Deckers Outdoor - Earnings Call - Q4 2011
February 23, 2012
Transcript
Speaker 6
I would like to remind everyone that this conference call is being recorded. Before we begin, I would also like to remind everyone of the company's safe harbor policy. Please note that certain statements made on this call regarding the company's expectations, beliefs, and views about its future financial performance, brand strategies, and cost structure are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These statements relate to the company's anticipated revenues, expenses, earnings, gross margin, capital expenditures, brand strategies, and cost structure, as well as the outlook for the company's markets and the demand for its products.
The forward-looking statements made on this call are based on currently available information, and because its business is subject to a number of risks and uncertainties, some of which may be beyond its control, actual operating results in the future may differ materially from future financial performance expected at the current time. Deckers Outdoor Corporation has explained some of these risks and uncertainties in its earnings press release and in its SEC filings, including risk factor section of its annual report on Form 10-K and its other documents filed with the SEC. Listeners are cautioned not to place undue reliance on forward-looking statements, which may speak only as of the date hereof. The company undertakes no obligation to publicly release or update the results of any revisions to forward-looking statements.
I would now like to turn the conference over to the President, Chief Executive Officer, and Chair of the Board of Directors, Angel Martinez. Please go ahead, sir.
Speaker 4
Thank you, and thank you to everyone for joining us today. With me on the call are Chief Operating Officer, Zohar Ziv, and Chief Financial Officer, Tom George. We're very pleased to report fourth quarter sales and earnings that exceed the levels that we outlined back in October. Our performance was driven by higher than expected demand for the UGG brand, primarily in our domestic wholesale channel. Fourth quarter UGG brand sales increased 38%, easily pushing the first full year brand sales past $1 billion for the first time ever. This tremendous performance is a testament to the hard work put in by our UGG brand team year in and year out. Congratulations to Constance Rishwain and the global UGG brand team. Tom will go through the financials in a moment, but I do want to highlight some of our key achievements.
Fourth quarter net sales rose 40% to a record $604 million, and diluted earnings per share increased 40% to a record $3.18. It was very gratifying to end 2011 on such a high note. For the year, annual sales were $1.377 billion, up 38% over 2010, and full year diluted EPS increased 26% to $5.07. Our record financial performance was a result of our global team successfully executing the growth strategies that we've implemented over the past few years. While we regularly fine-tune our strategies to adapt to market changes, our central theme has not changed, which includes reinvesting in our business and our brands. In 2011, this included new product developments, marketing, expansion of our consumer direct platform, which consists of our retail stores and e-commerce business, and international growth, including the startup of subsidiaries in Europe.
2011 also included the acquisition of the Sanuk brand, a terrific addition to our brand portfolio and a compelling new growth vehicle for the company. Each of these investments contributed to our results while at the same time strengthening our connection with consumers, improving our position with retailers, and enhancing our future prospects. Let's talk about new products, new products and styles which continue to spearhead growth in 2011. For the UGG brand, we introduced new styles in our Classic Collection, significantly expanded the style count in our women's fashion, cold weather, flared, and casual collection, launched our high-end Italian collection, and broadened our men's offering. In aggregate, the response to the 2011 fall and spring lines was very positive, and we're confident that the evolution of the UGG brand is creating repeat customers and attracting new customers.
The popularity of our classic boots was further enhanced this year by the sparkles and Triple Bailey Button, which, along with selected price increases, helped drive steady growth of our largest collection. As planned, our non-classic collections were the main growth drivers. Based on the sales mix, it is evident we are gaining share in new categories as we introduce more fashionable, functional, and of course, comfortable boots, comfortable sneakers, sandals, and casual footwear for women and men, and continue to create growth in our highly successful slipper category. Importantly, distribution for these new collections is not limited to our own stores, websites, and select wholesale accounts. Across our department stores, specialty retail, and independent network, more and more shelf space is being dedicated to our growing lifestyle product offering.
It was a similar story with the Teva brand, as new products, particularly our growing assortment of closed-toe footwear, fueled the brand's second consecutive year of 20+% growth. Expansion of our multi-sport product lines was especially critical to the Teva brand's success during what was a very cold and wet spring season. In past years, this would have dealt a huge blow to the brand's performance when the line was almost exclusively sandals. The transformation of the Teva brand into a more well-rounded year-round outdoor performance brand is also extending its selling season deeper and deeper into the year. On the marketing front, we know that product isn't the only thing evolving at Deckers Outdoor Corporation. Our marketing has also taken a significant step forward. I've spoken to this before, but it's worth repeating.
We've made the transition from being an exclusively product-driven company to a product and marketing-driven company, which is an important step in altering consumer perception of the UGG brand and putting us on a more even playing field with other global lifestyle brands. Our UGG brand marketing team did a terrific job in 2011, especially with the Tom Brady campaign for UGG men’s and the launch of our men's initiative. Across the brand, print will continue to serve as our primary platform, but you'll also see us become more aggressive in our use of media, in use of mobile and digital technology to reach consumers and creatively educate the audience on our brand's development. In consumer direct, which is another way we're connecting with consumers, we are expanding our company-owned retail stores and the improvement of our e-commerce capabilities.
In 2011, we opened 18 new locations, primarily in China and in Japan, to end the year with 45 stores globally. Our consumer direct channels do a great job showcasing the breadth and depth of each season's product line while providing us with great insight into consumer behavior and buying patterns, important data that we're now able to mine and incorporate into our decision-making process. Both consumer direct channels, e-commerce and retail, generate strong operating income margins. One of the more critical investments we made over the past year was the build-out of a subsidiary infrastructure in Europe. Now under the leadership of Steve Murray, we've developed a very strong foundation that will serve the company well in the years ahead as we look to penetrate new and existing markets throughout the continent.
We're pleased with how the initial transition to wholesale distribution in the UK and Benelux progressed, particularly given the total size of the businesses we assumed and the macroeconomic issues facing these markets and their consumers. By working directly with retailers, we've been able to better highlight the long-term benefits of merchandising a broader selection of the UGG brand and the entire product line, change the way they view the UGG brand and how they think about successfully growing their partnerships with us, which in turn is changing consumer perception of the brand. This will be an ongoing process, but the results from 2011 were encouraging. We're confident that we're at the beginning of an exciting new chapter for our international business, one that we believe has great long-term potential given the vast opportunities available for our broader product line.
