Skechers USA (SKX) Earnings Report: Q4 2015 Conference Call … · 2016-02-11 · Our brand...

CompanyName:SkechersUSAIncCompanyTicker:SKXSector:ConsumerGoodsIndustry:ConsumerNon-Durables

EventDescription:Q42015EarningsCallMarketCapasofEventDate:4.20BPriceasofEventDate:28.6142

SkechersUSA(SKX)EarningsReport:Q42015ConferenceCallTranscriptThefollowingSkechersUSAconferencecalltookplaceonFebruary10,2016,04:30PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

AndrewGreenebaum;SkechersUSAInc.;IR,AddoCommunicationsDavidWeinberg;SkechersUSAInc.;COO&CFO

OtherPart icipants

CorinnaVanDerGhinst;Citigroup;AnalystJaySole;MorganStanley;AnalystSamPoser;Sterne,Agee&Leach,Inc;AnalystJeffVanSinderen;B.Riley&Co;AnalystScottKrasik;BuckinghamResearchGroup;AnalystChrisSvezia;SusquehannaFinancialGroup/SIG;AnalystJimChartier;MonnessCrespiHardt;AnalystCorinnaFreedman;BB&TCapitalMarkets;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheSkechersUSAIncorporatedfourthquarterandyear-endearningsconferencecall.

Atthistimeallparticipantsareinalisten-onlymode.

(Operatorinstructions)

Asareminderthisconferenceisbeingrecorded.Atthispoint,I'dliketoturntheconferenceovertoSkechers.Pleasegoahead.

AndrewGreenebaum(IR,AddoCommunications):

Thankyou,everyone,forjoiningusonSkechersconferencecalltoday.

IwillnowreadtheSafeHarborstatement.Certainstatementscontainedherein,includingwithoutlimitation,statementsaddressingthebeliefs,plans,objectives,estimates,orexpectationsoftheCompanyorfutureresultsoreventsmayconstituteforward-lookingstatementswithinthemeaningofthePrivateSecuritiesLitigationReformActof1995asamended.

Suchforward-lookingstatementsinvolveknownandunknownrisksincluding,butnotlimitedto,global,nationalandlocal,economic,business,andmarketconditionsingeneralandspecificallyastheyapplytotheretailindustryandtheCompany.Therecanbenoassurancethattheactualresultsperformanceorachievementsexpressedorimpliedbysuchforward-lookingstatementswilloccur.

Youareencouragedtoreviewthecompany'sfilingswiththeUSSecuritiesandExchangeCommission,includingthemostrecentannualreportonForm10-K,quarterlyreportsonForm10-Q,currentreportson

Form8-K,andallotherreportsfiledwiththeSECasrequiredbyfederalsecuritieslawsforadescriptionofothersignificantriskfactorsthatmayaffectthecompany'sbusiness,resultsofoperations,andfinancialconditions.

Withthat,IwouldliketoturnthecallovertoSkechersChiefOperatingOfficerandChiefFinancialOfficer,DavidWeinberg.David?

DavidWeinberg (COO&CFO):

Goodafternoon.ThankyouforjoiningustodaytoreviewSkechersÕfourthquarter2015financialresults.

Pleasenotethatallshareandpershareinformationmentionedontoday'scallhasbeenretroactivelyadjustedforthethreeforonestocksplit,whichwaseffectiveOctober15,2015.

Oursalesforthefourthquarterwere$722.7million,a26.8%increaseoverlastyearandanewfourth-quarterrecord.Thisresultedinanewannualsalesrecordof$3.147billion,andthefirsttimewehaveachievedannualsalesinexcessof$3billion.

Fourthquarterhighlightsincluderecordfourth-quarterrevenues,earningsfromoperationsof$54.7million,a65.7%increase,netearningsof$29.4million,dilutedearningspershareof$0.19,grossmarginof45.6%,astrongbalancesheetwith$508millionincashorapproximately$3.29perdilutedshare,an8%increaseinourdomesticwholesalebusinesswithanincreaseof2.5%inaveragepriceperpair,a64.9%salesincreaseinourinternationalwholesalebusinesswhichincludedstrongtripledigitgainsinseveralkeyregions,includingChinaandtheMiddleEast,a20.2%salesincreaseinourCompany-ownedretailstoreswhichalsoincludedanadditional68netnewstoresopenedcomparedtotheprior-yearperiodofwhich22wereopenedinthefourthquarter,includingoursecondstoreinTimesSquare,worldwidecompsof9.1%inourcompany-ownedSkechersretailstores,andnewmarketingcampaignsstarringBrookeBurke-Charvet,KellyBrook,andSugarRayLeonardalllaunchedinthequarter.

Ofnote,ourannualeffectivetaxratefor2015increasedslightlyto21.7%from21.3%asofSeptember30,2015,whichincreasedourfourth-quartereffectivetaxrateto23.9%andreducedourearningspershareby$0.01.Inaddition,theCompany'sgrossmarginswerenegativelyimpactedbyapproximately$8.1millionduetonegativeforeigncurrencytranslationsandanadditional$2millioninotherexpensesrelatedtoforeigncurrencytransactionlossesduringthefourthquarterof2015.

Full-yearhighlightsincluderecordannualrevenues,earningsfromoperationsof$350.8million,netearningsof$231.9million,dilutedearningspershareof$1.50,grossmarginof45.2%,worldwideSkechersretailstorecountincludingthird-partyownedSkechersstoresstoodatmorethan1300locations,achievingthepositionofnumbertwofootwearbrandaswellasthenumberonewalkingandworkbrandsintheUnitedStates,growingourinternationalbusinessto40%ofourtotalsales,bringingitclosertoourtwo-tothree-yeargoalofinternationalrepresenting50%ofourtotalbusiness,andSkechersbenamedcompanyoftheyearbyFootwearPlusandRobertGreenbergreceivingtheLifetimeAchievementawardfromFootwearNews.

Thegrowthweachievedinthequarterandforthefullyearwasduetothestrengthofourmen's,women's,andkidslinesledbytheglobalacceptanceofourSkechersSport,SkechersGOwalk,RelaxedFit,andsportystylesforkids.ThegainsintheUScamedespitesluggishretailenvironmentinthebackhalfoftheyearandwithinourinternationalbusinessdespitenegativeimpactofforeigncurrencyexchangeratesinseveralkeymarkets.Webelievethemomentumweexperiencedthroughout2015willcontinuethrough2016.

Nowturningtoourbusinessindetail.Inourdomesticwholesalebusinessfourth-quartersalesincreased

8%or$19.3millionandfull-yearsalesincreased22.2%or$221.8million,bothascomparedtothesameprior-yearperiods.Wearepleasedwiththegrowthinthequarter,especiallygiventhesluggishdomesticretailenvironmentandunusuallywarmweather.Thegrowthinthequarterwastheresultofa5.4%increaseinpairsshipped,a2.5%increaseinaveragepriceperpair,anddouble-digitincreasesinkidsaswellassingle-digitgainsinourmen'sandwomen'sbusiness.

Fortheholidaysellingseasonwerannumerouscampaignssupportingourbrands.Foradults,thisincludedthelaunchofournewSkechersFirstcampaignfeaturingBrookeBurke-CharvetandrelaxedfitwomenfeaturingKellyBrook,SugarRayLeonardforSkechersSport,RingoStarrwithMen'sRelaxedFit,aswellasourSkechersGOFlexcommercialamongothers.Insupportofourkidsbusiness,weranmultipleanimatedandlive-actioncommercials,includingspotsforTwinkleWishesandGameKicks,bothgreatholidaygifts.

OurbrandambassadorsalsoutilizedtheirownsocialchannelstopostwithimageswithSkechersshoes,someofwhichgainedmorethan700,000likesaswe'veseenwithDemiLovato.Laterthisweek,theSkechersPerformanceLosAngelesMarathonwilltakeplacewith26,000runnersandanestimated50,000attendeesattheexpo.SkechersPerformanceeliteathletes,MebandKaraGoucher,willalsobecompetingattheOlympictrialsonFebruary13.

Aswelooktospring,weareexcitedaboutdeliveringfreshnewstylesandthelaunchofthenewDemimarketingcampaignforSkechersBurstthismonth,andtheupcomingcampaignforournewestambassador,multi-platinumpopartist,MeghanTrainor,whowillbeappearinginaprintandTVcampaignforournewSkechersOriginalsdesign.WearecontinuingtofocusondesigningandmarketinginnovativeproductandarelookingforwardtomeetingwithaccountsnextweekatthePlatformshowinVegas.

