Skechers U.S.A., Inc.
Q3 2013 Earnings Call Transcript

Published: 24 Oct 2013

[Operator:]

Greetings, and welcome to the SKECHERS USA, Inc. Third Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this point, I'd like to turn the conference over to SKECHERS. Please go ahead.

[Unknown Executive:]

Thank you, everyone, for joining us on SKECHERS' conference call today. I will now read the Safe Harbor statement. Certain statements contained herein, including without limitation, statements addressing the 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. Such forward-looking statements involve known and unknown risks including, but not limited to, global, national and local economic, business and market conditions in general and specifically as they apply to the retail industry and the company. 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 filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other reports filed with the SEC as required by federal securities laws for a description of other significant risk factors that may affect the company's business, results of operations and financial conditions. With that, I would like to turn the call over to SKECHERS' Chief Operating Officer and Chief Financial Officer, David Weinberg. David?

[David Weinberg:]

Good afternoon, and thank you for joining us today to review SKECHERS' third quarter 2013 results. The broad-based demand for our men's, women's and kids product resulted in third quarter revenues of $515.8 million, making it the second highest quarterly net sales in the company's history. The 20% quarter-over-quarter growth was the result of double-digit improvements in our domestic wholesale, company-owned retail and e-commerce businesses and a single-digit improvement in our international business. With key styles selling across numerous product categories, we believe we are in a strong position in regards to our product offering and our reach to customers and consumers around the world. With new product reaching the United States first, the largest increase came in our domestic wholesale business, which improved 30.1%. This was due to an increase of 25.2% in pairs ships [ph] combined with an increase of 3.9% in average price per pair domestically as compared to the same quarter last year. Sales and financial highlights of the third quarter include a 30.1% increase in our domestic wholesale business; a 19.8% increase in our company-owned retail business, with a 16.9% increase in comp store sales; a 5.8% increase in our international business, with our subsidiary sales increasing by 16.1%; a 30.3% increase in our e-commerce sales; significantly improved earnings from operations of $44 million or 8.5% of net sales; gross margins of 44.7%; much improved net earnings of $26.8 million and diluted earnings per share of $0.53; in-line inventories, which decreased $29.1 million from year-end 2012 and showed an increase of $7.8 million from a year ago; and a strong balance sheet, with $332.8 million in cash or approximately $6.58 per share. The third quarter improvements are the continuation of the momentum we began to experience in the second half of 2012 and further accelerated with the delivery of our new product initiatives in the first half of 2013. This resulted in 9-month revenues of $1.4 billion, a 19.8% increase. We believe this positive trend will continue through the end of the year and into 2014. Now turning to our business in detail. In our domestic wholesale business, sales increased 30.1% or $52.4 million for the quarter versus the same period last year. As noted, there was an increase of 25.2% in pairs shipped as well as an increase in the average price per pair of 3.9%, both key indicators of the strength of our newer products. The growth came from double-digit improvement in women's, kids and work and a single-digit improvement in men's. Among our SKECHERS lifestyle lines, we experienced double-digit growth in our men's and women's Sport and BOBS lines. We also experienced significant sales in our newer Sport Active line. To support our varied lifestyle product lines, we aired numerous commercials for back-to-school. These included Skech-Air; men's SKECHERS Sport; Men's Relaxed Fit, starring Joe Montana; and 2 BOBS from SKECHERS commercials, one which featured Brooke Burke-Charvet. The continued success of BOBS, our charitable footwear line, has resulted in more than 5 million pairs of shoes donated to children in need, including those impacted by the recent floods in Colorado. Our SKECHERS boys and girls lines also had double-digit improvements in the quarter. As always, we supported our back-to-school kids business with numerous television commercials staring our cast of characters

[Operator:]

[Operator Instructions] Our first question comes from Scott Krasik of BB&T Capital Markets.

[Scott D. Krasik:]

So just a couple of questions. The backlog, the 19.8%, whatever it is...

