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Skechers USA (NYSE:SKX)

Q4 2013 Earnings Call

February 12, 2014 4:30 pm ET

Executives

Andrew Greenebaum

David Weinberg - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Principal Accounting Officer and Director

Robert Greenberg - Chairman and Chief Executive Officer

Analysts

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Sam Poser - Sterne Agee & Leach Inc., Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Scott D. Krasik - BB&T Capital Markets, Research Division

Corinna L. Freedman - Wedbush Securities Inc., Research Division

Operator

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

Andrew Greenebaum

Thank you, everyone, for joining us on SKECHERS conference call today. I will now read the Safe Harbor statement. Certain statements contained herein, including without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended.

Such forward-looking statements involve known and unknown risks including, but not limited to, global, national and local economic, business and market conditions in general and specifically as they apply to the retail industry and the company. There can be no assurance that the actual future results, performance or achievements expressed or implied by such forward-looking statements will occur.

Users of forward-looking statements are encouraged to review the company's filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other reports filed with the SEC as required by federal securities laws for a description of the other significant risk factors that may affect the company's business, results of operations and financial conditions.

With that, I would like to turn the call over to SKECHERS Chief Operating Officer and Chief Financial Officer, David Weinberg. David?

David Weinberg

Good afternoon, and thank you for joining us today to review SKECHERS' fourth quarter, and year end 2013 results.

2013 was a year driven by product innovation across multiple categories, which resulted in net sales of $450.7 million for the fourth quarter, and $1,846,000,000 for the first year, 13.9% and 18.3% improvements respectively. The sales momentum we experienced in the fourth quarter was quite an achievement when considering the soft U.S. retail environment in December and the strong growth of 39.7% in the fourth quarter of 2012. The sales improvements came across all of our distribution channels, including double-digit growth in our domestic wholesale and company-owned retail stores and single-digit growth in our international and e-commerce businesses.

We are especially pleased with the growth in our domestic business in the fourth quarter. This growth came in spite of severe weather that impacted retail in the Midwest and Northeast, as well as parts of the South. We believe we achieved this success despite the unseasonably cold weather because of our diverse product offering, including boots and lined footwear for the colder areas and our Sport product, which performed in the unusually warm weather in the West, as well as in other regions.

The product successes that we've been experiencing in the U.S. are now translating internationally, as we saw strong increases in key markets in the fourth quarter, including some that were previously impacted by struggling economies.

We'd like to note that our effective tax rate for the year ended December 31, 2013 was 26%, which was down from the forecasted rate of 31.9% at the close of the third quarter. This reduction caused our effective tax rate for the fourth quarter to be 2.3%. The overall decrease in our tax rate from the third quarter was the result of slightly increased international and slightly lower domestic profitability compared to the third quarter forecast. We expect the improved international sales to continue to have positive impact on our 2014 tax rate, which we currently anticipate to be between 25% and 30%.

Fourth quarter sales and financial highlights include: a 16% increase in our domestic wholesale business, with a 19.1% increase in pairs shipped; an 18.6% increase in our company-owned retail business, which included a 12.8% increase in comp store sales; a 5.6% increase in our international business, with our subsidiary and joint venture sales increasing by 16.3%; a 9% increase in our e-commerce sales; earnings from operations of $17.1 million; gross margin of 44.5%; and net earnings of $14.2 million and diluted earnings per share of $0.28.

Financial highlights for the year include: net earnings of $54.8 million and diluted earnings per share of $1.08; in-line inventories, which increased 5.7% from a year ago; and a strong balance sheet with $372 million in cash or approximately $7.34 per share. We believe our sales, product and marketing are on-point. We are delivering exceptional product that consumers want and are expanding our reach. This led to full-year revenues of over $1.8 billion, an 18.3% increase. Further, we believe this positive momentum will continue in 2014 due to our key performance indicators, including an approximate 30% increase in backlogs and a strong performance in January 2014, including mid-single digit comp store sales increases in our domestic and international retail stores.

