Skechers U.S.A., Inc.
Q1 2008 Earnings Call Transcript

Published: 24 Apr 2008

[Operator:]

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Skechers U.S.A. first quarter 2008 earnings conference call. During today’s presentation all parties will be in a listen only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Wednesday, April 23, 2008. I would now like to turn the conference over to Andrew Greenebaum, of ICR. Please go ahead sir.

[Andrew Greenebaum:]

Good afternoon. Thank you everyone for attending Skechers first quarter 2008 results conference call. I’ll now read the Safe Harbor statement. Certain statements contained herein including without limitation statements addressing beliefs, plans, objectives, estimates or expectations of the company or future results or events may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. Forward-looking statements involve known and unknown risks including but are not limited to the general economic and business condition and conditions in the retail industry. There can be no assurance that the actual future results performance or achievements expressed or implied by such forward-looking statements will occur. Users of forward-looking statements are encouraged to review the company’s latest annual report on Form 10K, filings on Form 10Q, management’s discussion and analysis in the company’s latest annual report to stockholders, the company’s filings on Form 8K and other federal securities law filings for a description of the other important factors that may affect the company’s businesses, results, operations and financial conditions. Now, I’ll turn it over to Skechers Chief Operating Officer, David Weinberg.

[David Weinberg:]

Good afternoon and thank you for joining us today to review Skechers first quarter 2008 results. As always we will open the call to questions following our prepared comments. First quarter of 2008 net sales was $384.9 million an increase of more than 11% over last year and the highest first quarter net sales ever and the second highest quarterly sales in the company’s history. Net income for the quarter was $32.8 million versus net income of $23.9 million in the first quarter of 2007 a 37.4% improvement over last year and the highest quarterly net income in the company’s history. Diluted net earnings per share were $0.70 for the first quarter of 2008 significantly above our previously given guidance of $0.57 to $0.62. We are pleased with our new record first quarter revenues and quarterly earnings particularly given the challenging US retail environment. The record revenue and earnings were primarily the result of very strong growth across our international businesses which represent 27% of our total sales for the quarter. Our domestic wholesale, retail and ecommerce divisions also grew year-over-year. Our strategy is to continue our brand and product momentum across our US wholesale business and our leading subsidiaries to further build our brand in our other international subsidiaries including our newest in Brazil, to deliver the right products to our distributors, to establish our new operations in China and to continue to grow our retail business. Our focus resulted in the following successes in the first quarter 2008

[Frederick H. Schneider:]

Now, turning to our first quarter 2008 numbers in detail. As previously mentioned first quarter net sales were $384.9 million compared to $344.9 million last year, an increase of 11.6%. This increase is due to the double digit sales growth in our international businesses. First quarter gross profit was $172.2 million or 44.7% of sales compared to last year’s gross profit of $149 million or 43.2% of sales. Operating expenses as a percentage of sales decreased 30 basis point to 32.4% in the first quarter of 2008 compared to 32.7% in the prior year due to positive operating leverage from our higher sales, better investment in selling expenses which was partially offset by an increase in general administrative expenses. First quarter selling expenses decreased to $25.5 million compared to $26.8 million in the prior year. The year-over-year decrease in selling expenses to 6.6% from 7.8% is primarily due to a reduction in tradeshow and POP expenses partially offset by an increase in media spend. General and administrative expenses were $99.2 million compared to $86 million last year. Our general administrative costs increased 90 basis points to 25.8% of sales compared to 24.9% in last year’s first quarter. The increase was primarily due to the increase of 35 company owned retail stores in the prior year’s first quarter as well as increased salary, warehousing and distribution costs related to international. Net income for the first quarter was $32.8 million compared to net income of $23.9 million in the prior year period. Diluted earnings per share were $0.70 on approximately 46.6 million shares outstanding compared to diluted earnings per share of $0.52 on approximately 46.8 million shares outstanding during the first quarter of last year. Our balance sheet continues to be very strong. At March 31, 2008 cash and long term investments totaled over $259 million. While we are cautiously optimistic that the liquidity will be restored for our auction rate securities, in the short term we felt it was prudent to classify them to a long term asset during the quarter. Trade and accounts receivable at quarter end were $237 million and our DSOs at March 31, 2008 were 48 days versus 53 days at March 31, 2007. Inventory at quarter end was $178.4 million representing a year-over-year increase of $9.3 million. We continue to believe we are prudently managing our inventory position. Working capital decreased 18.8% to $425.6 million at quarter end primarily because of the reclassification of our auction rate securities to long term assets. Long term debt was $15.4 million which is primarily related to mortgages on certain real estate. Shareholders’ equity at the end of the first quarter increased 5.5% to $650.9 million or $14.20 a share versus $626.7 million as of December 31, 2007. Capital expenditures in the quarter as of March 31, 2008 were approximately $14 million as compared to approximately $8 million in the prior year. We expect our capital expenditures for the remainder of 2008 to be approximately $37 million which includes the opening of 25 to 30 new stores, store remodels and the purchase of additional real estate. Now, I would like to turn it back to David for guidance.