[David Weinberg:]

19.7%.

[Scott D. Krasik:]

19.7%, can you -- what is the growth rate for the fourth quarter deliveries versus what you booked for spring so far?

[David Weinberg:]

Fourth quarter is up. It's not that high because we're obviously into the quarter already. The biggest piece is obviously for the first quarter or in first 4 months of 2014.

[Scott D. Krasik:]

Okay. And then would you say that the comment around October accelerating is that you think by the time you finally book spring, it could actually be above that 19.7%?

[David Weinberg:]

It almost has to be right now because we're booking very, very well for October. So unless something changes in the last week or 2 that slows the rate down significantly, we will be well ahead. And the increase in incoming orders will be significantly larger than the increase in shipping for the month, which means our backlog should grow at a much faster rate. So I would anticipate it would be significantly -- well, depending on how you define significantly, but certainly higher at the end of October than it is right this minute.

[Scott D. Krasik:]

And then you're done? Or do you still take orders in November?

[David Weinberg:]

Well, we still take them. Remember, we always have some inventory, and we always have an at-once component, so that continues to move. Not only that, there's changes. We have stuff booked for March and April. As we go through, if things start to move up, if we stay hot, then things booked for April can actually move into first quarter and increase the backlog for first quarter as well. So there's a lot of moving pieces. But right now, we seem to be in a very positive mode.

[Scott D. Krasik:]

Great. And then of that 20%, roughly, backlog, what did your international backlog look relative to domestic?

[David Weinberg:]

It's up double-digits as well, just not as high as domestic. But it's certainly still in the double-digits.

[Scott D. Krasik:]

Okay. And then you had previously thought distributors would be back ordering in the fourth quarter. Is that now less likely?

[David Weinberg:]

We still have some orders coming in, in the fourth quarter. First quarter is probably a tougher piece. But from what we see now, we know through -- from second quarter on, I believe, we should see some significant acceleration.

[Scott D. Krasik:]

Okay. And then just lastly, can you break out that SG&A like the dollar increase or how you're thinking about -- because your volumes are up. So I know there's a variable part of the distribution cost versus sort of like the retail aspect of SG&A growth.

[David Weinberg:]

I will tell you, in real dollar terms, certainly on a domestic basis, the biggest increase to the G&A line is from retail and that flows through rent and salaries although -- and bigger distribution costs, and I think the biggest increase in our distribution center would be from retail since it's the most labor-intensive. So even without giving them benefit, still, the biggest piece comes from retail.

[Scott D. Krasik:]

So there's no real offsets given the volume increases and given new stores on a real dollar basis. I mean, the dollar increase, it should be similar if not a little bit higher. Is that fair?

[David Weinberg:]

Depending on the volumes, certainly. But -- and depending on how many new stores we open in the quarter, that's probably true.

[Operator:]

The next question is from Jeff Van Sinderen of B. Riley.

[Jeffrey Wallin Van Sinderen:]

Maybe you could just talk a little bit about -- more about your retail comps. They were extremely strong. Did you mention gross margin for the retail segment? Maybe I missed it, or you'd...

[David Weinberg:]

I didn't mention it, but they were up as well. So we continue, just as in time past, to increase both our margins and our top line. So we're actually getting significantly more efficient.

[Jeffrey Wallin Van Sinderen:]

Okay. Good to hear. And what about your discounting or promotional levels in your own retail stores? I'm assuming they were either flat or down because your gross margins are up. Is that a fair assumption?

[David Weinberg:]

Yes, I think the new product carries with it -- I think more goes through the concept stores and more full price. At wholesale, certainly less discounting. We don't discount other than really seasonal merchandise and on and off here through our retail stores. Certainly not our concept stores because we don't compete with any of our customers. So it has more to do with the inherent gross margins in the product and their efficiencies and how much the foot -- the new product is really in demand.

