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K-Swiss, Inc. (NASDAQ:KSWS)

Q4 2008 Earnings Call

March 05, 2009 11:00 AM ET

Executives

Steven Nichols - Chairman, President and Chief Executive Officer

George Powlick - Vice President of Finance, Chief Operating Officer, Chief Financial Officer, Principal Accounting Officer and Secretary

Analysts

Jeff Van Sinderen - B. Riley & Company, Inc.

Sam Poser - Sterne Agee

Christopher Svezia - Susquehanna Financial Group

Mimi Bartow - Telsey Advisory Group

Operator

Good day and welcome to the K-Swiss Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Chairman of the Board and President, Mr. Steven Nichols. Please go ahead, sir.

Steven Nichols

Thank you and good morning, everyone. With me today is George Powlick, our Chief Financial Officer. We appreciate you being on the call this morning. I would like to have George cover the Safe Harbor language. George?

George Powlick

Certain matters discussed in this press release are subject to certain risks and uncertainties that could cause actual results to differ materially, including but not limited to, non-achievement of the assumptions discussed herein, general and regional economic conditions, availability of credit, industry trends, merchandise trends, including market acceptance of the company's product offerings, customer demand, competition, the impact of terrorism and/or a potential global conflict on the worldwide economy and order cancellations and reduced sales resulting from a slower worldwide economy.

A complete description of these factors as well as others which could affect the company's business is set forth in the company's periodic filings, including its Form 10-K for the year ended December 31, 2008, which is currently on file with the SEC.

Backlog as of any date represent orders scheduled to be shipped within the next six months. Backlog does not include orders schedule to be shipped on or prior to the date of the termination of backlog. The mix of futures and at-once orders can vary significantly from quarter-to-quarter and year-to-year, and therefore futures are not necessarily indicative of revenues for subsequent periods.

Steven Nichols

Thank you, George. Before I open my formal comments, I'd like to offer my condolences to the family of John Shanley. Those of us in the footwear and apparel industry lost a good friend and respected colleague with his passing last month. While it hasn't gotten any easier out there at retail, we have already report and seeing the sales results come in, in the fourth quarter and early 2009. Many of us haven't experienced a market like this in decades. As weak as these periods have been, I don't see the rest of 2009 getting better.

Footwear buyers are holding off on purchases and order return inventory into cash and there are a few willing to allocate space for new products. Our position on the current environment however, remains essentially unchanged from several months ago. We're still high in the industry for its long-term growth and believe that our product development, branding and liquidity strategies will enable us to survive for the eventual turnaround in the market.

The $64,000 question of course is when will that be? The breakdown of sales by product category for the fourth quarter of 2008 was as follows: Performance 14%, Sports Style 76%, other 10%. Our performance revenues were up 8% when compared with the prior year period. This category includes all genders of tennis, running and training.

Sport Style revenues were down 36% when compared with the prior year period. This category includes all genders of non-performance footwear. The biggest sellers in the quarter in Sport Style were the Classic, which sold a 172,000 pair, and was down 33.8% from the prior year period, the Lozan II with 97,000 pair and the ST329 with 76,000 pair, the Gowbury II with 69,000 pair. Other revenues were at 10% when compared with the prior year period. This category includes a apparel, Royal Elastics and Palladium. Excluding Palladium the other revenue category was down 20%, on a 28% decline in Royal Elastics and a 7% increase in apparel.

During the last quarter, we placed significant focus on developing three key goal global marketing initiatives for 2009, classic, tennis and running. Most important is to reintroduce and reignite the iconic K-Swiss Classic tennis show. In 2000, we made a deliberate decision to essentially replace the original Classic by introducing more atheletic-looking, contemporary Classic Luxury Edition sneaker. The initiative was very successful and grew our Classic business again. Now, in 2009, we've re-mastered our Classic from 1966. This product... this process created the original Classic 1966 look with a comfortable feel insight consumers expect today and a iconic sneaker that defines a brand and our heritage. We returned this new Classic to the market with an online initiative called K-Space, as well as pure (ph) product placement, online marketing, in-store VIP events, sponsorship and target printed advertising in select lifestyle magazine. K-Space is a new kswiss.com micro site that shows people who love the Classic.