[David Weinberg:]

We are pleased with our record first quarter revenues and highest ever quarterly earnings particularly given the challenging US retail environment. As I mentioned our focus for 2008 is to continue to build on our momentum in our wholesale business in the US and our leading subsidiaries, to further grow our brand in our other subsidiaries including our newest in Brazil, to deliver the right product to our distributors, to establish our new operations in China and to continue to grow our retail business. Though only a few weeks into the quarter we are pleased with our initial sales and believe we will have a solid second quarter given this and our healthy backlog. While we are encouraged by our key indicators we remain cautious about the coming year and therefore are providing a broader guidance range for the second quarter. This guidance reflects the difficult retail environment which has resulted in many retailers requesting products shipping closer to their needs. We now expect second quarter 2008 net sales to be in the range of $350 to $365 million and diluted earnings per share in the range of $0.30 to $0.38 on approximately 47 million diluted shares outstanding using a tax rate of 33.8%. We will continue to support all of our brands with aggressive marketing efforts to ensure we are top of the line with consumers and that our footwear achieves strong sell throughs. We are also continuing to support the company with necessary investments and improvements to grow to the next level in the coming years. This includes our new corporate headquarters which is scheduled to open this summer. The new distribution centers which are currently planned for mid to late 2009 and the acquisition of some additional property across from our new corporate headquarter which will ultimately serve as a campus and additional office space. Again while we are not immune to the current retail and economic environment and are carefully planning our worldwide business we believe our brands will remain strong in the domestic market and we will continue to experience growth around the world. We remain very focused on profitably growing our business in the coming year. And now I would like to turn the call over to the Operator to begin the question-and-answer portion of the conference call.

[Operator:]

(Operator Instructions) Our first question comes from Unidentified Analyst with Susquehanna Financial Group.

[Unidentified Analyst:]

David, just on the first quarter, can you quantify possibly on the margin – just the sales came in at the low end of your guidance. Just a break out on the gross margin how much was merchandise margin improvement and how much was from foreign exchange? If you could give any color that would be helpful.

[David Weinberg:]

To break it down as best we can, domestic wholesale remained relatively flat year-over-year so the big increase had to come from our international subsidiaries. The differential in foreign exchange was probably about 15% for the year but their margins were up over 100 basis points. It’s mostly from product in Europe and obviously it’s the shift as well. We came in significantly stronger in our subsidiary business than our distributor business and obviously slightly higher at retail simply because of the new stores and that was both because of those fluctuations brought the whole margin up. We had no deterioration in domestic wholesale nor our international distributors so it’s just a plus from the increased percentage of our subsidiaries.

[Unidentified Analyst:]

As you in the past when you guys have looked at your second quarter there’s always been an incremental shift to some degree for back to school between Q2 and Q3, what are retailers telling you right now in terms of how that may or may not unfold given the environment at this point? Have you factored that into your thought process in regard to the guidance?

[David Weinberg:]

Well we obviously took it into our thought process. It’s a very difficult conversation to have with retailers because they don’t understand the distinction. It’s to them whether they take it the last week in June or the first week of July is unofficial. It doesn’t change anything, it just changes for us. We have taken into account that most retailers have told us they wanted closer to need, so we’ve shipped it as much as we could from June to July. Basically what you see in these projections is a very solid international performance and a projected decrease in domestic wholesale giving us that net number for the quarter.