I should be clear that these opportunities are not limited to just Europe. In Asia, which is now being led by Pete Worley, former brand president of Teva, sales, particularly in China and Japan, are growing at a quick pace, driven by investments in retail stores and a positive consumer response to new products. Now to the Sanuk brand, which turned out to be our largest investment in 2011. This is a brand we're very excited about. It's very authentic in surf and action sports and has very strong lifestyle potential with a devoted customer base beyond core sports. The fact that Sanuk brand has been able to expand as fast as it has in the past few years and develop such a passionate fan base speaks to the success it has had walking that fine line between growth and maintaining the brand's original identity.
This will not change going forward. We plan to develop the key retail relationships in department stores, outdoor sporting goods, and specialty footwear channels to increase distribution and shelf space, but we will not use our size and leverage to maximize the brand's opportunities overnight. Growth will be achieved methodically and strategically, and primarily through product line extensions that are more appropriate for broader distribution and do not jeopardize the continued success of the Sanuk brand with the core surf and action sports channel. I'll turn the call over to Tom. Tom?
Speaker 5
Thanks, Angel. In addition to what Angel discussed, there's a good amount of detail about our fourth quarter and full year sales and earnings results in today's earnings release, including sales by brand, channel, and geography. In an effort to leave more time for Q&A, I'm going to limit my discussion primarily to gross margins, operating expenses, the balance sheet, and guidance. Gross margin for the fourth quarter was 51% compared to 54.2% in the fourth quarter of last year. The decline was due to an increase in product costs and higher closeout sales, partially offset by higher margins in our international business as a result of the transition to direct subsidiaries in the UK and Benelux. For the full year, gross margin was 49.3% compared to 50.2%.
Total SG&A expense for the quarter was $131 million, or 21.7% of net sales, compared to $92.6 million, or 21.5% of net sales a year ago. SG&A increased primarily due to operating expenses related to our conversion to a wholesale business model in the UK and Benelux and additional expenses of acquiring and operating the Sanuk brand. In addition, fourth quarter 2011 SG&A includes additional marketing investments of $3.9 million, higher legal spend totaling $2.2 million, and $4.2 million in the amortization of intangible assets and purchase price accounting tied to the Sanuk brand earnout payment. There are also eight new retail stores that were not open during the fourth quarter last year and additional increases in variable expenses for the increased sales. For the year, SG&A expense was $394.2 million, or 28.6% of net sales, compared to $253.9 million, or 25.4% of net sales.
Let me summarize some of the identifiable expenses that drove the year-over-year increase in SG&A. There was $9 million of one-time costs related to our transition to a wholesale model in the UK and Benelux, $11 million of additional marketing and advertising spend to support the UGG brand men's and women's prospect initiatives, $6.7 million of additional legal spend to further fund the protection of our intellectual property and trademarks, $4.1 million of due diligence audit and transaction fees related to the Sanuk brand acquisition, $8.6 million associated with the amortization of intangible assets and purchase price accounting tied to the Sanuk earnout payment. On top of these, there were additional expenses for opening and operating 18 new stores and increased payroll as a result of running a larger company, particularly with the addition of our new subsidiaries in Europe.
Now, the operating income for the fourth quarter was $176.8 million, or 29.3% of sales, compared to operating income of $140.7 million, or 32.7% of sales last year. For the year, operating income was $284.8 million, or 20.7% of sales, compared to operating income of $249.1 million, or 24.9% of sales. The decline in operating margin was a result of the slightly lower gross margins and the aforementioned issues in our global operating platform. Our effective income tax rate for the fourth quarter was 28.2% compared to 35.2% in the fourth quarter last year. For 2011, our effective tax rate was 29.2% compared to 35.9% in 2010. A lower tax rate was driven by the increased mix of international pre-tax profits.
Capital expenditures for the full year were approximately $55.8 million, higher by $32.7 million from 2010, driven mainly by the build-out of 18 new retail stores and the land for the new corporate facilities. Now, turning to the balance sheet, at December 31, 2011, inventories increased 102.6% to $253.3 million from $125 million at December 31, 2010. By brand, UGG inventory increased $107.1 million to $201.8 million at December 31, 2011. Teva inventory increased $6.6 million to $29.3 million at December 31, 2011. Our other brands' inventory decreased $1.5 million to $6.1 million at December 31, 2011. The newly acquired Sanuk brand inventories were $16.1 million at December 31, 2011.
The increase in inventory from a year ago is fairly equally balanced between the growth in spring orders, inventory for our direct subsidiaries in the UK and Benelux, the addition of the Sanuk brand, and growth of our consumer direct division, carryover product from the holiday period, which will be utilized to fulfill orders during 2012, and an increase in product costs. In addition, at December 31, 2011, we had cash and cash equivalents totaling $263.6 million compared to $445.2 million at December 31, 2010. The decrease in cash and cash equivalents is primarily attributable to $125.2 million in cash payments associated with the acquisition of the Sanuk brand, as well as approximately $20 million of cash payments for land for a new headquarters facility. At December 31, 2011, we had zero borrowings outstanding under our credit facility.
Accounts receivable at December 31, 2011, were $193.4 million compared to $116.7 million at December 31, 2010. The increase was attributable to increased sales and the conversions from distributor models to wholesale models in certain European markets. Now, moving on to our outlook. Based on current visibility, we expect 2012 revenues to increase approximately 15% over 2011 levels. For the full year, we expect UGG brand sales to increase by approximately 11%, Teva brand sales to increase 10%, Sanuk brand sales to be approximately $90 million, and our other brands combined to be flat. Note that Sanuk brand sales were $69 million in 2011, which includes $42 million from the first half of 2011 before we acquired the brand.
We currently expect diluted EPS to be roughly flat with 2011 levels, which assumes a 200 basis point year-over-year decline in gross margin and SG&A as a percentage of sales of approximately 29%. Our effective tax rate is expected to increase to approximately 31% in 2012, driven by the increased mix of domestic profits compared to 2011. With regard to gross margin, we expect cost of goods sold, which comprised about 51% of sales in 2011, would have been up approximately 10% in 2012 over 2011 as the result primarily of higher raw material costs, namely sheepskin, which are up approximately 40% over 2011 levels and up approximately 80% versus 2010. The higher sheepskin costs, the higher sheepskin prices are costing us about 500 basis points of gross margin, roughly $1.40 in earnings per share in 2012.