The second priority is to continue being a leading tennis brand with world-class athletes and product innovation. Our ten pro tennis players will continue to wear K-Swiss and win tournaments around the world and we want to build on this roster with some new players in 2009. Last month our innovative interchangeable midsole insert system was introduced in the new Defier miSOUL Technology tennis shoe.

The Defier miSOUL comes with two pairs of removable midsole inserts. One set of is... one set of insert provides extra cushioning and support and is already in the shoe, while the other set of the inserts give light-weight cushioning with high energy return. Early indications are very positive for this new product in pro shops and tennis specialty stores.

The third marketing of product initiative is to establish K-Swiss in the running category. We have 12 sponsors pro triathletes wearing and winning in K-Swiss in competition every where. We are moving into our third year of sponsorship of the Iron Man World Championship in Kona, Malibu Triathlon and South Beach Triathlon. A full line of running shoes is coming together very well and will slow it in 2009 with a new K-Swiss Run One miSOUL Technology running shoe and its interchangeable midsole insert system. There is nothing like it currently in the market.

In the Running Network Spring 2009 Review of running footwear from all competitive brands, the K-Swiss miSOUL running shoe won best new shoe based on ware testing and review of independent testers. Running network represents 24 of the finest regional and national specialty running magazines and websites in North America.

We recently opened the first ever K-Swiss Running retail store in Taiwan. To celebrate the grand opening, we hosted a high energy 10-K Race in Taipei that attracted more than 300,000 runners on Sunday, February, 22nd. All of these initiatives reinforced the brand's global commitment to the running community.

I'll now turn the call over to George, for a few minutes to go into financials in more detail.

George Powlick

Thanks Steven. Revenues were within our projected range of $56.3 million, at $56.3 million. However, we were still 28% below the prior year quarter and down 17.3% in the volume of footwear sold. At-Once business for the quarter was 32.8%, that compares with the 46% we had anticipated and 15.5% At-Once a year ago.

The company reported a loss of $13.7 million or $0.39 per diluted share which was a bit above the guided loss per share for the quarter. For the K-Swiss brand, the average whole price per pair decreased to $24.36 for the fourth quarter, compared with $28.46 in the prior year period. The volume of footwear were sold was 2 million pairs in the fourth quarter compared with 2.5 million pairs in the fourth quarter of 2007.

Overall gross profit margin as a percentage of revenues was 22.3% in the fourth quarter compared with 47.6% in the prior year period and our expectation of approximately 42%. The lower margin was primarily due to inventory reserves recognized.

Our SG&A measured as a percentage of revenues was 56.4% compared with 52.3% a year ago, and in terms of dollars below the $35 million, we had projected for the quarter. We had an operating loss of $19.2 million for the fourth quarter, compared with an operating loss of $3.7 million in the prior year period. Our income tax benefit was 22.8% due to losses in the U.S. Year-to-date tax rate is 14.6%.

Our balance sheet at December 31, 2008 reflected the $70 million special cash dividend we paid to shareholders in late December. The special cash dividend was $2 per share. Working capital was $281.3 million, compared with $355.3 million a year ago. Accounts receivable were $35 million or 56 days sales outstanding compare with 40 days the previous year. Our inventories were up 17.7%, compared with December 31, 2007 and we ended the quarter with approximately $207.4 million in cash or $5.95 per share.

I'll now return the call back to Steven to wrap up the operational information.

Steven Nichols

Our international business was down 34% or 37% excluding Palladium, in the fourth quarter and backlog was down 36% or 46% excluding Palladium, at December 31, 2008. K-Swiss European sales were down 59% in the quarter with a 52% decrease in backlog. K-Swiss Europe accounted for 23% of our worldwide revenues compared to 39% a year ago.

