Earnings Call: Q1 2012

Apr 25, 2012

Good day, and welcome to the Crocs Incorporated First Quarter Fiscal twenty twelve 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. I would like to remind everyone that this conference is being recorded. Earlier this afternoon, Crocs announced its Q1 fiscal 2012 financial results. A copy of the press release can be found on the company's website at www.crox.com. The company 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 federal security laws. This statement include, but are not limited to, statements regarding future revenue and earnings, backlog and future orders, prospects and product pipeline, Crocs cautions you that these statements are subject to a number of risks and uncertainties described in Risk Factors section of the company's 2011 annual 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 its forward looking statements to reflect the impact of future events. Now at this time, I'd like to turn the call over to Mr. John McCarroll, Chief Executive Officer of Crocs. Please go ahead, sir. Thank you. Thank you for joining us this afternoon. With me on the call is our Chief Financial Officer, Jeff Lascher. In a moment, Jeff will go through our Q1 financials in detail. I'd like to begin with a review of the highlights from our recent quarter and then discuss some of the factors that we see impacting our business over the remainder of the year. And then finally, having just spent a good deal of time on the road, I would like to give everyone more insight into our global operations and the state of our business in our international markets. We are very pleased with the strength of our Q1 results. Retailer and consumer response to our expanded spring line is very positive, driving sales gains across our 3 distribution channels in Asia and the Americas combined with increases in our European consumer direct business. In total, sales increased 20% in the Q1 of 2012 on top of a 36% increase in the same quarter a year ago. From a product perspective, sales continue to be very broad based with new introductions representing approximately 38% of 1st quarter sales, while non clogged silhouettes made up more than half of the quarterly volume. Top performing styles included our Ailee collection, women's flats and wedges, including our new springy product, duet sport line and our cross mesh series of products. As I just mentioned, our retail and e commerce channels were up in all three regions. We are pleased to share our retail store sales on a global basis in more detail starting this quarter. Comp store sales increased 10% in Q1 and our direct to consumer channel is providing an avenue to showcase our lifestyle products to new and existing consumers. They're obviously voting yes. Jeff will go into more detail on retail metrics in his portion of the presentation. Our top line results are certainly a good start to the year and where we expected to be when we developed and sold in our most comprehensive line of footwear ever. In addition to securing more shelf space with several key wholesale partners and selectively expanding door count, we are confident that we are gaining important market share and mind share with consumers. This is also being noticed by our wholesale partners. Our new Crocs inside marketing campaign has been successful, connecting with existing customers who are adding more Crocs styles to their closet and new consumers are being drawn to the brand for the first time by the wider selection of great looking casual lifestyle footwear. As we move deeper into our business selling period, we are very comfortable with the overall pace of our business and very pleased with how the first half of the year is shaping up. We've evolved our business model to be less at once, but still have the culture and abilities to support our wholesale partners and direct to consumer channel with additional products. International expansion is on plan. Some new product collections are exceeding expectations. New stores are performing well and the global expansion of our Internet sites are almost complete with Japan, Korea, Poland and Brazil slated for completion this year. Looking to the back half of the year, we remain encouraged about our ability to expand the brand's relevancy at retail in fallwinter. We're cognizant of the near term challenges facing the footwear sector with the short selling season in the fall holiday 2011 season and the carryover of high inventory levels in the wholesale channel. And we have continued to contend with additional and we continue to contend with the additional impact of a stronger U. S. Dollar. With such a large percentage of our business in foreign markets, there will be an impact starting in Q2. The dollar strengthening against the yen in the euro on a constant currency basis, this impacts Q2 revenue growth by about $10,000,000 or 3%. Jeff will further outline potential FX fluctuations and their impacts on our results for the remainder of 2012 later in the presentation. Let me take a few minutes and talk about our fall bookings. Overall, we're up 11% year on year. We're up 12% in the Americas, 18% in Asia, while we are down 13% in Europe. The warm winter in 2011 in both Europe and in the U. S. Has created a tough selling environment for our fall 2012 lines. While feedback from accounts on our expanded selection of shoes and boots were very positive, it unfortunately has not translated into the level of bookings we anticipated. We continue to hear that retailers in general have more limited open day dollars for established cold weather brands and even then only top performing style. We do expect that our fallwinter collections will have an improved presence with several key wholesale accounts versus last year. Despite these external issues, nothing has changed with regard to how we are thinking about the full year. We feel comfortable with the Street consensus numbers for 2012 revenue and profitability. We are confident that we are well positioned to achieve our near and long term goals based on our compelling product assortments and pipeline, our international growth and channel expansion strategies and the experience and strength of our global leadership teams. With that, I'll turn the call over to Jeff. Thank you, John. Hello, everyone, and thanks for joining us. This afternoon, I'll be discussing Q1 2012 