a high performance boot brand, But where we build relative functionality, style, comfort and fun, we have a great recipe for success. And finally, resort. So we sell them to a lot of climates and accounts in the world where it's always summer. We have a huge opportunity in this time frame to bring freshness to our spring summer lines to make sure that those accounts in those regions have a pipeline of fresh product all year long. So in closing, I hope you can see the product engine has gone through a very significant reset in the last 12 months. We're very excited about the response to spring 16 line around the globe. It's been very encouraging, as Andrew said, to see the response in 1 season. And we are confident that we have the tools and the ingredients for success. And I'm happy to put a stake in the ground to say the best is still to come on product. Thank you. Andrew? Good job, Michelle. Excellent. All right. Thank you, everyone. Before I introduce Terrence, I guess I want to take a step back and share some perspective on the product transformation that Michelle walked you through. I think the degree of change that we've gone through over the last year and as we launched spring 2016 with 70% newness, it's incredibly exciting. And as Andrew mentioned earlier, the feedback we're hearing from our retailers in terms of elevating our style and building commercial product that can be platform for success in the future has been universally positive. So to go through the degree of change we have and to elevate the capabilities and the execution, as we have over the last year, I think is fantastic. So special thanks to Michelle and her team. Likewise, Terrence Riley, who is our Senior Vice President and Chief Marketing Officer, is going to come up in a minute and walk you through some of the marketing strategic transformation we're going through as well. And much of what he'll show you relates to some of our 2015 campaign and really links to a strategic framework we established that, the work we the work we've done and what we accomplished in a tight time frame and the data that Andrew shared and Terrence will share some more of is very compelling. And what it does is set the foundation for us for the future. So we're thrilled that Terrence is here and he can walk you through it directly. So with that, Terrence Riley, Senior Vice President and Chief Marketing Officer. Greg, thank you very much. Good morning, everybody. Thank you for joining us today. And you know when people say thank you for joining us today, but they really mean it, they just say thank you for joining us today because they think they have to. Well, thank you for joining us today. This is another milestone in the transformation of Crocs. And I'm speaking on behalf of certainly the marketing team, but hundreds of people at Crocs who have been hard at work doing what you've heard from my esteemed colleagues earlier, transforming this business, transforming the product and I get to share some of the great work that we're doing in the marketing space. So really, thank you. It's an important day for Crocs, and we appreciate you braving the rain, getting some early flights or some train rides or some car rides in the wet weather to join us today and hear about what you heard from Greg and Andrew and Michelle, which I can't say enough. We are unlocking the potential of the Crocs brand, unlocking the potential of the Crocs brand to create one of the world's leading casual footwear brands. Think about that powerful statement, unlock the potential of the Crocs brand and build one of the leading casual footwear brands on the planet. That's what we're up to. And I'm excited to show you some of the work and how that's making news. I can't wait to show you some of the folks that are talking about Crocs. Yes, Crocs. I'd like to show you the 2015 marketing campaign that you got a taste of from Andrew and that Greg just mentioned and how it supports product and then more importantly, what's to come. You'll get the first sneak peek of 2016. Nobody other than the folks in this room from Crocs has seen this. So I'll give you just a little taste, a little peek under the hood. So are you with me? You're ready for some good stuff? All right. Well, here we go. Crocs in the news. Let's see who's been talking about Crocs. Hit it, Maestro. And we love playing games when you visit, man. So we're going to play a little game called Will or Won't. We got it. We got we even put fancy graphics up and everything else for you, Becky. You used to say this in the reptile club, didn't you? This is our initiation. Yes. There we go. All right. Will or won't eat deli sushi? Deli sushi? Yes. What is that? Won't. Won't. Okay. Will or won't wear Crocs? Oh, will. Really? Yes. I'll rock the Crocs. Yes. What color? Like a light blue. I'll rock the Crocs. So that was this summer. This was 2 weeks ago. You like my new shoes? There's my these are you know what these are? These are the new officially licensed Star Wars Chewbacca Crocs. I call them Chewbacca Crocs. I don't know why they don't. I've been wearing them all day. They're very comfortable. They're lined with genuine Wookie fur. So all the new Star Wars toys and merchandise from the new movie are coming out tomorrow. Tomorrow is what they call forced Friday, also known as adult men lined up outside of Children's Toy Store Day. So just a few fun things. And obviously, you heard from Michelle earlier, we partner with Lucas and Disney. So being part of Force Friday, which was obviously this retail and fun celebration of the upcoming Star Wars movie, we're a big part of that. So a big investment that we make in some incredible licenses pays off not only in our footwear, but also in that great publicity and partnering with one of those great retail days. And we can promise that no Wookies were hurt in the making of our footwear. But this was also what I'm about to show you. This was just yesterday. And what could go wrong? You were nominated for an Emmy this year. Congratulations to Outstanding Performance Officer and a drama series for the Good Wife. Everybody was talking about your outfit on the red carpet. Okay, let's take a look at this. Okay, I support you, but what went into your mind when you said I'm going to put Crocs on? Well, I wore Crocs. First of all, first of all, Vivienne Westwood did the suit and Crocs, I just I actually think they're really lovely. Look at them. I think they actually are very good. I didn't know there were Crocs. What I think is really interesting is that people have this prejudice against Crocs. It seems like it's okay for everyone to say Crocs are ugly and those are not ugly. Those are not ugly, no. And I think you should rethink your prejudices people just in general. And it was a hot, hot night, so we can breathe. It was so insane. I mean everyone was joining on about it, but it was 100 degrees. Luckily, I had baggy trousers because we sweat. So again, another great advocate of ours. So we're not going to use Rethink Your Prejudice as our marketing campaign, but we do have some great things planned for 2016 as we've done in 2015. And then just some more late breaking news for our brand. Miley Cyrus, she posted this on Instagram on Sunday. Miley, as you probably know, has 29,000,000 Instagram followers. And this just this post of her wearing another one of our licenses, Patricia Field, 262,000 likes and 100 of comments of one of the obviously most popular contemporary stars wearing our Crocs product and bragging to the world that she is one of our many celebrity Crocs loyalists and in this case, advocates. So a great day, great week, a great summer and just the beginning as we unlock the power of the Crocs brand to build the world's leading casual footwear brand. So that all began in 2015. And as Andrew spoke to you about, we started our global marketing campaign. And this is news in itself, ladies and gentlemen. In the history of Crocs, we've never had a global campaign. The Japan team would do some great work in Japan and the U. S. Team would do some great work in the U. S. And here and there and never the twain shall mate or met or never happen really. And so this was big news for us to really harness the power of our brand globally and begin a global marketing campaign, designed to do many things, but 3 in particular. 1, designed to do many things, but 3 in particular. 