[Jeffrey Wallin Van Sinderen:]

Okay. And then is there any more color? I know obviously a 17% comp, I mean, that's -- it's a huge number. I'm just wondering, was there a big difference as the months progress throughout the quarter and then any difference that you're seeing in October? I know the comparisons obviously, they start to get a little tougher year-over-year for Q4. Any more color you can give us on that, I guess, and maybe what you're looking for or what we should think about for comps for Q4?

[David Weinberg:]

Well, it's difficult to say now because we're so -- we are hot. In Q3, we comped up to almost 18%, but that was on top of last year was about 6% worldwide and a little over 6% domestically. So we anticipated that. And I think we saw -- even though it's hard to tell because we comped up every month of the quarter, we did see some slowdown in the comp increases as we came through the end of September, just like most retailers have reported and we saw as well. The surprise to me has been somewhat, October is still holding up well into the double-digits. I mean -- and not significantly less than we showed for last quarter at least for the first, whatever, 2.5 weeks so far. But that's on top of last year in October, we comped up at -- by 14%. So if this holds through, we're going to have significantly compound upon compound increases for October and hopefully, that holds through for the whole quarter.

[Jeffrey Wallin Van Sinderen:]

Yes, that's pretty impressive. Okay. And it sounds like you feel pretty strongly that your bookings are going to be very good for the first part of next year. Maybe you can just speak a little bit more to what is driving the strong order book? Is there any particular product lines, categories that are driving it more than others? Anything you can speak to there? Or is it really just across-the-board?

[David Weinberg:]

It's still pretty much across-the-board. We're seeing positive signs just about everywhere just as we've had in the past. We've done -- our Active lines and Sport Active lines and Sport lines and casual lines have all performed very, very well. I should point out though, as we speak, we had an outrageously bigger first quarter last year. If you remember, we had conversations that because Easter moved into March, that the first quarter was significantly higher than it might have been and it sort of flowed through. The second quarter slowed down. This year, we're going back to the norm. So the fact that we have so much booked for first quarter is on top of what we think was an artificially high first quarter last year. So it seems to be doing even better, and we should have more even flow-through the second quarter as -- especially for retail as Easter moves there. So we're looking pretty good, we think, right now given how well October's held up both at retail and in the incoming order level.

[Operator:]

The next question is from Sam Poser of Sterne Agee.

[Sam Poser:]

Listen, a couple of questions. Number one, can you walk through -- just can you go in more detail on the G&A? Just can you just walk through the components there? And just to follow up on Scott's question, can you just walk through that in a little more detail and how we should think about it going forward?

[David Weinberg:]

I don't think it changes significantly from what you've seen all year. We will leverage the distribution center from year-over-year. We pay less dollars for increased volume. The increases will come predominantly from the retail store openings as we go. We don't have any really outrageous and some slight increases from handling more volume both in China and domestically. But primarily, we don't see major increases anywhere other than volume-related. There's no basic change in the G&A, how it runs. The warehouse is proving as efficient as we had hoped. Certainly leveraging, while we need more people, obviously, as business grows, less people per dollar increase or additional pairs shipped than we've needed in the past and we're still growing into it. So it will continue to do that. We are planning on automating somewhat of our European. So we expect to see some of these same efficiencies by the end of next year when we're complete. We should start about April 1 and finish by the end of 2014. So we still got things going in that will improve efficiencies as we go along. But right now, I think what you see is just the increased store base. Remember, it's going to increase significantly more for our fourth quarter, and some of the distribution cost. But that's about it. There really is nothing special in the G&A.

[Sam Poser:]

So when we're thinking about it in absolute dollars, I mean, you picked up $12 million over last year or $13 million over last year in the quarter, are we looking at the same kind of increase in the fourth quarter? Or absolute dollars, the same amount? Or you think it could be a little bit less than absolute dollars?