[Unidentified Analyst:]

And how about company on retail? Is the comp trend more than likely to continue to trend negative at this point?

[David Weinberg:]

We’re considering it flat to slightly down although we had significant improvements over the last week to 10 days which could be a positive.

[Unidentified Analyst:]

And then just on the selling expense side, obviously did a nice job dollar wise year-over-year with it being down, just give us your thoughts in terms of how you’re projecting that line for this year and if Robert decided to increase spending going to back to school what’s your thoughts about that due to the fact that in the past it seems like retail customers indicated that that drives Skechers business. Any thoughts to that?

[David Weinberg:]

I don’t anybody would say we’re backing away from media spending. Even in Q1 where the expenses were controlled and were slightly down our media expense was up. We plan on continuing to advertise and looking for more efficiencies in our other marketing venues. In the first quarter we actually cut some of our show expenses becoming more efficient in the show and cut some of our PLP expenses. To that extent I would think that holds consistently for the year. We’ll probably be up in media expense driving the sales but relatively flat or slightly up due to the control of the other expenses in the marketing line.

[Unidentified Analyst:]

So the selling expense line, does that – so for Q2 how are you looking at your selling expenses?

[David Weinberg:]

Like we said before we’ll be within 10% of last year when everything is said and done.

[Operator:]

Our next question comes from Scott Krasik with C.L. King & Associates. Please go ahead.

[Scott Krasik:]

Can you say generally, David, how much or what percent of your sales are now in the fashion athletic category and how you’re envisioning those sales? It seems like a pretty mature category at this point.

[David Weinberg:]

Categories are always changing and they have very broad definitions and we tend to see them switch from one to the other. We talk about low profile athletic and then jogging, we’re within that entire mix. It makes up a significant percentage but certainly not all of it. We have a very large kids business. We have a very big fashion business that has some of those characteristics and some that do not. We have a work business that’s growing and it’s growing around the world. And our men’s business which is only partially in that world growing so I would venture to guess if you don’t consider kids part of that realm, that it’s certainly significantly less than 40 or 50% of the whole and we keep reminding everybody we’re a very flexible group. As things change in the marketplace or as merchandising requirements change we’re very flexible and can change very quickly and we think our name carries this.

[Scott Krasik:]

Is your belief though that that category, the low profile category, the growth will start to subside and that’s built into your certain internal numbers?

[David Weinberg:]

We have new styles that are selling and some of them cross over, so it’s very difficult to put it into place but sooner or later you come into the rules of large numbers and that category and people’s tastes tend to change. So we haven’t seen anything that would have a serious negative impact on any of our divisions that are in that and some of them have switched to more athletic looking and some of them are cut differently and some of them are different uppers. But we haven’t really seen any slowdown in our men’s and women’s categories as yet.

[Scott Krasik:]

And then, Fred, do you know what the total sales of the brands that you discontinued in the fourth quarter, the [Abracks] and the 310? How much you had in sales in the first quarter and also the second quarter in 2007?

[Frederick H. Schneider:]

Of the discontinued brands?

[Scott Krasik:]

Right, what are we Xing out here?

[Frederick H. Schneider:]

I don’t know that we’ve given that kind of level of detail in the past.

[Scott Krasik:]

I guess you said in the third quarter of 07 it was about $8 million you were beginning to phase it out so I assume it was something higher than that. I’m just trying to figure out what the apples to apples comparison is.

[David Weinberg:]

Just off the top of my head I would think it’s about $3 or $4 million in the first quarter for the actual clothes, the kids in the [Abracks] and the in the Michelle K. 310 is still with us obviously on a smaller scale and the kids businesses are still with us. I would guess it’s in the $3 or $4 million category for Q1 last year.

[Scott Krasik:]

And then this 33.8% tax rate is based on the higher international sales level, is that what we should use for the year?

[Frederick H. Schneider:]

Yes, that’s correct.

[Operator:]

Our next question comes from the Sam Poser of Sterne, Agee. Please go ahead.