Internationalwholesaleachievedthehighestpercentageanddollarincreaseofourthreedistributionchannels.Totalinternationalsalesincreasedby64.9%or$97.4millioninthefourthquarterand58.8%or$405.2millionforthefullyear.ThissizablegrowthcamedespitecurrencyissuesinseveralkeymarketsincludingBrazil,Canada,andChile.Weimplementedpriceincreasesthatwillbereflectedinourshipmentsforthefirstquarterwhichwillhelpmitigatethecurrencyheadwinds.

Inthequarter,thegrowthcameacrossnearlyeveryregionwithdouble-digitgainsintheAmericas,Asia-Pacific,Europe,andtheMiddleEast.Fuelingthesegainswastheshipmentof1.7millionpairsbyourChinajointventureandtheshipmentofmorethan2millionpairstoourdistributorintheUAEwhohandlesthesalesofSkechersacrossmuchoftheMiddleEastandintoAfrica.TheonlyregionthatdidnotgrowwasEasternEuropeduetobothpoliticalunrestandthetransitionofseveraldistributorstoacentralizedsubsidiarymodelin2015.Weexpectournewcentraleasternsubsidiarytopositivelyimpactoursalesinthenextcoupleofyears.

Furtherdetailingourgrowthininternational,ourcombinedwholly-ownedsubsidiarysawnetsalesincreasesof19.5%inthequarterand31.5%forthefullyear.Forthequarter,thestrongestdollargainscamefromtheUKandGermanyandonapercentagebasis,BeneluxandChile.Severalsubsidiarycountriesdidnotshowsalesgrowthinthefourthquarterbutstillhaddouble-digitgrowthfortheyear.Webelievethelackofourquarterlygrowthisatimingissuewiththeshiftofsomeshipmentsintothefirstquarterofthisyear.

Additionally,inthefourthquarterweclearedoutinventoryinJapanandBraziltobegin2016withfreshproduct.WebelieveJapanespeciallywillbegintoprofitablygrowaswecontinuetofocusondeliveringtherightproductandtherightquantitiesintotherightstores.Additionally,inthefourthquarterwebeganshippingintoPanama,Peru,Colombia,andCostaRicaaswellasseveralothercountriesthroughanewLatinAmericansubsidiaryaftertransitioningourPanama-baseddistributortoasubsidiarymodel

earlierin2015.WithastrongnetworkofstoresinLatinAmericaandstoresopeninginCentralandEasternEurope,webelievethesenewsubsidiarieswillpositivelyimpactouroperationsinthenextcoupleofyears.

TopreparefortheacceleratedgrowthinEuropeweareincreasingthecapacityandefficienciesofourEuropeandistributioncenter.Wejustcompletedourthirdexpansionphaseandshippedmorethan2.3millionpairsinJanuary,whichismorethandoublewhatweshippedinthesamemonthof2015andtheyeliminatedtheoperationalinefficiencieswenotedintheprioryear.InMayofthisyearwewillcompletethefourthexpansionphase,givingusmorethan1millionsquarefeetofdistributionspace.

OurjointventuresinAsiagrewby93.3%forthequarterand113.7%fortheyearledbytripledigitgainsinChinaforboththequarterandfullyear.With162Skechersretailstores,anextremelystrongeCommercebusinessandmorethan1.7millionpairsshippedinthefourthquarteralone,webelievethereisstilltremendousopportunityacrossChinatobuildthebrand,especiallywithinourmen'sandkidsdivisionswhicharejustgettingstartedinthisvastmarket.

Ourinternationaldistributorsimprovedby91.6%inthefourthquarterand69.9%forthefullyear.WearepleasedthatthissignificantgrowthwasachieveddespitethetransitionofdistributorsinLatinAmericaandCentralandEasternEuropetosubsidiariesbutwouldalsoliketonotethatthestronggainswereinpartduetoashiftofsomedistributorordersfromthefirstquarterofthisyeartothefourthquarterof2015.

Numerouscountriesledtoquarterlygrowthwithinourinternationaldistributorbusiness,mostnotablyourpartnerintheUAEwithtripledigitgrowthandasignificantdollargain.AdditionalmarketswithstrongdollarandpercentagegainsforthequarterareAustralia,NewZealand,Taiwan,Israel,Philippines,Scandinavia,SouthKorea,andTurkey,aswellasstrongresultsfrommanyothercountries.Alongwithathrivingwholesalebusiness,mostofourinternationaldistributionpartnershaveopenedSkechersretailstoresandwehaveagrowingnetworkoffranchiseSkechersstoresincountrieswherewehandlethedistributionofourproduct.

Atquarterendtherewere796Skechersbrandedstoresownedandoperatedbyourjointventures,franchisees,anddistributorsoutsidetheUnitedStates.Ofthese,414aredistributorownedorfranchisedSkechersretailstoresand298SkechersstoresinourjointventurecountriesinAsia,includingthoserunbyfranchiseesintheregion.Additionally,thereare84companyfranchisestoresinthosecountrieswherewedirectlydistributeourproduct.

Inthefourthquarter85third-partystoresopened.Theseinclude23inChina,8inMexico,7inIndia,6inIndonesia,5eachinThailandandMalaysia,4inGermany,3eachinAustralia,Turkey,andtheUAE,2eachinTaiwan,SouthKorea,Kenya,JapanandBrazil,1eachinBelarus,Brunei,Denmark,France,Ireland,Italy,Myanmar,andOman.Ninestoresclosedinthequarter.Thirty-onethird-partySkechersstoreshaveopenedtodatethisyearandweexpectanother250to275toopenin2016.Ofnotetherearenow162SkechersstoresinChina,76inSouthKorea,62inMexico,and44inMalaysia.

Internationalhasgrownto40%ofourtotalsalesandiswellonitswaytoourgoalofrepresenting50%ofourtotalbusinessinthenext2to3years.WebelievethereisatremendousopportunitytocontinuetogrowtheSkechersbrandaroundtheworld.Thegrowingthird-partyretailbase,includingourexpandingfranchisenetwork,ispositivelyimpactingbrandrecognitionasthestoresshowcaseamorecompleteofferingofadiverse,stylishandcomfortablefootwearselections.

ThecontinueddemandforourfootwearhasalsoresultedinmoreexposureinstoreandonlineasweseenewSkechers-brandedwindows,brandshops,anddisplaysinFrance,Germany,andSpainaswellasChina,Turkey,andAustraliaandmanyotherglobalmarkets.Worldwidesalesinourcompany-ownedretailstoresincreasedby20.2%forthequarterand20.7%forthefullyear.Forthequarter,domesticsales

grewby14.5%andinternationalsalesby43.4%.Thisincludedpositivecompstoresalesof8.2%domesticallyand13%inourinternationalstoresforatotalof9.1%compstoresalesincreasesworldwide.

Attheendofthequarterwehad517company-ownedSkechersretailstoresofwhich127,or25%,wereoutsidetheUnitedStates.Inthefourthquarterweopenednet22stores,includingoursecondstoreinTimesSquare,ourfirstinPoland,andthreeinbothJapanandtheUK.Inaddition,weexpandedourwarehousestoreinGardena,California,to30,000squarefeet,makingitourlargestSkechersstore.Aswelookat2016,webelievethatcompany-ownedretailstoresareontargetwithmidtohighsingle-digitretailcompsinJanuary.During2016,weplantoopenapproximately55to65stores,including8to10storesduringthefirstquarter.

Nowturningtoourfourth-quarterandfull-year2015numbersinmoredetail.Fourth-quartersalesreachedanotherrecordincreasing26.8%to$722.7millioncomparedto$569.7millioninthefourthquarterof2014.Theimprovementwasaresultofnetsalesincreasesof8%inourdomesticwholesalebusiness,64.9%inourinternationalwholesalebusiness,and20.2%inourcompany-ownedglobalretailbusinesswhichincludesa9.1%increaseincomparablestorenetsalesforthequarter.

Fourthquartergrossprofitwas$329.9millioncomparedtogrossprofitof$257.6millioninthefourthquarterof2014.Grossmarginwas45.6%comparedto45.2%intheprior-yearperiod.InadditiontheCompany'sgrossmarginswerenegativelyimpactedbyapproximately$8.1millionduetonegativeforeigncurrencytranslationsandanadditional$2millioninotherexpensesrelatedtoforeigncurrencytransactionlossesduringthefourthquarterof2015.