Now turning to our business in detail. In our domestic wholesale business, sales increased 16% or $26.6 million for the quarter versus the same period last year. The growth for the quarter, as well as 22.9% growth for the full year, is a testament to the continued strength of our brand and our reach to consumers in the U.S. market. Our intense focus on product development resulted in key initiatives from our multiple lines, including: Relaxed Fit footwear, SKECHERS GOwalk, BOBS and SKECHERS Kids, which included takedowns of SKECHERS GOrun Ride and SKECHERS GOwalk. The success of our product initiatives resulted in an increase of 19.1% in pairs shipped in the quarter and 24.3% for the full year.

Among our SKECHERS lifestyle lines in the fourth quarter, we experienced triple digit growth in our Women's Sport Active and double-digit growth in our Women's Sport, BOBS, winter boot and men's work lines. To support our varied lifestyle product lines, we aired numerous commercials for the holiday selling season. For Women's, these included Skech-Air, BOBS from SKECHERS and 2 commercials featuring Brooke Burke-Charvet, one for Relaxed Fit and one for BOBS. For Men's, we aired a SKECHERS Sport commercial and 2 Relaxed Fit commercials, one with Joe Montana, the other with Mark Cuban.

The continued success of BOBS, our charitable footwear line, has resulted in more than 6 million pairs of shoes donated to children in need, including those impacted by the typhoon in the Philippines. Our SKECHERS Kids division was down 10.7% for the quarter, or flat for the year. Based on our healthy backlog, the deliveries of our Kids product for spring and feedback from our accounts at our recent buy meetings, we believe our Kids division will trend positive this spring and back-to-school for both our character-based footwear for the younger kids and lightweight sport footwear, inspired by our successful adult collections.

We're pleased that we recently earned a 2013 Excellence in Design Award for Kids from Footwear Plus magazine. As always, we supported our Kids business over the holiday period with several commercials, including Twinkle Toes for Girls and Super Hot Light for Boys.

In our Skechers Performance division, for the quarter, we experienced double-digit growth in our women's offering led by SKECHERS GOwalk and in our men's collection led by our running footwear. Our focus in Performance is to continue to deliver innovative product that will appeal to runners at all levels. To this end, we received 2 honors from industry trade publications. First, SKECHERS Go was named 2013 Brand of the Year by Footwear News and then we earned a 2013 Excellence in Design Award for Running from Footwear Plus magazine. We are continuing to work closely with Olympic marathon runner, Meb, in the development of our product and on our marketing efforts. This quarter, we launched a new commercial for SKECHERS GOrun Ride 3, featuring Meb. The SKECHERS Performance division was also the official footwear and apparel sponsor for the Houston Marathon in January. Meb hosted the event and won the half marathon wearing his signature SKECHERS Go shoe.

The demand for our SKECHERS GOwalk and GOwalk 2 footwear remains strong and we're looking forward to delivering new innovations in this successful category for spring.

To support our SKECHERS GOwalk 2 footwear, we launched a new commercial over the holiday selling season, which we will again air this spring. In our domestic business, our fourth quarter was one of our strongest fourth quarters for incoming orders, and the trend continued through January. Our order rate and double-digit backlog in our domestic business are positive indicators for what we believe will be a strong 2014 for our domestic business.

In the fourth quarter, our total international subsidiary, joint venture and distributor sales increased by 5.6% as a result of the strength of our diverse product initiatives. Our subsidiary and joint venture sales improved by 16.3%, offset by our distributor sales, which declined by 11.5%. This decrease in our distributor business is due to the continuation of several factors we mentioned on previous conference calls, including political, currency and economic issues, primarily in South America.

The solid subsidiary growth is attributable to double-digit improvements in our European regions, Canada and Brazil, and was offset by decreases in Chile and Japan. We expect double-digit increases shown this quarter to continue through 2014.

Our Southeast Asia joint venture continue to perform very well. For the quarter, sales increased over 50%, which includes the doubling of our business in China. We feel like the momentum is continuing in the first quarter, and will throughout the year.