1 is to reignite excitement and relevance for Crocs. That was our starting point. And you can see the baseline numbers that we had at the beginning of our campaign. And you heard from Andrew earlier, the great success in just year 1 that we've had as a result. And I'll revisit that in a few minutes. 2nd was to give consumers permission to engage. And you can see just from the celebrity aspect, more celebrities came to our table, managers calling our team in Colorado or in Boston saying, hey, my client wants to wear your product. So being in the market began to stimulate more folks, fans, the average Joe and Jane, but also folks like Will Ferrell or more. And then establish Crocs as a modern meaningful icon. Establish Crocs as a modern meaningful icon. And this is where this gets fun. So I know it's early. I know it's kind of a rainy day and you probably came here just to hear some speeches. But sadly, folks, we're going to take a quiz. Are you ready? I promise you we'll all do well on this quiz. What I love you to do is shout out if you recognize these brands from their silhouettes. So who can tell me what brand is this? It's Coca Cola, right? So I told you, you can't fail this. Coca Cola. Have you seen this? Jordan, I would accept Nike even, but yes, Jordan. How about this? Disney, you've seen this before. What about this? Does this look familiar? Yes, I can see it. Well, what happens when I show you this? Yes, it's okay to smile. Crocs. You see, if I showed this silhouette not just to you folks who are here to hear about Crocs, but if I showed this silhouette in Korea or Japan or the United Kingdom or Germany or China, do you know what everybody says when they see this silhouette? Crocs. It's globally recognized. It's globally recognized. And so this was in 1976 in a garage, and this, I believe, was 1920 something. And I think he showed up in the NBA in 'eighty four, and I think this is 18/88. Crocs began in 2,002. You remember 2,002. I had hair in 2,002. And in 13 years, we have established a globally recognized icon. That clogged silhouette is known throughout the world in just the same space as it takes to become a teenager, 13 years, pretty astounding. And so we made a giant decision last spring, as Andrew mentioned, is to celebrate that icon, celebrate it. It is one of the world's most noticeable and recognizable silhouettes. So let's take that strength and that equity that we have and celebrate it. And as you heard from Michelle, there are lots of product attributes that people say colorful, comfortable, innovative and fun. And so what we did is we created our icon campaign to go hashtag find your fun. Because really at Crocs, we believe our clogs is that iconic symbol for having fun and we think that you can find fun anywhere. We see the fun in almost anything. And you can turn anything you do into something fun in a pair of Crocs. So let's celebrate the fun we see in it all and encourage you to go hashtag find your fun. And that's what we began in the spring of 2015 because creating fun equals selling Crocs. And that's what we began globally in 2015. And so we celebrated that icon in fun ways like this. You've seen this island clog and there were lots more, all centered on wearing occasions, right? Remind her, she's going to the beach this summer with her family, crocs. I'm going to the pool with the kids every day for swimming lessons or for my own enjoyment. Crocs. I need Crocs. I need Crocs because I want to find my fun in Crocs. And so what began in 2015, I'm pleased to say, and as the Head of Marketing, it's obviously a great privilege to have the largest media campaign in brand history in our 13 years to begin that journey to unlock the potential of our brand. We had broad and impactful consumer reach this year across the 6 markets that you heard earlier from Andrew. And we integrated in TV and digital and out of home and social, very robust 3 60 degrees, all equaling just under 7,000,000,000 global impressions. So a great beginning as we unlock that potential for our brand. And you heard from Andrew, the markets are where we invested and those don't change the marketing investment where 70% of our revenues come from. And you can see our global marketing spend various allocations. So great beginning, great progress for a 3 60 degree campaign. Again, what you saw in Japan is what you saw in the United States. If you were in Chicago or Miami or Tokyo or Hamburg, you saw Crocs come to life in the same way through broadcast, through digital, through out of and social and e commerce and our store environment, whether it's our own retail or our wholesale partners, Crocs looked like Crocs. 1 Crocs, findyourfun, celebrating that icon that is known throughout the world as we began that strong connectivity through all of these touch points. A very powerful campaign with compelling creative. You can see whether it was an island or a cloud or a beach setting or fireworks or a pool, all of these wearing occasions became symbols for fun and a great time for you to wear clogs to findyourfun. And so wherever you were in the world, you saw that same creative, required no translation. It said everything we needed it to say and it reinforced that icon that you heard from Andrew and myself earlier that people associate our brand with the clog. So let's drive deep in year 1. And so it wasn't like we were on at 2 a. M. Next to the ShamWow guy on television. And it wasn't like we were in some posters or some billboards like in some place in Southern Illinois, no offense to Southern Illinois. We were in places that probably you've heard of, I don't know, maybe like Times Square. Or perhaps Piccadilly reinforcing that message of findyourfunandtheclog in these powerful cities that are opinion leaders, style leaders, cultural leaders, footwear leaders and more importantly, tourists and consumers flocked by the 1,000,000. And if you're in Beijing taking the train, there we were, overpowering you, quite frankly, with our message, like you're supposed to do when you want to broadcast your message. We even use digital. And so before I ask you to click, sir, I want to explain our technique and our tactic with digital. Certainly, what you learned from me already and I know I'm hopefully making that point is we led with the clog, that powerful symbol that is the clog. But we use the clog in all of our digital executions to use it to establish that beachhead, but then introduce perhaps a non clog style that she wasn't expecting from Crocs. And so we would let that come to life on a banner ad as she's surfing the web in her favorite places in items on the far left, for example. Let's show what happens when those butterflies fly away. And let's show this young man what happens when he chews bubblegum. Another great summer pastime are picnics, and every picnic brings ants, and ants sometimes not only take your food away, but they take you away as well. And under that clogged picnic blanket is obviously a great pair of summer styles for her to consider at her next picnic or outdoor. And as a tribute to all of the gardeners out there, another favorite pastime in our brand, let's see what happens to this topiary. And if nothing else, I got to use the word topiary today. So that's a real win. So lots of digital execution for us. Nearly half of our spend across the world was digital, and it says everything it needs to say. It shows that icon and obviously the language around it, around that property changes, but the Crocs message does not. Find your fun requires no translation. We know we've asked and nor does our clog silhouette as it's recognizable across the globe, as you've heard from me. But then obviously, as Andrew mentioned, wholesale partners. So our wholesale partners were more excited than ever. As Bob Monroe will attest, when we visited them at Top2tops across the spring summer, they were excited to see not only Crocs getting back in the game, but how we were tagging and using our wholesale partners like Famous Footwear or Dick's or Shoe Carnival here in the U. S. To connect to their websites and drive click through and sell through at their properties with some of our big partners in 2015. So a very, very robust channel integration. Of course, it's 2015. So social, we made a significant investment in communicating better socially, and really taking that Crocs clog and using that in fun and unexpected ways to reinforce the power of the clog and obviously to showcase fun. And that's what