Sales in the Asian region were down to three-tenths of 1% in the quarter and we posted a 38% decrease in backlog. Asia is our third largest region, accounting for 17% of worldwide revenue in the quarter compared with 13% a year ago.

Royal Elastics lost $0.05 per share in the quarter compared with a loss of $0.03 per share a year ago. As we discussed last quarter, Palladium has significant seasonality. Palladium contributed $1.5 million in revenues this quarter compared with $9.9 million in the third quarter and a net loss of $1.5 million in the fourth quarter compared to net earnings of $1.6 million in the third quarter.

We did not repurchase any shares in the quarter. We have approximately 3.9 million shares in our current authorization and we'll continue to evaluate this investment along with others we are considering. On that theme, the Board has decided to suspend the dividend for the foreseeable future to preserve liquidity and enhance our balance sheet. Suspending the dividend is expected to conserve approximately $7 million in capital each year. Our goals for 2009 are to minimize our net loss, reduce inventory levels and make the right investments on our brand for the long term.

I'll now turn the call over to George.

George Powlick

Thanks Steven. As noted in our press release, the total worldwide futures order backlog decreased 36.7% to $93.6 million at December 31, 2008. The domestic backlog decreased 37.2% while the international backlog was down 36.4%. The total backlog is comprised of the 28.5% decrease in the first quarter 2009 futures orders to $68.4 million and a 51.6% decrease in second quarter 2009 futures orders to $25.2 million.

Domestic backlog is down 39.2% for Q1 and down 32% for Q2 '09. International backlog is down 22.4% for Q1 '09 and down 60% for Q2 '09. We have changed our guidance policy for 2009 to focus only on annual guidance. The extent and variability of the economic factors we are facing in our business make total effect of forecasting extremely difficult.

As stated in the release, we expect revenues for 2009 to be in the range of $210 million to $250 million, and our loss per diluted share in the range of $0.30 to $0.60 per share for 2009. Our estimates for 2009 full year continue to reflect the significant decline in domestic and international revenues, substantial investments in product development and marketing for the K-Swiss and Palladium brands and slow down of international operations.

The estimates are based upon the following assumptions: SG&A will be approximately $130 million for the year, but is expected to fluctuate based on strategic investment decisions made during the year and general retail trends. And a full year tax benefit of 30% which could vary based on global distribution of results. I would also add that these estimates do not include the impact from any disruption to the worldwide economy from the global conflict or a terrorist act here in the United States.

That covers our prepared remarks. We will now be happy to answer any questions you may have.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Jeff Van Sinderen with B. Riley. Please go ahead.

Jeff Van Sinderen - B. Riley & Company, Inc.

I wonder if you guys can talk a little bit more about your distribution strategy in the U.S. How that might be evolving in terms of shifted concentration this year. And then also like you're seeing in international markets in terms of what you're hearing from customers there and how that distribution concentration evolve there as well?

Steven Nichols

Distribution strategy United States it is pretty much unchanged for the last two decades. We attempt to sell more upscale retailers. We stay away from many of the retailers that only offer price as the only reason for carrying a brand. We've never sold Sears and big five and when Mervyns was around and May Company and people like that, we didn't sell them.

The distribution in the market is getting more complex and that there are just less players, that's the bad news. The good news is that the size of our company is so small in the overall size of the athletic business, that we don't need a lot of lead retailers to have a big impact on us. As the retailers get more competitive in price and just attacking each other, I think our distribution policy probably is more valid today than it was years ago.

One of the other things we don't do and never have done is made highly promotional low-quality shoes and I'm sure right at the moment that's one of the things that's hurting us, because that's all that's selling today. But when there is an upturn, the fact that we didn't train people to get our shoes at $29.99 and $39.99, I hope that will help us when times return somewhat to normal.

Jeff Van Sinderen - B. Riley & Company, Inc.