[Sam Poser:]

I just want to understand here that on the domestic – can you break down more specifically how you’re seeing the domestic wholesale business? Looking ahead is Q2 really because of the shifts where you’re going to see softness? And, do you expect to get that back later in the year?

[Frederick H. Schneider:]

So far as we know right now that’s what it certainly looks like given our ordering patterns and our backlog. We seemed booked heavier ahead in Q3 and relatively even to slightly down for Q2 so we take in to account for in our assumptions for our guidance that we’ll have a stronger Q3 than Q2 but of course, that can change as retail changes and products get hotter. But, right now our guidance would be along the line of increases at our own retail stores simply because of the new stores and a relatively flat comp and significant increase in international which has significant increased backlogs and a big growth in our distributor based sales and a decrease in wholesale that we think is going to be made up in the third quarter.

[Sam Poser:]

Do you see gross margins staying at that 44, that high level it did in Q1? Or, are you positioning at a slightly lower gross margin than that?

[Frederick H. Schneider:]

Well, we’ve planned a slightly lower gross margin across the year, this is just when we seem to have maximized our international subsidiaries and that mix is at a maximum for gross margin purposes. We’ll have a bigger domestic wholesale component for Q3 which will slightly moderate that piece and certainly a growing domestic distributor business that will also moderate some of that piece although at a higher sales number. So, I think this is about the peak and we planned it down somewhat.

[David Weinberg:]

In other words it’s more of a mix change if we look forward changing the margin than it is essentially by division.

[Sam Poser:]

Then, to follow up on Scott’s question, on the low profile, the biker product in general, I heard quite a bit that it had slowed down and then I was hearing a lot of very positive things about the new energy shoe, the Delights and product of that nature. Is this a situation where one might have slowed down a little faster than you expected and you weren’t ready for the acceleration of the other and part of the Q2 and Q3 movement is getting in to stock in the Delight or like styles there with the slowdown of lower profile products?

[Frederick H. Schneider:]

I don’t think so. We don’t have any delivery issues and it’s not like we can’t deliver it in June if they want them, or in July too if we need. Nor, do we have excess inventory do we feel in any of those categories so we think we’re playing it just the way it belongs. Some things tend to seem slower or faster and it’s a very difficult retail environment but we think we have our hands around it and we haven’t seen any significant increases in inventory nor any significant shortage that would delay deliveries. It’s not us that’s making any of this shift.

[Sam Poser:]

Are you finding that product like some of the low profile product is selling internationally well may have slowed down a little bit in the US?

[Frederick H. Schneider:]

Well, there’s always changes internationally. Some of that is always true in different areas. The question is what order and what size. It’s slightly different every place but our basic styles sell everywhere. People have a very common fashion look so the big styles sell pretty much everywhere. There are nuances obviously within each country where we move some of our inventory around.

[Sam Poser:]

One of the retailers I spoke with mentioned – I asked if he was cancelling orders from you because of the slowing down and she said, “No.” She said you had actually cancelled some orders for her. I assumed moved it somewhere else that could sell it which I thought was great that you were taking such a proactive stance on making sure things work. That sounded like you really took a lot of control off your business, maybe more than you have in the past. Am I looking at that correctly?

[Frederick H. Schneider:]

Well, we think we always are in control of our business. I think what you’re looking at is we’re always looking to match inventories and to push sell throughs and if we do see – we are very close to our customers both domestically and internationally. If we see a slowing down in one place and increasing sales in another we will make the necessary changes without being asked by managing our business. I think that’s always been true of us. We’re in a situation now where I think we’re hot, our inventories are in line so it’s easier for us to have the flexibility of doing all the right things that we need to.

[Sam Poser:]

This is as good of a job as you’ve done in a while with your having your inventories in line and I assume that you expect to keep it in that realm? But, I expect we also might see a little bit higher at the end of Q2 just because of the amount of goods you’re about to ship for Q3.

[Frederick H. Schneider:]

Well, that’s always true. We count everything and everything in transit so if we have a big backlog going in to July it would certainly show up in inventory in June but that’s a very big positive for us. We like to be ready early just in case. Like we said, we manage our business and it’s necessary to have a couple of weeks early.