In our international distributor business, several key partners experienced growth in the quarter, including triple-digit growth in Indonesia, Mexico and Turkey, double-digit growth in Russia and single-digit growth in Australia. Additionally, Russia and Australia are 2 of our larger distribution partners and Mexico is quickly becoming 1 of our key distributors. These increases were offset by decreases in several key markets due to timing issues, as well as ongoing political, currency and economic issues. We're pleased that many of the distributors negatively impacted are taking steps to improve their businesses.

While we expect distributor sales to be flat for the first quarter, we anticipate overall increases for the year. At quarter end, there were 477 SKECHERS stores owned and operated by our joint ventures, licensees and distributors outside the United States. Of these, 313 are distributor-owned or licensed SKECHERS retail stores around the world. 136 SKECHERS stores are in joint venture countries in Asia, including those run by licensees in the region, and an additional 28 company-licensed stores are in countries where we directly distribute our product: Brazil, Canada, Spain, Portugal and Ireland.

In the fourth quarter, 34 stores opened, including our first stores in New Zealand, Armenia, Hungary, Kazakhstan and Kenya, where we now have 2 locations. Additional store openings in the fourth quarter include: 6 in Indonesia, 3 each in the Philippines and Malaysia, 2 each in India, Mexico, Spain, Singapore, Taiwan and Thailand and 1 each in Australia, Egypt, Jordan, Mauritius and Ireland.

3 stores closed in the quarter: 1 each in Croatia, the Netherlands and Honduras. 5 distributor, joint venture and licensed SKECHERS stores have opened this quarter, an additional 20 are planned for the first quarter, and another 100 to 110 for the remainder of the year, bringing our total to approximately 600 distributor, joint venture or licensed SKECHERS stores.

We believe that the momentum that we are experiencing in the U.S. is translating positively around the globe. First, to our subsidiaries and joint ventures and then to our distributors. We're also seeing some markets, especially in Europe, bouncing back from the economic issues they faced over the last few years and believe that our moderately priced product is resonating in these countries. We're also pleased with the continued growth in key countries like Canada, Australia and Russia and the positive turn in the newer markets like Brazil and China, 2 countries in which we are establishing a strong footprint. Based on our backlogs, the reaction to our key initiatives and the opening of additional retail stores, we believe that our international business will be up double digits for the year.

For the quarter, total sales in our company-owned retail business increased by 18.6%, with domestic sales improving by 16% and international sales by 34.2%, which included positive domestic store sales of 13.2% and international comp store sales of 10.8% for a combined increase of 12.8% to comp store sales. At quarter end, we had 390 company-owned SKECHERS retail stores. In the fourth quarter, we opened 20 stores, of which 14 are domestic and 6 are in international locations. These included new concept stores in India, Indiana, New Jersey, Massachusetts and Ohio, as well as Canada, Chile, France and the U.K. In the first quarter, we've already opened 3 stores, including another concept store in Chile, bringing our total store count in Chile to 25. We plan to open another 7 stores this quarter and approximately 60 to 70 for the full year worldwide. We view our SKECHERS retail stores as profitable branding vehicles, and, along with opening new stores, we continue to remodel key locations.

Though a small part of our total sales, e-commerce and licensing contributed to our revenue in the quarter. SKECHERS e-commerce business in the U.S. increased 9% in the fourth quarter. Our licensing division generated $2.9 million in revenue in the fourth quarter from our licensing, including SKECHERS branded eyewear, socks and backpacks, as well as footwear.

Now turning to our fourth quarter, and full year 2013 numbers in more detail. As I discussed earlier, fourth quarter sales increased 13.9% to $450.7 million compared to $395.6 million in the fourth quarter of 2012. The increase is due to the strong product successes we were experiencing across our multiple product categories, which have resulted in double-digit increases in our domestic wholesale company-owned retail stores, our e-commerce businesses, international subsidiaries and joint ventures.