Okay. And then let me ask you in terms of new product lines, what kind of feedback you're getting from retailers? What kind of orders they're booking or what kind of plans they are relaying to you in terms of how they intend to buy some of the new product lines you guys are introducing?

Steven Nichols

Well we have three initiatives on K-Swiss and it's the Classic that's been re-mastered, its tennis and running. And we will introduce the Classic very, very late spring and back-to-school and we have done this very sparingly. We don't want too many of these shoes to be in the market, we'd like to keep it scarce. And pretty much whoever we've offered it to has bought the shoe but very lightly.

As far as tennis; our tennis business remains good with slight tick up. The tennis is only 5% of the total market, so it's not going to be the thing that will produce a huge top and bottom lines for us. Now the one place that could produce a big growth is in running, and we have introduced two technologies in running; one I spoke of in my prepared remarks called miSOUL. And that's something that the entire shoe is hollowed out on the inside, and very large thick removable midsoles that have different functions can be put in the shoe. And you can change the shoe from the race day shoe to a training shoe or to a shoe for someone that pro mates and needs extra support.

It used to be that someone has to buy three different shoes for different functions and you can buy one shoe and just change the inserts. This was honored by Runner's Network Magazine as best new shoe for 2009. They talked about the technology. So, we've got something very good I think going there. We are offering this really only to the exclusive running shops, that's kind of the way we built our tennis business over the years, and that's the way we plan on building our running business.

Tennis I said was about 5% of the market. Running in total was about 30% of the market. We're subsequently introducing a second technology called Tubes and this technology will be priced moderately, about $75 versus miSOUL which is over $100. And this technology is going to be placed in the general footwear stores and has been pretty well received. The rest of the question is how are the retailers looking at new initiatives? Mostly they are concerned and worried and trying to turn inventory into cash. And I have a feeling every buyer has been told that in 60 days you better have 15% less in this inventory or you'll be given a pink slip. So, it's tough times. The comps numbers are down for every retailer. They are open to buy is down.

With all that said, I do not think that our problem... at our company is strictly based on the economic environment. I think a vast majority was our own doing and not moving ahead fast enough into new products, into innovation and our new brand positioning. And I think we'll be able to fix those things, but in light of the current economic happenings, we'll need that to get fixed for us to be back on a healthy recovery.

Jeff Van Sinderen - B. Riley & Company, Inc.

Okay. And then with your business getting a little bit smaller, are there areas where you can cut expenses this year, maybe in terms of headcount or anything that you're targeting at this point?

Steven Nichols

The answer is absolutely yes. And we're going to get as efficient as we can. One of the last things that I did say for our goals for 2009 includes minimizing our loss and we will do absolutely everything we can. We're trying some innovative things to save expenses or reduce expenses, and we'll literally leave no stone unturned. I think no matter what we do, 2009 will not be good year and the only question is, how tough will it be on our bottom line? And we will do everything to mitigate that.

Jeff Van Sinderen - B. Riley & Company, Inc.

Okay, fair enough. Thanks very much and good luck.

Steven Nichols

Thank you.

Operator

Thank you. And our next question is from Sam Poser, Stern Agee. Please go ahead.

Sam Poser - Sterne Agee

Good afternoon, good morning. Quite a few of my questions were already answered but I guess I have... my main question is what are you guys going to do for spring 2010. I mean my biggest concern is that you are getting so small that and a core part of your business in the more fashion business, it's almost going to become out of site out of mind (ph). How are you going to avoid that from happening?

Steven Nichols

We have continued to invest quite aggressively in product design and development and I think Q1, 2010 line will reflect it. I think it will be innovative, it'll be fresh, it'll be new, but still things that are very much K-Swiss and we're betting and obviously, it's a better fate that we've got this stuff needed to bring us back, and that the market will respond. The only thing I can't factor in is the things that are out of our control. If retailers are recording very large comp decreases they are not going to have the ability to put anybody new and fresh and no matter what. If business somewhat stabilizes and returns to levels that approximate... that approximate level, I think we'll have a shot to get new and fresh products in. And we've been remiss in not doing this kind of thing 18 months and two years ago.