results. Revenue for the quarter increased $45,000,000 or 20 percent to $272,000,000 This is against the 36% top line increase from a year ago. Gross margins improved to 53.3%, up 70 basis points compared to Q1 last year. Operating income grew 34.6 percent to $40,000,000 or 14.6 percent of sales. Operating margin improved 160 basis points compared to the same quarter in 2011. We also generated increases in both average selling prices and units sold during the quarter. These factors contributed to the $0.07 increase in EPS to $0.31 during the quarter, an increase of 30% versus last year. Strong sales growth in the Americas and Asia were partially offset by a slight decrease in Europe. Sales in the Americas increased 17% to $117,000,000 Asia increased 40% to $102,000,000 and Europe decreased 3% to $52,000,000 On our Q1 earnings release now includes a table that highlights both geographic as well as channel sales in each of our regions. Importantly, on an FX neutral basis, total sales were up 21% and up across all regions. Sales in the Americas increased 18%, Asia increased 39% and Europe increased 2%. Unless otherwise noted, the following data for the remainder of my prepared remarks are on an as incurred dollar basis. For the Americas region, we generated growth in each of our 3 channels. Direct to consumer continued to drive growth during the quarter with increased sales of 25% and 28% for retail and Internet respectively. Turning to store count in the Americas, we ended the quarter with 190 locations, up from 189 locations last year. The 25% increase in retail sales in the Americas was up from a combination of larger locations, product breadth, higher average footwear selling prices and same store sales growth. In the U. S, revenue increased 19% for the quarter and represented 34% of total global sales. We announced earlier in the year our plan to close 20 to 25 kiosk locations in the U. S. We remain on track with this plan as we closed 11 kiosks during the Q1. During the quarter, asset impairment charges and other costs associated with retail closures resulted in a 1,300,000 dollars pretax expense or about $0.01 negative impact to EPS. For the full year 2012, we continue to expect to open about 25 to 50 stores in the Americas before the kiosk closures. Sales from wholesale increased 12% as we fulfill deliveries from our backlog heading into the quarter. Sales in Asia were strong across all channels. Japan, our 2nd largest revenue generating country grew 43% during the quarter. For Q1 2012, the Japan year over year increase was significantly enhanced from the treasury that struck the country last year when $3,000,000 of revenue was delayed until Q2 2011. 11. Consequently, that comparable is expected to be reversed in Q2 twenty twelve. Asia retail sales increased 46% during the quarter as we ended with 211 stores, up from 156 from a year ago. In 2012, we are on track to open 25 to 50 stores in Asia. Asia Internet sales increased 57% during the quarter off of a relatively small base. In Europe, during the quarter, a 7% decrease in our wholesale channel was partially offset by growth from direct to consumer channels. During the quarter, retail and Internet sales increased 52% and 3% respectively. In the retail channel, we ended the quarter with 38 locations, up from 26 from a year ago. All of these new locations are in northern, more economically healthy countries. Macroeconomic issues in Europe continued in the quarter and going forward, the region faces additional challenges of a weaker currency and more difficult selling conditions. Globally, the retail channel revenues in the Q1 increased 33 percent to $61,000,000 while retail locations increased 18% as we ended the quarter with a total of 4 39 company owned retail locations globally, up from 371 last year. This includes 198 full price stores, 99 store in stores, 96 factory direct stores or outlets and 46 kiosks. As disclosed in our press release, global same store sales for the quarter increased 10% during the quarter on an FX neutral basis. Comps were positive across all regions with Americas up 9%, Asia and Europe up 21%. Our comps were in part positively impacted from the shift of Easter to earlier in April. And for the year, we continue to execute on our plan to open 180 to 100 net stores during the year. Turning to product data. Our percentage of 1st quarter revenue derived from the clogged silhouette fell from 51% to 49%. Also our new product introductions globally represented 38% of our Q1 unit sales. We continue to grow the iconic clog silhouette, while diversifying into other important categories. Average selling price in Q1 increased $1.84 or 11 percent to $19.22 compared to last year in the same period. Global footwear unit sales in the quarter were up 8% to 13,600,000 pairs. Gross profit for Q1 2012 was $145,000,000 up from $119,000,000 in the Q1 of 2011. Gross margins were 53.3% in Q1 versus 52.6% in the prior year. We benefited from key initiatives in controlling our cost of goods sold, leveraging infrastructure costs and improved economics from new product introductions. Q1 2012 SG and A increased 18% to $104,000,000 compared to $89,000,000 in Q1 2011. As a percentage of sales, SG and A was 38.3%, down from 39.1%. The SG and A dollar increase were driven by investments in our direct to consumer channel as we were able to leverage our non direct portion of SG and A. Consistent with prior commentary about disciplined growth in SG and A, the non direct portion of SG and A dollars increased at about 2 thirds wholesale revenue growth during the quarter. Overall, Q1 operating income increased 35% to $40,000,000 Losses on foreign currency transactions had a negative impact on Q1 results by $4,300,000 These losses are comprised of foreign currency gains and losses from the remeasurement of certain balance sheet items and intercompany settlements net of the impact of foreign currency derivative instruments. Losses on foreign currency transactions increased by $2,900,000 compared to the same period in 2011. Net income for Q1 2012 improved to $28,300,000 or $0.31 per diluted share on 91,000,000 shares compared to $21,500,000 or $0.24 per share in the prior year. Our balance sheet continues to be strong. We ended Q1 with $207,000,000 in cash, a 79% improvement from 2011 levels of $115,000,000 We ended the quarter with inventory