Fourthquartersellingexpensesincreased$17.7millionto$57.9millionor8%ofsalescomparedto$40.2millionor7.1%ofsalesinthepriorquarter.Asapercentageofnetsales,advertisingexpenseswere5.5%and5%ofthefourthquartersof2015and2014,respectively.The$11.2millionincreaseinadvertisingexpenseswasprimarilyattributabletohigherinternationaladvertisingexpensesof$5.3millionandincreaseddomesticadvertisingof$5.9million.Inaddition,salescommissionsincreased$600,000duetotheconversionofoursalesforcefromagentstoemployeesinItalyand$4.6millionrelatedtocommissionsinournewlyformedLatinAmericansubsidiaryforthird-partyoperations.

Forthefourthquartergeneralandadministrativeexpensesincreased18.5%to$221.1millionor30.6%ofsalescomparedto$186.6millionor32.8%ofsalesintheprioryear,whichrepresenteda215basispointsimprovementinoperatingleverage.Theyear-over-yeardollarincreaseinG&Awasprimarilyduetoourincreasedstorecountandrentexpensesaswellasincreasedwarehouseanddistributioncostsrelatedtosignificantlyhighersalesvolume.

Duringthefourthquarterof2015earningsfromoperationsincreased65.7%to$54.7millionor7.6%ofrevenuescomparedto$33millionor5.8%ofrevenuesinthefourthquarterof2014.Netincomeincreased34.3%to$29.4millioncomparedto$21.9millionintheprioryearperiod.Netincomeperdilutedshareinthefourthquarterwas$0.19onapproximately154.6millionaveragesharesoutstandingcomparedto$0.14onapproximately154.1millionaveragesharesoutstandingintheprioryearperiod.

NetsalesfortheyearendedDecember31,2015hitarecordhighincreasing32.4%to$3.15billioncomparedto$2.38billionintheprioryear.Grossprofitalsoincreased32.9%to$1.42billioncomparedto$1.07billionintheprioryear.Grossmarginswere45.2%comparedto45.1%intheprioryear.Sellingexpenseswere$235.6millionor7.5%ofsalescomparedto$181.1millionor7.6%fromlastyear.Generalandadministrativeexpenseswere$849.3millionor27%comparedto$690.9millionor29.1%lastyear.Earningsfromoperationsimprovedsignificantlyyear-over-yearto$350.8millionor11.2%versus$209.1millionor8.8%forthesameperiodlastyear.

Ourhigherlevelsofprofitabilityprovideastrongfoundationforcontinuedgrowthwhilemakingimportant

investmentsinR&D,productdevelopment,newstores,internationalexpansion,marketing,andcompletingthefinalphaseofourEuropeandistributioncenter.Oureffectivetaxratewas21.7%comparedwith20.5%in2014.Weexpectcontinuedgrowthinternationallywillpositivelyimpactoureffectivetaxratewhichisforecastedtobebetween20%and25%for2016.

Netincomefortheyearincreased67.1%to$231.9millioncomparedtonetincomeof$138.8millionintheprioryear.Dilutedearningspersharewere$1.50onapproximately$154.2millionaveragesharesoutstandingcomparedtodilutedearningspershareof$0.91onapproximately153.1millionshareslastyear.

Nowturningtoourbalancesheet.AtDecember31,2015,wehad$508millionincashor$3.29perdilutedshare.Tradeaccountsreceivableatquarterendwere$343.9millionandourDSOsatDecember31,2015,were36daysversus38daysatDecember31,2014.Totalinventory,includingmerchandiseintransitatDecember31,2015,was$620.2million,representinganincreaseof$120millionfromthethirdquarterandanincreaseof$166.4millionor36.7%fromDecember31,2014.Giventhestrengthofourbusinessandstrongsell-throughs,weareverycomfortablewithourinventorylevels.

WehavehadaverystrongstarttothefirstquarterwithJanuarysalesupapproximately35%overthesamemonthlastyear.Ourbacklogsareup9.5%atDecember31,2015,whichwereimpactedbyseveralinternationaldistributorspullingforwardapproximately$15millionto$20millioninshipmentsfromJanuarytoDecember.Additionally,onourdomesticaccountsthroughtheirowninventoryconcernsareorderingclosertoseasonandourbacklogsaresignificantlystrongerforthefirstquartershipments.ItisalsoimportanttonotethatourbacklogsdonotincludeCompany-ownedSkechersretailstores,whichwehaveincreasedby68storesyear-over-year,aswellasourjointventuresinAsia,includingChina,wherewe'llhaveastrongdouble-digitgrowthin2016.

Long-termdebtatDecember31,2015,was$84.6millioncomparedto$116.5millionatDecember31,2014.Thedecreasewasduetopayoffandpaydownofourdomesticdistributioncenterloans.Shareholders'equityatDecember31,2015,was$1.4billionversus$1.1billionatDecember31,2014.Bookvalueorshareholders'equitypersharestoodatapproximately$8.90asofDecember31,2015.WorkingcapitalasofDecember31,2015,was$993.5millionversus$779.3millionatDecember31,2014.

Capitalexpendituresforthefourthquarterwereapproximately$60millionofwhich$13.3millionwasrelatedto22newcompany-owneddomesticandinternationalstoreopeningsandseveralstoreremodels,$4millionforadditionalequipmentupgradesatourEuropeandistributioncenterandthecompletionofphase3ofourfacility,$15millionforcorporatepropertypurchasesforfuturedevelopment,and$17.4millionfornewofficespaceforourChinajointventure.

Weexpectcapitalexpendituresfor2016tobeapproximately$60millionto$65million,whichincludes55to65retailstoreopenings,thecompletionofourEuropeandistributioncenterexpansion,anadditionalcorporatelandpurchase,andexpansionofourcorporateheadquarters.

Insummary,ournewfourth-quartersalesrecordandournewannualsalesrecord,includingtheannualgainsof22%inourdomesticwholesalechanneland59%inourinternationaldistributorandsubsidiarybusinesschannelover2014isverysignificantgiventhesluggishdomesticretailenvironmentinthebackhalfof2015aswellasdecliningcurrenciesinseveralkeycountries.

Further,thegainsof20.7%in2015forourworldwideCompany-ownedretailstoresandstrongcompstoregainsgiveusfurtherconfidencethatthedemandforourfreshproductcontinuesintheUnitedStatesandaroundtheworld.

In2015,webecamethesecondlargestfootwearbrandintheUnitedStatesaswellasbeingnamedCompanyofTheYearbyFootwearPlusmagazine,andsketchersCEO,RobertGreenberg,receivedthe

LifetimeAchievementawardfromFootwearNews.

Additionally,wesignedseveralnewnotableinfluencers,includingMeghanTrainor,andsawthelaunchoftwogreatmarketingcampaignsfeaturinglegendsSugarRayLeonardandRingoStarr.Internationally,aKoreanpopgroup,SISTAR,helpedbringawarenesstooursuccessfulrelaunchofD'LitesinAsia.

WebelievethegreatestpotentialforourgrowthisinourinternationalmarketsandwebelievethegrowthweareachievingacrossAsiaandEuropeisparticularlyindicativeofthebroadacceptanceofourbrand.WeexpecttocontinuetobroadenourproductassortmentandopenmoreSkechersstorestomeetthisdemandwith1340opentodate,ofwhich517areCompany-ownedSkechersstores.Aswelookat2016,webelieveourCompany-ownedretailstoresareontargetwithmidtohighsingledigitcompsrecordedinJanuary.

Wearelookingforwardtothespringsellingperiodwiththeintroductionofmorefreshstyles,thelaunchofthenewDemiLovatocampaignfortheSkechersBurst,DemiBoot,andtheMeghanTrainorcampaignforSkechersOriginals.AndBrookeBurke-CharvetisonthefallseasonofCelebrityApprentice,whichwillbringmorerecognitiontoherandthebrand.WearealsolookingforwardtotheSkechersPerformanceLosAngelesMarathonthisweekendwithbothMebandKararunningforaspotontheUSOlympicteam.

Withastrongstarttothefirstquarterandthebroadacceptanceofourbrandworldwide,weseesignificantpotentialtogrowourbusinessin2016byinvestinginourproduct,marketing,andinfrastructure.Weremaincomfortablewiththemajorityoftheanalystscurrentconsensusrangeof$885millionto$920millioninnetsalesand$0.50to$0.55inearningspershareforthefirstquarter.