Sam Poser - Sterne Agee

And within the guidance how much business are you planning for Palladium?

Steven Nichols

That's a good question, thank you. We are planning on introducing Palladium to very select retailers in July of this year, mid to late July. We have shown Palladium at two trade shows; footwear WSA and the Project. Pretty much every retailer we showed it and solicited, we think will give us an order. And orders have started to come in but the orders are coming in with eyedroppers and teaspoons. We're getting orders. They are trying it and I think they are trying it in an environment where the number one goal is to cut inventory and, hey this looks very interesting, let's buy the absolute minimum we can to just get our toe in the water. So the toe is dipping in the water and I think had the world been different, we would have different results. But we're playing the cards we got.

Sam Poser - Sterne Agee

Where does that leave us as far as within your guidance range of about $11 million in the third quarter?

George Powlick

The Palladium business that's in the guidance Sam is principally the European portion which is around $25 million and for the U.S. portion, as Steven said, on the small side.

Sam Poser - Sterne Agee

Okay. And then I'll come back. Thanks.

George Powlick

Thank you.

Operator

(Operator Instructions). And our next question comes from line of Christopher Svezia with Susquehanna Financial Group. Please go ahead.

Christopher Svezia - Susquehanna Financial Group

Good morning everyone, and Steven and George thank you very much for your comments regarding general trends in the --.

Steven Nichols

You're welcome.

Christopher Svezia - Susquehanna Financial Group

Certainly being the year of Susquehanna. I guess Steven just to go on the inventory piece for a moment and I know in the past you always mentioned the inventory I mean its core products, understanding that being you call it 18%. Kind of give us comfort level relative to the backlog, and the declines in the backlog and obviously declines in core business and the reserves that you take in, how would you look at that inventory piece and potentially the impact on the margins you're trying and work that inventory through? How should we be looking that?

Steven Nichols

Our inventory consists to the greatest part of wide base shoes, that are... it's not Classic that are not under the time pressure or very high fashion shoes and the places we normally get rid of our distressed inventory those places are being bombarded by desperate people and they can buy goods at desperate prices and with the capital we have and of course, the capital with shoes and here and there to wait. And we say the shoe will be worked the same in six months and by then the desperate stuff, the stuff that's being sold and a quarter and a half of manufactured costs will flush through the system and people will have to... they'll have to go back and buy things closer to the prices they used to spend. So, here and there, we have opportunities to liquidate inventory and every once in a while we make a decision saying hey, this shoe is too good to let go at that distress base. We think our inventory is too high and our goal is to liquidate it. But if waiting four months, we can get 25% more, we're making those decisions everyday, only because we have the ability to do it.

Christopher Svezia - Susquehanna Financial Group

Are you... it means even as you look to ordering products in Southern China, are you going to be... is that a baiting (ph) in terms of the receipt of products as you kind of try and work through the existing inventory?

Steven Nichols

Yeah, we're mostly ordering based on future orders. The future orders are down drastically and our orders are down drastically. One of the biggest problems has been retailers that place future orders, and then their business gets so bad or their business with us gets bad. And they cancel these orders after their shoes are made. The good news is, our futures are so small that's going to be less of a problem. I'm not sure if that's the good news but that's the fact.

Christopher Svezia - Susquehanna Financial Group

Got you. It's a reality, I guess. A question, I guess, just on the SG&A comments that you made, you're showing a $130 million and again fluctuating based on the retail trends that are out there. So, I guess my question is, how much flexibility do you have to ratchet that? I mean obviously, if volumes start to tick up, is it safe to imply that that increases, but if it continues may be to get worse, there is opportunities to take that down? Is that 130 in the middle of your earnings forecast, I guess is what I'm trying to get at?