we've done socially throughout the spring and summer as well. Of course, we were also on television for 7 weeks this spring summer to really showcase our brand. We were on in places that she watches. We were on the Today Show and Good Morning America, a national cable buy on TMC and TLC and HGTV and lots of great places where our core customer is watching her favorite programs. And so we had 3 different 15 second spots that I would love to show you now before you click, sir, again, the same setup. We began each spot with the iconic clog on foot. Then we used the spot to reintroduce or introduce non clog styles. And then we ended with that fun and unexpected silhouette. Here is spot 1. Here is spot 2. So it ran for 7 weeks in the U. S. We ran them in Japan and certainly they repriced as video on throughout all of our countries and certainly in the United States, as video content through your online surfing. We also had 5 and 15 second static ads on TV. It was just that silhouette. There was motion, but there was no people in it that also drew attention to our classic icon. So a great start for 2015. And as you heard from Andrew Reese earlier, I mentioned the goal that we started campaign with. Before we actually spent a nickel, we established these benchmarks as what we were trying to do, reignite excitement and relevance for Crocs. You can see it started at 50% 54%. You can see after interviewing folks across the globe what they thought about purchase intent, nice healthy increases just after year 1 before the cumulative effect of our spend even begins. Giving consumers permission to engage, you see the benchmark that I mentioned earlier. You can see the nice progress there. And on the far right, if you didn't think we're about to clog at Crocs in year 1, you certainly do even more in another powerful instance of a significant meaningful progress there as well, up 11%. And as you also saw, our brand desirability increased significantly, as did that purchase consideration from the baseline. After just one season of spending, we are on the right track of unlocking the potential of the Crocs brand to build that world's leading casual footwear brand. So it is an exciting time, and 2016 promises to be even more exciting. As you obviously have figured out and it's referenced throughout this presentation from all of my colleagues, 2015 has really been about reigniting Crocs led by the clog. As you've seen from Michelle Pool, her team and the product that you see behind you, it's an even more exciting time for 2016 beyond just that iconic clog. And so 16 is still about creating and facilitating fun. We will be telling even deeper and broader product stories than you saw from me in this 20 15 work. Subtle changes, for example. What you are likely to see from our marketing team is rather than 15 second spots, you're likely to see 30 second spots because that allows us more time to tell more product stories because these stories are really worth telling as I hope you agree from just walking the back and seeing the product on the tables. And again, deeper wholesale partner consideration and partnership in 2016. And you can see in the blue box below, we are increasing our working dollars in excess of 20% to achieve our 2016 objectives. So continuing the investment, continuing to streamline processes across the globe and getting ready to have fun. What I'd love to show you is the first sneak peek of our next icon for 2016. You've seen a pool and you've seen clouds and you've seen an island and a beach. Well, in 2016, we're creating a place. It's a place, it's a beacon for fun that people go, she wears her Ailey wedge on a date night. He wears his Swiftwater clogs to kayak on the beach. And it's all done under a great place that's more a state of mind than it is anything as a symbol for fun and continues our find your fun and celebration of our icon, but also begins to allow us to tell lots of product stories that all happen under this destination where find your fun continues to live. I can see it brings smiles to many of your faces. It brings smiles to our customers' faces as well, and they want to see more. So it's been a really great 2015. We're just getting started. I hope you agree the excitement at Crocs is beginning to feel palpable. We're more than just a clog, but we love that clog, and we are on our way to unlocking that potential. As a recap, I'd love to show you in 2 minutes 8 seconds how we brought this all to life in the 6 major markets in 2015. I thank you all for your attention, and here is a review of 2015. Thank you, everyone. So now I'm really privileged to introduce a colleague and friend, Mike Smith, our SVP of Finance, has some great things to share with you as well. So welcome, Mike. Terence, you certainly are a tough act to follow. Good morning, everyone. So the team has taken you through the transformation currently in process at Crocs from new leadership to strategy, product, marketing and a commitment to operational excellence. I'm going to spend a few minutes walking you through how this links to our overall mid term financial model and maybe share a few proof points give us confidence that we are on our way in 2016. Now we've been making this transition in the face of some pretty significant headwinds, most notably currency that has been working against us for the better part of 3 years. The turnaround in China has taken us longer than we would like, but we are still bullish on that market. And then some operational challenges that we believe for the most part are behind us and we have set ourselves up for success beginning in spring of 2016. Having said that, we've made meaningful progress in the past 12 months and we believe we have put in place the building blocks to return Crocs to double digit EBIT margins beginning in 2018. So I'm going to start by taking a step back first, okay, back to 2011, which was a terrific year for the company. We had really strong growth and it was balanced between wholesale and retail. But underlying some of that growth was a weak U. S. Dollar. And you really see that in the margins, right? We were at mid-fifty, 53.6%, percent, 53.6 percent. We were also just coming out of the cost cutting years. And so we hadn't really built the retail platform or the resources within region. Fast forward to 2014, sales were basically flat despite the fact that we increased our retail footprint to 6 24 doors. So you would think with more retail that would naturally drive up your margins. And but this is where you start to see the impact of currency in our business where the dollar strengthened and our margins actually decreased by over 300 basis points down to 50 point 5%. Retail, at this point, we're building retail stores, higher cost margin, higher cost model obviously as well as resources in region and increased our SG and A up to 45.1%. And so when we look at the midterm, we think about double digit EBIT margins, starting with 8% plus annual growth. We think about margins in the low 50s. And we think about that with continued we're not counting on currency to turn in our favor. So we've got currency headwinds. We also have a model that's shifting more towards wholesale. And we're taking actions now and I'll share some of those later to build this model to remain in the low 50s. And then SG and A, we've started to make some moves to work ourselves down from the 45% on the path down to 40%. So let's talk about the impact on currency. As a reminder, 65% of our sales are done in actual outside the U. S. And currencies outside the U. S. Dollar. The big five currencies for us that impact our business are the Japanese yen, the euro, the Russian ruble, the Brazilian real and the Korean won. And you can see they've all actually weakened in the last 4 years, 2 of which nearly 60%. And so what we did is we plotted these, our basket of currencies, including the U. S. Dollar, weighted average and plotted them on the graph on the right hand side. You can see since 2011, we've actually lost 14%, nearly half of that in this current year. And that continues to impact us as we mentioned before, dollars 4,000,000 just in the last 60 days. And so we continue to grow the units that we sell. We'll sell more than 57,000,000 pairs this year. But that gets sometimes masked in the currency. The bigger impact actually and the more significant one is really on gross margins. And when you think about it, we're buying