Earnings Call: Q4 2014

Feb 26, 2015

Welcome to the Q4 2014 Crocs Incorporated Earnings Call. At this time, all participants are in a listen only mode. I would like to remind everyone that this conference is being recorded. It is my pleasure to turn the conference over to Brendan Frey. Mr. Frey, please go ahead. Thank you, and thank you everyone for joining us today for the Crocs 4th quarter and full year 2014 earnings conference call. After the close of the market, we announced our Q4 and full year 2014 financial results. A copy of the press release can be found on our website at crocs.com. We would like to remind everyone that some information provided in this call will be forward looking and accordingly are subject to the Safe Harbor provisions of the federal securities law. These statements include, but are not limited to, statements regarding future revenue and earnings prospects and product pipeline. We caution you that these statements are subject to a number of risks and uncertainties described in the Risk Factors section on the company's 2013 report on Form 10 ks filed on February 25, 2014 with the Securities and Exchange Commission. Accordingly, all actual results could differ materially from those described on this call. Those listening to the call are advised to refer to Crocs' Annual Report on Form 10 ks as well as other documents filed with the SEC for additional discussions of these risk factors. Crocs is not obligated to update these forward looking statements to reflect the impact of future events. The company may refer to certain non GAAP metrics on this call. Explanation of these metrics can be found on the earnings release filed earlier today and on our investor website once again at crocs.com. Joining on the call today are Greg Rabat, Chief Executive Officer Andrew Reese, President and Jeff Lascher, Senior Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. I'll now turn the call over to Greg. Thank you, Brendan. Good afternoon, everyone, and thank you for joining us today. As you know, this is my first earnings call with Crocs having joined the company in late January. I'm very excited to be here and look forward to working with our shareholders, our dedicated employees and our many important constituents. This is a dynamic time at Crocs and despite some of the challenges we face today, we're confident about our future and the opportunity to transform Crocs into one of the leading casual lifestyle footwear companies in the world. This afternoon, we announced our Q4 and full year 2014 financial results. 2014 revenues were $1,200,000,000 and non GAAP adjusted net income attributable to common stockholders was 50,000,000 dollars We delivered 4th quarter sales of $206,500,000 in line with expectations. Revenue was essentially flat to last year on a constant currency basis across all regions, including the Americas, Europe, Japan and Asia, with the exception of Latin America and China. We expect to see material progress in both of these markets in Q2 based on actions already taken. Net loss for the quarter was $56,900,000 We had one time and special items totaling $26,800,000 resulting in a non GAAP adjusted net loss attributable to common stockholders of 30,000,000 dollars Jeff will go into our results in greater detail later in this call. We continue to execute the turnaround strategy we laid out in July. These efforts are critical to our plan to position Crocs for sustained future success and include strengthening the Crocs brand, elevating our product stories while eliminating non core categories, evolving our international business model to focus on our 6 most important markets, while at the same time leveraging best in class partners in the rest of the world, strengthening our relationship with key wholesale partners, improving our direct to consumer capabilities and performance, simplifying our operations and processes and building a best in class team. We've made significant progress on all of these initiatives. Having said that, we do face a number of challenges as we enter 2015, Some of which we can't influence such as the strong U. S. Dollar and the speed of recovery from the slowdown at the West Coast ports. Others we can most definitely improve upon such as the ongoing challenges in our China business. In a few moments, Andrew will review the progress we're making across our strategic initiatives, while Jeff will review our financials, including the impact of currency. Before I hand things over to Andrew, I'm particularly excited about 2 new initiatives, which represent some of the future opportunity and direction we see at Crocs. First, in April, we're launching our largest marketing initiative in the company's history. Our new brand platform, Find Your Fun, will launch in early April. The concept was enthusiastically received by our wholesale accounts at Platform last week. And second, one of our new product launches, the free sale, an update to one of our women's clogs featuring a more tapered last is showing an extremely positive initial response, albeit based on only 1 month of selling. We've made great progress over the last 6 months in repositioning Crocs for the future. While there's still much to do, the opportunity is enormous and I'm excited about and confident in our strategy, our team and our ability to transform the Crocs brand and business to reach its full potential. And now Andrew will highlight some of the details of our turnaround efforts. Thank you, Greg. Greg outlined our strategy for repositioning Crocs, which is well underway. Let me highlight the major initiatives, the progress we have made and our plans going forward. Elevating the brand. We are finalizing our new global marketing campaign Find Your Fun, which will build on what consumers have identified as our key brand attributes. The campaign is designed to reignite excitement and relevance for Crocs, celebrating our core clog silhouette, while showcasing our broader range of casual lifestyle footwear. The campaign will roll out during spring 2015 supported by an overall increase in marketing spend of more than 10,000,000 and a 50% increase in working media directed at our end consumers. Focusing on our core products. Having exited our non core businesses Crocs