Steven Nichols

Yeah, the two variables are, we can attack that number and diminish it where it would have impact. The other variable will be how much we spend on Palladium and those are two that I am sure we will impact that number as far as reducing expenses. We might come back to that number by spending the newly reduced number on Palladium marketing and brand initiatives to get it going. It's really, those are the decisions that will be made later on in the year on Palladium based on the amount of doors we get in into, and our feeling, does the economic climate warrant a starting to do what we consider new and exciting things in 2009 or should we wait till '10? So, the answer is that number could go down. I'm sure the expense will go down, but we might come back to that same point with investment in Palladium.

George Powlick

I think the down side, Christopher is maybe 5% less if we really have to squeeze.

Christopher Svezia - Susquehanna Financial Group

Okay. And most of that I guess is attributable to the Palladium piece of the investments you're making now?

George Powlick

No, the 5% would be normal SG&A and then that would be getting the SG&A reduced and then as Steven said is we may choose to investment spend on Palladium in a big way, but that decision has not been made.

Christopher Svezia - Susquehanna Financial Group

Thanks, okay. Alright, that's helpful. And the last question I have if I may is just on the international front for a moment. You talked about and we had these conversations in the past about Europe, and obviously those three core markets that you're in, in Europe and obviously the challenges that are there. Well the market environment and somewhat self inflicted, but the fact that it's obviously getting worse and you can't pull it down 60%. And obviously it seems, a piece of that is obviously the European piece, never mind obviously what's going on in Asia as well. But maybe you should talk about, to what extent, if any, and I know you don't talk about this typically, but to what extent that currency if anything at all, is that a piece of it? Or it's just really the fact of the environment? And what's going on in this... in the overall... for the overall brand in those markets?

Steven Nichols

We had a nice little tailwind when currency and the euro and the pound went up and when we reported them in dollars we looked slightly better than we were. And right now, we've got a headwind as the currency diminishes versus last year. We look a little worse than we were. That aside, it's mostly our performance was selling less pairs, demand is down and the primary markets that we were in and that's the UK, Germany and Benelux, times are tough there just as tough as they are in the United States at the moment. But it's our brand and we've got to reignite it and get it moving again and that's the challenge. Will we get it reignited in 2009 in the face of headwinds in the marketplace I doubt it. Will we get it in 2010 or '11, I'm betting that I think we can.

Christopher Svezia - Susquehanna Financial Group

Okay. Alright gentlemen, thank you very much and good luck.

Operator

Thank you. Our next question comes from Jason Casper with Casper Investment (ph).

Unidentified Analyst

Yes good morning guys. The previous guy asked most of my questions. I did want to have one quick question on the cash. How much of that cash is located in the United States versus overseas and since that if you needed access to the cash at the U.S. operations, it will be a huge additional tax to move from Europe over to the U.S. or where is that cash centered as I guess as I am getting that?

George Powlick

The vast majority of the cash is in the U.S. already.

Unidentified Analyst

Okay. So there is no like 10% or something in Europe, or so vast majority of it in the UK. And then just one quick follow-up question on the inventory, and I know the previous... your philosophy has not been to discounting any major way. I did notice that the overall average shoe selling price dropped from the previous year and I think also from the previous quarter. Is that discounting or is that currency issues keeping at the same price in Europe and then as result, a fall in the euro or what was the drop in the average selling price?

Steven Nichols

I would say that the biggest factor is a bigger percentage of our shoes went to the people that normally buy distressed merchandise. So if it was whatever if it was X, now its X plus something. So the percentage of foot price sales to off price sales, and these off price go to some very large retailers that buy everybody's goods. They don't advertise and we've gotten rid of distressed goods with them for years and years and years relatively cleanly in the marketplace. It's just a larger percentage of our overall pairs and that's what the average price with them.

Unidentified Analyst

Okay. And so then are you looking at more sales as inventory has ticked up into the $70 million range are you looking at more sales through those avenues?

Steven Nichols

I'm sure we will have more sales through those avenues, and hopefully a good part of our inventory is our basic Classic ongoing shoes that have slowed down and at some point, they will pick up but those are always full margin sales.