[David Weinberg:]

Just the -- well, historically, selling comes down in the fourth quarter. For G&A, I think it remains relatively constant. We do have a couple of items, but they're small, like the additional auditing fees and things like that, that could come through and probably some bonuses that hit in the fourth quarter. But by and large, I would think we have pretty close to the same run rate.

[Sam Poser:]

At $148 million?

[David Weinberg:]

Yes, maybe drop less. But yes, right around that rate.

[Sam Poser:]

And then right now the Street's looking for about an 11% increase in revenue for 2014. I mean, is that a number that you could live with right now?

[David Weinberg:]

Yes, I don't really have any problem with that number from what I see right this minute.

[Sam Poser:]

And we've heard a lot of talk about BOBS slowing down a bit. Are you seeing that as well?

[David Weinberg:]

We've heard a little bit of the slow down about BOBS, but they continue to sell and sell in our store. And we have a lot of new products that we're showing for BOBS. So we don't think -- this is certainly not the end of the story I mean, there is some small slowdown. It's not that big a piece nor that big a slowdown. So we'll see how the new product fares as we get it out. But as I said in my prepared remarks, we made it a year-round business, and there's a lot of new product going out there and we always are innovative. So we don't think it's going to be a significant downturn.

[Sam Poser:]

And once you get -- lastly, once you get totally up and going on the -- with everything working the way you want it to work, how much leverage you're going to get from -- how much leverage do you think you can get from G&A? Because the numbers came in higher than what I think I expected and a few other people expected in the quarter even with the new stores. And then I have one other thing and I'm done.

[David Weinberg:]

Well, the 16 stores that were opened, so most of that is rent. We have increased depreciation. Remember, our depreciation, when you look at that number, is running at $3 million a month. So you can get $9 million or $10 million in depreciation that's in there. It's in the cash flow item. As we open the stores, you've got to start running them through, and that's through lease term. So sometimes, they do accelerate some. There was an extra $1 million that we had to pay the accountants for the re-audit of 2011 and '12. So there's some moving pieces in there. There are some bonuses that we pay out at the midyear, and so I don't think anything's outrageous. Some of it, there's a little bit of currency in there too as the dollar got somewhat weaker on the translation cost. So altogether, I think we're pretty much where we thought we were going to be.

[Sam Poser:]

But that $1 million that you read [ph], that $1 million plus the $1.7 million year-to-date, which -- I don't remember you talking about the smaller pieces earlier. How did that break out by quarter? And that -- those are basically nonrecurring charges because that was as a result of that mess with KPMG, right?

[David Weinberg:]

Yes, absolutely correct on the second piece. I mean, the $1.7 million is basically Q2, Q3. So it's $900,000 in Q3 and $800,000 in Q2.

[Sam Poser:]

And so would you refer to those as onetime in nature?

[David Weinberg:]

Well, yes. We're going to go back to historical. We have to pay KPMG, obviously, for the audits and then had to repay to do -- to redo the 2 audits to get back in the good graces of the SEC and the New York Stock Exchange, so -- on an accelerated basis. So that's just the fee. It had nothing to do with quarters or anything else.

[Sam Poser:]

Plus the $1 million. So there was $1.9 million in Q3 and $800,000 in Q2. If you're saying you might...

[David Weinberg:]

$900,000 in Q3 and $800,000 in Q2. The total for the 2 quarters is $1.7 million.

[David Weinberg:]

But you had another $1 million in, you said, in some -- in other fees there as well on top of the $900,000. You said some legal fees and so on that was associated with this.

[David Weinberg:]

No, I don't think so. I think we got them all confused. There were just the 2 pieces that we have that related to the accountants and the transition.

[Sam Poser:]

Okay. And then lastly, you said once you got through -- in the past you said once you've gotten through getting the DC up and running and all the various -- getting through -- getting your business back, turned around, which it looks like it has, you'd start to think about uses of cash. So I figure I might as well just ask.