our product in U. S. Dollars. We're selling it in the majority in other currencies. And when those weaken, that puts pressure on our margins. And from the peak of 2012, we've seen a 400 basis point decline just because of currency. And so the red line plots out if we restate our margins on today's with today's currency rates, you can see we're actually the work we've done, our underlying gross margins are comparable with what they were at the peak. So we shared this before, right? This is our this is what we've done to date on SG and A, over $40,000,000 of savings that we've taken out of SG and A. And really in my mind maybe 2 buckets. The first one obviously is store closings, the 150 or so store closings down to $17,000,000 The other piece, we had 20% reduction in salaried global headcount, but that's really around going from a more regional structure to a centralized structure. And we get efficiency gains in that. We actually get it can be more effective as well, right? Michelle's group is a great example of how we've moved to a centralized product in merchandise and we're actually doing much better with less. And so we can see that happen in other areas of the company as well. And I would like to point out on the bottom of the note, next year we do have some offsetting, variable, a little more marketing and incentive comp against those SG and A numbers. So how are we going to get there? What are we focused on right now? And I would say, 1st and foremost, delivering springsummer 2016 on time in full. We work on that every day. Secondly, working on driving this high single digit wholesale for next year that's there for us based on when we look at the data and we look at our meetings with our top accounts and how they're planning and our early bookings so far, there's high single digit growth there. And third, capitalizing on our e commerce business, right? We have a lot of attention, traffic going to our e commerce business. We have had significant improvement in our conversion this year and keeping that trend going. And then finally, I would say, we've worked really hard at taking costs out of the business, staying disciplined on that SG and A as a core competency for us as well. Over the midterm, we expect the growth to come from, I would say, Asia followed by Americas and then Europe. Wholesale will continue to be or will be our largest growth vehicle, although e commerce will still be our fastest growing channel. We mentioned the headwinds that we have in currency and they're real for they're real on our margins. And so we are doing things and we've mentioned some today that improve our margins. And I think Michelle spoke about the mix of molded product, the SKU rationalization when you think about less SKUs, bigger purchases, easier to manage, a product creation process that's linked to supply chain, where we now have better visibility to make the best decision possible. When you think about an early style and if it's not hitting your margin target, if you have the visibility early enough, you have two choices really. You can work with supply chain to increase the margin to make sure that the initial margins going in hit your targets. They don't actually get better afterwards, so you got to hit them there. And if they don't hit your targets, the discipline to drop the style. And so we believe we put those in process. We talk about supply chain management and our operating with excellence and think about shipping on time in full and what that will mean for our margins. It starts with less air freight and it goes to early delivery on the selling floor to drive sell through, leading to increased replenishment at full price, reducing charge backs and end of season closeouts. So all of these are initiatives that are ongoing right now, to help get those keep those margins in the face of headwinds in the low 50s. And then finally, I'm going to harp on this, but of course, it's very important to us, discipline through the near term on SG and A. And so we've come far and the last thing we want to do is let the cost of complexity creep back into our business. So when we go back to our mid term model, right? Double digit EBIT growth, starting with our 8 plus percent annual growth, continue to make improvements in our underlying gross margin structure through the product creation process, supply chain efficiencies and better visibility that we've been getting with our new system that we put in this year. And then on the SG and A, with our restructuring efforts to date, we are working our way back from that 45% that you saw in 2014 back down towards the low 40s. And so it's early in our journey, but we do have some proof points that give us confidence that these midterm goals are realistic, right? And I would say the first one is, when we think about Q2, before we've shipped any new product, not one pair in the marketplace, We were able to grow our business modestly if you exclude the stores we cut out and the product lines we discontinued and currency. So that gives us confidence. In Q2, we're communicating directly with our consumer, they're responding. I mean, our e commerce business globally grew by nearly 30% in Q2. And then third is we map out, we really have a line of sight, we believe, based on the evidence we have so far, pre orders along, maybe even more equally importantly with our meetings with our top accounts and how they're planning our business. We have a line of sight into the high single digit wholesale growth next year. That gives us confidence that we're going to ramp up to that 8% growth needed in this model. And then I guess finally, I would say, the real heavy lifting on SG and A is behind us, okay? But we still have efficiencies to be gained, right? We've brought a lot of new talent into the business. We've brought a lot of new people who bring with them experience in simplifying the business. As we simplify the model, there will continue to be efficiencies and we will be disciplined about making sure that as our sales growth goes, we limit the SG and A growth along with it. And that will get us back to those double digit models that we double digit EBIT margins that we believe will be there for us in 2018. And so with that, thanks for your time. And I'm going to turn this back to Greg for a few final thoughts. Thank you, Mike. As I mentioned at the beginning, this is an exciting time at Crocs. We are in the midst of a pretty significant turnaround. And you take a step back and think about the amount of work that we've done over the last 12, 18 months and the amount of progress that we've made, turning around $1,000,000,000 plus business, we're really proud of what we've accomplished to date, yet we know we have significant more work to be done. Our initial priority was to first strengthen the management team, ensure a smooth transition and implementation of SAP and to drive significant cost savings. We've walked you through, certainly, the first and the third part of that, and we continue to make great progress on SAP and as a core kind of ERP platform for our business. At the same time, we've really been focused on elevating all of our consumer connections and not just increasing our marketing and our product capabilities and hopefully by the work that both Michelle and Terrence walked you through. It's not just the capabilities we're improving but our execution. And the combination of both obviously sets us up for sustained success in the future. While concurrently focusing on simplifying our business model, and focusing on the most meaningful and important parts of the business, which also enables us to drive out cost and set us up to run the business more efficiently and more effectively in the future. And hopefully, you saw by the work that Andrew, Michelle, Terrence and Mike have shared with you today that we are making great progress across the business. And despite near term headwinds and challenges, we feel really good about the direction we're heading and the impact it's going to have on the business in the near term. So if you take a step back and go back to the midterm financial model that Mike walked you through and I raised earlier, we are at an inflection point, but the bulk of the restructuring is behind us. We have a line of sight to meaningful growth in springsummer 2016, and we're confident about our financial model and our plans for the future. 