[Operator:]

Our next question comes from Jeff Mintz with Wedbush. Please go ahead.

[Jeff Mintz:]

Can I go back for a second? On the Q4 call you had given guidance and said that your domestic business was down significantly in the fourth quarter because things had shifted to the first quarter and the first quarter obviously didn’t come in that strong and I’m wondering did you see a further deterioration in the US domestic business just in general?

[Frederick H. Schneider:]

Yeah. I think it’s fair to say that we came out of Q4 and in to a very strong January which we announced on our Q4 conference call but I don’t think it’s any secret that the last two or three weeks in March were pretty devastating at retail and a lot of shifts were made back in March. I think it’s fair to say the end of January going in to February we were looking very good and if March had held up we would have been significantly at the top end of our range.

[Jeff Mintz:]

Okay. Then back to the gross margin question, are you still in terms of the shifts you’ve seen so far and how fast your international business is growing, are you still expecting gross margins kind of longer term to be in the 42 to 43 range? Or, do you think they could end up above that based on the new mix?

[Frederick H. Schneider:]

We plan on 42 to 43 but obviously international, our subsidiaries especially, if there’s no significant deterioration in the dollar and significant growth it could go up from there by 50 to 100 basis points on modeling for a considerable period of time.

[David Weinberg:]

There is a benefit in the international margins from the exchange from the low dollar here. So, some of that will depend upon how the dollar goes.

[Jeff Mintz:]

Okay. But, in terms of your business you’re still modeling the 42 to 43 range?

[Frederick H. Schneider:]

Yeah.

[Jeff Mintz:]

Okay. Then, on the new distribution center which I guess is being pushed out about six months or so, can you talk about just what the potential impact is on your business in terms of how your current distribution center is running? And, also what the cap ex impact is? In other words, will there be any cap ex for that DC this year? Or, is it all shifting to 09?

[Frederick H. Schneider:]

Not sure yet. Chances are there will be some cap ex towards the end of this year just to accumulate the equipment. The equipment starts going in before the building is even 100% complete. And, it has moved out some more for entitlements than anything else. The one here and the one in Europe is pretty much on schedule so there might be some cap ex this year but it’s not defined yet. We still have to get online to see what the production requirements at the suppliers of these things to get the actual dates we have to be online to meet the commitment dates we have for the distribution center. So, we should have more clarity on that when we give the second quarter conference call. We’ll be able to give you significant more detail.

[Jeff Mintz:]

Any concerns with your business is still ramping nicely, any concerns about the operations at your current DC as you increase the level of business?

[Frederick H. Schneider:]

Not right now. Part of the efficiencies we in the G&A is efficiencies in our warehouse, all those problems we had last year are stimulating the extra building here domestically and the extra labor seems to have taken account and we’ve actually had some efficiencies and some gain to the G&A line from running the warehouses so we’re fine domestically. We probably will have to give some extra capacity in some off premises help to our distribution center in Belgium for the first quarter of next year which is our biggest quarter out of Belgium and I think that shouldn’t be a problem. We have about six to nine months to ramp up for that and it shouldn’t be that expensive.

[Jeff Mintz:]

Okay, great. Then finally, on the cap ex number you just gave which was about $51 million obviously up from the number on the Q4 call, is that based on the real estate that you’re planning on purchasing or were there other incremental cap ex costs this year?

[Frederick H. Schneider:]

No, it’s primarily the building itself. It’s about a $14 to $15 million piece of property that would add to our complex here in Manhattan Beach that we ultimately would build on down the road to give us some more office space as we continue to grow.

[Operator:]

Next question comes from Sasha Kostadinov with Shaker Investments. Please go ahead.

[Sasha Kostadinov:]

On the marketing side I’ve been noticing more advertising. Can you quantify the delta year-over-year in your advertising spending?

[Frederick H. Schneider:]

It’s up slightly, I think it’s up about 10%.

[Sasha Kostadinov:]

About 10%? And, can you quantify for – I know you mentioned in the press release that comps were negative in the US, can you quantify how negative they were?

[Frederick H. Schneider:]

I think we said low to mid single digits.