[David Weinberg:]

Well, it's still early in the process, although we do think we're going to generate some cash. But I think, as we've had conversations in the past, that I thought we made fairly public, we do have some uses for it. We do have debt on the distribution center, both for the equipment and the building that we'd like to pay down as we go across. We -- ultimately, somewhere along the line, we'd like to buy out our joint venture partner on the distribution center, which will make it a lot cleaner for us. And we're going to put $12 million in the distribution center in Belgium for -- to get the European and possibly, expansion into Eastern Europe more efficient. So right now we have some uses, and we'll consider them as we grow forward and generate that kind of cash.

[Operator:]

[Operator Instructions] The next question is from Christopher Svezia of Susquehanna Financial Group.

[Christopher Svezia:]

So first on gross margin and inventory. Inventory looked really good relative to the growth rates, relative to the backlog. How should we think about that going forward, number one? And number two, as it pertains to gross margin, how do we think about your gross margin rate's sustainability at this level going into the fourth quarter? And obviously, fourth quarter is usually not as strong, but just your thoughts around those 2 pieces.

[David Weinberg:]

Yes, we continue to manage inventory the same way. We historically grow inventory in Q4 because it's a short season. We like to get it all in hand or underwater before spring really starts to ship. So there'll be some growth. As far as gross margin is concerned, I don't see any near-term changes, although fourth quarter is somewhat lower, but -- just by the nature of the quarter. But I don't see any significant changes to the business and the pieces of the business and their varying relationships and percentages. So I don't see any major changes to the margins as we get into fourth quarter. It may come down sequentially, but certainly should be on the higher end of what we've shown in fourth quarters in the past. So we still think we're looking good. And retail -- like I said, the comps are holding up. So even the bigger retailers, the piece, the higher our margins will hold as well. And given how well we comped last October and how well we're comping this October, we still have -- I think we're in pretty good shape and still accelerating in it.

[Christopher Svezia:]

Okay. That's good to hear. Selling expense, last year in the fourth quarter, it was $31 million. It was up 30-some-odd percent. Are we -- I mean, could that be flat just because it was so -- grew so disproportionately strong in the fourth quarter last year? How should we think about that? And...

[David Weinberg:]

I think it's the same as the year. I think there's, in real dollar terms, maybe a $2 million or $3 million increase that I would anticipate, being that [ph] all things being equal year-over-year.

[Christopher Svezia:]

Okay. Okay. And so just -- I know you don't want to get too specific here, but if you just optically look at the fourth quarter and you kind of know where we're at and what we're thinking about, is there anything that stands out to you that's either out of whack or we're not thinking about? So I mean, everyone's sort of at this $440 million in revenues and going around [ph] $0.21 on the bottom line, is there anything that optically stands out to you at all either aggressively or conservative or whatever?

[David Weinberg:]

A little bit. I don't have any real issues with the top line, and I could be slightly conservative, although not a lot. But I just don't understand how at $440 million you get to $0.20 when in the first quarter, we did $450 million and only had $0.13, and there may be some efficiencies in there. But certainly not a lot and certainly not significant on the margin expansion, although there may be a little bit. So I would say somewhere in that range is the real number, unless the top line continues to move higher.

[Christopher Svezia:]

Okay. Wait, did you say in the first quarter you earned -- what did you say again?

[David Weinberg:]

In the first quarter of 2013, we did $450 million. We had margins of about 43%. Advertising, maybe a drop higher than the fourth quarter, although nothing outrageous, less overhead than we had in the third quarter, which some of it is the stores and some of it might not repeat. And you only end up at -- and we reported $0.13 today. So if you're at $440 million, unless you have real things to do with margins and understand we have a higher tax rate now than we anticipated in the first quarter, very difficult that $440 million to get to $0.20. You can play with the top line, you can play with the margins and stuff like that. But put the 2 together, you either got to move up your top line or move down your bottom line, I guess, is what I'm saying.

[Christopher Svezia:]

Okay. Okay. And then just a last question I had was just on the international piece. You made some comment that you expect by second quarter of next year it to be something along the lines of growing in line. Or was it growing in line with your domestic business?