of $169,000,000 up 10% from last year. As of March 30 one, 2012, essentially all of the cash reported on our balance sheet was held in international locations and is subject to certain restrictions that constrain our ability to move cash back to the U. S. Without tax expenses and payments. We ended the quarter with backlog of $289,000,000 which represents about 11% growth over last year. The consolidated 11% increase is against a 27% increase from a year ago. Of the backlog, orders for Q2 deliveries are up about 11% to $151,000,000 Orders for second quarter I'm sorry, second half deliveries are also up about 11% to $138,000,000 ASPs in our backlog are up $4 to $20.50 compared to $16.50 last year. Also keep in mind that the events in Japan last year caused us to shift $3,000,000 of orders from March into April. Moving on to guidance for the Q2 of 2012, we expect to generate revenues in the range of $335,000,000 to $340,000,000 We estimate EPS in the $0.61 to $0.63 per share range. Currency estimates used for the quarter are $1.31 to euro and $0.82.5 to the U. S. Dollar. We estimate currency swings will negatively impact sales by 3% during Q2 compared to last year. As a reminder, Q2 earnings results included a one time Q2 2011 earnings results included a one time tax benefit of $3,600,000 and an effective tax rate of 14%. Our guidance for 20 12 Q2 includes an assumed effective tax rate of 22%. Thanks. And now I'll turn the call back over to John. Thanks, Jeff. Recently spent about 3 weeks visiting our various international operations and I'd like to share some of my thoughts and observations with you today. After meeting with country managers, visiting with their own stores as well as partner stores, wholesale accounts and speaking with consumers, I came away with an even greater sense of optimism about how our global business plan is being executed and our long term prospects. In Europe, which is now under the direction of Vince Gunn and a new management team, we are making positive progress regaining the market share we once enjoyed. The difference now is that we are developing a more sustainable business through the distribution of a more comprehensive product line and cohesive brand message, which wasn't feasible through our original distributor model. Today, we work through distributors only in Spain, Italy, Greece and Eastern European markets. Our wholesale growth is being impeded by the overall economic issues in Europe. We believe the investments we are making in building new wholesale relationships, targeting new consumers and expanding our retail infrastructure will be even more beneficial once recovery takes place. As I said on our last earnings call, one of the benefits from the weak European economies today was the increased availability of affordable retail locations. We are taking advantage of this opportunity to significantly expand our modest retail footprint throughout the continent with plans to open approximately 25 to 35 stores in 2012. Asia remains our best performing region. Since being launched in Asia in 2005, the growth of the business in Asia has been managed methodically with new products and new distribution steadily added each year to support the ongoing evolution of the brand. The Spring 2012 collection has been very well received by consumers this year. With our more comprehensive product lines in recent years, we've added more retail locations in key markets like Japan and China to complement our established wholesale business. And the expansion of partner retail stores in the region has outpaced our own internal store development. Brand marketing has been strengthened in 2012 with our New Crocs New You campaign. In the Middle East, I had the opportunity to visit Dubai, Abu Dhabi, Kuwait, Istanbul and Israel. In every market, we are growing the brand through new wholesale accounts, building stores directly or with our partners in the region. We opened our first store in Saudi Arabia a little over 2 weeks ago in Riyadh. I also spent 4 days in Israel with our distributor partners there that have been with us for 7 years. In contrast to our European distribution partners, they have 59 stores in Israel and have made a major personal investment in building a world class organization there. It was amazing to feel the energy and the excitement in the region when I was there. Here in the U. S, the brand continues to rapidly evolve from legacy styles to new casual lifestyle products, flats, wedges, sandals and the more trendy styles we've introduced this year. The channel mix is weighted more towards wholesale in Q1 and by all reports the sell in and sell through has been very strong. We've built solid relationships with our key wholesale partners over the past 3 years. This year, we're working more closely with them to educate consumers on the casual lifestyle products in our line. Some examples of active marketing programs include, we launched the Camellia line of shoes with DICK'S in Q1. We're currently operating a store takeover program with Famous Footwear that will run 2 more weeks. New shop in shop concepts were launched with dealers in 82 stores and next month with Zappos at the Denver International Airport. This year, we've launched our Get Crocs inside brand program aimed at changing the perception of Crocs from 1 shoe company to 4 season everyday lifestyle footwear brand for multiple wearing occasions. Get Crocs inside embraces our signature heritage and celebrates the fact that every pair of shoes we make has our DNA. We continue to focus on consumer targeting and reaching the markets that we are excited about in our new product styles and core offerings. We're investing in reaching consumers through new marketing campaigns that feature national print campaign in the United States and publications such as O Magazine, In style, Real Simple and Shape combined with market activation through direct mail, out of home, experiential and social efforts. As I remarked earlier, our business fundamentals remain strong. Our first quarter results ended up slightly better than projected due primarily to improve comp store sale performance and the 2nd quarter is tracking pretty much on plan even when we incorporate in the year over year changes in FX. At this point, we're being somewhat conservative about the second half of the year given what appears to be