Golf, Ocean Minded and Apparel, are focused on core molded and casual lifestyle footwear. The impact of Michelle Paul and her team who joined as Senior Vice President of Global Merchandising in July will be fully seen in spring 2016 product line. We have made changes to our future merchandising calendar, extending our spring season from 6 to 8 months, flowing product more frequently within the season to provide continual freshness on the sales flow. Focusing on our 6 key markets. We are focusing our efforts and investment on our 6 largest markets, which represent roughly 70% of overall revenues and profits, the U. S, Japan, China, Korea, Germany and the United Kingdom. As Greg noted, we continue to address our challenges in China. We're focused on driving sales per door and profitability of the business. We have closed stores, cleaned up distribution and put in programs to move through excess inventory. We have new leadership in place and a new promotional plan for spring 2016 to drive sell through. While we will see substantial declines in Q1, the declines will moderate in Q2 and we expect to return to growth in the second half. In accordance with our strategy, we're evolving our business model in a number of the rest of world markets to reduce our direct investment and improve our profitability. The most significant of these thus far being Brazil and Taiwan. We will continue this transition process during 2015 and ensure we build a network of best in class business partners. Building stronger relationships with key wholesale accounts. We're implementing a series of top to top meetings with our key wholesale accounts, allocating some of our increased marketing funds to co op programs, enhancing our line building and product creation process to incorporate feedback from accounts earlier in the process. This will have the impact of strengthening relationships, product sell in and eventually and most importantly sell through. Improving our direct to consumer capabilities and performance. We have made great progress in trimming our direct to consumer operations. In 2014, we closed 114 retail stores, which while adding to top line sales contributed little to overall earnings. We will continue this process in 2,050, expecting to close another 65 stores, while only opening 35 new ones. We streamlined our e commerce business with the closure of 9 smaller international sites. We will capture some portion of these sales in markets within Europe through our dot eupaneuropeansite. While in other markets, we have made Crocs available within leading multi brand retailer sites. Having reduced our direct to consumer network for greater efficiency, we will focus on improving comparable store sales in 2015. Under a new retail leadership team, a number of initiatives are underway to improve the performance of our stores, including new retail management systems, closer management of inventory and in stock position, creation of a continuous flow of new merchandise in stores to keep them fresh and drive return to customer visits, centralizing and streamlining operations, while building a best in class team. We have made great progress in centralizing and streamlining key processes. Global marketing has been centralized to provide clear and consistent brand positioning and messaging. Similarly, centralized product creation will deliver a streamlined product portfolio, creating supply chain efficiencies, saving both cost and time. As we centralize and streamline processes, we're able to eliminate approximately 8% of our non retail workforce. Perhaps most important are the improvements we've made and continue to make in our team. During the past 8 months, we have added key talent including Greg Rabat as Chief Executive Officer in January of 2015, Assef as President in June of 2014 Michelle Pool as Senior Vice President of Global Product and Merchandising in August Bob Munro as General Manager of our Americas region in October Claire Connolly as Vice President of North American Retail in July. Finally, on Monday, we announced that David Thompson will join us as the newly created position of Senior Vice President and General Manager for Asia, Africa and the Middle East, bringing over 20 years of international footwear, apparel and consumer experience to the role. Reporting to me, David will oversee a consolidated region, which incorporates several of our key markets, including China, Japan and Korea. One other item to note. In January, we launched our new global ERP system SAP. While this has been a significant effort and we still have more work to do, the team has made incredible progress over the last several months and we feel confident the system will provide both process efficiencies and improved information for decision making. While there is still much to be done in 2015, I'm very proud of the progress the team has made thus far and confident in our ability to execute the balance of our plans. Now I'll turn it over to Jeff to go into the details of our performance. Thank you, Andrew. Today, I will cover our Q4 2014 results and then briefly review the full year financials, including the impact from changes in foreign currency. I will also spend a few minutes talking about our China business. Finally, I'll walk through some perspectives on 2015. Revenue in the Q4 was in line with our expectations at $206,500,000 down 5% from a year ago on a constant currency basis. We sold 10,600,000 pairs in the quarter, a slight reduction from prior year. The average selling price of our footwear in the Q4 was $18.87 an 8% reduction from the prior year, primarily the result of currency and China. Americas revenue was $103,800,000 for the quarter, down 1% in constant currency, caused mostly by a continuation of the slowdown in Latin American volume as discussed earlier in the year. Retail sales in the Americas increased 3% for the quarter, while e commerce declined 1% in constant currency. In Europe, revenues were $36,100,000 for the quarter, down 12%, but flat on a constant currency basis. Growth in Europe was driven by wholesale volume increases and higher retail sales, partially offset by a reduction in e commerce revenue, which was down as a result of lower traffic. Asia revenues for the quarter were $48,800,000 With the exception of China, our Asia business was flat to prior year on a constant currency basis. While we saw strong growth in e commerce volume in China, up double digits compared to last year, our China wholesale business was down $16,000,000 In China, the core issue that we've been addressing is that our distributor partners collectively overestimated sales demand, purchasing too much product from us in the first half of twenty fourteen. In the second half of twenty fourteen, we work closely with our partners to address excess inventory in the marketplace. In addition, we reviewed our distributor partner network and the number of stores they operate to ensure their long term fit and viability. We expect revenue declines of $25,000,000 in Q1, moderating declines in Q2 in the range of $5,000,000 and we expect to see growth in the second half in comparison to 2014. Japan revenues were $17,700,000 for the quarter, in line with prior year on a constant currency basis. With the hiring of David Thompson, Japan results will be consolidated into the Asia region going forward. Turning to our retail operations. During the Q4, we reduced our global store count by 25 stores. In total for 2014, we closed 104 stores and reduced our global store count by 34. We ended the year with 5 85 locations. The stores that we closed in 2014 generated $19,000,000 of revenue on an annual basis, but did not contribute significantly to operating income. We plan on closing 65 more locations in 2015, while opening only 30. We expect this will further reduce 2015 revenue by $8,000,000 This will reduce our global store count by an additional 35 for a year end 2015 total of 550 locations. During the quarter, we have made significant progress on our strategic objectives announced in 2014. The major one time items associated with these changes include inventory write off of discontinued product lines, including our Golf, Ocean Line and apparel costs associated with the development and launch of our new SAP system that Andrew discussed earlier asset impairments for retail stores that were closed in the quarter or will be closed in the future specific cost of closing Brazil direct to consumer channels and finally, restructuring charges associated with staff eliminations and store closures. As a result, the company took several non recurring or special charges that are included in the results for the quarter totaling $26,800,000 Excluding these items, non GAAP adjusted gross margin for the quarter was 42.6 percent, down 3.90 basis points from prior year. The gross margin decline was driven by 2 key issues. Approximately 1 third of our decline or 190 basis points was driven by the impact of the stronger U. S. Dollar. And roughly 2 20 basis points of the decline was related to our issues In our core adjusted selling and administrative structure, expenses were $124,000,000 down from $127,000,000 in the prior year, including a 2% reduction in direct channel SG and A, representing the positive impact of the store closures. Excluding China, we reduced our quarterly expense structure by $5,000,000 in the quarter on a constant currency basis, consistent with our initiative to increase the efficiency and effectiveness of our global operations. For the full year 2014, we experienced revenue growth of approximately 1%. Unfavorable exchange rates driven by a stronger U. S. Dollar reduced revenue by $16,000,000 Revenue growth on a constant currency basis was 2%. Overall strategic changes to our distribution model as we transitioned to new partners in key countries impacted wholesale revenue by $15,000,000 including decreases of $10,000,000 in Latin America and $5,000,000 in Southeast Asia. Turning to the balance sheet at the end of the year. While the company had an operating loss in the quarter, the improvements in the balance sheet resulted in only a modest use of cash in global operational activities. Global cash ended the year at $267,500,000 While the company had non recurring or special charges of $26,800,000 in the quarter, cash was impacted by approximately $11,500,000 as the remainder of these charges were for non cash items. We used $55,700,000 of cash to repurchase 4,500,000 shares in the quarter, bringing the total shares repurchased in 2014 to 10,600,000. Inventory at the end of the year was $171,000,000 slightly higher than 2013, but down substantially from Q3 ending inventory of $203,000,000 Accounts payable were lower than the prior year at $42,900,000 as we prepared for the conversion to SAP in Q1. Accounts receivable of $101,000,000 decreased from prior quarter and was flat to last year. One final note on the financials. The weighted average share count used to calculate the loss per share attributable to common stockholders disclosed in the earnings release was $80,900,000 As a reminder, basic and diluted share counts are the same in a quarter that generates a net loss. As we enter 2015, while we continue to make great progress on our strategic initiatives, there are 3 external factors that will impact our global results. 1st, currency. Our costs for footwear products are primarily denominated in U. S. Dollars. We expect the revenue impact of currency in the first half to be about 7%. As a side note, about 70% of our expense structure is denominated in U. S. Dollars, while only 35% of revenue is generated in U. S. Dollars. While lower overall prices will impact our product costs in the future, much of it will offset price increases in our factory. We do expect to see some margin benefit in the back half of the year in our molded footwear. The near term benefits of lower oil surcharges will mitigate global shipping inflationary pressures driven by capacity constraints. Finally, uncertainty around the speed of resolution of the labor issues at the West Coast ports, the delays it has created has the potential to shift some revenue from Q1 to Q2 and causes extra shipping costs. In addition, revenue in Q1 will be impacted by several strategic decisions we have made to improve the long term financial performance of the business. First, our retail footprint is lower by 34 stores and we plan on closing an additional 35 stores. 2nd, we exited several non core product lines. 