Earnings Call: Q4 2012

Feb 20, 2013

Welcome to the Crocs 4th Quarter and Full Year 2012 Earnings Conference Call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time. We ask that in the interest of time, participants limit themselves to I would like to remind you that this conference is being recorded. It is my pleasure to turn the conference over to Mr. William Kent, Senior Director of Investor Relations. Mr. Kent, please go ahead. Thank you, and thank you all for joining us for our Q4 year end 2012 earnings conference call. Participants from the company include John McCarville, President and Chief Executive Officer and Jeff Lascher, Senior Vice President and Chief Financial Officer. During today's call, John McCarver will share some opening remarks, cover 4th quarter and full year highlights and talk briefly on Crocs' corporate strategy. Jeff Lascher will review our 4th quarter and full year financial results in detail and cover guidance. John McCarver will then wrap up our prepared remarks with a few closing comments. Earlier this afternoon, we announced our Q4 and full year 2012 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 of the information provided in this call will be forward looking and accordingly are subject to the Safe Harbor provisions of the federal securities laws. These statements include, but are not limited to, statements regarding future revenue and earnings, backlog and future orders, 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 of the company's 2011 report on Form 10 ks filed on February 29, 2012 with the Securities and Exchange Commission. Accordingly, 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 discussion of these risk factors. Crocs intends that all of its forward looking statements in this call will be protected by the Safe Harbor provisions of the Securities and Exchange Act of 1934. 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 its call, including adjusted net income. An explanation of these metrics can be found on the earnings release filed earlier today. I'll now turn the call over to John McCarroll. Thanks Will and thanks for joining us this afternoon as we discuss our Q4 and full year 2012 results as well as a look forward into 2013. 2012 was another milestone year for Crocs. We continue to expand the brand globally, executing on a multi channel strategy, growing our revenue 14% on a currency neutral basis and improving earnings per share by more than 16%. Unit sales of nearly 50,000,000 pairs were up 5% versus last year improved ASPs up 8% versus last year and global same store sales growth of 2% contributed to our full year gains. Our global multi channel strategy continues to thrive as we saw year over year growth in all three channels on a currency neutral basis with wholesale up 10%, retail up 23% and Internet up 9%. We saw growth on a constant currency basis in all three operating regions. The Americas grew 12%, Asia grew 20% and Europe grew 6%. Finally, we ended the year with 5 37 retail stores, up from 430 a year ago as we continue to push into new markets and geographies and we continue to upgrade the format of our retail locations from kiosks to full price stores and outlet. Turning to our 4th quarter results. During the quarter, we experienced solid revenue growth of nearly 11% on a currency neutral basis. Our revenue was about $5,000,000 higher than our prior guidance as we saw good acceptance of our fall holiday products and exited the quarter with lower than expected inventory. Backlog at the end of the 4th quarter was up 15%. Gross profit dollars for the quarter increased nearly 11%, adjusting for the contingency accruals highlighted in our press release. Profitability was impacted during the quarter by the difficult holiday retail sales season we and other retailers experienced in the Americas, continued economic weakness in Europe and softness in Asia, most specifically Japan. The Q4, while challenging on some fronts, represented another important building block for Crocs. We continue to expand our brand in the Continental Europe, Russia and the Middle East. We opened retail stores in time for our prime springsummer selling season. We opened up 38 stores in the Q4, primarily in Europe, as we believe our current retail footprint positions us well going into the 2013 season. Equally as important, our new seasonal products performed well too. Our focus in 2013 will be to continue our global multichannel approach to the business with an enhanced emphasis on the consumer. Significant investment was made in marketing in 2012, building on our internal creative team, marketing analytics, including brand strength monitor and consumer feedback software and research analytics. We believe we are now in a position to effectively invest in the brand and generate an effective return on our investment in marketing going forward. We will be increasing our marketing investment in 2013 by about $15,000,000 or 33 percent in order to expand consumer awareness around the brand. Marketing investments will be spread globally across the number of consumer activation mediums including print outdoor and social media. In addition, we have begun to leverage our customer database and shopper data for trends to improve our connection with our consumers, enhance customer service and provide real time feedback and analysis. When we look at the business in 2013, we think it's important to consider the first half and back half growth drivers. During the first half of the year, traditionally our strongest from a revenue perspective, we will continue to engage our customers through core products and new styles. We will work to grow wholesale doors globally and strategically. Wholesale doors grew by over 1300 in 2012. We will continue to grow our retail footprint in specific markets where we lack presence and those that have a demand for the brand and expand our Internet presence through new local language sites and site enhancements. In the back half of twenty thirteen, we'll use our global advantage, expanding into contra seasonal markets, increasing our back to school offering in the U. S. Market, expanding our licensed products and new styles for the market for the fall winter season. As management team, we firmly believe in the strategy that we are executing on and that through a product driven approach with stronger marketing spend across multiple channels globally, we will continue to show top line growth and improved operating