NowI'dliketoturnthecallovertotheoperatortobeginthequestionandanswerportionoftheconferencecall.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

CorinnaVanDerGhinstofCitigroup.

CorinnaVanDerGhinst (Analyst-Citigroup):

Goodafternoon,David.

Iguessitis.Goodafternoon.

Iwouldliketostartwithgettingmoredetailsaroundthereallystrongaccelerationininternationalgrowththatwesawthisquarter.CanyoutelluswhatChinarevenuesendedupatfortheyearandkindofhowyou'rethinkingaboutyourlatestguidanceforthecomingyearwithstoregrowthandrevenueplans?

Chinaendedupgoingfromwhatwas$86millionlastyearto$220millionplusthisyear.Whilewedon'texpectthesamepercentage,theywillcontinuetogrowatwhattheysayismidtohighdoubledigits,butIthinktheyhaveashottobeevenmorethanthat.Theyhavealwaysbeenfairlyconservativeasfaras

estimatesareconcerned,andwe'regettingalotofpositivefeedbackfromthefranchiseesthatareopeningstores.Ithinkourinternationalaccelerationwillcontinueinmostplaces.

OurEuropeanbusinesswillhaveaverystrongfirstquarter.Aswesaid,westartedoffwith2.3millionpairsinJanuary,whichisquitesignificant,andtheyalsocarryaslightpriceincreaseasfaraslocalcurrencyisconcerned,andiftheeurocontinuesinthat[11.1,12]range,itwillbeaverypositiveoutcomeforEuropeaswell,andourdistributorscontinuetogoquitewell.WehavequitepositivethingsoutofMiddleEastandoutofAustraliawhichareourbiggest,andcertainlyalltherestofthemperformedquitewell.

Thereareveryfewplacesaswesaid,otherthanEasternEurope,wherewearenotshowingsignificantstrength.Evengosofarastodayweheardfromthepeoplethatare[GDS]inGermanyandgettingsignificantfeedbackandlookingformoreandmoreproductandinventory.So,internationalislininguptobeavery,verystrongyearforusagain.

Andareyouwillingtosharewithuswhatkindofgrowthrateyouareassumingforinternationalwholesaleforthisyear?Shouldwecontinuetoexpectasimilarpieceofgrowthaswegetintothenextcoupleofquarters?

Ihatetocommittoofarout.IthinkgettingstartedtheyhadaverystrongJanuary,soIthinkthingscontinue.WejusthadamoredifficultJanuarylastyearinEuropebecauseofthedistributioncenter,sopartofthatisapull-forward,althoughitisanextremelyhighbase.WeactuallydidmoreinJanuarythisyearinpairsthanwedidinFebruarylastyear,whichwasacatch-upmonthforus,andChinaalsodoubledagaininthefirstmonththisyear,butthoseareeasiercompsandtheytendtogetmoredifficultthroughtheyear.

Wearestillthinkingfirstquarterissomewhereinthe35%maybeplusrange.Asfarasgrowthisconcerned,maybealittlehigherthanthat.Andthenweanticipatewewillleveloutsomeasthecompsgetmoredifficult,butgrowthwillcontinueatasignificantdouble-digitrateforthisyear,sofaraswecantell.

Okay,great.AndthenontheUSsideitlookslikesomeofthedataouttherecontinuestolookabitstrongerthanthereporteddomesticgrowthofhighsingledigitsthatyouguysreportedinthequarter.Canyougiveusalittlebitmorecoloronhowyourinventorieslookinyourwholesaleaccountsrightnow?Arethereanycategoriesorchannelsspecificallywhereyoufeellikeyouguysmightbealittleheavyorlightonproduct?

Well,thinkwearelighteverywhere,butthat'sprobablynotunusualgiventheenvironment.Ithinkthatwhatyouseehappeningislastyearwassostrongandwehadsuchastrongpull-forwardthatwehad--peoplehadtocomeorderearlybecausewewererunningintocapacityissuesasfarasproductionisconcerned.Thatisnolongeraconcernthisyearandobviouslywecan'tgrowatthesamelevelsaswedidlastyear,andIthinkwhatyouseeiswedohavebettersell-throughs.

Ithinkwehearthesamething,thesamethingfromsomecustomersinthebacklogortheiracceptanceofinventorywouldindicateandthatisthesamethingwetalkedaboutinthefourthquarter,it'stheyhaveoverhangonsomeinventorypiecesoftheirownandsomeofthoseannouncementshavecomeoutrecently,andwearedoingsignificantlybettersell-throughsonsignificantlylessinventorywhichallows

themtocleanoutthereolderinventory.

Ithinkit'sfairtosaynoonehasordereddeepintothesecondquarter.Wehaveordersinthefirstquarterthatwouldbesignificantlyhigheraswesaidinourremarks.Westillexpectprobablyhighsingle,lowdoubledigitgrowthindomestic.Thatisnotassuminganypull-forward,andIthinkwhatyoualsoseeisthatthereisanumberofpeoplethatwedobusinesswiththathaveannouncedstoreclosingsandtheyarereevaluatinghowmuchinventorytheyneedandwhentocomeorderandtryingtochaseitalittlebit.Butwhatwedohearisthatwecontinuetosellverywell.Nooneistakingourplace.Everybodylikesthenewproductandaseitherretailgetssomewhatbetterortheirinventoriescomemoreinline,Ianticipatetheywillcomeandstepitup.

Now,wealsoanticipatethataswegointoback-to-schoolnextyearwitheasiercomps.Itwasverydifficultinthefirsttwoquartersandlastyear'ssecondquarterwasaperfectstormwithEastermovingandafter[strike]andfinishingourdistributioncenterinEurope,soIanticipatewehavetoughercompstomeetinsecondquarterandwewouldacceleratetheincreasesaswegointothethirdquarterwithfreshproductandhopefullyalittlehealthierretailenvironment.

Okay.That'shelpfulcolor.AndifIcouldjustsneakinonemorequestion.OnSG&Aobviouslyyouguyshavetheautomationcomingonlinethisyearwhichyouguyshavebeentalkingaboutforquiteawhileandyouarealreadystartingtoseesomebenefitsfromthat,butwhatkindofSG&AleveragecanweexpectthisyearjustgivenallofthemovingpieceswithEuropeandsomeofyourotherinvestments?

Weshouldhaveapositiveimpactjustfromgrossmarginsifcurrenciesdon'tgosignificantlyagainstus.So,Ithinkwewillseethesameorbetterthanwe'veseenthisyear.Aswe'vesaidinthepast,weleveragebestintheUnitedStatesandthatisaslightlyslowergrowthpieceforusnow.WewillleverageverywellinthefirstquarterobviouslyinEuropeandthatshouldbesignificant,butwehavenotreallybeguninChinaandastheycontinuetodoubleobviouslytheyputsomepressure,nowwillwewillseesignificantleverageinretailbecausewe'reopeningstoresandthatjustbyitsnaturebringsincreasedoperatingexpenses,especiallyinpersonnelandrent,andIdon'tthinkwecananticipatesignificantdouble-digitcompstoreincreasesaswehadinthepastthreeyears.

Weareintoyearfourandwhilewehavemidtohighsingledigits,thatalsoisaslightheadwindtoleverage.SoIthinkonparwherewesaidbeforeaswegetto3.6billion,3.7billion,wewillgetwhatwebelievesomewherearound12.5%,13%,14%operatingmarginsdependingonwhereitcomesfrom,andwearestillontothatbarringanybigchangesorchangeinourgrowthscenariosorcurrency.

Great,thankyousomuch,David.

Operator :

JaySoleofMorganStanley.Pleasegoahead.

JaySole (Analyst-MorganStanley):

CanwewalkjustthroughtheinventorygrowthinalittlemoredetailbecausethereissometalkaboutthetimingofEaster,theChinesenewyear,catchupfromlastyear's[portstrike].Canyoutalkaboutsomeofthedifferentvariablesthathaveaffectedtheinventorynumberandthenmaybethecomposition

oftheinventoryintermsofnewstuffversusolderstuff?

Wedon'thaveanysignificantolderstuff.ThatIcanstartwith.Wesoldthroughquitewellanditisquiteindemand.Wemighthavelittlepieceshereinthere.Likewementioned,JapancleanedupsomeBrazilbecausetheyarerelativelysmallerandtheyhadsignificantcurrencyissues,andwe'restillfindingourwayastowhatreallysellsandmoves.IwilltellyouthatthestoresinJapanhavedonevery,verywell,sowe'vegotabetterhandleandwesellnowandweareexcitedaboutthegrowthwecanachievejustinourretailbusinessesinJapanaswell.