3rd, as we mentioned, we anticipate that our China business will be down in the Q1 $25,000,000 We expect Q1 revenue to be between $260,000,000 $265,000,000 down 12% to 14% on a constant currency basis, but essentially flat to last year excluding China, exited product lines and store closings. We continue to be very confident in our future and expect to show material progress in our results in the coming quarters. Now, I'll turn it back to Greg for closing thoughts. Thanks, Jeff, and thank you, Andrew. As I mentioned at the opening of the call, the transformation of Crocs is progressing well and is on track and will set us up for long term sustained success. Despite some headwinds in the business, we're making great progress on focusing the business on core products and markets, elevating our product and marketing stories, and evolving our organizational structure and talent. Over the last 6 months, we've made significant changes in our business model that better positions Crocs for the future. Over the course of 2015, particularly in the back half of the year, we expect to see some of the benefits of this work. In 2016, we will see the real value of these strategic changes. I'm confident in the direction in which we're headed and our ability to execute successfully against our plans. I want to thank the Crocs team across the globe for all their hard work, their dedication and commitment. We have a very talented team at Crocs and I look forward to working with all of them as we strive to create one of the leading casual lifestyle footwear companies in the world. Now, operator, we'll open the call up for questions. Thank you. We'll now begin the question and answer session. And we have Scott Krasek from Buckingham Research on line with a question. Please go ahead. Yeah. Hi, everyone. Thanks and welcome Greg. Thanks, Scott. So just as you sort of frame the full year view, you're alluding to second half revenues being up. Maybe just help me understand what gives you the confidence around that? And then secondly, can you give some idea Jeff of the basis point impact from currency on gross margin in 2015? Thanks. Sure. So thanks Scott and I'm very excited to be here. It's obviously only my 4th week on the job, but I do have the benefit of having been on the Board for the last year. And probably the first thing worth noting is the turnaround strategy that Andrew outlined this past July, it's on track and it's going very well. And as you kind of think about the year, we're very excited about our new initiatives. Our spring 15 marketing campaigns, the biggest in the company's history. Our new product launches, which we really don't see until late in the year and in a material way, it really don't hit until 2016. The reaction to these both internally and with folks we've spoken to have been really, really positive. And they'll both have a meaningful impact on the business. But if you take a step back, outside of currency in China, our business is stabilizing across the globe. And we're addressing the China issue. We've been after that one for a while. And we've shifted as a company across the board, we've shifted our orientation to profitable growth rather than top line sales. And that's a big change for the company. At the same time, we're simplifying and focusing our business where we can. So when we kind of take a look at 2015 and excluding store closures and discontinued brands and businesses, we expect to grow our business across all regions on a constant currency basis. The one exception is China, which we talked a lot about, where we see a large decline in the Q1, a much smaller decline in the Q2 and then we'll return back to growth in the back half of the year. And I know Jeff will talk about currency in a second. But as we look at currency, our overall margins in 2015 are expected to be in line with 2014 even with the impact of the strengthening dollar. And we expect gross margins to improve in the second half versus LY and mostly mitigate any declines that we see in the first half. Okay. That's interesting. And then so gross margin flat for the year. Then maybe just help me understand why you've gone away from talking about backlog because having covered the company for a while, it actually seemed like it was a pretty good predictor of your wholesale sales. Yes. As we said on the 3rd quarter call, Scott, we've made a decision not to provide backlog at this time given the challenges that we've had in accumulating those numbers in the past. So we've decided not to move forward with those numbers at this time. Is it safe to say though that your confidence about improvement in the back half is supported by some sort of data? Yes. Obviously, our backlog information at this point, Scott, this is Andrew, is clearest for the our view on the business is clearest for the first half where we're confident on the guidance that we provided. We're currently in the process of selling in and presenting our full holiday product and we anticipate 2 things. One is we're getting some good reactions to some of the product that we're presenting. We've got some stabilization and improvement in some of our distribution partners around the world as we think about the global business. And we're also anticipating pulling forward, I think we highlighted extending our springsummer season to 8 months. We're anticipating pulling forward and making some substantial deliveries against spring summer goods in the back end of the year. So the combination of product reception, strengthening of our partner base and early deliveries of 2016 product gives us some confidence. Yes. And the customers are excited for some of that spring 2016 product in the Q4 of this year. Interesting. Okay. Thanks very much and good luck. Thank you. Thanks, Scott. Thanks, Don. And our next question comes from Jim Duffy from Stifel. Please go ahead. Thanks. Hi, everyone. Greg, welcome to you. Thanks so much. Yes. Greg, a question for you. Could you speak at a high level about the focus for product and merchandising going forward? And how that translates to better momentum in both the wholesale business and your own retail locations? Sure. Thanks. A key part of our strategy going forward as we look at product is continuing to focus on our molded