further slowing in the EU economy and the volatility of the foreign currency market. That said, we look at our business holistically and we still expect full year sales on a currency neutral basis to increase 15% to 20% over 2011. We're pleased with the increased backlog growth in the Americas and Asia. Based on where we are today, we feel comfortable that we will exceed the current first call diluted earnings per share consensus of $1.43 for 2012. Operator, we're now ready for questions. Thank you. Jaffray. Thank you. Thanks for all the detail today on the call. Hey, John, I just wanted to start off with a general question. You finished your comments here with your outlook for the year, your confidence in exceeding the EPS consensus estimate. That's despite the fact that you're getting some pushback from the channel on second half bookings. Can you just talk a little bit more about where that confidence comes from in terms of your ability to drive profit growth even with those headwinds? Is it efficiencies in the business? Is it more Q3, Q4? I mean any more color on the line items in the income statement that you see opportunities for the year? Sure. I think when we break the year down in halves, our feeling is that we had a very good Q1, a little bit of crossover year over year between Q1 and Q2, which Jeff alluded to and I think we try to bring everyone's attention to. So when we look at the complete first half the year, we're going to be on plan for top line revenue growth. We like how new products are selling and selling through. What's happening in our own retail stores as we launch the product out globally, building a more solid retail foundation allows us to grow the perception the brand perception with consumers as well as revenue growth. As you can see, our retail direct to consumer channel is outstripping growth in wholesale. And that's an important factor for the back half of the year. So we like the way the first half of the year is rolling up to be. We think this puts us bottom line anywhere between $0.01 $0.03 ahead of guidance estimates coming out of the first half of the year. I come back to the fact that when we try to grow a brand like this where we're so strong in 3 quarters in the back half of Q3 and then into Q4 is difficult time. It's not going to come in large pieces. And the fact that we are placing rain boots and we are building on some good product collections from 2011 that sold well that will be picked up with a broader distribution. It gives us a lot of confidence on that there is a place for the brand to play in. And as I said, with more of our revenue being driven by the direct channel in the back half of the year, we have shown the ability to be able to merchandise lines in a more effective way, engage with consumers that will carry over season over season as it has from fallwinter 2010 to 2011 and now into 2012. Okay. Thank you. That's helpful. In terms of a little bit more on the backlog. So up 11%, it sounds like the real shortfall if there is any relative to your expectations in that backlog would be really the second half. Last year about this time, I think you said about half and half first half versus second half. Jeff, you gave us a little bit more clarity on that $151,000,000 for Q2, up 11% $138,000,000 up 11% for the second half. So, would you say that the second quarter bookings are essentially where you expected them to be and you would have expected the second half to be at more meaningfully? Well, I think on the second quarter, we're above where we were last year. And so we feel that we're in a position to really be able to execute on the AtOne business for the last 2 months of Q2. When we look at Q3 quarter by quarter, both Q3 and Q4 deliveries are up. It's a little bit maybe lighter on the Q4 deliveries at this point in time, only kind of given the fact that we think that not all orders have been placed. We know in some markets right now that we have not actually booked orders for November December deliveries. So we're still expecting that we're going to see orders come in for the Q4 and we'll give you an update when we do the next earnings call or when we have the Investor Day here in Colorado in late May. Okay. And just as a recap, I know this gets somewhat confusing by quarter, but bookings how bookings should be reflected in the following quarter's growth rates. In the Q1, bookings should align very closely with actual wholesale growth given that the vast majority is pre booked, whereas the second quarter about it's about 70%, 75% of 2nd quarter wholesale revenue would be reflected in your book? Yes. This is Jeff. I think it's important to remember a couple of things when you look at the backlog. Number 1, when we do the backlog, we're actually doing at the spot rate. So the average rate during the quarter last year actually increased the revenue that came from those pre books that were recorded in the call and were translated at the spot rates at that point in time. Second thing is, it's important to remember that the Q2 and the Q4 for that matter are traditionally more at once quarters and a higher percentage of direct to consumer. So it's not as relying upon the pre books as we head into that those particular quarters. Okay. Two other just quick questions. One on Europe. John, could you probably a little bit more color there. Your bookings were down 9% in Q1 and you're 13% now. I know your retail performed well on a small base. What's happening there in terms of the kind of anticipation for At Once business? Seasonally, any sort of weather factors? You have inventory availability to chase if the demand does materialize? For the first half of the year, yes, we're positioned to provide inventory for at once orders. And we see it given that we can kind of given what the economic thinking is and how retailers are responding to that. We see some good weeks in terms of at once orders today. And like I said, I think rebuilding relationships there is also going to take some time. But it kind of starts with some opportunistic things that we're doing right now there in the Q1, Q2 working with new retailers or retailers that we have worked in the past that had dropped the product a couple of years ago. For the back half of the year, I think as we said, we have pretty solid pre booked numbers for Q3, but we don't really see a significant