income. With that, I'll now turn the call over to Jeff Lascher. Thank you, John. Hello, everyone, and thanks for joining us today. Our business continues to experience positive results, primarily from higher sales volume and higher average selling prices. Results for 2012 reflect increases in both consolidated revenues and earnings driven by balanced international growth, operational efficiencies and a customer focus. The following are the more significant developments in our business during the year ended December 31, 2012. Revenues increased $122,000,000 or 12% from 2011 to $1,123,000,000 in 2012. On a constant currency basis, revenue increased 14%. Revenue growth was driven by increased sales volume and focused improvements on average footwear selling prices with new product styles as we continue to transform Crocs brand awareness into an all season footwear brand. We expect growth in 2013 to be 13% to 15% in the first half as we are excited about our new spring portfolio and expanded retail stores. On a full year basis, global retail same store sales increased 2% over last year with Americas up 3%, Asia down 1% and Europe up 5%. In 2013, we are planning around a 3% to 4% global comp for same store sales. For the full year 2012, ASP was $21.55 up $1.53 from 2011. Units were just short of 50,000,000 pairs, up from 47,700,000 units in 2011. Our gross margins improved 50 basis points in 2012 and we expect similar results in 2013 as our expectation is for balanced ASP and unit growth. Selling, general and administrative expenses increased $56,000,000 or 14% from 2011 to $460,000,000 in 2012. SG and A expenses continue to increase as we expand our retail store location. Our direct to consumer channel SG and A spending grew in line with revenue in 2012. Advertising, marketing and promotional costs reflected in SG and A expenses for the company was $40,000,000 in 2012, which was flat to 2011. For 2013, we plan on increasing that amount by approximately 33%, which is incorporated in our 2013 outlook. In addition, 2013 SG and A expenses will be influenced by additional retail stores. In total, we expect SG and A as a percentage of revenue to be about flat in 2013 compared to 2012. Net income excluding non operating items and one time tax benefits increased 17% from $109,000,000 in 2011 to $128,000,000 in 2012, driving adjusted diluted earnings per share of $0.20 for the year. At the end of the year, backlog increased 15% on a constant currency basis from the same period a year ago to $354,000,000 For the Q4, our results were in line with our expectations with wholesale revenue offsetting a weaker than expected retail environment. As previously discussed, we had some non operating expenses that were recorded in the quarter, including $6,000,000 for contingency accruals associated with certain legal proceedings. In addition, we had ERP related expenses of $2,000,000 which were included in our operating expenses and accelerated depreciation. Adjusted for these non operating issues, our gross margins would have been $4,000,000 higher and our SG and A would have been $4,000,000 lower. In total, these non operating expenses reduced our EPS by $0.08 from a $0.04 profit to a $0.04 loss. Revenue for the quarter increased to a new record of $225,000,000 up $21,000,000 or 10%. On a constant currency basis, revenue grew 11%. Americas region was 8% higher than 20 11, driven by a 17 percent increase in wholesale revenue, which saw some changes in 2012 as e commerce accounts grew faster than the overall space. In the Asia region, notwithstanding the challenging retail market in Japan, our overall sales were up 12% versus prior year. Outside of Japan and the region, China sales continued to show exceptional strength and increased 24%. Our Korea business expanded 45%. Overall, our Japan business declined 12% for the quarter. In Europe, revenue increased 17% from 2011, driven by our retail channel, which increased 128% as new stores in high traffic locations drove our revenue higher. It is important to remember that we only had 29 stores in our 4th quarter comp base in 2012. Turning to product data. Our percentage of 4th quarter revenue derived from the clogged silhouette was up slightly to 48% from 47%. This was in part driven by the return of the Mammoth during the fall holiday season and the successful early launch of the retro clog. Also, our new product introductions globally represented about 37% of our Q4 unit sale. 4th quarter 2012 SG and A expenses increased 17% to $111,000,000 compared with $95,000,000 in Q4 2011, as our global retail revenue increased 21%. As noted above, dollars 4,000,000 was recorded for non operating items and $2,000,000 was recorded for the new ERP development. The remaining SG and A dollar increase of $10,000,000 was driven by investments in our direct to consumer channel as we continue to build our retail network globally. We operated 107 additional stores as of twelvethirty onetwenty 12. And this investment sets us up for strong revenue and operating income growth in our peak 2nd quarter retail selling season. In 2013, we estimate that we will expand retail locations across the globe by 795 net new stores, of which 60 to 75 will be in the first half. During 2013, we plan to make significant investments in the operational and technological efficiency of the company as well as consumer marketing. In 2012, we began the development and implementation of a new implementation process of a new ERP system from SAP, which is expected to launch in the first half of 2014. The introduction of a new ERP to our current environment will allow for seamless high quality and efficient data across the company. In 2012, our SG and A costs were $2,000,000 higher related to this project. In 20 13, we expect expenses related to SAP to increase SG and A by $6,000,000 to $8,000,000 and depreciation by $4,000,000 We currently expect this investment in the future to reduce our 20.13 earnings per share by $0.08 to $0.10 per diluted share. Additional technological projects in 2013 include retail store operating analytics systems, the launch of new region specific web designs complemented by suggestive selling tactics and mobile point of sale systems to better serve retail customers and propel the convergence of retail bricks and mortar sites with the capabilities of a fully integrated consumer fulfillment center. In 2012, approximately 1,900,000 shares were repurchased at an average price of $13.27 for a