Unidentified Analyst

Okay, thank you very much.

Steven Nichols

You're welcome.

Operator

Thank you, our next question comes from Eric Addeo with Barclays (ph). Please go ahead.

Unidentified Analyst

Good morning guys. First of all, I want to ask you about your advertising spend expectations for 2007. First of all what's your level overall 2008 versus 2009, and then where is the allocation there among product line and then among media you're targeting?

Steven Nichols

Our present plan is to reduce advertising by about 25% in '09 compared to '08.

Unidentified Analyst

And then as far as the amount that'll be going to Classics, is that going to take you a large portion of that or what are you going to be pushing into three lines you've talked about.

Steven Nichols

Classic should take the largest portion of it by far. As far as pure advertising, our tennis and running advertising are in what's known as vertical or specialty magazines, where you can have a very strong impact on the real tennis players and the real running community, but they are not huge circulation magazines. So it is relatively efficient. The big bucks for us would be our advertising for our Classic shoe. And that's in, if it was a magazine... just circulation magazines.

What we have done, is invested in a large amount of content to run on the Internet and much of the promotion and speaking to young people that we'll be doing in 2009, I mentioned something called K-Space which is a site of our website, and this will have videos that stream and constantly show the people wearing the Classic and talking about the Classic. And the probably the average age of the people on this phone call will never come in contact with that form of marketing. It's significantly younger against younger people and you won't see it unless you go to these places and there is definite age differences where they go there. And it's targeted against the people that really buy sneakers 14 to 24 year old, and that's the kind of thing that we hopefully we will build throughout the year.

So we made a commitment to that and I'd hope to get a big amount of our effort and our dollars. In concurrence with that, there are things, ways to advertise on the Internet directing people to these sites, and we're planning the largest ever Internet advertising we've ever had and the beauty of that is, if they are directed to our site, we get almost daily feedback. If we run ads on Tuesday, Wednesday and Thursday, you can get the sales results on your Internet site. So that's the kind of thing, if it starts to pay you off, it will be an option of us increasing that or just maintaining it the way we have.

Unidentified Analyst

Got you. And as far as the running issue, shoe penetration into the specialty stores, where are you now? Are you still looking to get into additional stores or are you just trying to push the penetration in the stores you are already in?

Steven Nichols

We are still trying to get into additional stores. We are in a very small amount of the specialty stores so far. I think we're poised to do significantly better. The scenario is something, we call on somebody and say, hey we've got some great new K-Swiss running shoes and the first time he says, I never even heard of you. The second time we come back, he says I did some research, I did hear that you're a tennis company. The third time, by the fourth time we come back, he sees we have some staying power. We have worked very hard to be important in Triathlon, and an association with a group called the Iron Man, which we're looking to get closer and closer with them.

This past weekend, four of our athletes won championships. We had a male and a female winner in the Iron Man Malaysia, that's a Iron Man triathlon, there is something called a Duathlon which was run in Phoenix, and it's running and biking, no swimming. We had the woman that won that and a fellow name Marty Fish one of our tennis players won the tennis tournament in Delray Beach. So, this last Sunday, we had four peoples standing on podiums wearing K-Swiss.

Banging away at this will get us acceptance into our... into the running market. We did open our first running store. It was in Taiwan. The reason we chose Taiwan is we have a very strong retail presence that we own and a strong retail organization. And that started with a 3000-person run. It started at literally at the front door of store, ran through Taipei and finished at the store. The photographs of this, of 3000 people, everyone had a K-Swiss T-shirt on. When we walk into a retailer, somewhere in mid-America, and he says that you're a running company. We show of 3000 people running in K-Swiss shirts. We show pictures of our running store. I mean piece-by-piece, we're fighting our way into this new distribution channel.

Unidentified Analyst

So, when you just say that if you look at the overall running shoe retailers, the more independent shops, are you in maybe 10%, 20% or do you have the fair assumption?