Ithinkitisjustthemixtureofinventorychange.Lastyearwehadalotmoreintransitandalotmoreworkingprocessesasweweretryingtocatchabiggergrowthpiece.Ithinkitisfairtosaywehavemoreoutletstostoreinventorynow.WehadtoputinventoryintoSouthAmerica,wehadmorestorestoputinventory,wehadtoputinventoryintoChina.Obviouslytheyarestillgrowingatdoubledigits,andforourstoresaswegoforward,Ithinkit'sfairtosayifyoulookatourinventoryandtheinventorycount,thephysicalcountwehadatyearendandlookedat35%growthinthefirstquarter,youwouldseethatweareturningourinventoryeverywherewehavesignificantamountsandthatwouldbeUnitedStates,Europe,China,andinChilemorethansixtimesayeargiventhecountwehadattheendoftheyear.

Soaslikewesaidbefore,wewantedtogetofftoafaststartinthequarter.Wehadhighdemandfortheproduct.Thefactthatweareup35%andwehaveshippedasignificant--inthefirstsixweekswe'veshippedwellintohighdoubledigitsoftheamountofinventorywecountedattheendoftheyearthatwearegoingtogetagoodturnonit,andshouldthingsgowellthroughthesell-throughsorthemacropictures,wewillhavethepossibilitiesofpullupsandanextrareturnbecauseeverythingisintothemarketplaceearlierthisyearthanwewereabletodolastyearforvariousreasonsthatwerejustquestion.

Gotit.Okay.AndthenmaybeifIcouldaskyouaboutgrossmarginsin4Q.Itsoundsliketherewasaboutsay140-150basispointimpactsfromFXongrossmarginyetgrossmarginwasstillup40basispointsfortheyear.Socanyoujusttalkaboutwhatwerethedriversofgrossmargininthequarter?Whatwerethefactorsthatkindofledtosuchabigorganicgrowthingrossmargin?

Well,it'sacouplethings.Whileweonlyputourpriceincreasesthroughacrosstheboardforthefirstquarter,allournewproductthatwedeliveredintothebackhalfoftheyearthatwasrelativelynewcamewithnewpricingandIalreadyhadthatbuiltin.Sowehadadditionalmarginsthanwewouldhaveanticipatedforalotnewshipmentsintothefourthquarterbothfromthedistributorsthattookthat$90millionearly,orpartofitearly,andfromEuropeaswell.

Ourretailbusinesscontinuestogrowandwiththenewstoresthatwasaslightlyhigherpercentageofthebusiness,sobasicallywehadaswitch.Domesticwholesale,whichisnotoneofourhighergrossmarginbusinesses,hadadeclineinpercentageoftheoverallandourinternationalbusiness,especiallythehighermargingroupsthroughsomeofthesubsidiariesandnewproductsfromthedistributorsandourretailstoreshadslightlyhigher,sowehadashiftinsomeofitandwejusthadnaturallyhigher--slightlyhighermarginproductinthefourthquarterorinthebackhalfoftheyearfromournewdevelopments.

Gotit.Andmaybejustonelastonefromme.ItseemslikethereisapparelthatisshowingupintheretailstoresintheUS.Whatistheplanforapparelthisyearandpotentialimpact--howmuchisitinyourguidancerightnowandhowmuchareyoukindofexpectingittobeastrongperformer?

Itisaverysmallpartofourguidance.Weareonlyreallyputtingintoourretailstoresoitgoesintoourconversationsaboutcompstoresalesandwherewethinkwe'regoingtobe.Itisaverysmallpiece.Allithasforusissignificantupside.Weexpectovertimethatwewillbeasignificantplayerinthat,butrightnowwearejustcomingout.Wewanttotestitcorrectly,makesureitfitsourcustomers.Itisgettingaverygoodresponseinourownstores,sowefeelhereinourofficesthatwehaveashottogrowitatafasterpaceaswegettothebackhalfoftheyear,butitwillnotbesignificanttoourgrowththisyear.Thatwillbeanothertwoorthreeyearsoutbeforeithassignificantimpact.

Gotit.Thankssomuch.

Operator :

SamPoserofSterne,Agee.

SamPoser (Analyst-Sterne,Agee&Leach,Inc):

Thanksfortakingmyquestion,David.Acouplethings.One,justtobreakitdown.Onthesellingexpensesyouhadsomedeleverageforthefirsttimeinalongtime.Howshouldwethinkaboutthatinthefirstquarterandthroughouttheyear?

Same,I'msogladyouaskedthatquestionbecauseIwasn'tsureitwouldmakeitthroughourremarksandthingslikethat.Aswementioned,therewasaverysmallshiftintheamountspentforadvertisingingeneral.Wereserved$600,000additionalforouragentsinItalybecausewearetransferringfromanagent-basedsalesgroup,whichistheonlyonewereallyhaveintheworldforourownaccountsorourownsubsidiaries,toourowninternalsalesforce.

Sothattrulywasacommissionbase,notanadvertisingbaseonthesellingpiece,sothatisaone-timecharge.Weactuallyanticipatethatthatnumberwillgodownsignificantlyfromtheagentstoourownsalespeoplebecausewecanleverageourownsalespeopleatabetterratethanwecanagencies.LikeIsaid,this$600,000isontopofwhatwehadpaidtheagenciesanyway.Sothattrulywasadifferentpiece.

TheotherpartiswhenwesetupoursubsidiaryinSouthAmericaweworkedoutadealwithourolddistributortohandletheinfrastructureforus,whichisthewarehousing,theshipping,theoffice,themanagingofthepersonnelonapercentagebasissowewouldn'thavesignificantstart-upcosts,andhebasicallyworksonacommissionofsalessothatwewouldn'thavetoinvesttoomuchintoitandhehadhisowninfrastructureanywaythatsomewherealongthenextfewyearshewillbewindingdown.Thatwasaverypositivething.Thatwas$4million.

Ifyoutakethatout,youwouldhaveseeneitherfairlyequivalentormaybeslightleveragingtothesellinglinethistime,sothosetwoitems,onewillnotrepeatandonewillrepeatuntilwetakeoverourinfrastructureentirelyinSouthAmerica,andbyandlargewebrokeevenbecauseofthesituationthere,sothatisanoffsettosalesonthetoplineandit'smargin,sothatissortofaplaceholdernottobeconsideredasanongoingexpenseforadvertisingormarketing.

Sohowshouldwethinkaboutsellingexpensesnextyear?Arewegoingtoseesomeleverageintheyearorarewegoingtohavedeleveragebecauseofallofthisthroughtheyear?

Ithinkyouwillstillseeleverageifyoutakethispieceout.Weareactuallythinkingaboutredefiningitandputtingitintotheoperatinglineanywaysimplybecausethebusinessisgoingtobemuchbiggerthanwethoughtanditwillbeabiggeritem.SowewillprobablypullitoutandputitintotheG&A,soyouwillseeleveragetothesellinglineandthatpiecewillmovealongwithwhateverourtoplinegrowthhappenstobeinthatpartoftheworldcertainlyforthefirstsixmonths.

Acouplemorethings.One,youmentionedtheintransit.Canyougiveussomeideaofwhattheintransitislikeattheendof2000--thedifferenceintheintransitattheendof2015versustheendof2014?

Well,withoutgettingintotoomuchdetailandtoomuchinformation,Ithinkitisfairtosaygivenourwholeproductionschedulewehadahigherpercentageofinventoryphysicallyhere.Wehaveasmallerpercentageintransitandaslightlysmallerpercentageeveninprocesscertainlyinpairsasitwasdone.Sowejustmovedupthecadenceand,likewesaidatthethirdquarter,itisonlyatimingissue.Actually,theamountofinventorywehavecommitted,whichwouldincludeworkinprocessaswellastheitemswecountatyear-endinventory,isalowerpercentageofourbookings,especiallyifyoutakeintoaccountChinaandourownprojectionsforourretailstoresthanitwaslastyear.

Thenlastly,youmentionedthatthebackloghadimproved.Canyougiveusanideawherethebacklogstandstodayversusthesametimelastyear?Itisstrongernow,socouldyougiveussomeideaofwherethatis?