However, primarily through selective price increases, the full year addition of Sanuk and a greater contribution from our retail division will be able to offset about 300 basis points of the gross margin decline and fully offset the negative impact to our bottom line. As we have discussed before, we have also implemented long-term programs to help further mitigate the impact from higher sheepskin and raw material costs. These include increasing the mix of non-sheepskin products, buying new footwear materials and new production technologies, and taking advantage of lower cost production, including the United States, where we will begin sourcing product from later this year. Included in our SG&A projection are non-cash charges of approximately $13 million associated with the amortization of intangible assets and purchase price accounting tied to the Sanuk earnout payment.
We will also make additional investments in marketing and European and Asian wholesale and retail infrastructure that we feel are important for the long-term development and growth of the company. Our capital expenditures in 2012 are expected to total approximately $90 million, up from our 2011 level of $56 million, driven mainly by the build-out of 25 new retail stores and corporate facilities. We continue to evaluate the financing of our new corporate headquarters, including securing longer-term financing, as well as the potential sale and leaseback scenario. For the first quarter of 2012, we currently expect revenues to increase approximately 19% and diluted earnings per share to decrease approximately 50% compared to the first quarter of 2011. First quarter guidance includes estimates of approximately $3.5 million, or $0.03 per diluted share, associated with the amortization and accretion expenses related to the Sanuk acquisition.
This guidance also assumes a gross profit margin of approximately 48% and SG&A as a percentage of sales of approximately 43%. As a reminder, a significant amount of our operating expenses are fixed and spread evenly on an absolute dollar basis throughout each quarter. This includes the cost associated with the 15 new stores that were not open until the second half of 2011. Therefore, due to the aforementioned increases in SG&A, we expect our earnings to decline in the first half of 2012 as compared to the first half of 2011, which are typically our lowest volume sales quarters, and increase over 2011 in the back half of the year. With regard to the second quarter, which with last year's international wholesale conversions, is by far our lowest volume quarter.
We expect our loss per share to more than double from the same period last year as a result of lower sales growth and the higher expenses I just mentioned. Finally, as we announced in today's earnings release, the Board of Directors has authorized a $100 million stock repurchase program. Thanks to our strong operating performance, we have the cash available to fund the program while continuing to invest in our brands and business. The share guidance for 2012 does not include the impact of any potential share repurchases. I will now turn the call back over to Angel.
Speaker 4
Thanks, Tom. We begin this year with more conviction than ever about the long-term growth opportunities that lie ahead for the company. This is reflected in our upwardly revised targets. I call for sales of $2.4 billion by 2015, up from our previous estimate of $2 billion that we introduced just last year, which represents a compound annual growth rate of about 15% from 2011. Our new target includes $1.85 billion in UGG brand annual revenue versus $1.2 billion in 2011, a compound annual growth rate of about 11% over the four-year period ahead. A similar exercise with the Teva brand, using our target of $250 million in annual revenues versus $125 million from this past year, yields a compound annual growth rate of about 19%.
Based on $200 million for the Sanuk brand compared to approximately $69 million in 2011, that equates to a compound annual growth rate of roughly 30%. Looking at our long-term goal by region, we believe 40% or about $960 million will come from outside the U.S., up from $432 million in 2011, which means a compound annual growth rate of about 22% for the international markets and around 11% for our domestic business. Based on our firm momentum, we believe these goals are achievable using the same strategies that generated 38% growth in 2011, namely product and category expansion, increased emphasis on marketing and advertising, retail store expansion, and capitalizing on the untapped international opportunities in both existing and new markets. With regard to the near term, we are equally as optimistic. Despite the mildest winter in recent memory, we still grew UGG brand sales 38% in the fourth quarter.
We believe this is a testament to the growing popularity of the brand and the strength of the product collections that we've developed. While we're not immune to weather, especially with our small but growing line of cold weather boots, we believe that the comfort factor combined with the new fashion products we provide positions us better than the majority of our peers. That said, the fact is when retailers are sitting on excess inventory of winter apparel and footwear, it impacts everyone, including us, as open to buy dollars for the following season are reduced. As you just heard from Tom, we're projecting sales to grow 15% in 2012, which again, I believe, speaks to the power of the UGG brand and its importance to retailers. To break down 2012 further, our backlog is up 15.1%.
We expect our domestic business to grow approximately 12% on top of a 24% increase in 2011. This will be driven by increased demand for both spring and fall collections, an increase in shop-in-shop, and the addition of four new retail stores, including our first-ever men's-only store adjacent to our Madison Avenue location. We project international sales to increase 20% through steady growth from new products in our subsidiary markets of the UK, Benelux, China, and Japan, and our European and Asian distributor markets, plus the opening of 21 new stores, including locations in Paris, the UK, the Benelux, China, and Japan. International sales are projected to represent approximately 33% of the company's net sales in 2012 compared to 31% in 2011.
Looking at our consumer direct division, 2012 retail sales are projected to grow approximately 49%, driven by 25 new store openings and mid-single digit comp increase on top of a 6% increase this past year. E-commerce sales are expected to be up approximately 21%. We believe that the combination of growth I just outlined speaks to the success we've had diversifying our business in terms of distribution channels and geographies and underscores the strategic benefits of the brand portfolio that we've put together. In the face of 40% higher sheepskin prices, it's the growth of our retail business and contributions from Sanuk, along with selectively raising prices, that's providing us the opportunity to hold our bottom line flat in 2012.
As we continue to diversify our business this year and beyond, we believe that we'll be well positioned to take advantage of any pullback in material costs and better absorb other challenges that potentially arise down the road. I want to close today's prepared remarks by thanking our entire organization around the world for all the hard work that went into making this past year such a great success and that will carry forward the momentum into 2012 and beyond. Operator, we're now ready to take questions.
Speaker 6
Thank you, ladies and gentlemen. At this time, if you would like to ask a question, please press star one on your touch-tone phone. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, star one for any questions or comments at this time. We'll pause for just one moment. We'll go first to Jeff Kleinfelder with Piper Jaffray.
Speaker 3
Thank you, Angel, Tom, for the detail today. I just wanted to follow up, Angel, with a question or a couple on the UGG outlook. You said domestic up 12% is your plan. Could you give us a little bit more of a breakdown on that? Generally speaking, what kind of pricing versus kind of unit growth, as I know pricing's been an important driver of your business with the mix. Any further breakdown on actual, you know, separating wholesale growth from retail would be helpful. Thank you.