8 plus percent sales growth in the midterm beginning in 2018 after a couple of year ramp up period to get to those levels and a 10% to 12% operating margin or EBIT margin by 2018. And when we look at the business and we take a step back, we're confident that we've got the strategy, the framework and the initiatives outlined. We have the team in place and we're beginning to establish the relationships in the marketplace to enable us to accomplish these objectives. So we're incredibly confident. We're excited for the future. We're working hard to mitigate the challenges in the near term and the headwinds we face today. But what we wanted to share with you today and hopefully we've conveyed effectively is our excitement for the future and the work that we're doing today to unlock the full potential of the Crocs brand and to create one of the world's leading casual footwear companies. So with that, we're going to switch over to a question and answer session. If you can give us just a couple of minutes to get some tables and chairs on the table and to let and I'm going to have Andrew, Michelle, Terrence and Mike join me on the stage and we'd be happy to field some questions. Yes, Pam. Hi. You talked about the targets mid term. But you also hi. You talked about the targets for the midterm. But what how do we think about next year outside I mean, you've sort of given us only pieces of that revenue, high single digit increase in wholesale, but then and you're expecting the e commerce to continue to track along. So the offset is the retail. And then also your gross margin has been improving. Is it SG and A that's really going to be the how do you look at the SG and A dollars year over year when we think about next year? Yes. So, the question is around, given our midterm targets that we've outlined, how do we think about 2016 and the transition from where we are today to 8% revenue growth and 10% to 12% EBIT margin. So first off, let me start off by saying consistent with past practices, we're not going to give guidance for 2016. And we'll maintain kind of the recent practices that we've had. But we do want to share some perspective so that you guys understand. And obviously we're not going to ramp to an 8% revenue growth and 10% to 12 percent EBIT margin in the 1st year. It takes it will take us through to the 2018 time frame to get to that level. But as we think about 2016 specifically, we expect revenue growth in the mid single digits. Gross margin will benefit from product and sourcing work and the operational improvements we talked about and that will mitigate some of the currency headwinds that we're seeing. And as we enter and we look at 2016, we see about 200 to 300 basis points of margin degradation based on kind of currency and how that's played out. In terms of SG and A, there are a series of puts and takes. And obviously, we walked you through kind of some cost savings that was a bit in excess of $40,000,000 And that will offset be offset by some variable expenses, a bit in marketing, although most of marketing relates to most of the marketing increases in 2015. But in addition to that, there's some additional variable compensation that impacts us as we look at next year. We'll also see normal cost increases as well as annualization of some of the talent that we've invested in over the past year. So when we think about SG and A, it is expected to be up slightly. The cost savings did include kind of our retail store closings, But the SG and A will leverage our revenue growth and decline as a percentage of sales, okay? So we'll see EBIT improving year over year, but the EBIT margin will be in the mid single digit range. So we wanted to give you some directional information. We knew that was going to be a question in terms of trying to understand the ramp and that's how we're thinking of the framework as we look at 2016. Just a quick follow-up. Can I ask they're going to it's going to be up slightly in absolute dollars is what you're talking about, correct? I just SG and A, you're talking about that? Yes. Yes, up slightly in absolute dollars, but leverage relative to sales. Okay. Thank you. Yes. Yes, Aaron? Okay. So I guess just as a follow-up on the sales for mid single digit for next year, is that fully loaded including what you're looking at for currency today? And then embedded in that, just how do we think about kind of the recovery in China since it seems like it's been a bit pushed out? And then the last piece as it relates to sales is just help us think about kind of the mechanics of what's building that. So from a unit versus kind of pricing perspective and maybe if you can give some context both for next year as well as what's embedded in the kind of 2018 longer term plan? Okay. Let me I'll start off with a piece of it, then I'm going to hand it off to Andrew. So as we think of 2016, there's about 100 and 50 basis points of revenue growth, degradation in our numbers. So mid single digits is net of some of that the headwinds we face, as it relates to currency. So we've taken that into account in the numbers in the kind of directional feedback we're sharing with you. And then if you think about the key driver of our revenue over the next few years is going to be unit growth. And there's a number of things that impact mix wholesale to retail, molded versus non molded. But we think of it predominantly certainly in the 1st few years as unit driven and then we will see some price benefit over time as well. Okay. And then I'm going to hand the latter piece off to Andrew. So I think the remaining piece there was China. So obviously Greg kicked off the session by highlighting that our revenue guidance was down. A key component of that was $6,000,000 in China. So the first thing is that's really revenue that we had orders for we decided not to ship because of the liquidity issues with a number of the key partners. And as I identified, we're kind of tactically managing that situation in terms of how much do we sell to our partners versus how much do we hold back. The bigger issue is frankly the strategic transition to a smaller group of more robust partners who have the capital and who have the financial strength to be able to weather through some of these transitions. As we look to 2016, we think that a number of those transitions will play out in such a way that we'll be able to ship more to some of our partners and we'll actually take back some more of the business so our revenue will go from wholesale to full retail. Okay. So as we think about 60, it's going to be a fairly complicated mixture in China, but it should result in absolute growth. And then if I could just ask another question on e commerce. It seems like that really turned a corner in the last quarter. If I go back over the last 2 to 3 years it's been very volatile and actually not a very strong growing channel. So what has changed maybe strategically in that channel for you guys? And what gives you the confidence going forward that that can be the kind of high growing channel that you predict it to be? Yes. So a few things, right? So the first thing that changed strategically was globally cohesive leadership, which we put in place early last year. So they've had some time to really make some changes. The second was focusing our attention on a small number of sites instead of trying to run 21 sites, we'd only run 11. And then what happened within those actual sites is really blocking and tackling. It's focused on what's important to the customer. So being in Stockholm core product, merchandising the site effectively to drive multiple transactions, implementing an appropriate level of promotion and price activity to compete with what is a more price sensitive world online and really also putting time and effort into launching new products and telling stories. So I kind of think about it as blocking and tackling, which I really don't think we were doing effectively in the past. We weren't in stock. We weren't able to service our customers effectively and we weren't giving them a reason to buy by telling the new product stories. Yes. Maybe if I could start by just clarifying the midterm revenue target of 8% plus. I just want to clarify that's not a CAGR that you're projecting through 2018, that's the rate you expect to to by 2018? That's correct. Okay. And then when you look at the buildup to that 8% plus growth rate, if you can maybe talk about high level how that breaks out between wholesale, retail and e