BasicallywhatIsaidwasisitisstrongerforQ1thanitisintheoverallbacklog.Soweanticipateshippingahigherpercentage.Breakitout,itisinthebackhalfofQ2thatitistheweakest.SowestillwillhaveastrongerfirstquarterthanthebacklogwouldindicatebecausewearenotbookedouttothefullextentofthesixmonthsfromtodayintoJuneandJuly,butweanticipatethatiscomingaswehavehadapickupintheorderrateattheendofJanuaryandbeginningofFebruary.

Thatisbasedonthecurrentsalestrendthattheyareasgoodastheyare?

Yes,35%.Weareuphighsingles,almostdoubledigitsonourdomesticwholesalebusiness,andourinternationalbusiness,wearealwaysinastrongfirstquarterbusinessandChinahasmorethandoubled,soifyouaddthatintothebacklogfromlastyear,youwouldhaveasignificantlyhighernumberaswell.

CanIaskwhydon'tyouincludethebacklog--whydon'tyouincludetheorderstosupportyourretail

andtheorderstosupportChinaintothebacklog?Sowecangetarealapplestoapplesideaofwhatitisbecauseyouhavealotofyourgrowthcominginareaswherethebacklogisn't--you'renotreportingbacklogon.

Itisatwofoldreason,maybeathreefoldreason.Firstofall,Chinabeganandtodaystillmorethanhalfretailaswellasourownretail,sotheretailanalysiswillcoverbothfortheChinapartandourown.Therearenoordersforourretailbusiness,thereisonlyourprojectionsforwhatwewillneedandwhatwemakeinventoryfor.So,ifIgiveyouabacklognumberwhatIaminfactgivingyouorgivingtheworldismyownprojectionsforstoreopening,storeshipments,inventoryturn,andcompstoresales.

Whilewedodiscussthosethingsandyouunderstandwhereweareforcompstoresalesandthingslikethatandyoucouldbackintothatnumberandthegrowthandthenumberofstoresonarealisticbasis,soIthinkitisfairtosaythatifwewereup20%inthefourthquarterorweareup20%inthefirstmonththatourbacklogswouldhavetobeup20%attheendoftheyeartohavemadethatbecausewehavetoreservetheinventorysomewhereandhowmuchwemoveout.

Thatisanumberthatweadjustaswesell,soitisanumberthatwegiveandIthinkitisdisingenuousformostpeopleandIthinkwhymostretailersdon'tgiveitisbecauseitisanumberthatwedoforourselves.Itisnotaguaranteeanywhere.Itisnotanorderthatisplacedthatisgoingtobeshippedtoathird-partybasedontheirownanalysis.So,whileIcangiveyoumycompstoresalesincreaseandthenumberofstoresandwhatIthinkisgoingtoopen,youwouldhavetoworkbackyourself.It'sanumberthat(inaudible).

Ifourretailpeoplecomebackandsayokay,well,youknowwhat,IthinkI'mgoingtohave15%increasesincompstoresalesnextyeareventhoughmostofusthinkthatiswaytoohigh,andIboughtinventoryandItoldyouthatwasmybacklog,IthinkIwouldbetakingyoudownaroadthatIshouldn't.So,inthemeantimeweaskyoutojustwatchthestores,watchthestorecount,watchhowtheygrowfromyeartoyearandunderstandthatwearebuyinginventorytothatsameplan.Thefranchisesareanewsystem.

Wedidn'thavethemlastyear.Wedidn'tputtheminthisyear.WearenowworkingonredoingthosenumbersastheyarebecomesignificantlylargenumbersbecausethosearedoneandwewilladdthefranchisenumberintoourbacklognumbersforourSoutheastAsiagroupeitherinthesecondorthirdquarterwhenwemakesurewehaveacleannumberforlastyear.

Thankyouverymuchandcontinuedsuccess.

Operator :

JeffVanSinderenfromB.Riley&Co.Pleasegoahead.

Jef f VanSinderen (Analyst-B.Riley&Co):

David,maybeyoucanjusttouchontheorderpullforwardalittlebitmorefromDecember--I'msorry,intoDecemberfromJanuary.Maybeaboutkindofwhatdrovethat,andIthinkyousaidbacklogisweakestforthesecondhalfofQ2.Doyouthinkthatisjustafunctionofretailersorderingcloserinandthatbacklogshouldfillin?Maybewecanstartthere.

Listen,wearenotgoingtobeupasmuchaslastyear.Idon'tknowthattheretailenvironmenthereis

thatgreat,fromwhatI'veheard.Idon'tknow--peopleareplanningusuphigherthantheyareplanningthebalanceoftheirbusinessisthebestofmyunderstandingalongthebroadestbaseofourcustomerbase.ButI'mnotsureastothestoreclosingsandwherethingsaremovingso,yes,wewillfillinthatpieceaswegetintothesecondhalfandtheyarebuyingcloserto(inaudible).Whatdrovethemoveupislikeanythingelse.Itisanincreaseddemand.

Ourdistributorshaveaslightlydifferenttimingthatwetrytobringouteverytimeweconvertadistributortoasubsidiary.Inotherwords,theyareathird-partyinthemiddle,sowhileweattestedortrytobringforwardhowhotweareinthefirstquarterandhowbigoursalesareinJanuaryandFebruary,ourdistributorsis,whatIbelieve,aregoingthroughthesamemotionandtheywantmoreproductavailableforthemtoshipinJanuaryandearlyFebruarysotheymovedupasmuchastheycould,asmuchwecouldproduceforthemintoDecemberfromJanuarysotheywouldbereadyfortheincreaseddemandwhichweareseeingeverywhereintheworldforQ1.Webuiltinventoryandtriedtobereadyforthefirsthalf.

Theytooktheirinventoryearlytobereadyforthesamepiece,sothere'sisatimingissuedrivenbydemandandthepotentialforasignificantlystrongfirstquarterforthemselves.

Okay.Thatisgoodtohearandhelpful.Andthenmaybeifyoucouldtouchalittlemoreonthedomesticwholesalebusiness.I'mjustwondering,areyouseeingadifferenceinsortoftheperformanceofyourbusinessorthepullofproductbetweenthedepartmentstorechannelandlet'scallitthefamilyfootwearchannel,anythingtocalloutthere?

Notyet.Thereareverysignificantpositiveandissueseverywhere.Ithinkacrossbothofthosewearetrackingbetterthantheirfootwearbusinessingeneral,inthecaseofdepartmentstoresandinthefamilyfootwearchannel.Ihaven'theardfromanybody,asIunderstandfromthefirstquestionfrom[Corine]iswehearthesamething.Wearesellingbetter.Theyaretryingtodoitwithlessinventorybecauseoftheiroverhangsandsomethingelseuntiltheycancleanitout.

So,aswesaidattheendofthefourthquarterwhenweweretalkingaboutthisoriginally,wethinkitistoourbenefitsomewherealongthelinethoseinventorieswillclearoutandunlesssomeonecomesalongandtakesourplaceanddevelopssomethingthatsellsbetterforthem,whichwehaven'tseen,thenwewillultimatelygetthatspace.Thetimingismoreamacroissueandthatiswhywitheasiercompsandthemworkingonitsolongwearestartingtoseesomepickupalready.

Okay.Andthenjustaquickfollowuponapparel.Iknowyousaidthatisreallyatestatthispoint.Justwonderingifthereisanythingtoreportonsortofthetestinyourownstoresorifitistooearly?Andthenasfarastimingofwhenthatmightstarttogointowholesale,wereyousayingthatwastwotothreeyears?Iwasn'tclearonthat.

I'mnotsure.Itwillgointodomesticwholesalewhendemandarisesforit.Wetendtobuilditupthroughthestores.Ithinkitwillgotointernationalfirst.Wehave1300additionaldoorsinternationallythatwillstarttoputtheapparelinastheygetbigenoughtodo.WearetryingtobuilditfromtheSkechersperspectiveoutanddon'treallyanticipateitgoingtoretailforatleastanotheryearorso,butitwillbeatleastanothertwoorthreeyearsbeforeitpotentiallyhitsthepartthatitwillbesignificanttothe

bottomline.

Wethinkitultimatelywill,wearejusttryingtobeasconservativeaspossiblewhilewearegettingverygoodreadsonitanditisdoingquitewellandwegetpositivefeedbackfromtheconsumerbasethatwesellitto.Itissuchasmallpiece,itisverydifficulttogetagreathandleonjusthowquicklyitcanrollout.