Fourth quarter gross profit increased to $200.6 million or 44.5% of sales compared to gross profit of $168.5 million or 42.6% of sales in the prior year period. The improved profitability and higher gross margin were due to a combination of increased sales and strong sell-through of our product. Fourth quarter selling expenses were $33.5 million or 7.4% of sales compared to $31.1 million or 7.9% of sales in the prior year. The dollar increase was primarily due to increased advertising, trade show expenses and sales commissions in order to support our product lines, both domestically and internationally.

For the fourth quarter, general and administrative expenses were $153 million or 33.9% of sales compared to $132 million or 33.4% of sales in the prior year. $14 million of the $21 million increase in G&A was due to expansion of our retail and Southeast Asia joint venture operations. During the fourth quarter of 2013, earnings from operations were $17.1 million compared to $8 million in the fourth quarter of 2012.

Net income during the quarter, was $14.2 million compared to $4 million in the prior year period. Net income per diluted share in the fourth quarter was $0.28 on approximately 50.7 million average shares outstanding, compared to $0.08 on approximately 50.3 million average shares outstanding in the prior year period. I'd also like to add that due to increased international and slightly lower domestic profitability, our effective tax rate for the 12-month period ending December 31, 2013 was 26%, which was down from the forecasted rate of 31.9% at September 30, 2013. This caused our effective tax rate for the fourth quarter to be 2.3%. As I mentioned earlier, we expect the improved international sales to continue to have a positive impact on our 2014 tax rate, which we expect to be between 25% and 30%. In the fourth quarter, we recorded an income tax expense of $400,000 compared to $3 million in the prior-year period.

Now turning to our full year results. Net sales for the 12-month period ending December 31, 2013, increased 18.3% to $1.846 billion compared to $1.56 billion in the prior year period. Gross profit was $818.8 million or 44.4% of sales compared to $683.3 million or 43.8% of sales in the prior year period. Selling expenses were $153.5 million compared to $134.9 million from last year. General and administrative expenses were $579.4 million compared to $533.2 million from last year. Earnings from operations for the full year 2013 were $93.6 million compared to $22.3 million in the same period last year. Net income for the full year was $54.8 million compared to $9.5 million last year. Diluted earnings per share were $1.08 on approximately 50.6 million average shares outstanding compared to a diluted earnings per share of $0.19 on approximately 49.9 million shares last year.

And now turning to our balance sheet. At December 31, 2013, we had $372 million in cash or approximately $7.34 per share. Trade accounts receivable at quarter end were $225.9 million and our DSOs at December 31, 2013, were 43 days versus 49 days at the end of the prior year. Total inventory, including merchandise in transit at December 31, 2013, was $358.2 million representing an increase of $19.2 million or 5.7% from December 31, 2012. Long-term debt at December 31, 2013 decreased to $116.5 million compared to $128.5 million at December 31, 2012. The decrease primarily relates to payments made on our distribution center equipment. Shareholders' equity at December 31, 2013 was $979.9 million versus $919.1 million at December 31, 2012.

Book value, or shareholders' equity per share, stood at approximately $19.38 as of December 31, 2013. Working capital was $704.5 million versus $647.8 million at December 31, 2012. Capital expenditures for the fourth quarter were approximately $11.8 million, of which $8.2 million related to 14 new domestic store openings and several store remodels, and $2.3 million related to our international operations.

In summary, with our second-highest net sales for both the fourth quarter, and full year and several industry honors, 2013 was a year of strong growth, innovation and recognition. We are pleased with our sales growth of 13.9% for the quarter, especially given that the increase is on top of last year's 39.7% gain in the fourth quarter, as well as the 18.3% growth for the full year. We believe our strong performance across all of our distribution channels is the result of great accomplishments we have made with the continued development of multiple successful product initiatives, including SKECHERS GOwalk, SKECHERS Kids and BOBS from SKECHERS. Our product is continuing to resonate in the United States and around the world. As we continue to expand our product offering, we are also planning to grow our 2013 year end retail footprint beyond the more than 390 company-owned SKECHERS stores and more than 480 distributor, joint venture and licensed stores, with another 70 to 80 company-owned stores and 120 to 130 distributor, joint venture or licensed stores this year, bringing our total projected SKECHERS store count at the year end 2014 to approximately 1,070.