product. It's a core part of our strategy going forward. We're elevating our focus on adding style and innovation to that product as we go forward. And you'll even see our marketing campaign as we hit spring 2015. You'll see that celebrate kind of our core classic silhouette. That's a big part of helping us to kind of reinvigorate what we think that's a critical part of the business going forward. At the same time, we're focused as I just mentioned on adding more style and making having trend right product that's brand right. And we mentioned I mentioned earlier the free sale which is a small introduction for us, but it's a great new shoe that represents where the brand has been and it has this tapered glass that's styled differently than we've styled things in the past. And the initial reaction has been fantastic. And the reason we called that out is not that it's this massive program for us at this point, but it's indicative of when we understand kind of our consumer, when we understand the core components of what the Crocs brand represents and we build trend right product, we have a huge opportunity to grow our business. Yes. And Jim from a financial perspective, if you think about the strategy to build around our core molded product, it's the most profitable line that we carry and it's really going to help us to offset the currency impacts that we talked about in the script. So we're really excited about our product line. Okay. Great. And then, margin objectives. Jeff, is there a reason we should be rethinking those which you communicated low 50s gross margin and a 12% operating margin objective? So I think at this time on the gross margin basis, we talked a little bit about it. And then obviously, Greg answered the question on 2015. As we get a little bit more data for 2016 2017, we'll have a little bit more information later in the year about future margin perspective. Yes. And I'd add, we feel confident we can achieve that 10% to 12% operating margin that we've talked Our focus is achieving that in the intermediate future. And we intend to share more with you with everyone later in the year. Very helpful. Thanks. Thank you. And our next question comes from Sam Poser from Stern Gerge. Please go ahead. Thanks for taking my call. Welcome, Greg. Thanks, Sam. A couple of things. You said in and sort of was in passing that the port disruption may still cause more trouble to the Q1. I would assume you know what the port's going to do. And then you said later that the port distractions or whatever is going on was reflected in the guidance. So what is it? Could it be worse because of the port? Or do you think you have the port problems now that the strike is over? Do you sort of know the flow now? Hey, Sam, this is Andrew Reese. So a great question. Thank you. I'd say the port situation is still changing day by day. We're monitoring extremely closely. We know where all our product is that's sitting on boats or on the port and we're starting to receive deliveries. I think we factored into the guidance what we anticipate the impact will be which is a modest slippage of revenue from Q1 to Q2, but it really is changing pretty dynamically. Yes. And the only Sam, I'd add one thing. We have been working on mitigating this and certainly using Vancouver and the East Coast and our Mexico operation and airfreight where necessary and appropriate. So, operation and airfreight where necessary and appropriate. So we've as Andrew mentioned, we've been on this and but it continues to evolve daily. We've seen a lot more product get released in the last few days, which is a big positive sign. Yeah. Literally in the last 24 hours we've seen significant changes. So just to clarify, this guidance regarding the ports impact, when did you last adjust the commentary regarding the port in your prepared remarks? Our guidance includes an estimate for the impact of the delay we're seeing at the port as of this week. Okay. Within the Q1 guidance, are there more write downs in that number? I would assume especially in China, I think you had $6,000,000 or so in the Q4? Well, as you know, we only gave guidance for the revenue piece at for the quarter. So at this point in time, we feel like our 4th quarter accounting issues are behind us for that particular issue that you referred to. Okay. And then when do you think your inventories will be in line with sales? Well, as you know, Sam, we came down on a quarter over quarter basis and ended the year about the same level of inventory that we ended at last year. We've made a number of strategic changes, including SAP and centralization of some of our processes. We've added some new talent. We think all of that will help us manage our inventory more effectively in the future, allow us to flow our product in the future and really get a good handle on our inventory throughout the course of the year. And Lynn, thank you. And then lastly, Greg, I know you've been on the board for a year, you just started. You talked about later in the year. When do you foresee yourself really addressing the longer term? I know it was sort of answered, but when do you really see like can we expect that after the Q1 call? Do you want to expect that after Q2 call? When are you really going to sit there and say, okay, here's what I've learned, here's where we are, so people can really feel comfortable or not as to what potentially what 20 16 the rest of 2015 looks like 2016, 2017 and so on and that longer term outlet for the brand. You've given us a very good general look at it. But when are you going to be able to like I guess get a little more specific on it? Yes. I think our intent is in the summer timeframe probably after Q2 to have a more robust conversation about kind of where we're heading and how we're going to get there. Thank you. Good luck. Thanks so much. And our next question comes from Steve Marotta from C. L. King and Associates. Please go ahead. Good evening, everyone. Greg, I believe you mentioned Brazil and Taiwan or maybe it was Andrew and partners in those markets are endeavoring to find partners in those markets. Have those been found and have those markets transitioned? Or are you still actively looking while you endeavor to wind down operations there? Thanks, Steve. This