Speaker 4
Generally speaking, from a category perspective, we expect, as we have been doing over the last few years, managing the classic business as a percentage of total to a modest growth because we feel that we have the distribution we need for those kind of products. We'll continue to drive our growth in the new categories as men's categories of growth opportunity, the kids' categories of growth opportunity. We typically don't break out wholesale versus retail growth in this call or actually in any call. That said, we're being aggressive when it comes to our retail strategy. As you can see, we're opening four more stores. We're going to be more aggressive in our e-commerce business. We have historically taken really the tact that e-commerce was as much a service opportunity for our consumers as anything else.
Now we're behaving and strategizing more like an online seller and competing and marketing as effectively as anyone should in this particular area. We're getting a lot smarter about it, made some investments in that area. We expect that channel will continue to evolve very nicely and keep pace with the rest of our growth agenda across the other channels.
Speaker 3
Okay, when you say pricing for 2000.
Speaker 4
Oh, yeah. Go ahead, Tom.
Speaker 5
Jeff, I could just add there in terms of the 12% domestic growth, that included all brands, it included Sanuk as well. I think just from a general direction, you know, it's more volume-driven relative to price-driven, and it's more retail growth versus wholesale growth, just generally speaking.
Speaker 3
Okay. The UGG specific growth, you know, domestically would be what I think you said 11% in total for the year. What would UGG domestic specifically be for the year?
Speaker 4
That is a larger mature business, obviously. That 11% is on a global basis that includes retail as well. We're being cautious with the UGG domestic growth number at this point in time.
Speaker 3
Okay. One last clarification. You said, out of your inventory, which no doubt people are watching closely coming out of this season, there's some carryover inventory. It's a relatively modest component of the current inventory at this point. Kind of how you plan to manage it. I know you called this out a year or two ago as well and said that you would sell it throughout the year. Same sort of strategy, not planning to put it in off price. Can you give a little color on that?
Speaker 4
Sure. The majority of the product that's carrying over is classic type product. Now that product, as you know, we sell that year in, year out. That really does not obsolete. In the past, we've successfully done that. We're doing that this year. As we have evolved to a more fashion-oriented product, obviously then a bigger part of the mix is going to be product that runs a fashion cycle and then gets closed out. That's the normal way of doing business in fashion, as you know, Jeff. Over the next few years, you're going to expect to see more closeouts from us, not necessarily on the classic front, but certainly on some of the more forward fashion items because they have a life cycle, and at the end of the life cycle, they have to be closed out. That's a planned thing.
I mean, that's just the way business is done, as you know.
Speaker 3
Okay, great. Thank you very much, guys.
Speaker 4
Thank you.
Speaker 5
Thanks.
Speaker 6
We'll take our next question from Bob Dribble with Barclays Capital.
Speaker 0
Hi, good afternoon.
Speaker 4
Good afternoon.
Speaker 0
Hi, guys. Couple of questions. On the 2012 outlook, with regard to the gross margin outlook, specifically around pricing, the decisions that you guys have made on price for the line throughout 2012, do you believe that you have pricing power still, or are you choosing, can you price, I guess, is the question, and are you choosing not to take price as you look at the trends of the business and where we are today?
Speaker 4
We feel that, you know, we're comfortable with the pricing targets we now have. We really don't want to go any higher on some of our classic product. We think that we have always felt that it is an accessible brand to consumers. If the price gets pushed up too high, I just don't feel that that's a good strategy. You end up with the risk of putting market share at risk, and I don't want to do that. I think we have to remain very competitive in the market. We have a lot of people that imitate our product. They're facing the same sheepskin issue problems that we are, and their prices have gone up as well. In relative terms, we always want to remain accessible to our consumer, not push that edge too far.
We're really pretty comfortable that we're at the pricing that we need to be at.
Speaker 0
If you were to fast forward 12 months from today, you know, on 2013, when you look at sort of the expectation around costs or pricing, would you expect to get back all the gross margin in 2013, or how would you think about it sort of one year out from where we are?
Speaker 5
Bob, you know, on that, the biggest determining factor, again, on 2013 is going to be where we land on sheepskin and what the sheepskin pricing will be for mostly fall 2013. We did discuss some of that, you know, and we feel we've come to a high-water mark at this point in time. That's just the biggest determining factor at this point in time. To Angel's point, on some of the classic product especially, I think we've pushed the sales, the pricing to, you know, as far as we can at this point in time.
Speaker 0
Got it. Can you talk a little bit about your retail stores, like the comp performance in the fourth quarter and anything that you sort of learned in the different stores or any call-outs that you would make around different regions for your retail store?
Speaker 2
Hi, Bob. This is Zohar. The retail store comps really followed what we've seen through the macro environment. Overall, in the U.S., we have a good comp. It depends on the region, less in where the cold climate does not materialize. In the international market, we have been impacted the same way as others, especially in Europe on the performance of the stores.
Speaker 0
Okay, thanks very much.
Speaker 6
Next is Omar Said with ISI Group.
Speaker 3
Thanks. Good afternoon. I wanted to get two questions, actually. The first one is on the 500 basis points of the sheepskin impact this year. Could you help us? I mean, you know, we cover a lot of these companies that, you know, we're dealing with cotton pricing, and you know, cotton is publicly quoted. Could you help us remind us all the different kind of factors going into that sheepskin pricing, that inflation there? I know LVMH recently bought a crocodile farm. There's a way for them to better control the crocodile skin costs for some of their bags. Are there strategies on the cost side you can do to deal with the sheepskin inflation and the volatility in that pricing in the marketplace? I have another follow-up. Thanks.
Speaker 2
Omar, let me take that one. Sheepskin, it's a little bit different market that you have, you know, like for cotton and so forth. First of all, when you talk about sheepskin, you talk about the quality of the sheepskin. For example, we don't source sheepskin from New Zealand because the skins over there, they're not a good fit for our products. We use the premium, the highest quality of sheepskin. The bulk of our sheepskin is coming from Australia. A sheepskin is a byproduct of the meat industry. You don't slaughter a sheep just for the skin itself. The demand for sheepskin and the market for that is really being driven by the demand for red meat. It's also impacted by the weather, you know, if there are droughts. It also depends on wool prices.
What you've seen in the last few years is that the supply of sheepskin, mainly in Australia, has been declining while the demand for sheepskin has increased throughout the world. That's why you've seen a compound increase of 80% from 2010 to 2012. What it has done and what we're hearing is that, first of all, as Tom said, it appears that we are at the top of the market. Earlier indications we are getting, we're going to start to see some relief for next year and hopefully some slight indication of price reduction. We won't know it until Q3. What it has done, it pushed a lot of people out of the market. While you saw a year ago and a couple of years ago, people are coming and using sheepskin products, people are coming, are getting out of the market because of the cost of the product.