Further, the combination of significant growth from our newer markets, such as China and Brazil, the strength of our well-established countries that are continuing to grow and the improvements we are seeing in several challenged countries, makes us believe that our international sales will grow double digits in 2014. And while a small part of our total business, we are continuing to invest in our e-commerce platform, as we've seen 6 consecutive quarters of growth.

Early key performance indicators, including double-digit backlogs, single-digit comp increases in our domestic and international stores in January and strong incoming orders in January lead us to believe that we will continue this positive momentum in 2014. Our much improved profitability, operating leverage, cash balance of $372 million and in-line inventory levels are indications of our determination to efficiently manage our business as we leverage our growth. We're looking forward to building on our solid position in the global marketplace and capitalizing on our prudent key initiatives. We believe we will continue our momentum in 2014 and we are comfortable with the consensus numbers currently reported in the first quarter, and full year.

And now I'd like to turn the call over to the operator to begin the question-and-answer portion of the conference call.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Jeff Van Sinderen of B. Riley.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

That's a really impressive performance for Q4, especially in light of the challenging retail environment. David, maybe you can just talk a little bit more about the feedback that you're getting from some of your retail partners on sell-throughs, maybe touch on what product lines they're most enthusiastic about, maybe what they saw in Q4 and then what they're enthusiastic about going into 2014. And then maybe give us a little more color on what's driving the order book for the first half of this year.

David Weinberg

I think they relate to each other. I think if you look at our order book, and we're up about 30% in backlog, if it shows that we performed well -- we performed well in a tough environment in Q4 for them, they're booking in advance, even though Easter has moved out a little bit this year, basically, because our products are in demand and we're filling up our pipeline. So I think it's across-the-board. As I said in the prepared comments, our women's sport, our men's sport, our Performance group, our Kids are all picking up. They're all positive. It's not accentuated in 1 place. It really is across the board and continues, just as it did last year. So I think it's all driving the order book and that's the feedback we've gotten through the meetings that we're having -- we've had pre-lines again at the end of January, and it's still positive. No one's pulling back and everybody continues moving forward. So it gives us a great bit of confidence in the quarter that's coming up.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Yes, that's great to hear. And then as we think about gross margin for Q1, just wondering, your gross margin was actually better than we expected in Q4. And I'm just wondering if we should be modeling that up versus last year or maybe, which components you see driving that up or -- hopefully it's not going to be down in Q1, anything to add there?

David Weinberg

I think what drove the margins this quarter, or month is just, obviously, how hot we are and how hot the product is. But our big increase in Southeast Asia, which is predominantly retail, raised it up because they have -- particularly retail margins and we were up so strong with them, both top and bottom line. And Europe kicked back some and because of our margins in Europe, our wholesale was slightly higher than domestic wholesale margins, that was a positive. As well as retail kept their margins up even though we had a slight flattening. I mean, we comped up very strongly for October and November and comped up mid-single digits for December when everybody else was having issues. So that kept it up. And barring any issues for weather or changes that I haven't seen yet, I would think margins would be slightly up from last year, although maybe not quite as high as they were in Q4.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Okay. And then, I know you don't provide guidance but all else being equal, would you expect to be able to leverage SG&A a little bit in the first half of this year? And then maybe when you think about operating margin for the first half, I think you said you were comfortable with the consensus out there, so I'm assuming you'd be comfortable with something along a 5% or 6% operating margin, first half?