is Andrew. Yes, in both of those markets, we have transitioned to distribution partners. So in Taiwan, we had a combination historically of our own retail stores and distribution partners for wholesale. We have closed a number of the retail stores and transferred the rest to our Brazil, the business model was similar. We had our own direct wholesale business. We had distribution partners and we had retail and ecom. The e commerce has been transitioned to net shoes. The and the wholesale business has been transitioned to a number of our partners. So those and that transition is complete. What are the next two biggest markets slated? We there's a number of markets we have on our radar screen. They are relatively small, hence we are looking for distribution partners versus business. But I would be hesitant to disclose those because we're in active discussions with parties involved in that. Fair enough. I have just a couple of housekeeping questions. There's $200,000,000 remaining on the share repurchase program, correct? That's correct. Okay. And of the $268,000,000 in cash, how much is overseas? The vast majority is overseas. It's reinvested in our international businesses, but we have the ability to bring it back. And we still maintain an approach on our share buybacks to be patient and methodical in our approach to share repurchases. Okay. I guess another way of asking it is, do you have the capacity to execute the entire share when would you have the capacity to execute the entire share repurchase program without necessitating repatriating a material amount of cash? Yes. I'll be more specific. So we continue to have the liquidity available to do this share repurchases that we desire to do it at the pace that we're looking forward to doing it. So that's not a challenge to us. The approach that we take on the share repurchase is to be patient and to buy back the shares over time. We bought 10,600,000 shares in the course of the year, a total of $147,000,000 including a large amount in Q4 at 4,500,000 shares. Okay. And lastly, I know that there's a lot of talk about springsummer product. Obviously, Crocs has more of a springsummer flair to it. And based on when the team transitioned that the biggest impact, of course, would be springsummer 2016. Is there any needle moving event on fallwinter product for 2015? The team in other words had the opportunity to come in and touch that product. I know that it's seasonally slower, it's seasonally smaller, but is there anything to potentially be a unit driver in the back half of the year? Thank you. Yes. Thank you, Steve. There's a couple of things there. One is, we're anticipating an impact of our marketing. We've got a significant marketing program going into the market in the spring that will also have a follow-up in fall in North America. So we think there's a traffic impact from reawakening and reengaging the consumer. Secondly, I'd say there are a number of discrete projects and that we've focused on for the full holiday 2015 season where we see some improvement in the product both in some of our molded product and also some of our casual products. But it's discrete SKUs or elements of the range versus a wholesale renovation of the range. That's helpful. Thank you again. And your next question comes from Danielle McCoy from frame this? So the product that's over there since you guys are extending your springsummer seasons, can we kind of assume that those products might have a little bit longer shelf life and that they wouldn't have to necessarily be marked down compared to Yes. I mean, I think the way I'd answer that, Yes. I mean, I think the way I'd answer that Daniel is we think the extension of the springsummer season is a really important strategic initiative that's going to make a big difference. And the way it's going to make a difference is we've artificially probably cut off our seasons historically. So it will allow us to make pre year end deliveries for spring summer product to us to our warmer climates and we do a lot of business warmer Asian climates that can sell that product in a more extended period of time. So it extends it in the front end. Probably the biggest actual benefit is still on the back end. Historically, we made our last delivery of fresh merchandise in Mayearly June. And when you think about the wearing occasion for our product, you've got July August as your biggest wearing occasions or your biggest periods where you're going to be at the beach, at the pool, out and about in summer product. So extending towards the back end of the season allows us to make significant allows us to bring newness into those time periods. So we think that extends our season. And I think a component of it is exactly as you said, we have a longer shelf life on our product. So we don't have to be as conservative about the quantities that we introduce. All right, great. Thank you, guys. Good luck. Thank you. Thank you. And our next question comes from Jim Chartier from Monness. Please go ahead. Hi. Thanks for taking my questions. Andrew, last quarter you talked about the wholesale bookings for spring by region. Have there been any material changes over the last 3 months? There have been no the only material change that we would highlight is the one that we've already talked about, which is some potential slippage from Q1 to Q2 in North America based largely upon delivery and slowdown in the West Coast ports. Okay. And then Jeff, any way you can quantify what the impact of FX if rates remain where they are today on 2015 sales and earnings? Yes. So thanks, Jim. As we said on the call, we anticipate that FX will have an impact of about 6% in the first quarter, about 7% in the second quarter. And then in the back half of the year, it will moderate as we start to lap the declines that we saw in the yen and the euro in the latter part of 2014. And then I mean Just to remind just a reminder, Jim, that 1% movement in both currencies, the yen and the euro, is about $1,000,000 of operating income on an annualized basis if that sustains at that level. Okay. And then you have some bad debt expense in 2nd and Q3. Are those behind you? Any other issues you might have going forward? Yes. Thanks, Jim. So when we look at our