commerce? I know retail you have a target of 5 50 stores so less physical unit growth there. But how are you thinking about growth for the different pieces of the business? Yes. So how we think about that is essentially we think about wholesale and wholesale includes our distributor businesses where we ship to distributors. So wholesale and distributor growing at sort of low double digit rates. We think about our ecom business growing faster mid teens and we think about a much more conservative comp in our own DTC stores at 2% to 3%. And then maybe just as a follow-up, when you think about the ramp to those targets for the different pieces of the business, does the trajectory of the ramp for either of those parts look different than the overall business in terms of the retail growth and the wholesale growth rates? No. I think when we look over a longer term period of time, we would view that channel orientation as the appropriate kind of framework to think about our business in terms of how we plan to grow it. And we think it's the prudent way given kind of where we are today and our relationships with our consumers. I mean the nice thing about our business is we've got scale and infrastructure around the world. So that gives us a little positive. So as we add revenue, particularly as we add revenue and the growth rates are highest at e commerce and in wholesale, we can see a real benefit to the bottom line which is how you quickly ramp to that 10% to 12% EBIT margin. So I think that's the right framework to think about when you look at the business. Yes. Thanks. I'd like to drive towards some of the free cash flow capacity. Can you talk about working capital management opportunities with the SAP deployment? How you're fixed with allowances for doubtful accounts given of the distributor relationships, which you've talked about, CapEx objectives over the next handful of years and what any targets might be for the free cash flow. And then related to that, just opportunities to use the cash, whether it's continued buybacks or you see some other priority? Wow, Jim. Okay. Why don't you divide it up this way? Let me talk a little bit about the components of cash flow and how we kind of see that breaking down. Mike, do you want to touch on accounting and doubtful accounts? And then you want to touch on Okay. Use of cash. We think we have tremendous cash generated capability because if you kind of think about the pieces we've outlined EBIT, in terms of working capital, we believe over 2016 and 2017 we have some as you kind of alluded to with your question continued working capital efficiencies. We think SAP will give us a stronger holdover control of our inventory and allow us to lower inventories over time relative to sales. As we think about CapEx, the way we think about applying CapEx is really at a level of or slightly below depreciation amortization, which now we've come out of our SAP implementation has kind of stabilized at the early 30s, amortization and depreciation. So if you add some working capital efficiencies, a pretty stable level of CapEx at a relatively low level, we think we generate a lot of cash over the next, of CapEx at a relatively low level, we think we generate a lot of cash over the next several years and that will continue to grow over time. Yes. And obviously, one of the interesting parts of our business and exciting parts of our business is it is a strong cash flow business. And like I said, and exciting parts of our business is it is a strong cash flow business. And like I said, we've made significant investments in our infrastructure. And if you think about relative to the size of our business for a $1,000,000,000 global business to have scale and infrastructure around the world like we do and to have the distribution of your business essentially using round numbers 40% in the Americas 40% in Asia 20% in Europe plus or minus that just says to us particularly as we focus on our 6 key markets directly and use best in class partners in the rest of the world this will be a strong cash flow business. We feel very good about that. Likewise we've SAP was a major CapEx investment for us. We won't have anything near to that degree that we've had historically. And I don't know, Mike, do you want to jump in? Yes. I mean, I think the only thing on allowance is that's something we do on a quarterly basis, right? And so that's a process we go through. At the end of the quarter as we close our books and review it and that we're looking at that in the next 30 days, a lot more to say on that, I would think. Yes. And then in terms of use of cash, which was the last piece, I think in the near term, we're still we'll be thoughtful and around kind of stock buyback. And we purchased in this quarter we'll share with you a little more than $30,000,000 worth of stock for the quarter. So we've purchased the full amount and then some of the original Blackstone investment. And again, we'll share some of the details of that with you when we as part of kind of our Q3 earnings call. Thanks, guys. I think you got them all. Thanks Jim. And then okay. Yes, go ahead. Yes. So I just wanted to clarify some of your comments around springsummer 2016. So you're talking about high single digit growth. I just wanted to make sure that was on an order book number, that was a sales number and was that a sales number on the full year or just related to the springsummer season? Yes. So that's wholesale. So it's only wholesale. So retail and sales to retailers and sales to distributors that is our anticipated sales growth in the season. So that's a combination of pre books we've already received and investments we're making in inventory to also support out one sales. So it's the both of those 2 added together. It's not a backlog number. And that's not the case. And let me add one more piece. And it includes what we try to do is include the qualitative conversations we're having with So you have to we think it's more appropriate to triangulate those three pieces than to give you one number which can be misleading for a variety of reasons. How do I reconcile that high single digit increase against a calendar that's now 8 months versus 6 months or maybe if I were to put that in percentage terms like 33% longer and you're getting a high single digit increase? No. We measured it so that's a good question, right? So we're measuring it against the same period last year, which would have been a differential, which would have been part springsummer and part fallwinter. Yes. So it's not low high single digit sales growth with an increased selling period. It's like for like. Yes. Got it. Correct. And then talk a little bit about so the calendar the expanded calendar should help you. Talk about fill rates. I know you've talked about poor shipping in the past. Is there any way you kind of put that in context like what your fill rates were, where they are, kind of where you hope they can get? Yes without sharing specific data the question is around our we've referenced now today in our last earnings operational challenges and it comes down to that's exactly right fill rates. And I think there were several comments throughout the day that speaks to this idea of simplification and focus which has been a big part of our reframing of the strategy over the last 16 months. What I would say is our fill rates, our operational performance was well below industry standards. And we believe based on the work we've done and the work we are doing, whether it's establishing a global line and as a result of that reducing the number of SKUs, Obviously that has the secondary benefit of your average order size with factory goes up significantly. You also cut off the tail all the smaller production runs that you have with all of the single region focused products that we've had historically. Michelle mentioned going from roughly 30% of our product range being part of the global line to 60%. If you look at the other side of that obviously all of those average order sizes with factories increases significantly. Andrew mentioned direct shipping. We had a very unique direct shipping model which was extremely outside industry standards and was not necessarily something customers were even requesting. And it was done for some really positive strategic reasons, but we found that it added significant and unnecessary complexity in the business. And by shifting to a more standard industry