David Weinberg

Yes, I think that's true. I think we will continue -- if you look at the expense growth this year, it was only because the store count grew so dramatically, certainly, in Q4. And at the end of Q3, which we just opened up. So basically, we opened 36 stores, predominantly, through Q3 and Q4, which was part of the increase. As well as China doubling their sales, which obviously led to increases. So I don't know, domestically, we haven't had any big increases at all. So I think we do leverage, we continue to leverage in China and probably at retail. I don't know that we're going to open 20 stores in the first quarter. So we should leverage that expense item as well. So yes, I think we do continue to leverage. I think we're still on the same path we were on when we spoke at the last conference call. But as we get closer to 2.2 and 2.3, we'll continue to leverage higher and higher, hopefully, approaching that double-digit operating margins as we get to the 2.2, 2.3 range.

Operator

The next question is from Sam Poser of Sterne Agee.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Can you tell me what you expect domestic wholesale to be? You talked about the international growth. What are you looking at domestic wholesale to be for the year? Probably an increase...

David Weinberg

We would think it will still be up double-digits. I think we're going to be up in the low-double digits in the first quarter, and unless weather is really a bigger factor -- I don't know what's going on today with -- as we go forward, I would expect that we would continue that through back-to-school and into the end of the year. I still do expect double-digit growth from our domestic wholesale business this year.

Sam Poser - Sterne Agee & Leach Inc., Research Division

And then let me ask -- I mean, the thing is, you're opening -- you're going to have a nice double -- you're going to have 20% -- I mean, you're going to have, like, 20% store growth on the owned retail, give or take. I mean, it looks like you're comfortable with the numbers on the street but -- I mean, I'm on the high-end, but it sounds like there might be a little wiggle room there if those are the kind of revenue numbers you're looking for.

David Weinberg

We are comfortable with the numbers on the street and we are very confident. But given the weather situation, as it begins now, especially as it concerns the first quarter, there is always the possibility that the fill-in rate won't be as high as we expect because people have booked pretty well and if stores are closed in an inordinate period of time, there's going to be a transition period. Also, first quarter is a tougher comp because Easter's moved out into April. So we're pretty confident and I guess, if the weather was to pick up and retail is supposed to pick up in the U.S., I would tell you that there might be some room, but it's kind of too early to tell. And given that today, I'm not even sure how many stores we have closed in the East Coast today, but I already saw on TV this morning for the snowstorms. That always is a caveat out there. And it's already middle of February, so half the first quarter is already gone. There's only so much time you can make that up at retail.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Okay. And then when you look at the -- I mean, the selling expenses seem like they are going to continue to grow modestly, but given the new stores -- I mean, the G&A looks like the investments there are going to keep that clicking along. So you're going to lever more on your selling, I would think, than you are on your G&A. If I'm thinking about that correctly, sort of on a broad -- sort of, broad way?

David Weinberg

That is probably true for Q1 but I think as we get to the back end of the year, big places like Brazil and China and our joint venture in Southeast Asia, they will start to leverage theirs as well. So I think as we go through the year, we'll leverage both the selling and the G&A piece. This is really a backup for Q4 based on retail and some Southeast Asia. So I don't know that, that increase will continue through the whole year and I -- we would've shown even more leverage had the weather not really taken back the sales in December. We were tracking quite a bit ahead through October, November, going into what we had anticipated to be a very strong and shortened Christmas season, that got suddenly destroyed by the weather. So we'll see what happens in that piece but right now, we're feeling very comfortable on all pieces and feel very good about retail and our international expansion.

Operator

The next question is from Chris Svezia of Susquehanna Financial Group.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

I guess, first question, dare I ask this, but inventory, just surprised, up 6%. Great job, but just any thoughts -- I mean, do you have enough inventory to meet demand or just kind of how we should think about that as we go through Q1?

David Weinberg

I think our inventories are in great shape. First of all, when we report a backlog like 30%, we don't accept orders that are not already in our pipeline. So some of it is that we've used up some of this production capacity and do have it all, and we still have some for an at-once piece. So yes, I would think we're situated very well on the inventory side for the business we've booked and for some potential upside should the product remain as hot and the weather stay good.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. Order book. I'm just curious, your comment about continuing to see growth into January, just how big is January from a pre-book basis and did it accelerate from that 30% or did it hold that 30% rate?