decrease year over year. I think Q4 is still yet to be determined. Jeff, I think people are still kind of looking and trying to make those final determinations on what additional products they're going to carry, what additional orders that they're going to place later into the season. Okay. Just lastly, you're giving us comps now at retail. Does this suggest that your the majority of your sort of conversions by format are complete or nearly complete, you feel confident now that that's a metric that kind of makes sense for the business globally? Can you just add some color on the timing of releasing that data? We do. I think we're still as Jeff outlined in his portion of the presentation, we're still going to see the conversion probably half of the remaining 46 kiosks that we have this year either into full price stores or just eliminating the kiosk locations. And hopefully, that's not going to cause much turbulence in the numbers. But I think we feel like we're in a place right now where it's more meaningful to share that with you. Great. All right. Thank you very much. Yes. And next question will come from Jim Duffy with Stifel Nicolaus. Thanks. Hello, everyone. Good quarter and thanks for the additional detail on the press release. A couple of questions. I think I heard you say that you're comfortable with the 12 revenue estimates, yet the 2Q revenue guidance is below the consensus estimate, which seemingly implies a more optimistic view than consensus for the second half. Is that coming from the direct to consumer side or some view of the at once business or some combination of both? If you could help me through that that would be great. Okay. So maybe I'll take a shot at first. Jeff might want to add a few comments to it. Jim, I think when you look at Q1 and Q2 together, we're pretty close to the top line guidance that we've given you and what the street estimates were for revenue. So when we look at the first half of the year, first two quarters together, we're feeling that that's relatively close. Back half of the year with backlog up and with a larger retail footprint that we'll continue to build in Q2 and into Q3, we think we're in a better place to execute in the back half of the year than we have been before. I think it's a combination of factors, but I think you have to look at the first half of the year together from a revenue and EPS standpoint. Okay. That's helpful. And then, John, how are the inventory positions that you have to execute that once opportunities, particularly in the Q2 and early Q3? Inventory is up about 10% quarter on quarter year over year. So I think we feel we've worked through a lot of the inventory issues of the past. We have adequate outlet channels now built up to be able to kind of work through inventory levels that we do have of older product. And so we feel that the quality of inventory that we have and where it's positioned today in Asia, in Europe and in here in the U. S. And also in our manufacturing facility in Mexico, we're well positioned to capitalize for Q2. Okay, good to hear. Then Jeff, I think you gave Q2 pre book growth and back half of the year pre book growth. Is there a way that you can split the back half orders for delivery in Q3 versus orders for delivery in Q4 seemingly retailers are placing those Q4 orders a bit later this year? Yes. Thanks, Jim. I think when you look at the Q4 component of the second half, it's really not as important to us on a quarterly basis as Q3 is. At this point in time versus last year, Q4 only makes up about 20% of the backlog that's in there in our system right now. It's well over 180 days out for the delivery cycle. So at this point, it's still a little too early to break out the Q4 numbers for you from the Q3. But in general, it represents about 20% of our backlog as of March 31. I see. Okay. A couple of detailed questions on the income statement. The Q2. Is that a good number to use on a go forward basis for the remainder of 2012? Yes. We're comfortable with the original projections for the year, the 22% to 24% rate. Okay. And then it looks as if you move the FX gains and losses in the income statement, apparently below the EBIT line. Is that am I correct in my interpretation of that? Yes, Jim. We did that to be more consistent with our peer group. We moved that FX out of the SG and A line down into other income. And we think that's more consistent with the peer group. Plus we think it also gives you better visibility and it helps kind of these kind of conversations when people are looking at the business trying to understand what's happening. It's a more clear call out with so much of our business being international and FX being larger component for many global companies today, we also think that that increases visibility and transparency. I think Jim, it's also important to note that in Q1, we did see that loss. But in April, the reversal of the yen and other currencies compared to the end of March has opened up a window for us to settle our hedge positions already this quarter. So Yes. Thank you for taking my questions. Let me start with the comps. And so a few things here. So first of all, I was hoping you could tell us how many stores were in the comp base for the quarter. I was hoping you could maybe address what the comparison was to a year ago. And then kind of how you're thinking about comp in terms of your 2nd quarter guidance and maybe what the compare is there? Is it tougher, easier than Q1? And how are you thinking in terms of a pull forward? Was there any pull forward that maybe benefited the Q1 and expense of the Q2? And then I have a follow-up. Let me see if I can go through those, Mitch, and if I missed one of those questions, just maybe to do a follow-up. So maybe last portion first, I think, yes, all retailers with March 31 cut off benefited this year by having Easter earlier, 2 weeks earlier this year than last year. So I think comp performance in conjunction also for our brand for spring break and people getting away, certainly was a benefit for Q3. Exactly how many stores are in the comp base today? I cannot tell you what the total comp base was, but it's something that we can do maybe when everyone is here for the investor meeting at the end of May and maybe give some more granularity about what is exactly included there. As far as how we think about Q2 in terms of comp