total of $25,000,000 In 2013, we will look for similar opportunities to return cash to the shareholders in the form of share repurchase activity. For the first half of twenty thirteen, the company expects revenue and income adjusted for expenses related to the ERP system to grow 13% to 15% over 2011 levels 2012 levels in U. S. Dollars. In the Q1, we expect revenue of $305,000,000 to $310,000,000 and EPS of $0.32 to $0.34 per share. In summary, our 2013 outlook looks as follows. We expect revenue to grow 13% to 15% in U. S. Dollars. We estimate that we will have modest gross margin expansion through some leverage on our infrastructure even with the additional SG and A related to brand investments, additional retail locations and normalized variable compensation. This leverage on average should allow for a 25 to 50 basis point improvement in our operating margins. These gains will be partially offset by a 21% tax rate in 2013 and the $0.08 to $0.10 investment in ERP related costs. All told, 2013 represents a continued growth of Crocs around the globe through a multichannel geographically diverse revenue model. Thanks. I will now turn the call back over to John for some closing comments before taking questions. Thanks, Jeff. Before we open the lines for questions, I want to provide some high level color on how we believe the regions will perform in 2013. Starting with Japan. Japan may be the most challenging market for Crocs in 2013. The macroeconomic and political climate is the most dynamic for us globally. The impact of significantly weaker yen can be seen in our business in the short term. While the macro situation exists, pre books are up and we still have a large market opportunity for Crocs. Asia will continue to be driven by the growth of the China market, ASEAN countries, Korea and the emerging Middle East market. We will continue to see double digit growth in the region in 2013. For us, Europe has turned the corner in 2012. We have a stronger and more experienced management team in place entering the year. I was recently in Munich and Amsterdam attending the ISPO trade fair and our regional sales meeting. Sales of our new products for fallwinter2012 have done well in key markets like Russia, Austria and the Nordics, proving to us that we are developing the right products for fallwinter for the long term. The team is upbeat for 2013 and our investment in retail will drive double digit growth in the European market and is a key for the evolution of our brand from clogs to lifestyle footwear with clogs. Americas wholesale business continues to grow and build nicely in the mid tier family channel. This is our space, this is our consumer moderately priced, high quality, on trend. The brand very well with our key partners in 2012 like DSW, Famous Footwear, Shoe Carnival, Belk's, Bell's, Rack Room, Academy and many other premier retailers. We're growing our footprint and collections with our existing partners and investing in more marketing with them in 2013. We see double digit growth continuing into the year in the Americas. With that, I would like to turn the call back over to the operator and we'll take our first call now. Thank you. And we will take our first question from Erinn Murphy with Piper Jaffray. Great. Thank you. Good afternoon, gentlemen. I just wanted to follow-up John with you. It was helpful to have some of that regional detail broken out at the end. Just on the Japanese market, talking about it being down 12% in the quarter. But that's first on a constant currency basis or reported basis. Then how should think about at least in the quarter and then going forward on an underlying basis the retail comp trend versus the wholesale trend? I guess to that end as we're thinking about an underlying trend for this market in 2013, should we be thinking about new retail door growth kind of deeper penetration within existing accounts? Or is this just kind of more of a, try to recover situation in 2013? Thank you. Thanks, Darren. Yes, a lot of different questions all tied in there. So I'm going to try to do the best I can and kind of talking about the Japan market. If I missed something, just come back to me. Our business in Japan grew rapidly, mainly on the basis of our connection with the consumers from a lifestyle space. With that said, this has really only been our 5th full year of operation in Japan. And to have a business of this size, we're very proud of it. I think that what we have seen at the consumer level in the last half of twenty twelve leading into 2013 has been one of a very conservative consumer. I think that for our business in Japan, we do have a number of stores that we operate. Majority of our stores do operate outside of the Tokyo Yokohama marketplace with partners who will continue to expand retail doors into 2013. Our initial read on wholesale business right now is up in terms of backlog year over year for the first half of the year. And I think it's really going to depend upon what the appetite of the consumer is in the Japan market as we get closer into the kind of prime time selling season leading up April into Golden Week there. Okay. I guess just a clarification then, John. So that's down 12% in the quarter. Was that a retail comp? Or was that the overall market in general? Overall market in general and the numbers we gave you were on a constant currency basis. Okay. Do you care provide kind of where the comp trend I think in the Q3 had been down 15%. I'm just trying to see if it's been inflecting from a retail basis in Japan? No, we don't normally go through and break out detail to that level in country by country market. Okay. No, that's fair. I guess, and then just going forward from a guidance perspective, from where should we kind of put the yen U. S. Comparison and then the euro U. S. Dollar comparison in our models, we think about the puts and takes of that top line guidance and bottom line guidance for this year? Yes. In our present model, we use an average of $0.91 to the dollar, which is a little bit below where it's at today. But on average, considering where it started the quarter, that's where we have it for our forecast basis. And then for the euro, we have it at 1.35 to the dollar, which again is a little bit higher than the U. S. Dollar euro ratio relationship now, but on an average basis, we think it will end up being around about there. Okay. That's helpful. And then Jeff, just I guess a follow-up on the backlog as we think about