practice, while still having a direct shipping capability for our largest and most meaningful customers, the ones that actually ask for it that we can take off a large order of magnitude of extra purchase orders that we place at the factory that were completely unnecessary. Another thing that we mentioned was value added services or it was called VaaS earlier. We have a very large number of value added services because the teams try to placate kind of customer requests. The reality is we can easily narrow that down by a large percentage to enable us to manage our distribution centers and even some of the manufacturing process more simply. Those are the kinds of changes among others that we are that we're implementing or have already implemented that will enable us to operate the business far more effectively that will give us better visibility into the whole supply chain process and set us up for success going forward. This has been an area this should be an area that should be a great strength of ours by the nature of our product and the nature of our business. And we're confident that we'll make huge progress this year. Tapoosh? Thank you for hosting us in the presentation today. So I've got a quick 4 part question. One, can you just confirm your EBIT commentary for next year? I thought I heard you say margin down dollars up, if you can confirm that I heard that correctly? You did not hear that correctly. So it's dollars and EBIT rate up. Okay, great. $1,100,000,000 of res over the past 12 months for the company. Are all the non core initiatives complete at this point in terms of retail store closures and non core lines? Yes. I would say the question is have the lines have all the store closings and product line or business closings are they complete? And I'd say we've made substantially all the major items. We'll always look at our retail portfolio. That's a core part of what we need to do on an annual basis. So that's an ongoing process. But we've really worked hard over the last year to try and reset and reframe the company so we can drive sustained growth going forward. Great. China, are you expecting China to grow next year? Yes. So as I mentioned to Aaron, I think there's an with the shifts in business model, we think that will result in absolute growth. But some of that will potentially be us owning more of the business and the revenue going from wholesale revenue to full price to full retail revenue, which obviously is a substantive difference. Great. And then my last question is just on currency. So you've been maintaining this 10% to 12% long term or medium term margin outlook in spite of the dollar strengthening. How are you planning or how are you projecting your ability to either recoup or offset some of those currency headwinds by 2018? Yes. So this assumes the currency environment we're in today. And so it's a great question. And Mike spoke to it when we talked about the impact that currencies have had on our business and specifically on our gross margins. But the framing we've set forth assumes the existing kind of global currency kind of situation we're in today. And frankly, I think it gives us great confidence that despite the strengthening of the dollar over the last year, we have a more clear line of sight and we've kind of mapped that out to 2018. The dollar moves one way or another. We're certainly not in the business of kind of projecting that. Yes. One point I might highlight Tush is really obviously you see the most immediate impact from the gross margin line. As we look next year I think Greg mentioned we see 200 to 300 basis points of pressure on gross margin purely from currency. When we look at the other factors that mitigate that we will absorb a good part of that. If you look at kind of the line that we're putting out there and the mix of that line between molded and non molded we've got substantially higher margin embedded in that line. We also, from the operational challenges we talked about, we think that we will reduce some of the drags that you place on margin from not delivering on time, discounting product, chargebacks, etcetera. So we've got the 200 to 300 basis points of currency drag from the current currency environment. And that is obviously areas that we're pushing on to mitigate that. Okay. And then environment. And there's obviously areas that we're pushing on to mitigate that. All right. Thank you. Michael Biggar with Biggar Capital Fund. I have a question about product stories. If you go the Flight Club in New York or Skechers, the products are shown as a profile. And in Crocs stores, I think the fact that you see the product from upside down type of push Hanging on the shelf, yes. Yes. It dilutes a little bit that product story that you're talking about because the product doesn't look as good when you look at it from that perspective as a customer from a customer's standpoint. Okay. Yes, Michelle. Are you thinking about that and what Yes. What I would say on that is that we're looking at overall how we display our product in the stores. And I think there are benefits of hanging product this way. Certainly, the comfort story on the footbed is highly, highly visible when you hang product. There are other areas that we're saying we're doing tests right now around the world that we're seeing are there benefits to displaying in alternative ways. So we don't have a fixed approach at this point. We're exploring as we diversify the line. Two questions. Michelle, you talked a lot about paying more attention to trends, to fashion trends. One probably the most important fashion trend for the last couple of years has been fashion athletic. And it seems like at least in your women's product, that's noticeably absent. So how do you think about Crocs playing in at more athletic looks? And then second, when you books? And then second, when you talked about springsummer 2016, Greg, and the backlogs or the order book, it was mostly the family channel. So I'm just wondering what your work has been with in department stores and sporting goods. And then as you think about building to that 8% growth in your intermediate plan, do you incorporate reaching those retailers that you aren't talking about now? Or is it more like for like? Okay. Michelle, you can answer the first part. I'll take the first question. So I think it's interesting what we're seeing happening in the athletic market right now, which is that the big wins from New Balance, Adidas, Nike are actually the low performance items. We're seeing a big shift back to retro looks and kind of vintage athletic versus high performance. And that's really actually playing in our favor. So I spoke about whilst we're not an athletic brand, we're not trying to be, we're not a high performance brand, where we actually take visual cues from the more vintage inspired retro looks and we bake them into Crocs' product, it's working really well for us, a product like the City Lane, the Bump It. And the other thing that I would also say is that a lot of the, wins we're seeing from competitors are also around more of an active lifestyle and comfort story. So as we amplify our comfort storytelling, I think we're in a great position to really market opportunities. Great. And then I think the other part of your question was really around kind of mix of sales growth by channel. Yes, I think in my presentation I highlighted a number of different channels and I mentioned I think the family channel in terms of being mentioned I think the family channel in terms of being very supportive. I'd say in the U. S. Business the growth that we're seeing in wholesale which we highlighted is kind of low single digits. It's fairly broad based across channels. We see that in family. We see it in sporting goods. We see it in department stores. The only thing that we have embedded within that is trying to improve the quality of our distribution and we've actually cut back some of the discount channel. That was high single digits you might have said. So Yes. Did I understand correctly that fall of 2016 will include a 50% decline in the SKU base versus fall of 2015? And the follow-up to that was in 2018, your assumptions include that the fallwinter product will be a significantly higher percentage of the mix, the seasonal mix than it does, say, this year or next. So I'll address the first question. So you did hear correctly. We have a heavily over skewed line in the fall season