The things that we have done to counterbalance, and Tom talked about it, there is not a silver bullet that you can compensate for the 80% increase. It's looking for the whole supply chain and making it as efficient and as lean as possible and start all the way from the design of the items, you know, how much product you're using, product innovation, sourcing, where you're sourcing, how you're delivering. For example, this year, as Tom indicated, this is the first time we're coming back to the U.S., believe it or not. We are seeing some decent savings by doing that. That's our plan, how to address it. As Tom said, it's a long term. You're not going to see an impact over one season, but that's our plan, how to mitigate it and address it for the long term.
Speaker 3
Thank you. I guess my follow-up on another topic. How are you thinking about, I know you mentioned that you're really focused on the retail, expanding your own retail stores. The stores are very productive. How are you thinking about your channel mix overall and the types of retailers that you're distributing through, both in the U.S. and on a global basis? There's been a bit of a renaissance in some of the higher-end department store marketplaces. I know you're in some of those. You're not in all those. At the same time, it seems like there's been, at least globally, some with the kind of specialty type regional and local chains, they seem to be operating a little bit weaker across a lot of categories. I don't know if you have any updated thoughts on your channel distribution mix strategy. Thanks.
Speaker 4
Over the last few years, we've seen us evolve to, especially with the shop and shop approach that we've taken, to retailers who understand brand, have the real estate to devote to brands for the appropriate presentation, our spread and assortment has grown to the point where it's a very significant investment for retailers. It represents a very long-term commitment. There were people who were not as committed to the brand and the evolution of the brand who, over the last few years, have fallen a little bit off the pace. They've been replaced by larger people. In some cases, our own stores have been a better draw for consumers. It's just the evolution of a brand. This is what happens to all. We remain totally committed to all the retail partners we have and that we've had over the years that have built our business.
The brand is not going to wait for people to sort of come around. The brand is growing. It has momentum. It is growing across multiple categories. It requires, I think, a commitment from retailers as well as us giving them the commitment. We're plowing forward.
Speaker 3
Thanks, guys. Good luck.
Speaker 4
Thank you. Thanks.
Speaker 6
We'll take our next question from Mitch Kummetz with Baird.
Speaker 7
Thank you. I've got a few questions. Let me start on pricing. You talked a little bit about pricing. I just want to clarify. I guess I've heard from some retailers that you guys were taking up some prices for 2012, including on the classics. It doesn't sound like that's the case. Could you say exactly what you're doing, kind of pricing across the UGG brand for 2012? Is it truly sort of flat, or is it up a little bit?
Speaker 4
We have taken price increases off in classic product. We've taken price increases on Classic Short, Classic Tall. I'd say pretty much there is an across-the-board increase. It varies. Some products selectively have increased more than others. Certain iconic products that, as I said, we're pretty careful about not hitting our head against the ceiling with consumers on some of these products. For example, you don't want to get too far above $200 on a Classic Tall. I think that could be too exclusive and leaves a lot of consumers out of the mix. We try to stay right around $200 and close to that. It's really a combination, by product, by item, where we feel that we have headroom. In some areas, we choose not to for competitive purposes.
Speaker 7
Okay. A couple of things on Q4. First of all, Tom, could you maybe talk about what the impact on gross margin was from the higher closeouts? Also, could you tell us what your own retail comp was on the quarter?
Speaker 5
Yeah, Mitch, on the impact on the margin for the quarter relative to closeouts was roughly 50 to 100 basis points at the most.
Speaker 7
Okay. The comp on the quarter for your own stores? While you're looking that up, I also want to, I was also hoping you could give us a little more color on the gross margin puts in place for 2012. You talked about about five points of pressure from sheepskin and then about a 300 or a three-point offset from some benefits. I was hoping you could just speak a little bit more towards those benefits. I mean, how much gross margin do you get back from DTC? How much from Sanuk? Are there any other big items, gross margin items that benefit you in 2012 that we should be thinking of?
Speaker 5
Yeah. I'll get back to you on the, let me get back to the puts and takes on 2012. What we talked about, the sheepskin cost pressure for 2012, put 500 basis points relative to that. We're going to recover 300 of that in the form of pricing, mix of retail and all that. Of that 300, it's pretty split between half of that roughly being pricing and the other half related to those mixed items.
Speaker 7
Okay.
Speaker 5
The comp for the fourth quarter, the fourth quarter comp for our own stores was 1%.
Speaker 7
Okay. All right. Thanks, guys. Good luck.
Speaker 5
All right, thanks.
Speaker 6
We'll go next to Camilla Lyon with Canaccord Genuity.
Speaker 0
Thanks, and good afternoon, everyone. I just have a question. Can you discuss what the conversations are with some of your wholesale partners domestically around the shop-in-shop strategy and how that's, you know, slated to unfold for 2012? If the fourth quarter had any negative impact on how people want to, or customers of yours want to adopt that strategy?
Speaker 4
We've had no negative impact on that. It's been an ongoing strategy for us, particularly as the brand evolves to multiple categories of product and multi-season. The investment in the UGG brand is a year-round investment. Shop and shops are strong performers on a square foot basis in every single location we're in. They perform in the spring. They perform in the fall. As a matter of fact, over the years, we've been more reticent to open shop and shops than, and we could have opened a lot more shop and shops than we have. We're very selective about the shop and shops. The retailer pays for that build-out. That's not something that we fund. It is, in effect, a great way of showcasing an evolving brand on a year-round basis.
Speaker 0
Could you remind us where you're at right now, where you know the year you're at, and what that could look like for 2012?
Speaker 5
At the end of the year, at about 390 shop-in-shops globally, and roughly for 2012, we're looking at another 100, roughly.
Speaker 0
Another 100?
Speaker 5
Yes.
Speaker 0
Okay. My final question, Tom, if you could just break out what the benefit was to the gross margin line in the fourth quarter from the international transition.
Speaker 5
Yeah, that was roughly 300 to 400 basis points positive.
Speaker 0
Great. Thanks, and good luck with 12.
Speaker 5
All right, thank you.
Speaker 6
will go next to Diana Katz with Lazard Capital Markets.
Speaker 1
Hi. Thank you for taking my question. I wanted to know if you could talk a little bit more about inventory. How should we think about it for the rest of 2012? Do you expect it to go down in each subsequent quarter and at any point more normalize with sales?