balance sheet for the end of the year, we're quite happy with the way we've improved our balance sheet materially and reduced our accounts receivable. In part, we've taken some allowances for doubtful accounts. We continue to work those very aggressively to work with those partners to collect that, but we think we're appropriately reserved at this point. Okay. And then any thoughts on pricing to offset some of the currency headwinds? Yes. What I would say is this is Greg. We evaluate that on an ongoing basis and where we see the opportunity and where it makes sense. And in some countries, we're doing that on a regular basis, we're taking prices up. Great. Thanks and best of luck. Thank you. And the next question comes from Erinn Murphy from Piper Jaffray. Please go ahead. Great. Thank you. Good afternoon. And I apologize, I had a little bit of technical difficulty, so this may have been asked. But just one of the questions from your prepared remarks, I just want to clarify. When you talk about return to growth in the second half, is that on a constant currency basis excluding any FX headwinds? And then can you I know you're not giving backlog, but if you could just provide some context for kind of the building blocks? Sure. Aaron, this is Greg. When you take a step back and look at the business, we're confident where we're heading. And outside of our China business, our business is growing on a constant currency basis across all regions. So we feel very good about the direction that we're heading. And while we're not kind of sharing kind of detailed guidance, we do feel the business is making significant progress and we're confident with the work that the team has done over the last 6 months. We're heading in the right direction. And that will get amplified by great marketing and by new product initiatives, which as each season progresses, obviously, we'll have a bigger and bigger impact on the business. Operator, I think we lost Aaron. So I think we go to the next question. And the next question comes from Mitch Cummings from Robert Baird. Please go ahead. Yes. Thanks for taking my questions. A few things. One I wanted to clarify. I think when Scott was asking his questions, I think there was someone said that the margins sort of flat margins for the year. I don't know if I heard that correctly. I think maybe Greg you'd made that comment. And if that were the case, was that a comment around gross margins or operating margin? Can you just clarify it? Yes. Thanks, Mitch. For 2015, we think there will be some margin pressure in the first half of the year as we talked about. In the second half of the year, we think there's some upside opportunity. At the end of the year, those will balance out. We are anticipated that the gross margins for the year will be roundabout equalized over the course of the year. We didn't talk to operating margins specifically, we just talked to gross margins. Okay. Thanks for that. And then maybe just kind of back to Aaron's question about the growth. Again, I guess I'm not clear yet still is whether or not you're it sounds like you're expecting growth in constant currency and not in terms of reported dollars. Is that fair? No. So in the back half of the year, we are anticipating that we would see some growth in actual real reported dollars. Okay. And then I know you guys seem pretty bullish on the marketing to drive that, but it seems like you would still have some headwinds from currency even though more moderate than the first half, but maybe in a kind of a low to mid single digit range. You would still be seeing some negative impact from closed stores. You might still be seeing some impact from eliminated non core products. So I don't know how much of a headwind those it sounds like those items are like $50,000,000 or sorry of the $50,000,000 that you're kind of guiding to down in the Q1, it sounds like China is $25,000,000 so the other half was kind of those items. Do those items become a lot less significant in the back half to get reported dollar growth? I'm just trying to reconcile that. No, I think you're thinking about it the right way. So if you take currency to start with, well, that starts to moderate in the back half of the year because we obviously started to see those declines in the back portion of the year. So that's a much smaller impact. And you're absolutely right. Look, we've closed a significant number of stores. So we think that will be down and we're going to lose some revenue there, but no profitability. But we have we've selected we've improved our distribution partners in some parts of the world and we're optimistic that they will continue they will grow the business. We've got the marketing which we think will drive business in some of the key markets where we own the business and when we're the direct distributor. We are lapping China in the back half of the business, which because of the issues that we've talked about at length on a wholesale basis actually did relatively little business in the back half of the year. So we think that's a pickup. So we've got, I think, some clear line of sight to some growth opportunities in the back portion of the year, which offsets a moderation of FX and some of the strategic decisions we've made to shrink the business around stores and some product lines. Okay. And then maybe the last question. It sounds like you're going to end the year with 5.50 stores, so that's down maybe 75 stores from the peak. Is that I mean is that kind of the number that you're comfortable with? Or is there more work to be done there in terms of kind of working through some stores that maybe come off leases? And then also on eliminating non core product, it sounds like you talked a lot about like golf and ocean minded. But I'm just wondering within the Crocs brand, how much work have you done in terms of reducing SKU count? And does more of that work still need to be done kind of beyond 2015? Okay, great. Let me take those questions in a reverse order. So on a SKU count basis, we feel great about where our springsummer 2016 line is in terms of SKU count. And that's a significant reduction in overall SKU count, but in a given location, a given region, so let's take North America, it's not nearly such a