traditionally. So just as we talked about, the model for success in spring 2016 is bringing the global line a single global line and cutting off kind of the long tail of regional fragmentation. You're going to see the same model in fall. So yes, 50% SKU reduction as we go into fall 2016. And in terms of the spring to fall mix, what I'd say is we don't see the mix changing materially. We see both growing nicely. And when we share our fall 2016 kind of product range, we feel we've made fantastic progress and we believe that we have many, many offerings that make us a far more effective year round brand than we ever have had in our history. History. Having said that, we expect to grow in both parts of our business and we will but that will enable us both between our expansion of our springsummer line from really 6 months to 8 months and having a more powerful fall line, that those combined will just make us a far better year round resource than we ever have been historically. Yes. Could you talk a little bit more about the conditions you're seeing on the ground in China today and how that impacts working capital? You mentioned you're holding back about $6,000,000 of shipments to some Chinese distributors. I noticed your day sales outstanding is higher than it's typically been. And some of the changes that you're talking about, it would seem to me would reduce working capital in the future, but in China, but I just wanted to get a sense of what you're seeing and how you're reacting to it? Yes, I think let me address that. I mean really as a highlight, we're kind of trying to deal with the Chinese market in sort of a tactical practical way as also on a strategic dimension. The tactical practical is too much inventory in the channel, which will be gradually working down. And your solution for that is essentially time, right? You need time for the channel to sell through its inventory to get current on its inventory and then in turn obviously to lower their receivables. So we've been working on that for some period of time and that's making progress. The holdback of revenue to a number of those partners obviously indication that some of those partners are struggling with that more than others. At the same time, we think the solution is a consolidation of those partners into a smaller number of bigger partners with greater financial strength and frankly also greater expertise in the marketplace. The model that we have today was really a model that was driven through fast growth and reaching out to a broad base of partners to set up the business very quickly and grow it very quickly. We think we can consolidate. And frankly, that's the same transition that almost every major footwear brand has gone through in China from Adidas to Puma to Nike as they kind of started off with smaller distributors and graduated to a more consolidated set of distributors. In addition, consolidated set of distributors. In addition, we think it's really, really important that we own some critical channels. Number 1, the e commerce channel, which is exploding. We own it today. Our e commerce growth in China has been growth in China has been extraordinarily high this year and will continue I think to be very high as that consumer essentially bypasses stores and goes right to e commerce. We also think it's critically important for us to learn the outlet channel, allow us to keep our inventories fresh. It's also a very fast growing channel in China and can be extremely profitable. And then I think the third piece of that is the Tier 1 and 2 cities where today we operate a blended model where we have a good number of stores, 50 stores that we own and operate ourselves as well as having distribution partners who operate in Beijing, Shanghai and other Tier 1 cities. Our intent there is to own more of that business ourselves by buying back some of those stores. Maybe we'll take one last question. You talked about wholesale growth as well as e commerce as the back bone of the growth. First, on the wholesale side, is it more door growth or is it just more growth in existing doors? And then secondly, on e commerce, is that a higher margin business as it currently stands? Or do you expect that to increase as the volume gets bigger? Thanks. Yes, great question. As we look at wholesale in the developed markets, so in U. S. And Europe, we have exceptional distribution in terms of the number of doors. We're really looking at growing on a per door basis. So as we go to a key partner, we want more share of shelf, more styles on the shelf, better sell through of those styles. So we'll grow revenue per door. Our emphasis is not in terms of growing number of doors at all in terms of wholesale. In some parts of the developed world where we're working with distributors, they have door penetration opportunities. Indonesia, the Philippines, they're relatively lightly penetrated. India, lightly penetrated. Those distributors can grow doors. And then the second part of your question, e commerce, yes, e commerce is a high margin business for us. We obviously sell it for retail, and our fulfillment costs by focusing on those major sites that have scale are relatively efficient. So we generate a strong level of profitability from our direct e commerce business. Okay. Last question. I'll ask 2 short ones. Distribution, you've talked about getting away from ship from the Far East to a more localized. And most companies have found that to do that in a world class manner, they have to actually control their own distribution as opposed to going through 3rd party distribution companies. What's your position going to be on that? Yes. I'd say that I think what most companies find is they go through different they often go through different business models and different phases of development. We certainly think it's prudent to focus on our 6 most important markets and have a direct business model in those and use best in class partners in the rest of the world. I think the Crocs team Yes, Greg, I was asking a different question. I'm sorry. You don't right now, you're shipping a lot direct to your customers. Right. So you're talking about the direct shipping model, yes? Right, versus running it through like SKECHERS does, one single distribution center that handles 20,000,000 pair. Right. And right now you don't own yours? Yes, we do. Yes, we effectively do. Okay. Yes. We own our DCs, our major DCs in North America and Europe. We lease the property. We will 100% own and operate those facilities. Also our major free trade zone distribution center in China. We use 3rd party 3PLs in some of our smaller countries Korea, Japan, etcetera. Our major DCs we own and operate. Yes. And what I would say just going down that path, our operational issues are about taking out complexity. And I think in this area in terms of our distribution center network, I think we're well set up to enable us to achieve our objectives. And the second, and you and I have talked about this, you've focused a lot on your big customers, the family channel, the mid tier department stores, etcetera. What do you do about the independents that have sort of been abandoned over the last couple of years? So I think the question around the independents is a good one. The first thing you need to do to build an independent business is elevate your product and marketing capabilities. We've got to get the core business working first. We feel we're making great progress on that. As we improve product and have better and better sell throughs and can leverage some of the new range that Michelle and her team has developed, we think there'll be more and more opportunity with independents. So, So it starts with getting the core fixed and that's what we're working on right now. And I think it enables us to effectively grow beyond that. I will say one last thing. Our future plans around leveraging our existing distribution and driving essentially dollars per door in the future and we're confident in our ability to do that. So with that, let me thank everyone for all your questions and all your time today. And I want to really thank you for taking the time to hear our story. And we look forward to spending more time and sharing more of our some of our success in the future. We will be serving lunch outside. So for those of you who'd like it please feel free to join us for lunch. Thank you guys very much.

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