[David Weinberg:]

Yes, growing in line with what we've seen this year, certainly into the double-digits. I mean, we expect very good things to come out of Japan, China to continue, Brazil to start to move, especially after you get past the first quarter, and they're starting to book well. And we don't see any more deterioration from the distributors, and Q2 was when they really started to have the issues. So there can even be some positives there, whereas they had a fairly good first quarter. So I think by second quarter, you've got to get back into double-digit growth for the international piece.

[Operator:]

The next question is from Corinna Freedman of Wedbush.

[Corinna L. Freedman:]

I just wanted to follow up on Sam's question on the BOBS line. I wonder if you could maybe give us a rough estimate of the total dollar size of the brand this year.

[David Weinberg:]

Well, we've announced that we're -- we've given away 5 million pairs of shoes, and we announce it every year. So if you track back, I don't know, it could -- whatever, 3 million or 4 million pairs was done this year, and I think the multiplication is fairly simple. It's certainly not a small business. But at wholesale, it's certainly not an outrageously large one.

[Corinna L. Freedman:]

Okay. And maybe could you quantify the current bookings trends specifically for BOBS versus the same time last year.

[David Weinberg:]

I don't have that right in front of me. I don't know that I would give you by line. I think they're still up. I don't have any real major pieces that are not booked ahead, for whatever that's worth, and it's certainly holding up in our stores. So I don't know. I don't see any significant deterioration there.

[Corinna L. Freedman:]

Okay. And what's the growth rate that you're targeting for next year?

[David Weinberg:]

Growth rate for?

[Corinna L. Freedman:]

For BOBS specifically. No, for BOBS specifically.

[David Weinberg:]

We tend to look at it differently. We'll have a growth target rate probably by the time we see you in December at the show because we're booking spring now and some of the new product is being delivered. So we'll have a better idea and I will hold it till then.

[Corinna L. Freedman:]

Okay. And then lastly, I just -- I wonder if there's a philosophical reason for not providing maybe specific EPS guidance. I'm just curious what the thinking is behind that.

[David Weinberg:]

We got away from it a while ago. We never thought it -- felt it to our benefit. It creates floors or ceilings or -- and we just took to the scope of the business. Our business moves very, very quickly, and we don't want anybody to think that we sandbag them or overstated the number when we start growing. Because we move very, very quickly and over a year's time or something like that, things can change significantly. You have to remember that 2 years ago, we had a very, very difficult year and a lot of people wrote us off. And 2 years later, we're now back in. And by 3 years later, which is next year, we'll be back to almost peak levels of our volume and earnings. It's very difficult to give specific guidelines year-over-year and quarter-over-quarter and keep doing that when you can move that quickly. And I don't know that it gets to anybody's benefit. So we leave you to take -- you do your channel checks and see how well we're doing and how well we can do. And we give as much guidance as we can as far as overhead and expenditures for advertising, and that's just the tack we've taken.

[Operator:]

We have time for one more follow-up. It comes from the line of Scott Krasik with BB&T Capital Markets.

[Scott D. Krasik:]

I think the last time you gave guidance was like 2003, so it's been a while. Just to further follow up on your fourth quarter answer, because you occasionally don't answer that as directly as possible. I mean, it seems like given the higher G&A and the higher tax rate, I mean, it doesn't seem like you should come even close to the $0.20. Am I saying that correctly?

[David Weinberg:]

I guess that depends on your top line. I don't think we do $0.20 at $440 million or $445 million. That's for certain. But I think that's a fairly conservative top line number. So that's what I put out there for all you guys to think about.

[Scott D. Krasik:]

Okay. So it's something more like $0.10? Or I mean, it's not out of the realm of possibilities.