Q1, Q2, can you just provide some context how we should think about the movement there as we think about that 15.3% for the first half? It's going to flow out pretty much equally over the 2 quarters. So it's going to be roundabout the same for both quarters as you think about it. Okay. And then I guess to the Horace launch, is that still set for kind of mid April ship? Actually you're starting to see Horace hit some of the markets here the end of February going into early March. Okay. And that will be in the U. S. Wholesale first or U. S. Retail? Where should we see it first as we're thinking about that? You're going to see it both fairly simultaneously just depending upon how fast retail partners put that on their own shelves. But the initial delivery of the core products is on time because this is new product and new technology, we are going to see a little bit of product roll from 3.15 into a 4.1, 4.15 delivery window, but we don't expect it to impact the quarter. Thank you very much. And I'll get back in the queue. Thank you. And our next question comes from Jim Duffy with Stifel. Hi, thanks. A number of questions guys. First, hope you're well. The contingency accruals, Jeff, can you provide a little more color around those? Is it what are specifically the legal proceedings? Are you done accruing for that? What's the probability of a cash expense associated with that, etcetera? Yes. These contingency accruals, Jim, relate to legal proceedings dating back to 2007 time frame up until 2,009 or so. One relates to the termination of an agency relationship in Europe and the other relates to an ongoing legal proceeding associated with customs audits for that time period. As far as cash payments goes, that's probably not something that's a near term cash outlay for us. And as far as additional expenses associated with this, we try to make the best estimate that we can. And we use our management view and the view of the case in total to make a judgment call on what to accrue. Got you. Okay. And then there's a number of adjustments in both 12% and 13%. I just want to be clear on what the basis for the guidance is. What's the operating margin base upon which you plan that 25 to 50 bps of operating margin expansion? When you exclude all of the contingency accruals and the effect of certain legal proceedings that we have in our results for 2012, we're looking at about 25 to 50 basis points improvement in our operating income. So we'll be in that high 13s range. And then the SAP expenses are an additional 0.08 to 0.10 dollars per share for 2013 and that's what we've put in the script and the assumptions to give you the guidance for 2013. Okay. So the 25 to 50 basis points is before the exclusions for the SAP investments, correct? That's correct. Yes, we're going to be quoting in 2013 the business as it performs excluding those non operating activities in SAP. Okay. And those SAP investments, are those isolated to 2013? Or is there a lingering effect from those looking beyond 2013 into 2014 etcetera? We launched the new ERP And then the 3% to 4% comp implied in the guidance, can you speak to some of the factors given the recent comp trajectory that give you the confidence that we can see a rebound in the comps to that level? Yes. Jim, this is John. I think over a period of the year, we've learned as we continue to grow and develop our retail system lot about consumer behavior products in different channels in different geographies. Jeff alluded to the fact that we're continuing to make investments this year in addition to the ERP system with SAP, additional tools for our retail team that will allow us to replenish faster to understand consumer behavior better. So I think we feel with better products, better systems and tools, another year with our retail management team in most locations. We think that this is going to deliver better results into 2013. Got you. Last question, John. In applying that 3% to 4% comp, are you assuming Japan comps remain in negative territory? There considerable down retail going to have as considerable down retail in Q3 and Q4 in Japan as we did this year. I think you have to look at both halves of the year. Great. Thanks so much. Thanks, Tim. And our next question comes from Tush Barry with Goldman Sachs. Good afternoon. I wanted to ask you guys to follow-up on the 3% to 4% comp assumption for next year. I mean, how does that shake out throughout the year in light of the trajectory? Should we expect a stronger trend in the back half of the year versus the first half? No, I think the question it's actually the reverse. We've always been a stronger brand in the first half of the year. We think with the new products that are coming to market, especially in the first half of the year that we're going to have pretty good selling season based on what we've seen in terms of enthusiasm with our consumers and with our retail partners for the new product. So I would think that we're going to have again a little bit stronger first half of the year than we would back half of the year. Okay. So I guess if I could ask a follow-up to that. I mean, we're pretty deep into the Q1. Can you do you have any visibility into how that plan has played out thus far? We do. For us, new products are hitting retail stores really over the last 7 to 10 days. It's never been our practice to comment on performance within the current quarter. So I think this is really the time when you see new products hitting customer acceptance. It's kind of an interesting dynamic, I think also in the United States specifically where the East Coast has had very difficult weather. For us in Colorado, we have no snow on the ground. We've had many 50 60 degree days in January February. So I think it depends a little bit too where you're at in the U. S. On what retail looks like today. Okay. And then the last question I had was, as we look at your new 2013 revenue guidance, you've taken down the first half by a couple of points. You've taken down the back half. I want to clarify, are you saying that the back half of the year is going to grow slightly above 9%? Is that what that means in the prepared remarks? I think when we look at the year right now, we're saying that we anticipate revenue in the first half 13% percent to 15% and that should carry over sober for the year. When we look at it on a constant currency basis, we are facing about 2% headwinds on a year over year basis in the currency markets as of today versus the