Speaker 5
Yeah, I think the way to look at inventories for the year are, in the first half of the year, the inventory will be up. In fact, every quarter inventory will be up relative to 2011 for each quarter. The first half of the year up higher than the back half of the year. By the end of the year in the fourth quarter, we expect to sort of exit the year at quarterly inventory turn calculations, pretty similar to how we exited 2011.
Speaker 1
Okay. On the SG&A line, outside of the amortization of the accretion expense with Sanuk, can you help us quantify some of the other SG&A buckets, like marketing, legal, etc.?
Speaker 5
Is that for 2012?
Speaker 1
2012, yes.
Speaker 5
I think a way to look at that in terms of relative to guidance and absolute operating expenses in 2011 versus 2012 for the total year. You go through the guidance. There's roughly, you know, a third of the increase that you'd be modeling is related to Sanuk, and that's going to include Sanuk's amortization of its intangibles as well as its purchase price accounting. About half of the increase year over year is relative to the retail and the international infrastructure where investments were trying to grow. Then, you know, roughly 20% of the year-over-year increase in SG&A is related to marketing expenses.
Speaker 1
Okay. Can you talk about, in terms of your order book, how much is comprised of the new men's business initiative and how orders ended up there?
Speaker 4
We haven't generally broken out what the order book looks like, but we had a very healthy increase in our men's business in 2011. I mean, it was up over 30%. We felt that that was a great performance driven primarily by a great new product and the men's campaign featuring Tom Brady. We're going to continue driving down that path. We know that that's an opportunity for us. We're getting more and more distribution on the men's product for both spring and for fall. I'm very excited about that.
Speaker 1
Okay, thank you very much.
Speaker 6
We'll go next to Taposh Bari with Jefferies and Company.
Speaker 0
How you doing, guys? Quick question. I wanted to ask a question, I guess, on just the fourth quarter and what you're seeing here in the first quarter. I get that, you know, UGG is very much a comfort brand, but it seems inevitable that weather is playing a role for a lot of companies here this past holiday season. I was just hoping you can talk about maybe if there are any parts of the country in the U.S. or any geographies globally where weather played less of a role and if you can talk to how those businesses did just to get a cleaner perspective on how the UGG business performed, you know, ex-weather if possible.
Speaker 4
I always try to point to California. I mean, I always use California as a reference point. Yeah, we're having a warm winter around the country. It's still colder than it is in California. You know, the consumer in California has for many years now been in replenishment mode with UGG as a comfort product. The minute the evening's cool, and we're not talking 30 degrees because we don't see that here very much, but 50s, it's just time to wear UGG. That is the pattern. You know, that's the pattern that emerges everywhere in the country where you start to see the consumer embrace the brand as a comfort brand and then get into the replenishment of the product, whether it's slippers, whether it's classic. That is, that's the pattern. I think it's vitally important to understand the brand from that perspective.
I mean, the brand did evolve in Australia, which has a climate very similar to California and, you know, continues to be down there. It's iconic. You know, the type of product is iconic. We have faith in that power of the brand to do that. We haven't seen any example around the world where that's not the case. You know, there's common reference to the brand as cold weather, etc. It is not a cold weather brand. It is a comfort brand, as I've said on many occasions. As I said in my comments, the warm weather did impact our retailers. There's no doubt about that. We're not immune from the impact of our retailers. They are adjusting. They're open to buyers for fall for next year based on performance of product this year. The weather has had a lot to do with their decision-making.
The one most important thing is of all the brands that they depend on for the fall season after holiday, UGG performed the best. That continued to be a highlight for retailers, the UGG brand performance in the fourth quarter.
Speaker 0
Great. That's very helpful. If I could just have a follow-up along the lines of the iconic stature of, you know, where UGG has been historically, now you're entering more non-classic styles. How do you see that kind of iconic brand positioning translating to some of these more competitive styles? Also, along those lines, do you expect or should we expect to see similar types of net product margins on those businesses as we move forward to what you've seen historically with the classic product?
Speaker 4
What's iconic about the brand, obviously, the brand has a certain look in terms of classic, but the consumers who wear UGG love it for the way it feels. Nothing feels like UGG. I mean, that's just a fact. As we've successfully infused the comfort and the feeling of UGG into other products, consumers have preferred that feeling to similar silhouettes that don't have what UGG does, the sheepskin, the premium luxury comfort nature of it. That's where we've been very successful. I mean, we can take a pattern that's a fairly common pattern in men's, for example, a certain type of boot, a certain style boot, say a motorcycle boot, and UGGify, as we say, that boot. You can wear it with no socks and your feet stay perfect. You're not cold, you're not hot, it's just right. Find that sort of Goldilocks zone for your feet.
That is what makes the brand special. Around that idea, we've continued to evolve product. Now, as we do more and more fashion products, and there is some product in the line that does not have much sheepskin, if any, I mean, we have sandals that have no sheepskin. Those are seasonal items, and those represent a small percentage of the product line, and those products will be closed out. There will be markdowns on those products. That's the nature of the beast. That's what we do. What it's doing in total, it's creating a much more powerful lifestyle brand and lifestyle statement for the brand through retailers. It's a very compelling brand to be associated with as a retailer. I mean, it delivers tremendous volume and profit. We'll continue to do that.
Speaker 0
Okay, thank you very much. Good luck in 2012.
Speaker 4
Thank you.
Speaker 5
Thanks.
Speaker 6
We'll go next to Christian Buss with Credit Suisse.
Speaker 0
Hello, I was wondering if you might be able to provide some color on how we should think about the margin profile of the business in a more normalized costing environment, given the shift to more fashion-oriented styles, the shift to owned retail. How are you guys thinking about that longer-term margin profile of the business?
Speaker 5
Yeah, I mean, Christian, what we had talked about there is, you know, it's all about the sheepskin, and we feel that we've hit a high point there. If we can start getting lower sheepskin prices, then we've got the opportunity to get more leverage into the model and more earnings power. That's sort of something that needs to be sorted out. When we get more visibility as the year goes on to what the fall 2012 sheepskin prices will be, then we'll have a better idea to answer that. That being said, still longer term, we believe with the Sanuk, the retail expansion, expansion of e-commerce, and stabilization of sheepskin cost, we think longer term, we still are targeting an operating income margin of 20%.
Speaker 0
Okay. That's helpful. Could you provide some color on your strategies to drive e-commerce business and the owned retail business in 2012?