David Weinberg

It held the 30% rate as far as backlog is concerned, maybe up slightly year-over-year. We usually have some deterioration in January because it's not a big booking month and it's a pretty big shipping month. Our big booking parts are February and March, but I think it's fair to say that this is the second largest January we've ever had of incoming orders on a worldwide basis.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

I'm curious, on the gross margin, how much does -- you've mentioned the Kids business was down, I think, 11% or 12% like that in the fourth quarter. How much of that being down helped the gross margin if it's a low gross margin basis in the fourth quarter? And does that really revert itself as you go into this year?

David Weinberg

I don't think that was the major contributing piece. While it's sure that they have slightly lower margins and it was slightly down, I think the biggest help based on our Southeast Asia and European business growing so dramatically, that 16% really did go through to the gross margin line.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. And how -- I mean, I know you've touched slightly on Q1 on the gross margin but sustainability -- I think Q1 gross margin last year was down, call it around 100 basis points. I don't remember the exact reason but it seems like you have some favorability in Q1 with international really kicking in. I mean, could that be up 50 basis, 50 to 100 -- you're up to 190 in Q4, so thereabouts. So I'm just curious.

Robert Greenberg

Yes, it could be. And Europe has gotten off to a very good start shipping and a very good start at the stores and so has Southeast Asia, just coming back from Chinese New Year. So if they hold, we certainly do have potential to increase the gross margin.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. And then last question I have: Just on the G&A real quick, you're up roughly $20 million in the fourth quarter. I mean, just so I'm clear about something, that's not -- as we kind of think about just quarterly flow going forward, using $20 million increases in G&A, assuming double-digit sales growth, is that too high? Is that -- I'm just trying to get a sense or is that just a little abnormal in the fourth quarter?

David Weinberg

I think it's a little abnormal from the store count opening and also, it's only $11 million over first quarter last year. I don't know that the $11 million goes to $20 million for first quarter given the additional growth and the stores remaining constant. So it might, if the store count continues to open at a very rapid pace, or that China really outpaces their projections as well.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. And very last thing here, just on the tax rate. As it pertains to your thoughts about looking at consensus and feeling comfortable with what's out there for the year, previously, we didn't have that assumption about the tax rate and that, on an annualized basis, adds $0.10, $0.15 to EPS just alone. How do you think about that? Because that's a pretty big adjustment when we think about our numbers.

David Weinberg

Yes, and it's still a moving target, as taxes usually are. But I would start to model 30%, certainly, and coming down if international could start to accelerate or continue to accelerate.

Operator

The next question is from Scott Krasik of BB&T Capital Markets.

Scott D. Krasik - BB&T Capital Markets, Research Division

Just a few questions on sales. It was a little weird last year, right, because you didn't have a big backlog and then people chased and you ended up with a lot of sales in Q1, but it was done on an at-once basis. So I mean, is the backlog bigger because of the timing shift, and how do you expect the at-once business to look this year?

David Weinberg

I think it's -- a lot of how the at-once business looks, like I said before, will depend on how weather holds, because I think people still aren't booked sufficiently. People did book earlier because they wanted to secure goods earlier even though Easter had moved out. I don't need as big an at-once business to be comfortable with the first quarter numbers. So it's not even required. If the at-once business became anywhere near what it was last year, then indeed all these numbers would be conservative. But I really don't anticipate that, given the weather and the sell-throughs that most people are reporting even if through at the middle of February. So I think it's fair to say people have booked earlier but at a great -- at a rate that would still show increases with much smaller at-once components in the first quarter.

Scott D. Krasik - BB&T Capital Markets, Research Division

Okay. And then obviously, positive comps in January for anybody is pretty good. Was there anything -- with the acceleration last year in March, especially because Easter was big, what type of comp are you expecting for Q1 and what's realistic with the visibility you have?