Steven Nichols

I would say less than 10%.

Unidentified Analyst

Less than 10%. Got you. And then looking at Royal Elastics, I know you've been continuously evaluating it, and these are pretty tough times. Is it easy to evaluate how much you want to put into that in this kind of a market or how do you make those judgments?

Steven Nichols

Well you answered the question. We are continuously evaluating it.

Unidentified Analyst

Okay. Thanks so much guys. I appreciate it.

Steven Nichols

Welcome.

Operator

Thank you. And we have a follow-up question from the line of Sam Poser. Please go ahead.

Sam Poser - Sterne Agee

One thing... two things; could you first give me what the segment sales were for Europe and other international, again I think you mentioned it?

Steven Nichols

I didn't break them out, Europe and other international. I gave you total segment sales and let's just see; got it. It was, Performance was 14%, Sports Style 76% and other was 10% and that's total worldwide company, I don't have it.

Sam Poser - Sterne Agee

So, do you just have the totals for Europe and other international?

George Powlick

Sam, domestic is 49% and Europe is 25% and Asia and everything else is 26%.

Sam Poser - Sterne Agee

In the fourth quarter. And then --

George Powlick

That was the fourth quarter, yes.

Sam Poser - Sterne Agee

Okay. And then, just, is there going to be a fall 2009 Royal Elastics line?

Steven Nichols

I believe so, yes.

Sam Poser - Sterne Agee

Okay. I just wasn't sure. Alright, thank you guys, good luck.

Steven Nichols

Thank you.

George Powlick

Thanks Sam.

Operator: Thank you. Our next question comes from the line of Mimi Bartow with Telsey Advisory Group. Please go ahead.

Mimi Bartow - Telsey Advisory Group

Hi, thanks guys. First, I was just wondering if could tell us how you're managing your smaller accounts, just from a credit perspective? Given the current environment, if you're seeing anything there in terms slower collections et cetera?

Steven Nichols

We're somewhat happy to share that the single most disliked person in the industry for the less 20 years, is our credit manager. He is not a nice guy. So, the accounts that aren't strong, he dropped years and years ago. We are maniacs with people that don't pay us. And that's the reason I get out of bed in the morning, is to collect money for things that we worked hard selling.

With all that said, there is a catastrophe going on in the small retailers. Many of them are closing their doors. I think if and today, I mean you just hear the stories of strip centers that are going barren and total shopping malls closing down. So, there is a retail crisis. I would say that we are not immune at all, but we'll probably do slightly better than most everybody else. And we have no vaccine to protect us from this. Little guys are hurting something fierce.

Mimi Bartow - Telsey Advisory Group

Okay. And then, I know you talked about bringing inventory down for the year? Is there a target that you guys have in mind in terms of where you want to end?

Steven Nichols

We started this year with... well finished last year with $207 million in cash and we're currently earning and you could guess, if it's conservative, 1% or something in that kind of words. If holding on to inventory for six months can be the difference in 30 or 40% of the value of the goods that sure makes sense versus making 1% on your money. So, we are not in a huge hurry to liquidate inventory on a panic basis and other people are. So, we might sit with what we believe in levels too high that we could get rid of and just wait to look a lot of panic selling goes by. And making 25% more on those dollars would be the smartest use of our dollars.

So, I don't think we will significantly drop our inventory by the end of the first quarter, I mean that quarter really only has less than month to go. So, we're not in a hurry and I think we will do significantly better on our inventory by not being in a hurry. I hope that helps.

Mimi Bartow - Telsey Advisory Group

Yeah. Thank you.

Operator

Thank you. And there are no further questions in the queue. I will now turn it back to Mr. Nichols for any closing remarks.

Steven Nichols

Thank you for joining us on our call this morning and hope to speak to you next time on a brighter, happier note. Thank you.

Operator

Ladies and gentlemen, this concludes the K-Swiss fourth quarter 2008 earnings conference call. You may now disconnect. Thank you for using ATC Conferencing.

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