Speaker 2
Yeah, as Angel mentioned, Christian, we've done certain things. We've been building it both from internally and externally, using more and more social media methodology and so forth, and also upgraded our platform. Last year we moved to Demandware, which is a cloud system that allows us to expand internationally. In addition to the U.S., now we're operating also in Canada, in the U.K., in the Benelux, and we started this year also in Japan. We're looking for next year to be also in China. E-commerce is going to continue to be a very strong both. It's a brand-building tool for us, but also a consumer-directed selling base.
Speaker 0
Thank you very much, and best of luck.
Speaker 2
Thanks.
Speaker 5
Thanks.
Speaker 6
We'll go next to Jim Duffy with Stifel Nicolaus.
Speaker 0
Hi, this is Eric Alexander in for Jim Duffy, who's traveling. Thanks for all the color on everything. I do appreciate it. Just looking at the Sanuk, the $13 million in charges, is that an incremental $8.6 million year over year, or are we looking at that inflow?
Speaker 5
The $13 million is a total number, so it's not an incremental number.
Speaker 0
Okay. In looking at Sanuk, have you guys roughed out what you're looking at from an accretion standpoint that you'd be comfortable providing at this stage?
Speaker 5
We've certainly roughed that out with the guidance that we gave for the total year, and even with the amortization and accretion, the operating margins are greater than the overall. You X out the accretion and the amortization, the operating margins are greater than the overall company average. Even with the accretion and amortization, the operating margins are real respectable.
Speaker 0
Okay. You're not, but you can't provide a kind of EPS-wise what you're looking for?
Speaker 5
Yeah, certainly accretive.
Speaker 0
Okay.
Speaker 5
Certainly accretive.
Speaker 0
Okay, that's helpful. On the FX impact, what do you guys have built into your guidance as far as some of the assumptions that you're taking into account?
Speaker 5
Yeah, what we've built into our assumptions there, I mean, crystal ball, especially in today's FX environment, what we're looking at now is our guidance that assumes what are the current forward rates, which are pretty consistent with the current spot rates. We actually do it with some of the contracts we had entered into a while back, the hedging contracts. We've got some small benefit there from those. That's sort of net net where our assumption is on FX right now.
Speaker 0
Okay. All right. That's helpful. If I could just sneak one last one in here, on the international wholesale growth, did you break that out as far as what you guys were assuming in 2012 growth-wise?
Speaker 5
No, we did not. We just gave out what gave a total international channel growth, which included wholesale and retail.
Speaker 0
Okay. All right. Thank you very much, and best of luck.
Speaker 5
All right. Thanks.
Speaker 6
We'll go to Chris Svezia with Susquehanna Financial Group.
Speaker 3
Good afternoon, guys.
Speaker 5
Hey.
Speaker 3
Hey, just on the international side, I think you guys said it was 20% growth. I know that retail and wholesale Tony just mentioned, but can you maybe just talk about what you're seeing in Europe, what are your thoughts about how the transition unfolded, and just sort of thoughts about the UK business in general? You think about 2012, is that a growth region for you guys from a wholesale perspective? Just maybe add a little more color on the international side, what you're saying.
Speaker 4
Yeah. We think the transition, as you recall, we had a little bumpy road at the very beginning, but we smoothed all that out. I think when Steve Murray came.
Speaker 0
Touch on it. On the international wholesale growth, did you break that out as far as what you guys were assuming in 2012 growth-wise?
Speaker 5
No, we did not. We just gave out what gave a total international channel growth, which included wholesale and retail.
Speaker 0
Okay. All right. Thank you very much, and best of luck.
Speaker 5
All right. Thanks.
Speaker 6
We'll go to Chris Svezia with Susquehanna Financial Group.
Speaker 3
Good afternoon, guys.
Speaker 5
Hey.
Speaker 3
Hey, just on the international side, I think you guys said it was 20% growth. I know that retail and wholesale Tony just mentioned, but can you maybe just talk about what you're seeing in Europe, what are your thoughts about how the transition unfolded, and just sort of thoughts about the UK business in general? You think about 2012, is that a growth region for you guys from a wholesale perspective? Just maybe add a little more color on the international side, what you're saying.
Speaker 0
You touched on it. On the international wholesale growth, did you break that out as far as what you guys were assuming in 2012 growth-wise?
Speaker 5
No, we did not. We just gave out what gave a total international channel growth, which included wholesale and retail.
Speaker 0
Okay. All right. Thank you very much, and best of luck.
Speaker 5
All right, thanks.
Speaker 6
We'll go to Chris Svezia with Susquehanna Financial Group.
Speaker 3
Good afternoon, guys.
Speaker 5
Hey.
Speaker 3
Hey, just on the international side, I think you guys said it was 20% growth. I know that retail and wholesale Tony just mentioned, but can you maybe just talk about what you're seeing in Europe, what are your thoughts about how the transition unfolded, and just sort of thoughts about the UK business in general? You think about 2012, is that a growth region for you guys from a wholesale perspective? Just maybe add a little more color on the international side, what you're saying.
Speaker 4
Yeah. We think the transition, as you recall, we had a little bumpy road at the very beginning, but we smoothed all that out. I think when Steve Murray came on board, we were able to provide some leadership into the region. He's done a great job. That is very stable, and we feel it's a platform for growth across the entire European theater. Now, the UK is a tough market right now. You know, every brand is struggling in the UK. Business is soft. There's the economy that's been pounded there. Yet we still see that as a growth opportunity. We see it as a growth environment. The brand has had good success with the stores that we've opened. We're opening another store in Piccadilly just in time for the Olympics. We think the Olympics is going to have a positive impact on the economy in the UK.
We're expecting that we'll be able to benefit from that with our store presence. The rest of Europe looks pretty healthy. We've had nice solid performance in Benelux. We'll be developing an ongoing and evolving business in France. We'll be opening a store in Paris relatively soon. We're developing our wholesale business in France, developing wholesale business in Germany through distributor. There are some untapped markets.
Speaker 6
In Europe that are offering tremendous opportunities: Poland, Hungary, the Czech Republic, where we feel we have opportunity. Of course, there are markets like Spain that are struggling. Italy has remained fairly solid for us. We have a distributor there who does pretty well. Europe is just, it's anybody's guess as to when it's going to turn around. The recent improvements in the macro environment via, you know, them coming together and beginning to address some of the issues has really put us, I think, in a better mindset about it.