David Weinberg

We're still modeling mid-single digits, but I think it can accelerate for now. When we look back at comps for last year, they were in the mid-single digits in January and February and then they were up significant obviously in March because of Easter. But even with that, because the product is so well-received and we're a Spring House, our March -- our comp store sales were up in April and that's against a non-easter April. So we think that if the weather clears out and this product has as much demand as it had, that we could see acceleration, certainly, by the end of the month and going into March, even with Easter in it. But obviously that still remains to be seen.

Scott D. Krasik - BB&T Capital Markets, Research Division

Okay. And then in terms of bookings that you have for back-to-school already for those June deliveries, maybe talk about how those compare year-over-year.

David Weinberg

We're up everywhere and we're certainly ahead of the game, that far out. But we haven't had the biggest piece of June book, that will come in February. So it's kind of early to tell. We have all positive reception on our lines, from all our pre-lines and our big customers. I'm sure if you do your channel check, you'll see that we continue to perform well and anticipation is still very good for the back-to-school. So -- and I don't disagree with that.

Scott D. Krasik - BB&T Capital Markets, Research Division

Okay. And then just to clarify Chris's question. So if we were using -- I forgot, I think it's $1.75, on a 33% or so tax rate, should we raise the EPS as we lower the tax rate or should we lower the EPS for -- in...?

David Weinberg

That depends. I have to look at your model, but at 3% it's too early to tell although, maybe up and down 3%. I think it's a good number just to use 30%, do whatever you like, you can use 3% as a cushion or if it's a -- if a couple of pennies means that much to you during the year, you could use that as well. But we can just use that as a small cushion as we go through. We're expecting pretty significant growth, so I don't know what kind of will be the determining factor for this year anyway.

Scott D. Krasik - BB&T Capital Markets, Research Division

Last one, sorry. You had talked about buying the partner's interest in your DC. When do you expect that to happen and how is that accretive to you?

David Weinberg

I don't think we have a time or date yet because we're just beginning so it's kind of too early to discuss. What we will be doing, if nothing else, is that we have a balloon payment that we don't plan on rolling over for the equipment, which is probably a $50 million or $60 million decrease to our debt some time through 2014. So that will be one of the uses and then we'll be talking to them about what to do with the distribution center. So we'll let you know as that unfolds.

Operator

[Operator Instructions] The next question is from Corinna Freedman of Wedbush Securities.

Corinna L. Freedman - Wedbush Securities Inc., Research Division

Just a quick question on your CapEx. What kind of level are you planning to for 2014, given the significant increase in stores?

David Weinberg

Yes, I think right now, we're in the $35 million to $40 million range.

Corinna L. Freedman - Wedbush Securities Inc., Research Division

Okay. And then if you could talk a little bit about the Internet flowing from 30% growth last quarter to 9% this quarter. To what do you attribute that to, and what are you planning for that business going forward?

David Weinberg

As we said before, our Internet business, we don't compete on price, so it's very difficult for us since we don't make necessarily specific products. We just compete on colors, assortment and inventory. I think it's only up 9% because it had a big increase last year, which was the beginning of our growth in the company worldwide. So we anticipate it will continue to grow. It will continue to prosper as the stores do because there's a lot of in-demand product but it is never -- we don't foresee it being an outrageously significant contributor because we do a lot of Internet business with a lot of major customers of ours. So our big Internet presence comes through our retail partners.

Corinna L. Freedman - Wedbush Securities Inc., Research Division

And I think you just endorsed a mid-single-digit comp for the first quarter and comps do get a little bit tougher for the second quarter, and third quarter. What kind of level are you baking in for the balance of the year?

David Weinberg

Well, I think they get somewhat easier in the second quarter because we'll have an Easter April against a non-Easter April last year. So for us, that will be an increase. And I think that will increase in back-to-school. So we'd like to believe that we're still in the mid-singles to maybe low double-digit comp store sales as we go into the back half of the year.

Operator

Ladies and gentlemen, this does conclude the question-and-answer session. I'd now like to turn the conference back over to SKECHERS for closing remarks.

Andrew Greenebaum

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

Again thank you, and have a great day.

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