Okay,butitisgoodtohearthatyou'regettinggoodreadsonit.Thanksverymuchandgoodluckfortherestofthequarter.

Operator :

ScottKrasikofBuckinghamResearch.

Scott Krasik(Analyst-BuckinghamResearchGroup):

Hi,David.Thanksfortakingmyquestions.

It'swarmherewhereweare.

I'mjealous.I'llseeyouinVegas.Thedomesticbacklogversustheinternationalbacklog,canyougiveusthebreakdownthere,please?

Wedon'tgivethemout,butdomesticiscertainlybelowwhatinternationalis.Internationaliswellintothedoubledigits,butdomesticstartsfromamuchbiggerbase.Iwillleaveyoutoyourown--wearenotgoingtostartbreakingthemoutbydomestic(technicaldifficulty).Itgetstoo(inaudible).

Andthenyoualludedtoit,butcanyougiveusasenseofwhatthebacklogisfor1Qversus2Qinthebacklogyouaredelivering?

FirstQismoreprobablymorelike60%or70%ofthebacklogasitsitstoday.WearejustgettingintosignificantorderratesforJuneandJuly.

Iknowyoutalkedabout--well,Iguessmoreimportantlyis2Qbacklogpositiveatthispoint?

Yes,thewholebacklogispositivetowhatitwaslastyear,itisjustmoreconcentrated.Ithasgottogrow,butthatisnotunusual.Wealwayshavethatsituationasyougrow.Wewillinandthenalotofwhatyouseethathappensandcomesispullforwardsbecausewehaveinventoryhereearly.Sothisisnotunusual,maybetheorderofmagnitude.Weusuallybookoutalittlefurther,butwehadbiggergrowthratesinthepast.Itwasmuchmoredifficulttowaitthislongtoorderwhenyou'regrowthratesare20%,30%,40%.Whenitisonly10%,15%youhavethecapacitytomovesomeinfromyourflowsfromthefollowingmonth,youdon'thavetocomethatearly.We'renotlookingto--youdon'tgetclosedoutof

themonthquiteasquicklyaswehaveinthepast.

Gotyou.Andthenhowdowethinkaboutthat,whatwasit,about$20millionto$30millioninpullforwardlastyearinto2Qoutof3Q?

FromwhatIseetodayandwhatIseeatthemacrolevelIthinkwe'dhaveawaystogotorepeatthat,soIdon'tanticipatethathappeningthisyear.Itiswaytooearlytotell.

Andthentotheextent,andI'msureyoudonotwanttogetintothis,butsinceyouopenedupPandora'sbox,soJanuarywasup35.Wasthattheeasiestcomparisonofthequarter?DoFebruaryandMarchcomparisonschangemeaningfully?Justtosortoftiebacktoyouroverallsalesguidancefor1Q.

IthinkitistheeasiestcomparisonsimplybecauseEuropewasthebiggestsinglepieceofthat.Itwasmorethanadouble,itwassignificantlymorethanadouble.Wewentfrombasicallylessthan1millionpairsto2.3millionpairs.Aswesaid,withaslightpriceincreaseandobviouslywecouldnotshipthatmuch.WewillstillbeupIbelieveinthesecondquarterbutcertainlynotby2.5times.Thereisnotthatmuchtimeleft.IthinkwhatitdoesindicateisthatthereisahighdemandfortheproductandthefeedbackIhearfromtheshowsnowstartinginEurope,theyarestillinsearchofproductandthatisaverypositivesignforusandwecouldbecertainlysurprisedontheupsidefromEuropeperformanceinthefirstquarter,butgoingbackoriginally,itistheeasiestmonth.Itisusuallythesmallestmonthofthequarterandbecauseoflastyear'ssituationinEurope,theeasiestonetocompthisyear.

Okay.Andthenjustlast.Taxratefor2016similar?Wesaid20%to25%.Ithinkmostofusherethinkitiswherewewerethisyear,21%,22%dependingonifunlessthereisabigshiftintolesstaxjurisdictions,butthatiswhereIwouldputitnow.Ifyouwanttocomedownfromthe20%to25%,Ithinkitisonthelowerend,itisprobablyinthe21%,22%asweseeitrightthisminute.Allright.Perfect.Seeyounextweek,David.Thanks.

Operator :

ChrisSveziaofSusquehannaFinancialGroup.

ChrisSvezia(Analyst-SusquehannaFinancialGroup/SIG):

Grossmarginquestion.Walkthroughhowyouthinkaboutgrossmarginplayingoutin2016maybefirsthalf.Secondhalf,howimpactfulcurrencycouldbeandhowthatplaysout.Justgeneralthoughts.Putsandtakesonthegrossmargin.

AsIsaidbefore--I'mlaughingbecausewhileIknowmoreaboutcurrenciesthanIeverhopedtoknowmywholelifewhenIwaseducatedonaformalbase,I'mstillnotsurewherethey'regoingtogobeforethisisallover,especiallyafterhearingwhat'sgoingontoday.WhatIdobelievecurrentlyisthatwehavesomeupsidefromQ1lastyear.YourememberQ1lastyearcameinatabout42%orsoandthenweultimatelygotupto45%.Shouldnothingchangedramatically,Iwouldexpectsomewhereinthe100to200basis

pointimprovementoverlastyearsimplybecauseweshouldnottakeasbigofacurrencyhitinEurope.

Now,obviouslytherearedragstothat.IfJapanrunsaway,ifSouthAmerica,thebiggestdragwe'vehadinthebackhalfoftheyearhasbeeninCanada,whichisalargegrowingbusinessforusandtheyare--thereandBrazilandinsomecasesChilethatwecalledoutonareport,youcannotraisepricesfastenough.Sotheyaredragging,theyaresignificantlygrowingbusiness.

Asamatteroffact,weshippedabout--nottogetintorealnumbers,butweshippedasignificantnumberofpairstoCanadahigherthanlastyear'sshipmentandstillhavenotreachedadollardenominationthatwedidlastyear.Ittakesmoreinthoseplaces.SodependingonwherethegrowthcomesfromandhowitchangesandwhathappenstothosecurrenciesingeneralandwheretheeuroendsupandthefactthatEuropewhichrightnowinitscurrencyhasaslightlyhighergrossmarginratethandomesticwholesale,iftheratioshifts,willitbeapositivebenefit?

Andthenobviouslythetakefromthatisasfastasinternationalisgrowing,itmaytakeawayalittlebitpercentageofoverallsalesthatretailisandthatisaslightdown.So,IanticipateinthefirstquarterthatwewillhavesomepositivebenefitbecauseitwasjustsobadinEuropelastyearinthefirstquarter,butthatisaveryone-dimensionalthingthatcouldchangedramatically.Aswegothroughtheyear,unlessthingschange,wecouldhaveequivalentorevenslightpositivestotherate,butIammoreconcentratedonthefirstquarternowandthatshouldseeaslightpositive.

Aswethinkaboutthesecondquarter,Iknowit'salittlefurtherdownthepipeline,butIknowtherewerealotofdynamicsthatoccurredsecondquarterlastyear.IthinktheUKyoudidreallywellthere,pulledinsomefullpricebusiness.TherewassomerevenueshiftinggoingonpullingoutofQ3intoQ2.Aswekindofallsitheretodayitissortoflookingatthis16%-ishtop-linegrowth.I'mjustcurious,howdowethinkabout--arethereanyotherputsandtakesthatwe'remissingaswethinkaboutthesecondquarterthatweshouldbeconsideringorjustthinkingaboutintermsofhighlevel?

Yes,Ithinksecondquarterforobviousreasonsisthemostdifficultcomparisonthatwehaveduringtheyear.WhileIdon'thavemajorissuewiththenumbersonthestreetforanannualbasis,Ithinkthecadenceofitcertainlychanges.WewillhavehighergrowthinQ1thanQ2obviously.Thereweremoreputs.Europe,therewasthe[port]strikehere.Therewereweatherdifferentialshere.Easterwasinthesecondquarter,notinthefirstquarter,solastyearsecondquarterwasaperfectstormthatchancesarewon'tberepeated.

SoIwouldtellyouthattomethebestopportunitiesarefirstquarterandIthinkbecauseofwhathappenedinsecondquartertookawayfromthethirdquarterthatwehaveaneasiercompandsignificantlyhigherpotentialforQ3.IthinkwehavebiggergrowthinQ1.WewillgrowinQ2,probablynotforthesamelevelthatwewillinQ1andQ3,andQ3couldbeverygoodopportunityforusanditisourbiggestquarteranyway,sothatshouldholdupverywell.