store, right now we think it's about the strength of new products what we're seeing in locations globally with new styles and making sure that we stay as merchants fully in stock on products in our retail stores that meet the demand of the customer is going to be key to that comp store growth. So it's easy to come out of the chute fully loaded with all styles and colors as the quarter goes on. We have to really focus and be really good merchants at keeping product available real time to Okay. And then just a follow-up on the comps. Is Q2 I don't know if you can say is Q2 a tougher and easier comparison than Q1? Yes. I think, Mitch, when you look back at Q1 of 20 Yes. I think Mitch when you look back at Q1 of 2011, as we mentioned on the script, there was the tragedy in Japan that had an effect on our sales in Q1. Last year, Easter was later in the month of April. This year, it was earlier in the month of April. That allowed us to have a little bit of ramp up during Q1 towards the closing days of that quarter. So there's some calendar and macro issues as to why things are going to move around. Okay. I think we're still Q2 is still going to be a good retail quarter for us. It represents a very large percentage of our sales in Q2. Got it. And then let me ask you on the at at once for Q2. Could you maybe address what your at once trend is quarter to date for Q2? What kind of outlook is embedded in your guidance? Are you talking up 5, up 10, up something in terms of your wholesale projections? And maybe you could just talk about kind of how the at once trended last year? I'm guessing that you're in a better at once position this year, just given the early start to spring and maybe retailers being a little lean on inventory and starting to kind of fall into chase mode. So maybe you could talk a little bit about that? Yes. Mitch, I think primarily Q1 and Q3 are delivery quarters based on the pre books that we enter into the season with. Q2 and Q4 traditionally more at once quarters. As you mentioned, they're more heavily weighted towards direct to consumer. We are optimistic because of the NPD data that you're seeing that we will see some additional demand in Q2. At this time, I think it's important to note that this is primarily a DTC and at once quarter for us. I think the other thing I mentioned earlier in this call was we do get the benefit last year of revenue growth about $10,000,000 of revenue last year versus this year is associated with the stronger local currencies last year. All of that a lot of that I should say is associated with the pre books as well. And maybe one other point there Mitch to what you're asking. When we look at revenue for Q2 for 2012, we're depending less on at once business than we were last year at this point in time. So I believe that gives a little bit of confidence around the quarter. And there may be potential upside if product sells well and we're able to work closely with our wholesale accounts to provide additional at once business for them. Okay. That's helpful. But as Jeff said, time will tell. Got it. And may I ask one last question on the gross margins. Jeff, could you maybe run us through what the puts and takes were in terms of the big buckets on the quarter that resulted in the 70 basis point year over year improvement? And then maybe how you're thinking about those puts and takes for Q2? Sure. I think we benefited from the expansion of our new products and the strong new product introductions that we had. We benefited from controlling our infrastructure cost of goods sold and leveraging the additional ASP on that existing infrastructure that we have. We also benefited from controlling our product cost during the quarter and we've worked really hard with our factory partners in controlling both their labor and their production costs and working with them on how to design the products more efficiently. We've also improved our overall economics on the new product introduction. So those are going smoothly. And in general, we've seen a little bit of less on the discounting in the retail and Internet side as well. And then we also had the strong reception of our March mailer for our spring product line, which all of that was at full price. So we've done a lot of good things on the cost to go sold line. Okay. Great. Thanks and good luck. And next question will come from Sam Poser with Stern Gerber. Good afternoon. Thanks for taking my question. All right. You talked about the 1st two quarters being basically around the expectations. So the back half of the year now, I mean, could you sort of gave guidance for the full year. Could you walk through the specifics of that guidance as far as the overall tax rate as far as the gross margin and how we should think about that and so on and so forth, especially given the impact of the currency and so forth? Yes. Thanks, Sam. I think from specifically on the tax rate, again, I think it was about 22% to 24%. We did benefit last year in the Q3 as we talked about in the script from some tax favorability that got us to a 14% tax rate last year. This year, we think it's going to be in the 22%, 24% range. The other particular as far as the margin, I think we are optimistic that we'll have nominal favorability in our gross margin line and that will continue throughout the year. As we mentioned in the backlog, the ASPs are strong relative to last year, up $4 So that's those are some insightful numbers for you. Okay. And then you talked I mean, I'm going to follow-up on it. I'm going to ask you the same question again. If 80% of the backlog for the is Q3, can you tell us what Q3 is currently up as far as the backlog goes? And do you have less on a percent to your at a 20% run rate, do you have less in hand for the Q4 backlogs than you did at this time last year? So is Q4 down as of this date or as of the end of the quarter? And And what is Q3 up even though it's a smaller percentage? Well, let me start and then Jeff can add in. Q3 is up about 8% on a relatively larger number. Q4 is up 24.6 percent in Q4 relative to backlog on a much smaller number. So like we said, we think that the backlog in whole, the product portfolio that we have, the accounts that are booking and taking product today with the opportunity for us to grow the brand and establish ourselves in this rain bootcasual indoor footwear space and the fact