[Sasha Kostadinov:]

Low to mid single digits?

[Frederick H. Schneider:]

Yeah.

[Sasha Kostadinov:]

Can you talk about if there’s been any change in that trend?

[Frederick H. Schneider:]

Yeah. Like I said in answer to somebody’s question, the last couple of weeks seem to have picked up significantly once the Easter shift and everything was done and we started to comp against the end of last March. So, the last week or 10 days has seen some pickup but obviously the question is how long will it last and is this the beginning of a trend. It certainly feels like it is but it’s kind of early to tell.

[Sasha Kostadinov:]

Have your compares eased or no?

[Frederick H. Schneider:]

Sorry?

[Sasha Kostadinov:]

Have your comparisons eased? Was your early April easier last year than March was?

[Frederick H. Schneider:]

I don’t think so, I just think early April last year was Easter, it was actually a bigger month. [Inaudible] was difficult to comp against but moving away from that first week or 10 days that included Easter subsequent to that when there was no Easter, after it was just April seems to be doing significantly better.

[Sasha Kostadinov:]

Okay. And your China joint venture, can you talk about how that’s going to be accounted for?

[Frederick H. Schneider:]

Well, it will be counted as a joint venture with a minority interest.

[David Weinberg:]

We’re consolidating the joint venture but I don’t know if it will be that significant in total this year. It’s hard to say, it’s pretty new in to the year. But [inaudible].

[Sasha Kostadinov:]

How many stores do you plan on having in the joint venture this year?

[Frederick H. Schneider:]

Well, in China we’ve talked more in terms of points of sale both store, shops and franchises. We would anticipate on a number starting to approach 100 by the end of the year.

[Sasha Kostadinov:]

Oh, really?

[David Weinberg:]

Those aren’t all stores, those are locations.

[Sasha Kostadinov:]

Okay. Locations. Your position in auction rate securities, other than putting them on your balance sheet as a long term asset, what else have you explored? Does the broker who sold you these have any liability in your mind? Or, are you just waiting for the credit markets to turn?

[Frederick H. Schneider:]

That’s a very long term situation. Right now we think the secured part as far as collateral is concerned, they’re all municipal bank we don’t have any of the questionable ones and our biggest supplier of them, not necessarily the broker has already announced a refinancing of part of them so we’re still of the opinion that somewhere down the road that it’s a liquidity issue and not a credit issue and we keep getting good interest on them so right now we’ve taken the course like everyone else or the SEC lead moving it to a long term and accumulating interest. But, we do anticipate that it’s a liquidity issue and that they will be redeemed at par somewhere down the road.

[Operator:]

Our next question comes from Adam Comora with EnTrust Capital. Please go ahead.

[Adam J. Comora:]

Just a couple of quick ones. First, congratulations on the expense management, it’s very encouraging to see you guys drive the bottom line. My first question is on the international, what are you guys sort of anticipating in the second quarter international doing in your guidance?

[Frederick H. Schneider:]

It’s growing very nicely.

[Adam J. Comora:]

But, it sounds like you’re anticipating that it’s growing double digits or slower than what it had been historically?

[Frederick H. Schneider:]

No, I think it’s growing what it has been historically. We said that number we felt would hold through the year and I don’t think anybody’s changing that yet.

[Adam J. Comora:]

Okay. Then just to flush out a little bit more what’s happening out there in April, you think all of retail in general is getting a bounce? What are your customers telling you? And, can you give a little more color about how your April comps are running so far? Is it sort of up mid singles or even better than that?

[Frederick H. Schneider:]

We don’t really quote comps that diligently. They were down in the first part of the month, they’re up in the second part of the month. We hear the same from a lot of our retail customers although it’s a mixed bag out there so I don’t know if it’s a barometer. But, it does seem from what we hear anecdotally and what we’ve seen in our stores to be turning and becoming positive to some degree. But, it’s way too early, it’s only the 23rd of April to put a long term prognosis on it yet.

[Operator:]

(Operator Instructions) Our next question comes from Scott Krasik with C. L. King & Associates. Please go ahead.

[Scott Krasik:]

Just a few follow ups, David have your thoughts on cost increases come out of Asia changed at all? I think you had said about 10%?