LastquestionIhaveisjustontheinventories.Anythoughtsyoucouldshareabouthowmaybethatshouldplayoutthroughthequarterandjustsortofwhereyoumightendthefirstquarterintermsofthatinventorygrowthnumber?DoesitstarttosubsideasyousoldmoreproductinQ1orjustanythoughtsaroundthat?

Certainly.Ourinventorywillclose.Ihaven'treallylookedatwhattheclosinginventory--wehadaprettygoodfirstquarteranditgrew,soI'mnotsurewhereweclosedbutlikeIsaid,wethoughtwemighthaveevenmoreinventory.Weareonlyup37%--36%year-over-yearandthatisnotsignificantlydisequivalenttothegrowthratethatwehaveandwecarryinventoryformoreplacesnowbecausewehavejustbaseinventoryforCentralandEasternEuropeandforSouthAmericaandcertainlyagrowingbusinessinJapanandsignificantlymorestores.

So,westillthinkweareingoodshape.Westillthinkourinventoryisspokenfor.Ourmetricofwhereourproductionscheduleiscomparedtoourbacklog,whichwouldinourcaseincludewhatweguesstimateforretailandthefranchisesinChina,ourbacklogsarehigherasapercentageofourcommitmentthantheywerelastyear.Sothatusually--unlessthingsfallapartorchangesignificantly,bodesforaverygoodinventorystreamaswegoforward.

Thankyou.Allthebest.

SeeyouinVegas,Iguess.

Operator :

JimChartierofMonnessCrespiHardt.Pleasegoahead.

JimChart ier (Analyst-MonnessCrespiHardt):

Thanksfortakingmyquestion.IjustwantedtocirclebackonChina.Whenyoutalkaboutmid-doubletohigh-doubledigitrevenuegrowth,isthat50%tolike80%?Isthatkindofwhatyouareimplying?

Yes,nottoredefinethestatement,Ithinkhavingdone220aswesaidlastyear,Ithinkmostofuswouldbedisappointedifitwasatthebottomof50%,whichwouldbeat330,butIdon'tknowthatanyofusherethinkitwillgoallthewayupto440,butsomewhereinbetween.There'sagoodchance.Ipersonallyleantothehigherside,butwedon'twanttogettoocarriedawaywithourselvesthisearlyintheyear.

WhatisthestoreopeningplanforChinain2016?

Wearemovingtoafranchisebase,sowhilewewillopen,I'mnotsure,Ithinkitissomewhereinthe20-25ofourown,wetalkinChinamoreintermsofpointsofsale,whichincludesallourshopswhichisthewaywerunourdepartmentstoreduetofranchises.SoIthinkitisfairtosaythatwewillincreaseourpointsofsaleinChinabyourplanned50%bytheendof2016.

Okay.AndthenontheEuropeanDC,areyouseeingthecostbenefitthatyouexpectedinJanuaryandFebruarytodate?Andthenwhatdoyouthinkthecostsavingsfor2016areversuslastyearbasedonEuropeandistribution?

Well,it'shardtosay.Wecalledoutlastyearinthefirstquarterthatwespent$7millionextra.Thatcertainlyhasgoneaway.Thosepeoplehavenotbeenbroughtin.WewillprobablysaveevenadditionalmoneybecausewehavealotofpeoplefromtheUnitedStates.Theyaremonitoringandtryingtogetitupandrunningandmovingatabetterpace,soIdon'thavefinalnumbersyetforthefirstmonth,butIwouldtellyouthatourcostpreparehasbeendownsignificantlythisJanuarytolastJanuary,andwhenweputittogether,ittakesalittlelongerthanthattocloseandwereallyhavenotgonethroughtheJanuaryanalysis,justgettingreadyforyearend,etcetera,itwillbesignificant.

Okay.AndIjustwantedtokindoftalkaboutyoursaleintowholesaleintheUSversussomeoftheindustrydatathatisouttheremonitoringthesellthrough.Lastyearwereretailerschasingsothattheyorderedalotmoreinventoryinthefirstquarterbecausetheywereafraidtheywouldn'thaveitiftheydidnotorderitearly?Andwhendoyouthinkwholesaledomesticallythetoplinetherewillkindofcatchuptowhatweareseeinginthesellthroughdata?

Ithinkitisthesecondhalf,unlesssomethinghappensdramaticallyforspring,andIthinkyouranalysisiscorrect.Ourgrowthwassodramaticlastyear,andtherewasahighdemandfortheproductanditwasacrosstheboardthatpeoplewereconcerned,especiallywiththe[port]strikethatiftheyorderedlatewewouldn'tbeabletohaveitontimeandtheircompetitorsmight,soalotofordersandalotofdetailcameinearly.Likewesaidtoday,we'vecaughtuptoproduction.

Thereisnorealthoughtthatwecan'tproduce.Weareprolificbringinggoodsinontimebarringanyexternalforces,sotheyknowtheyhavetimetobringitinandtoordermonth-to-month,andtheyaretryingtocleanouttheirownsituationbeforetheygettoocarriedawaywithorders.Buttheydoadmit,andIthinkallthechannelchecksI'veheardandI'veheardfromyouguysandeverybodyelse,isthatwearesellingquitewellandnooneislookingtoplanusanythingbutupinaverydifficultretailenvironment.

Areretailersaskingyoutoholdontomoreinventory?Isthataconversationyouhadwiththem?

Idon'tknowwhatthatmeans.Wetaketheirordersandbuildtoit.Wetrytogettothefrontendoftheirdatesotheycanmovethingsupamonthorsoifnecessary,butnoonehasaskedustomakeanythingextraandsitonitjustincasetheyneedit.Thatisnotsomethingthatwedo.

Okay.Thanksandbestofluck.

Operator :

Wedohaveonefinalquestion.CorinnaFreedmanofBB&T.Pleasegoahead.

CorinnaFreedman (Analyst-BB&TCapitalMarkets):

Hi,David.Thanksfortakingmyquestion.Ijustwantedtotalkaboutpricing.IthinkyousaidAURsorASPsareup2.2%.Ijustwantedtoconfirmthat.Andthenwhatareyourexpectationsgoingforward?Giventhestronggrowthinternationally,isthereopportunitytoraisepricesinternationally?Ifeellikewe'vedonea

littlebitofworkanditseemslikeyou'repricedpremiuminChinaandIwonderifyoucancommentonthat?

Itis2.5%,butthatisadomesticnumber.Internationallyweareupfirstquarter.Weraisedourpricesaverage,around7%inlocalcurrency.WhatthatwillmeanafterthecurrencywarsareoverI'mnotreallysure,butwewillcertainlybeinabetterpositionthanwewere.InEuropeattoday'sratethatwouldbeasignificantincreaseinAURbecausewehad--Ishouldn'tsaytoosignificant,becausewehadplanneditsomewherearound$1.09or$1.10.Ifwestayed$1.12or$1.13,obviouslythat'ssomewhatofanupsidetoit.

InothercurrencieslikeCanadiandollarandChileanpesoandBrazilianreal,wecan'tcatchitfastenough.ThosebusinessesaresignificantlysmallerthanEurope.InChinawedogetgoodmargins.Weareonthetopend.Wehavenotincreasedprices.Thewonhasnotdepreciatedsignificantly,butwhatlittledepreciationthereiscertainlywewillabsorbingrossmarginatleastatthecurrenttime.Sothosearethegivesandtakesonthepricinginvariouspartsoftheworld.

CorinnaFreedman (Analyst-BB&TCapitalMarkets):

Great,thankyou.

Operator :

Ladiesandgentlemen,atthistimeIwouldliketoturntheconferencebackovertoSkechersforanyclosingremarks.

AndrewGreenebaum(IR,AddoCommunications):

Thankyouagainforjoiningusontoday'scall.Wewouldjustliketonotethattoday'scallmayhavecontainedforward-lookingstatements.Asaresultofvariousriskfactors,actualresultscoulddiffermateriallyfromthoseprojectedinsuchstatements.TheseriskfactorsaredetailedinSkechersfilingswiththeSEC.Again,thankyouandhaveagreatday.

Operator :

Ladiesandgentlemen,thisdoesconcludetoday'steleconference.Youmaydisconnectyourlineatthistime.Andthankyouforyourparticipation.

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