Speaker 4
Okay. Just on, Tom, you made some reference to Q2 and you expected, I think, the loss to more than double due to lower sales growth. I'm just curious, I think you're up 12% in Q2 last year. Is the sales growth rate lower than that? I'm just trying to understand what you meant by that comment, if I got that correctly.
Speaker 6
Yeah, sales growth, it is slow. You're right. Last year, Q2 was, in spite of the distributor conversion last year, with the shift, we still had sales growth. This year's sales growth in Q2, there's no distributor conversion impact this year, but it will be growth. It'll be growth similar to last year's second quarter growth.
Speaker 4
Okay, I gotcha. Lastly, on Hill for you, just an UGG branding sort of question. You know, there's a lot of just sort of chatter and thought process. One that, you know, either the UGG brand has lost some momentum coming through 2011 and some camps are saying, look, you know, if weather was really the only issue to some degree that moderated some of the growth, then that's fine. It's just weather and it happens. If brands still have a lot of momentum and demand for it, then, you know, maybe people chase as you go into the back half of the year for open to buy and inventory commitment. I'm just kind of curious, when you speak to wholesalers, is that just really strictly the case that it was weather shrinking open to buy?
Do they make other comments about, you know, open to buy converting to either other brands? I'm just curious if you can just flush out some of the thought process in and around that.
Speaker 6
Yeah, you know, I have had no indication that our bigger customers have seen any slowdown at all other than the weather being the issue. The brand remained powerful throughout the year, continues to show great momentum. It is still the most important performing brand in the back half of the year for virtually every retailer we do business with. There are some small retailers out there who are, and I'll be delicate because I don't want to offend anybody, but you know, let's use the word resentful. They're a little bit resentful on occasion that, you know, maybe we have a store a little too close to their store. Maybe it's, you know, they don't like that we've opened a certain, like we have some Journey stores in California that we really felt important to open, and maybe ruffled a few feathers that we opened those stores.
That's just the way it is with brands like UGG. I mean, you do get to that place where the brand has to continue to evolve. You have to keep growing. You have to keep powering forward. What I found, independent of anyone I talked to, is that without UGG, it's very tough to make your fourth quarter number. UGG is a brand that delivers results every fourth quarter. It is a must-have brand for most of our distribution, virtually all of our distribution. Life without UGG is more difficult, you know. We are very respectful of all of our retailers and we ask those who have taken the opinion that, you know, maybe we're too big for our britches and for whatever reason, they want to cast a surge on the brand by spreading rumors.
That's a lot of what happens, and it's annoying, a little frustrating, but we look right past it and go right to our consumer and they seem to want more, not less UGG. We're pretty confident we're on the right path.
Speaker 4
Okay, thank you very much and all the best in 2012.
Speaker 5
We'll take our next question from Scott Krasik with Baird.
Speaker 4
Hi, thanks. Just one bigger picture question and then a housekeeping question. On health, some of your biggest retailers, Nordstrom, Dillard's, Journeys, they've seemed to have walked pricing up in the last few weeks. The UGG Tall is now $200. The Bailey Button Tall is $220. I'm assuming that's on carryover 11 products. You guys don't benefit from that. Are you doing that to test, see how the consumer reacts to the pricing? I think at least what we've heard that there's going to be another step up after June on 12 products. Maybe if you could comment on that.
Speaker 6
You know, my guess is that there are people that have taken the price up prematurely, and they're looking at the fall price list and raising the prices in advance of fall product hitting the shelves, especially where they see product that is carryover product.
Speaker 4
Is that giving you?
Speaker 6
Called a margin enhancement opportunity.
Speaker 4
Yeah, exactly. Does that give you testing? Do they tell you, you know, we're seeing a lot of density of X and maybe we don't feel as comfortable with the fall pricing? Would you change your fall pricing, or the fall pricing is set and it is what it is?
Speaker 6
Fall pricing is set. We haven't had any comments that there's resistance. Our fall pricing is set and the pricing as it is is still great value for money. Yeah, the product price went up, but we've never compromised the quality of materials. It's the price you pay for the quality that we're putting into the product. If we wanted to mitigate, one mitigation effort that we have not employed and we will not employ, it was a sheepskin issue with lowering the quality of sheepskin. We're just not going to do that. It's just a vital part of who we are and quality is the most important thing. I think it's what differentiates us from the lookalikes. We're going to keep going down this path, the only path, and we don't have any choice on this front.
Speaker 4
Okay. Tom, just the roughly $95 million increase in international sales in Q4, how much of that was strictly related to the distributor subsidiary conversion?
Speaker 6
I got that for you. The lift in the fourth quarter, that would be roughly in the fourth quarter, the increase in international sales due to the change in model.
Speaker 4
Yep.
Speaker 6
Just for the fourth quarter alone, it's about $15 to $20 million.
Speaker 4
Okay. All right. Thanks very much, guys. Good luck.
Speaker 6
All right. Thank you. Thanks.
Speaker 5
All right, ladies and gentlemen, we'll take our final question today from Howard Tubin with RBC Capital Markets.
Speaker 3
Oh, thanks, guys. Can you just give us a little more clarity on your retail store openings for next year? Are any of those in the U.S.? Are they all outside the U.S.? Maybe a little more detail by location?
Speaker 6
Yeah, Howard, as we said, out of the 25, about 4 of them are going to be in the U.S. The others are going to be broken down probably evenly between Europe and Asia. Asia is mainly China and Japan, and Europe. You will see a handful of them in the UK, and he'll talk about also France.
Speaker 3
Got it. Okay. Are they the U.S. store?
Speaker 6
The Netherlands.
Speaker 3
Got it. Are they all kind of full-price stores or any outlet stores?
Speaker 6
The bulk of them are going to be a concept store, full-price stores.
Speaker 3
Got it. Okay. Maybe just one more question on the closeout products that you have. Where does that end up? Does that go to a TJ Maxx or a Marshall's, or does that go to your outlet stores? How do you, how does that stuff get sold out, sold off?
Speaker 6
It goes out in proportional supply to DSW, to TJ Maxx, our outlet stores. It's not enough product to overweight any part of the market. It never has been and certainly isn't this year. We do a pretty good job of closing out the obsolete inventory.
Speaker 3
Got it. That's great. Thanks.
Speaker 6
Thank you. Thank you all for participating today. I really appreciate your support over the last year and look forward to your ongoing support in 2012. Once again, thanks to the entire team around the world at Deckers, and we look forward to talking to you next quarter.
Speaker 5
Thank you, ladies and gentlemen. That does conclude today's conference call. We'd like to thank you all for your participation.