that we're product that we product that we took out of the Linemaster is going to give us some kind of lift in the back half of the year. Yes. I think, Sameh, the other point I would make about the Q4 versus Q3 is to recall that in Q4, 36%, 37% of our revenue comes from retail, 12%, 13% of our revenue comes from Internet. The wholesale business in Q4 only represents about 50% of our sales in Q4 versus 60% for the average year. So it's significantly underweight in Q4 period. The success of Q4 will really be determined by the success of our retail and Internet channels. Okay. And then thank you. And then as far as other growth opportunities, I mean, we're coming up on some big stuff going to happen down in Brazil in the next couple of years. I you're doing some production at your Mexican facilities there. But I mean are you do you have anything in the works right now to crank up that business and then you could have basically it could be an endless summer kind of situation? I think we've talked about this in other meetings and on other calls. We continue to believe the LatAm market including Brazil offers significant opportunity for us. We not only build product in Mexico, but we also have a partner that assembles shoes with us in Brazil today. And we have organization on the ground for almost five years now in Sao Paulo. We've opened our own retail stores in Brazil now. We'll open shortly in Chile and Argentina. So we look at the South American market as an opportunity as we did China and Vietnam and Korea and Japan, all those other markets in Asia 5 years ago. So we think it has a significant opportunity. We're pretty excited about the Olympics this year. And London, we've got some pretty cool marketing ideas for the upcoming games there. A lot of that learning will be transferred over. There'll be some large events, World Cup and the Olympics in Brazil over the next quarter as well. So yes, we agree with you that the opportunity is there and we continue to focus on growing our business globally in all international markets. Thank you. And then lastly, with the you said you're happy with the Street estimates. You think you can beat them by a little bit if I'm not misquoting you for the full year. Does that include the revenue number not only the earnings? I mean, so is that 15% revenue number take into account the full impact of the full year currency? And I guess as a follow-up to that, how would you look at the currency impact in the back half of the year from what you know right now? Sam, I think what John said was that on an FX neutral basis, 15% to 20% is still kind of where we're going. As you know, there's a lot of fluctuations and variability in the currency markets right now. And those need to be factored into any model that you use with the business that's 65 plus percent international business. So and that's important to remember. No, I understand I guess I understand, but I mean like the streets right now looking for just under $1,200,000,000 in sales. Is that a reasonable number from what you know right now with the given all the puts and takes that you know right now on the currency and so on and so forth? Right. So what we said was that we expect top line growth to be in that 15% to 20% range which would be close to where consensus is at. If you think about the FX impact on revenue growth, which maybe is impacted into everyone's models, for the complete year, it's close to $20,000,000 And so when we think about achieving $1,180,000,000 for 2012 and we have a $20,000,000 or 2% in a kind of maybe shortfall in investors' minds on a relative basis in terms of units and ASPs year over year it's being impacted adversely with the stronger dollar. So we believe, as Jeff said, given what we know today with FX rates and where we think we're going to be through gross margins and SG and A, we think we're close on the top line and we think we're going to exceed the bottom line EPS guidance. All right. Well, thank you very much. Good luck. And moving on to And moving on to Reed Anderson with Northland Securities. Good afternoon. Thanks for taking my questions. Just a couple of follow ups. Back to the kind of the discussions on revenue and I'm just kind of looking more at the Europe piece or looking at kind of growth near term growth expectations on a geographic basis. But in Europe specifically, expectations on a geographic basis. But in Europe specifically, if you look at the Q1, the weakness you saw on the more on the wholesale side, obviously, the direct was the nice offset there. Over the near term, is that sort of what we might see play out, whether it's due to the web business or sort of what we might see play out whether it's due to the web business or comps or new store growth timing where a lot of the direct mitigates the weakness you're seeing in wholesale? Does that make sense? Or is it probably going to get a little bit worse than what we saw in the first quarter? It will be consistent we think for Q2 and for Q3 where there is a given and take. I think, Reed, it's going to be a little bit hard to tell where Q4 falls yet for Europe. I mean, we're going to have, as we said in the call today, 25 to 35 new stores. If you think about the fact that we only have roughly 30 stores there at the end of last year, this is a pretty significant investment in growth in our retail business in Europe. What kind of impact that that's going to have when we get to the Q4 and having not gone through that yet and will be a little bit hard to tell. Plus, the amount of wholesale revenue that right now looks like it has not materialized is going to have more of an impact on us. But I think we'll give you more updates on what that looks like in future calls. That makes sense. And those store openings, John, that 25 to 35, those would be kind of Q2, Q3 most of those open? Right. 