average rate last year. And that currency headwind will have an impact on our revenue performance for the year. So if you think about it in a constant currency basis, those numbers are better. We predict that the revenue impact of the currency will be approximately $17,000,000 with the Japanese yen decline versus the U. S. Dollar offset by better year over year performance in euros and other currencies. But it's important to remember the yen decline will have an adverse impact on our operating income for the company as Japan has higher operating margins than other countries. The net result of the foreign currency shifts altogether is about $0.08 a share on a year over year basis when we compare the headwinds that we have in the currency markets to last year's rates. Got it. I mean, I guess the question I had for you guys was you brought down your guidance in light of currency obviously more so in the back half than the front half of the year. I guess the back half has historically been the obstacle for Crocs at least for the last 2 years. Just trying to get a better sense of what kind of confidence you have in your ability to perform in the back half of this year in light of the marketing investments that you're making and also I guess the new expectation? Thank you. So I've been here a long time. I think in looking at this business, we've always said, it hasn't just been the last couple of years. We've always said that the back half of the year is going to be a working process. I look at 10% growth for the quarter in what would normally be a difficult market for us. I look at 49% gross margin in the quarter consistent year over year when you take out the extraordinary item that Jeff talked about. Growing $20,000,000 10 percent is pretty good growth when you think about the type of spring summer brand we are. 1st 3 quarters of the year are generally higher growth times of the year. So I think we've tried to be pragmatic looking at 2013, first half of the year with pretty good understanding about products and markets. I think we're being a little bit more conservative thinking about what fall winter will be. But as you asked the question before, yes, we're thinking at high single digit growth in the back half of the year, especially with the Q4. But I think we're all pretty proud of what we've been able to carve out over the last 3 years in terms of new collections of products, new products that did well at retail this year with a lot of our key customer wholesale customers also taking those products. And it's a building process in the back half of the year. I think we see just a wide disparity sometimes in how people look at our business over the next 12 months. And I think what we're trying to do is give a little bit better guidance and you'll have even more information when the K is filed early next week, when it comes to what that should look like. Thank you very much. Good luck in the spring. And our next question comes from Reed Anderson with Northland Securities. Good afternoon. A couple of questions. Jeff, on your comments on gross margin, the expansion you were talking there, would that be if you look at it on a quarterly basis or throughout the year, would that be fairly balanced, I guess? And then I guess secondly is that expansion just primarily a function of the profile of new products as well as the mix of retail? We have a lot of different headwinds and tailwinds in our gross margins that we're assuming as we put these numbers together. One of them is a shift into retail. One of them is a downward headwind associated with currency REIT. So you have to factor that into our gross margin numbers as we have to experience that as we buy in U. S. Dollars and sell in local currency. And then there's other product costs, which we think we've got under control as we go into 2013. So we factor all of those in. An annualized or seasonal pattern by quarter, we've got some tough comps in the numbers as we roll out the year. But I think in general that 25 to 50 basis point improvement that we talked about in the script will be relatively equal across the quarters. And you may have said this, but what did you you are planning ASP growth as in of low single digits kind of number for 2013. Is that correct? That's fair. Yes, we actually are anticipating unit growth to be a little bit higher on a percentage basis than ASP. I think this year, it was a little bit reversed where the ASP grew $1 or a little bit more than 7%, I think. And then the units were a little bit less than the 7% growth rate. Next year, we see basically about 10% increase in units, 8% to 10% increase in units and roundabout that 5% or about $1 per unit for ASP. So that's kind of what our early predictions are. Okay. And then from an inventory standpoint, I know it was I think actually a little bit better than you had been planning or thinking. But just as you think about that kind of working through some of the timing things there, where would we see that kind of normalize throughout this year with kind of the cadence of sales growth? Yes. I think when you think about inventory, we had a 25% increase in retail doors compared to last year REIT. So you got to factor that in as we go through the especially the first half of the year, we've got a large increase in inventory associated with our retail channel. We also have 35 to 50 sorry, 35 to 40 more stores opening in Q1. We also had the accounting treatment that we talked about at the Analyst Day back in April this year. So that was that affected us in the Q4. When we think about it, Reed, as we Reed, as we kind of make our planning for the year and set our targets for the year, we're trying to hit a range of turns as a company and that's a 3.5 to 3.7 turns basis. And that's how we think about our inventory targets internally. Okay. That makes sense. And then last one, I guess, John, I know it's a real small piece of business, etcetera. But just curious what your thoughts are on the golf rollout, etcetera, because obviously, last year for that industry was a nice long season and you've got a lot of product. I'm just kind of curious your thoughts on that in this year. Yes. I think it was a great start for us in the golf side of the business, kind of relaunching the BITE brand that we had bought years ago and kind of reinvigorating that new design came a little bit late honestly. When you think about us launching at the golf show in January, product really wasn't available until