[David Weinberg:]

I don't think we'd go down to $0.10, and I don't think we'd come in quite -- I don't know that we can come in at $440 million or we should be somewhat higher than that. I would -- since you want to press the issue, I would put it more in the $450 million range and not be worried about it and feel that's not an outrageously strong number, especially if things get very positive and we certainly have upside from there. If we continue to sell and comps hold up as they are and some of our customers start taking deliveries in December what they would normally take in the first 2 weeks in January, we can even do better than that. But that's more speculative than I'd like to be.

[Scott D. Krasik:]

And then you just -- you called -- okay, that's fine. And then you called out a turn in Germany. Is that now building and it should keep getting better? And also, what's happening in the U.K.?

[David Weinberg:]

Yes, the U.K. was relatively flat, but they never got hurt as bad as the other ones and their backlogs are up year-over-year. Germany, as a matter, picked up some. They actually had positive shipping of low single digits, and their backlogs are increasing at a nice rate as well and booking quite nicely and will show increases going into next year. So we think we'll have increases in all our big countries certainly as we go forward from -- certainly, from the subsidiary and the joint venture piece. As I put out, the only ones that are not showing positive results really for the quarter are Italy and Spain. But we do get the impression they have bottomed, and their backlogs are picking up as compared to last year. So we have a lot of positive signs everywhere in the world.

[Scott D. Krasik:]

Just to pick -- if you know off the top of your head, I mean, are backlogs in Germany and U.K. up double digits or high singles or...

[David Weinberg:]

They were up mid to high singles going into October. But like I said, October, even for Europe, has become a very good month incoming order-wise. As a matter of fact, as we sit here today on the 22nd, they've already surpassed the incoming order rate for the entire October of 2012. So unless there's just a timing shift, we expect some very positive results as we leave October.

[Scott D. Krasik:]

Okay. And then without giving any guidance for next year, same sort of store expansion thoughts? And then also, given the contribution of international, should the tax rate then be lower next year?

[David Weinberg:]

We have the possibility of the tax rates coming down, although I don't anticipate any slowdown in growth from the U.S. yet that I can see. I still think -- we get very positive from all the customers we've met with. So that's still a moving target, and it should come down -- it could come down some, but I don't think we can get all the way back to 30 right away because the U.S. will continue to grow at a very significant pace. And when I say the U.S., for tax purposes, it's the U.S. and Canada because we consolidate those 2 even though Canada is part of our international business, but it's growing quite, quite well.

[Operator:]

And I show one more follow-up. It comes from the line of Sam Poser of Sterne Agee.

[Sam Poser:]

David, you had a couple of nonrecurring charges in the first quarter. Those aren't there. So those probably aren't going to be there in the fourth quarter. So doesn't that push it up a little bit?

[David Weinberg:]

Yes, just a little bit, not $0.07 worth, but after-tax with a higher tax rate. I mean, there's always offsets to some of those.

[Sam Poser:]

Okay. And -- but also, your mix of business in Q4 leans more to retail, which should be a higher-margin business theoretically.

[David Weinberg:]

Yes, theoretically. Like I said, you could get some margin, although fourth quarter is usually when we clean whatever is left to clean, and there's some currency issues as well. But even if you get 100 basis points on $400 million, that doesn't -- on a pretax basis after expenses, it doesn't get you a $0.07 increase, I don't think. Remember, we were talking about $440 million to $445 million. So you have a -- that number actually takes in a $5 million to $10 million decrease from Q1, which is the comparative quarter.

[Sam Poser:]

And do you think that your $440 million to $445 million, you believe that is a fairly conservative number anyway?

[David Weinberg:]

I think that is more than fair. I think that's a -- at this point, a very conservative number.

[Operator:]

At this time, I'll just turn the conference back over to SKECHERS for any closing remarks.

[Unknown Executive:]

Thank you, again, for joining us on today's call. We would just like to note that today's call may have contained forward-looking statements. As a result of various risk factors, actual results could differ materially from those projected in such statements. These risk factors are detailed in SKECHERS' filings with the SEC. Again, thank you, and have a great day.