[David Weinberg:]

No, I think we’re still online to what we had said in the past and I think it shows in the margins we’ve had we’re reporting. We feel very comfortable, we think whatever we’re getting we’re sort of sharing with some of our suppliers. There will be some increases, we think we have some pricing power in the states and certainly internationally so we’re still comfortable with maintaining margins even with what we see coming out of the orient.

[Scott Krasik:]

I assume the price increases are being passed through for third quarter, are they being accepted by the retailer?

[David Weinberg:]

Yeah, that shows in our backlog. Our backlogs are continuing and our order rates are coming in and we certainly are anticipating a strong year. So, we wouldn’t do that unless it was being accepted and the orders were being booked.

[Scott Krasik:]

Okay. Do you want to give us numbers on domestic and international backlog?

[David Weinberg:]

Not particularly but they’re obviously stronger internationally than they are domestically.

[Frederick H. Schneider:]

We historically don’t publish backlog but once a year when we’re required to.

[Scott Krasik:]

Okay. Is it up double digits for the next six months in the US or no?

[David Weinberg:]

It wouldn’t be yet anyway, it’s too early we’re still booking for season so I doubt it especially buying closer to the vest, the fact that it’s up at all is a positive.

[Scott Krasik:]

Right. Then, just what are you finding in international in some of your more mature subs, whether it’s France, or Germany, or England, are you still getting meaningful additional door expansion? Or, is it comp growth with just taking share from some athletic retailers? Where is that growth coming from in you more mature?

[David Weinberg:]

I think it’s a little bit of both. We are getting door expansion and pulled some new accounts. Our subsidiary business especially in Europe, while we’ve been there a year has taken us a while to get started and now that it’s unfolding we’re getting door expansion, some within existing accounts, just moving out the door counts. Some new doors that we haven’t been in for quite some time and certainly shelf expansion because this kind of growth requires all three of those I think.

[Scott Krasik:]

So you wouldn’t really consider yourself mature in any sub you’re in at this point?

[David Weinberg:]

Not even close.

[Scott Krasik:]

Right. Good. Great. Then, just lastly maybe talk about Cali Gear obviously the category seems to have peaked a little bit. What’s your outlook now for the year and internationally and domestically?

[David Weinberg:]

Well, it’s different. It’s obviously selling better in some places than other, it’s just one piece of our category and while it may be the same size, slightly smaller or slightly larger in some places than we had anticipated there’s nothing outrageous about it nor do we think it impacts our overall business. In some places it will pick up some and we’ll move inventory there and some places it will slow down. Some, I think the kid’s business certainly overseas has held up and we plan on having it as a piece of our kid’s business as we go forward. So, it may not have the acceleration we once saw but we’re certainly replacing it with other things and it hasn’t impacted our growth either domestically or overseas.

[Scott Krasik:]

Just as an absolute number, do you want to give a target for 2008?

[David Weinberg:]

No, I think it’s too early. We’ve got to wait for some more warm weather around the world to find out exactly what’s what in each region.

[Operator:]

The next question is a follow up from Sasha Kostadinov. Please go ahead.

[Sasha Kostadinov:]

Did you guys disclose what your cash flow was during the quarter?

[Frederick H. Schneider:]

What element of cash flow? Operating cash flow?

[Sasha Kostadinov:]

Yeah, operating cash flow.

[Frederick H. Schneider:]

Cash flow from operations when we filed our Q was about – actually during the quarter it was a use of cash from operating activities of about -$29 million.

[Sasha Kostadinov:]

$29?

[Frederick H. Schneider:]

Yeah.

[Operator:]

Mr. Greenebaum there are no further question. Please continue.

[David Weinberg:]

Thank you for joining us on today’s call. Again, I’d like to note that today’s call may have contained forward-looking statements. As result of various factors actual results may vary from those projected in such statements. These risks factors are detailed in Skechers’ filings with the SEC. Again, thank you and have a good day. We’ll speak to you next quarter.

[Operator:]

Ladies and gentlemen this does conclude the Skechers U.S.A. first quarter 2008 earnings conference call. Thank you for your participation and you may now disconnect.