April May. We've got 8, 9 months. We've got good traction. We had very good sell through, great in some markets. And so we're really encouraged. This will be a full year of selling into the Green Grass, into the Pro Shops and into some of the major sporting goods retailers that will carry that product. We're really happy that the new golf shoe that we're launching that is more waterproof won another award in the golf show in January. Just adds to this credibility that we can play in this marketplace. Never going to be a huge portion of what we do, but it's a great little niche for us to bring comfort and color and that's kind of fun factor into the Gulf business. And so we're really happy with where we're at the end of the 1st year and as we head into the 2nd year. So you'll see more products in that space, not a lot, but some more products this year that are more water resistant, waterproof and a few more for women. Great. Well, super. Best of luck. Thanks, guys. Thanks, Chris. And our next question comes from Kornea Friedman with Wedbush Securities. Hi, there. Good morning. Just a quick question on share count. What share count should we be using? And are there additional plans for further buybacks? As far as the share count, we're going to be in that mid-eighty nine percent range for the quarter. So it depends on kind of what decisions we make as far as the buybacks. We have authorization still underneath the Board approval to repurchase some additional shares and we'll make decisions as we go here. There's really nothing else to talk about on the share repurchase other than the diluted share base should be in that kind of mid-eighty 9 range for the quarter. And then could you remind us what currency assumptions are embedded into the guidance for the euro and the yen? Yes. Dollars 91 for the yen and $1.35 for the euro. Thanks a lot. And our next question is from Mike Schwerth with SunTrust. Hey, good afternoon, everyone. Just quickly, the with the Q1, second quarter kind of revenue flow, I mean, should we see any kind of discernible impact from the Easter shift this year being 1 week earlier? I mean, it's hard to tell. We're not building in any major shift in our assumptions for the Q1 in terms of pull through on the U. S. Marketplace. Such a large amount of our business outside of the U. S, the impact isn't as great as maybe it would be for a heavily U. S. Centric group. But we're not planning in major any major pull forward with the 1 week. I mean, we all hope that that's going to occur and drive consumer demand, but nothing in the plan. Okay. And then with just the Internet channel during the quarter, I mean, I guess, I'm just looking for a little more color around why that was down. I mean, you continue to see some just some softness as you pull back on some of the discounting on that channel? Or is there anything else behind that? Yes. I think there's going to be a lot of conversation about brands on a going forward basis with Amazon and some of the e tailers and how you work with them and how you operate with them. Today, just as a reminder, when we sell product to e tailers or companies that also have e tailing kind of operations, that's all shown as wholesale revenue. So wholesale revenue for the quarter was up double digit relative to us selling to those customers in the Q4. I think in return what happens is that that drives a different dynamic from a costing standpoint. It drives a longer term conversation about what brands want to look like in that space. So I think they did very well. They sold a lot of product at a more even heavily discounted price. And for our U. S. Marketplace, we just chose not to chase down free freight and chase down those dynamics. And so what you see is a little bit of shift in the Q4 where Internet is down a little bit for us, but our wholesale is up and many of them had very good sell through through the Q4. So this would be more related to your own Internet or website properties? That's correct. Okay, great. Thank you. Our next question is from Scott Kraske with EBT Capital Markets. Thanks. So a few questions on retail. What's the break the regional breakdown for store openings both in Q1 and for the full year, Jeff? Well, we said about 30 or so for Q1 and the rest will be we're primarily going to be opening these stores in the first half of the year. 70 to 95 is what we target right now and 60 or so of those or more will be in the first half. I think when we think about store openings and what really drives our overall operating performance, Getting those stores open around about that May, June timeline is really important to us. And there were some locations around the globe that we had to get open in the Q4 and we made some decisions as a management team to take those positions and get those open, so we didn't lose sight. I think to kind of follow-up on that, I think your question is specifically around geography and about half of those stores, Scott, will open in Europe and the other 25% will open in the U. S. And 25% or in the Americas and the other 25% will open in Asia in that early 2013 timeframe. Okay. Thanks, John. And then so sort of just following up on that, anything different about the model for opening new stores, new store productivity? If you're assuming positive comps in the Q1 or first half, just MyMath shows maybe a little bit lower productivity out of the new stores given all the new stores in Q4 and Q1, but maybe I'm not doing it right? I think that normally retailers think that your 1st year of opening the store is going to get you to be about 85% of what the 2nd year revenue is going to be. And for us historically, if we open in tourist locations or high densities and the opening is well promoted, we run above that 85% range on that 1st year. I think that for the early part of 2013, you're not going to see a lot of comp store performance out of Europe, just because those stores weren't open at this point in time. And so what we are kind of thinking about that is what our business model looks like relative to what that 1st year should be. Right now, we feel like we're on trend. Okay. Thanks. Oh, I'm sorry. Jeff, just happened to notice your allowance for doubtful accounts went down at the end of the year versus receivables were up and sales were up. Any reason for that? The normal business activity as we assess are likely collections on the receivables that are outstanding. So So maybe you felt better about collecting some stuff so you release some reserves? Exactly. Okay. Okay. Thanks. We'll now take a question from Jim Cartier with Monness, Crespi, Hardt. Good evening. My first question, I was wondering if you could provide the backlog by region? We typically don't do that. We've kind of made the backlog more of a kind of a leading indicator. I think when you look at the backlog around the globe, we're pretty excited about our backlog in Asia and the Americas. And Europe has been under pressure and we continue to see that just like other footwear retailers and marketers. So it's not something that we're really ready to break out on a region basis, but that gives you some color behind the numbers. Okay. And then are you guys doing anything differently this year in trying to get the wholesale accounts to take fall holiday product versus what you've done in the past? Jim, I think on the U. S. Side of this, yes, we are clearly working with them in a more collaborative way for fall 2013. I think surprisingly they had a better fall 2012 with products that they took from us. In certain cases we did. I personally reached out and asked a few of our major retail partners to give us a chance to see if products would resonate with their consumers, especially the cobbler selection where maybe that's not a traditional style or silhouette that they would take from us, sell through was good. So yes, we're going to continue to work with them in a collaborative manner, me personally, also with them to kind of try to build on the brand strength that we see in our own retail on specific products that would resonate with their consumers. But also just on an ongoing basis, I think the brand carries a little bit more weight year over year. This has been 4 years for us rebuilding, we're building in some cases these relationships with our U. S. Wholesale customers. This is the same thing that's happening in Europe. This will be our 3rd year of working closely with some of our major European partners where we went through the same kind of damage to relationship of over distributed all clogs, sameness everywhere. And I think you as investors understand that it does take a certain number of seasons, a certain number of years to rebuild that. And I think for us building confidence for fallwinter is what we're starting to see with them. So hopefully that carries forward into additional products for fallwinter 2013. And on the marketing spend, is that growth equally weighted across all quarters this year? And then can you tell us if there's a heavier emphasis on driving retail sales versus wholesale sales? I don't think you're going to see much change. Q1, you won't see much change between the direct and wholesale channel. And we're trying to grow the wholesale business methodically with key accounts globally. We are adding in certain channels where we don't have certain product distribution today. But it should be relative backlog is indicative where we're at from a wholesale standpoint. And I think you're going to continue to see that balance between DTC and wholesale in 2013. And then finally, you mentioned some countercyclical markets that you're pursuing for second half twenty thirteen. Are those existing markets or those new markets? Can you give us a little more color on that? I don't know if there is new market for us anymore. You think after all the years and such a pension in the early years to really get out there and try to be the original when it came to the clog in so many countries. When we talk about that kind of counter, we're talking about more of the LatAm, South American market here in the Americas. In Asia, it's really more around building that Middle East market up in a more meaningful way. And I think it's also with some of the newer emerging markets and then we talked a little bit about Russia on the call earlier. We've had another really good fall winter in a pretty miserably cold marketplace. And so here's the summer brand that is doing pretty well in the Russian marketplace with a combination of our own retail stores, partner stores with probably less wholesale in that marketplace and we've done really well. And that just adds confidence to the belief that if we market this in the right way, we get consumers to think about us in some of those counter markets or new markets like that even for fallwinter, we can show some meaningful growth. Thanks a lot. Thanks, Jim. We'll take a question from Corbin Weier with Robert W. Baird. Yeah. Thanks for taking my question. Just had a quick one on the wholesale growth of 2013. You talked about growing doors globally. Can you talk about where the big opportunities are? Is there a region where you're putting a greater emphasis on? Should that be evenly distributed? Or on top of that, are there any big accounts you guys are picking up that should incrementally help with 2013? I think we got into the whole door count conversation and drivers years to ago in the business. I think as we have kind of taken our wholesale down globally 3, 4 years ago and now having rebuilt it, it's not, I don't think 1300 doors and about 560 really new, accounts is meaningful door growth in 2012. I think it's strategic. I think it's accretive. And I think you're going to continue to see that from us. I don't think in any major market right now, we would say that we're adding a new retailer that's going to add 100 of doors in one particular region. So now it's pretty evenly balanced and pretty methodical in how we're trying to continue to add retail to our wholesale excuse me to our overall base. Okay. Helpful. That's all I had. Thank you. Our next question is from Sam Poser with Stern AG. Good afternoon. Just a couple of questions. Number 1, in the guidance that you gave implied for the Q4 that included the SAP number, correct? When we said we thought the operations were going to break even But you include the SAP in the 3Q guidance and you're including it in your guidance for Q1. Is that correct? The $0.32 to $0.34 includes the $0.02 from SAP. Am I thinking about that correctly? Yes, that's correct. That's what we said. So it would be $0.34 to 0 point correctly? Yes, that's correct. That's what we said. So it would be $0.34 to $0.36 ex SAP? Yes. So if you're including SAP, I mean, it seems like you want it both ways. You gave the guidance including it sounded like at the beginning you gave it including it. Now you're saying you're excluding it when you give your results and then you're including it again when you give your guidance. Can you which way should we be thinking about this? Is there a question here somewhere? Which way I mean, I'm serious. I mean, which way should we think about it? You included in the guidance and you excluded from the results. So which way should it be? It's either should we think about it with SAP or without SAP? I think the way that you just summarized it is correct. And for 13, we'll give it without SAP or with SAP included in the guidance. Okay. So then when you look out and I might have missed this in the prepared remarks. When you look out for the full year, do we have a range of sort of do you have an EPS number that you can give us for the full year right now? And what we did is we gave kind of the goalpost on what we think where the revenue is going to grow and what's going to happen to our operating income and tax rate. We didn't do the calculation for you on EPS and no EPS. So we're just moving forward with the guidance as is. And add in $0.08 to $0.10 because that's the way you're going to report it. Am I thinking about that correctly? Yes, that's correct. We're going to report GAAP and we'll do guidance. Okay. Thanks very much. Have a good luck. And we'll take a question from Steve Marotta with C. L. And Associates. Good afternoon, guys. Two quick questions. Jeff, you alluded earlier to the inventory growth as it relates to the retail stores and also in the press release it mentions terms and conditions with vendors. Again, there was you alluded to something at the Investor Day. Is that the same thing? Could you please go over that very quickly? And is that something that is expected to continue to occur over the next couple of quarters? Yes. Steve, what we do what we did back in 2011 was we had some agreements with the vendors associated with our terms and conditions at year end. And ease of simplicity purposes, we've gone to the same terms and conditions whether it's year end or not. So from now on, you're not going to have that issue. It's just going forward, the inventory numbers will not be affected. Okay. That's great. And Sean you mentioned I believe in your prepared remarks about marketing. There are several systems and again forgive me if I misinterpreted this. There are several systems that have been implemented that's going to allow you to market better. And that was one of the reasons that gives you confidence to increase your marketing budget dramatically in 2013 versus 2012. Can you go over those in a tiny bit more detail? And what underpins your confidence that the increased marketing spend will be justified? Sure. I gave a number of different things that we've done in addition to building a more creative internal organization. So we hardly outsource any creative development today as a company. Most of that's done internally and they've done an excellent job over the last couple of years in bringing the brand really to life from an emotive standpoint. I think the 2 major investments that we've made is really with the brand strength monitor with a long term partner in Seattle that helps us look at the brand strength as many footwear brands do as many apparel companies do on a global basis. I think that work that's been done over the last 2 years has really helped us in understanding products that we're designing, how customers think about our products. The second piece of that is our ongoing relationship with 4sea, not only here in the United States, but globally now in Europe and the 5 different countries in Asia, where we get real time feedback from consumers who have either touched our retail stores or Internet sites or who have actually bought product, what their feedback is in terms of that brand experience. All that together really gives us a lot of additional data when it comes to how consumers, how customers think about our brand, where we do well and it helps us in navigating where we want to spend marketing dollars to really engage with new consumers. One of the things that has happened having been here now 8 years is that you go through this cyclical stage of you're like Apple, everybody wants you, you're new, you're unique, you're different. And all of a sudden, just like Apple today, now people don't want to have the iPhone or don't want to have iPad, everybody has it. So I want to go to a Samsung. Liz Clayman was on today, this morning, the radio driving up talking about how a lot of people are now going to Samsung because that's new, that's cool, that's different. And we went through that same cyclical process. I think now we see less haters, less people who think about the brand adversely. We'd see a lot more neutrals in the consumer space where people now would be open to advertising or promotion from us. They would be somebody who now would maybe think about this brand differently and be a consider for new products. So long winded answer gives you a lot of kind of thinking around how we have built the internal marketing such that we're now ready to start to make some investments in 2013 to convert those neutrals and considers into consumers. That's great. Thank you. And we'll take a final question from the Deepak Chopra with Goldman Sachs. Hey, guys. Just a quick follow-up. I just wanted to get some more clarification on this $13,000,000 guidance because I think it's worth repeating. So in 2012, you did $1.40 of adjusted EPS. The operating margin for 2012 adjusted that you're working off, is that 13.7 percent? Yes. Okay. And then part 2 of that, you're saying 20 to 50 basis points of growth on top of that for 2013, correct? Yes. And does that include SAP or exclude SAP? Excludes. Okay. And then the last question I had was in the Q3 call, I guess to follow-up on Sam's question, on the Q3 call in October, when you gave breakeven guidance for the Q4, did that include or exclude SAP? It excluded well, it included that from a GAAP perspective, right? We did end up spending a little bit more money on SAP than we anticipated originally. But all told, it's kind of an immaterial amount of spending associated with that in the Q4 period. Okay. Thank you. At this time, I'll turn the conference back over to our moderators for any additional or closing remarks. We'd just like to thank everyone for joining us today on the call. We appreciate your continued interest in Crocs, and we look forward to talking to you again in April. Thank you. And this does conclude today's conference. Thank you for your participation.