3 opened in Q1, but a number of those also opened in the early part of April. So you will see a significant uptick in retail store openings when we do the Q2 call. And yes, it will be more of a Q2, Q3 kind of launch of new stores. Okay. Makes sense. And then, Jeff, back to the margin, specific gross margin comments. You talked about product cost and cost of goods. I mean, is that piece that component of that, does that actually get easier for you as the year goes on, meaning you've got the worst piece of the cost impact or whatever it might be early on and you actually get more benefit as the year goes on? Would it be fairly even throughout the year? Yes. I think when you look at our major cost savings, it's going to come out kind of evenly throughout the year. We have some comps that are easier than others during the 4 quarters. But for the most part that the leverage on our infrastructure, the benefit of selling higher priced products the work that we've been doing with our factories to reduce our product costs, that's going to benefit us all year long. And then lastly on the comments you had on SG and A, I think you said 2 thirds it grew on the non direct piece, the growth rate was 2 thirds out of the wholesale growth. Is that a sustainable type of number? Is that kind of where the business is positioned now? Or is that was some anomaly to the Q1? Well, I think what we said in the script was that at the end of Q4, we said we wanted to hold our SG and A for indirect at about 2 thirds of the rate of the revenue growth. We were able to achieve that in Q1 and there's no reason to believe that we can't continue to drive our leverage on our existing cost base going forward. Okay, great. Thanks. Good luck. Next is Scott Krassett with BB and G Capital. Hi. Thanks for taking my questions and thank you very much for all the extra disclosure in the release. It's very helpful. Quite a couple of questions on the comps. If you look at the comps in America and Asia, how much of that was unit versus price? About 1 third is unit and about 2 thirds is price. Okay. And in terms of the comp expectations for the rest of the year, especially Q3, are you going to continue to be able to price the way you have been for the last couple of years? I think, Scott, the only real challenge in our business really comes in the Q4 when it comes to pricing and especially in the U. S. And to a lesser extent in Europe when it becomes far more promotional. So our communication, our internal directive has really been that we'd like to see 50% unit growth this year, 50% ASP growth as we continue to innovate and create more lifestyle products that are a little bit more sophisticated than the early kind of legacy 100% injection mold shoes that we did. So that's been kind of our stated objective when it comes to growth. Okay. And then just a couple on the backlog. Is there possibly anything in last year's backlog as of March 31 that had to do with Europe that may have never shipped or shouldn't have been in there to begin with that makes the comparisons look less impressive? No. Okay. And then relative you have an 18% backlog at the end of Q4 and you probably pulled a little business forward as you said which might explain the Q2 backlog coming in below where people were looking for it. But were there any cancellations relative to what you saw a couple of months ago for Q3? We had no meaningful or material cancellations. I think more hesitation with most of our key wholesale customers, but we haven't seen cancellations anywhere. And then just remind me how much did you benefit from the warm weather in Q4 at least relative to the comps in your own stores or because you were set up for cold weather and it didn't happen you were dinged as well? Yes. I don't know if there would be anything Scott per se that we pointed to or identified for Q4. I think a lot of the questions and I think Mitch asked this earlier too, with Easter coming earlier and the U. S. Having such a mild winter as did Europe, as did for that matter, Japan and China. So in a lot of our in our larger markets, we saw a much shorter winter period. Does that mean that consumer buying preferences shifted more? Are we going to continue to see people buy at the rate that they have been for footwear? See people buy at the rate that they have been for footwear into Q2? I think our opinion today and early indications are that this will be another good year for footwear for especially spring summer brands like us. Okay. And well, I guess just then that begs the question, what is your comp implied in your Q2 revenue guidance? It didn't break that out. Something below Q1 though, I would assume. We didn't break it out for the call. Okay. Thank you, guys. Thanks, Scott. And the next question will come from Karina Friedman with Wedbush Securities. Hi, guys. Congratulations on a nice beat. Just following on Scott's question, what was the comparison last year for Q1? And then could you give us the last year numbers for Q2, Q3 and Q4, just so we know what the what we're going up against? And then secondly, if you could talk a little bit about the mailer that went out to 1,700,000 households. What was the ROI or the response rate? Is there anything planned for Q2 or for the balance of the year that would also drive traffic similarly? And that's it. Thanks. Yes. I think on the catalog that you're referring to that we mailed out, we were really happy with the ROI and the response rate of that particular mailer. We did send it out to a broader audience, including some names that traditionally were not in our email or mailing list before. So we used it as a piece to generate long term demand rather than just measuring it off of one catalog. We'd like to measure it off of the overall success of the brand going forward. So but we were individually happy with that particular catalog. As far as the retail comps from last year, I don't know if you need the specific retail numbers. Last year in the Q2 of 2011, we did 91 $700,000 in retail. What we didn't have provided was the comp number that's coming off of that 91.7% going into Q2 2012. Is that what you were referring to? Yes. If you have the percentage comp. Yes. We don't have that. We'll have to get that to you offline or include something in our May 23 Investor Day. Okay. Great. Thank you. And the final question will come from Jeff. And that does conclude the question and answer session. I'll now turn the conference back over to you. Thanks everyone for dialing in today. Just as a reminder, we will be hosting an Investor Day here at our campus in Niwa, Colorado on May 23. If you did not receive an invitation, please contact Kevin Kim or one of the other contacts that are listed on our press release. Thank you all for joining today. Have a pleasure pleasurable evening. And that does conclude today's conference. Thank you for your participation today.