dramatic reduction because what was driving a lot of our SKU proliferation was derivatives of the same SKU or different SKU selling in different regions. So we've aligned around a coherent global line, which will be much more efficient in terms of a SKU count perspective. So we really think we're kind of set on that as we look at our pipeline in terms of development and the majority of the effort that we've undertaken has been is behind us. From a store perspective, you're right, we'll be down about 75 stores by the end of the year. I would say, yes, there are a number of stores that we would like to close still where we're waiting for the leases or waiting for the right opportunity to work with the landlords. But it's probably it's a number that's certainly less than 100, but it's sort of 50 to 75 stores that we'd probably target over time. And we'll do that on a what is a sensible economic basis. Great. That's very helpful. Thanks guys. Thank you. Thank you. And our next question comes from Scott Krzyzyk from Buckingham Research. Please go ahead. Yes. Thanks for taking my follow-up. Just a couple. One, Jeff, what's the CapEx plan for 2015? Yes. So and also importantly on a housekeeping note, depreciation and amortization as we change over, as Andrew mentioned, we launched our SAP. So depreciation and amortization should be in line in 2015 versus 2014. We anticipate that our CapEx expenditures will be a little bit less than our depreciation this calendar year as our main focus is getting SAP efficient in our systems. Okay. And then just on SAP, you sort of referred to it's in, but there's still work to be done. Just wanted to make sure you're seeing all your orders and it's working as you expected it to? Yes. Yes. So it's I would describe as being in the middle of our go live. So it's up and running. It's working. We are shipping all of our channels of distribution, wholesale, retail, Internet in all regions and it's working. Okay. And then just last, just randomly if I go on your website and I look at the Busy Day Canvas Skimmer or your Ailey Wedge, which you've had for a couple of years, they're basically sold out in all colors and sizes ahead of the season. Is that because of the port delay or? Yes, it is impacted by the port delay. And what I will add is the strategy going forward is to get behind our biggest ideas in a more meaningful way and that's been a problem with the company in the past. One of the benefits of evolving the product creation process that we have in a number of ways And as Andrew mentioned, the SKU proliferation often there were multiple SKUs in different regions that it was hard to tell the differences between the product. But from an inventory management standpoint, it became very difficult. So our focus on these bigger ideas will enable us to have better in stock position throughout the season and to drive sell through on an ongoing basis. Okay. Thank you. And our last question comes from Sam Politzer from Stearnsky. Please go ahead. Three things. Jeff, you talk about being patient with the buyback. The stock is at $10 What's the are you restricted by the number of shares you can buyback at all right now? Or I mean and what is a good price? I mean because at $10 it seems like pretty good price. Well, I think as we've always said, we'll be patient in buying back. There are some restrictions on a daily volume, but we've always said we're going to be patient in the buyback of share repurchases and we bought back 4,500,000 shares in Q4. And Sam, our plan is to continue just to maintain a disciplined approach going forward and that's kind of our orientation. Okay. And then secondly, the question regarding the fall product, doing the 8 months or expanding spring to 8 months to be able to I guess properly help the Southern United States, Asia and Latin America. I mean, does that as you see it, will that does that more than offset sort of all of the prior attempts to come up with a really strong fall type business? I mean, it mitigates a good deal of that. Yes. It absolutely has a significant mitigating effect Sam. I would say that's step 1. And you're right, there have been significant prior attempts to come up with full product. We think we can do an awful lot better. So step 1 is expanding spring and really investing where we're strong and capitalizing on the heritage of the brand and the connectivity we have with our consumers. Step 2 is going to be to really do a much better job at developing full product that's right for the brand, that's right for our channels of distribution and can be successful. And Sam, I'd build on that. And I think Andrew and the team have done a great job of building out the organization and setting up for setting us up for success. And as you know, it's not just talent, but it's also shorting decreasing the product creation calendar, so we get closer to market. It's a whole series of initiatives that we've got going on to enable us to have better product that styles right. And I think you'll see a very big impact next year throughout the year with the right styles at the right time both in the spring and then in the fall as well. And then you talked about the store closures, the big store, I mean 34th Street that just comes to mind is something that's going to be hard to pay for. Is that something you're working on? And then lastly going back to the buyback for one second. Jeff did you buy have you bought back any stock since the end of the quarter? I'll let Jeff go first with the buyback. Yes. We have bought some back since the beginning of the quarter And we will give you that Q1 activity in the next call in 6 weeks, 8 weeks. Yes. I mean and on 34th Street, yes, I don't want to comment specifically on any given store, but obviously, it's a very prominent location. It's a tremendous billboard for the brand and we do a lot of volume. Are you making money there? We're not making as much as we'd like. All right. Thank you. Thanks again. Thanks, Sam. And I'll now turn the call back to Greg for final remarks. I just want to thank everyone for joining us today and I want to share with you that I look forward to working with everyone in the future. So thanks everyone. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating.