Crocs, Inc. Q1 2010 Earnings Call Transcript

May. 6.10 | About: Crocs, Inc. (CROX)

Crocs, Inc. (NASDAQ:CROX)

Q1 2010 Earnings Call

May 6, 2010 5:00 p.m. ET

Executives

John McCarvel - CEO

Russ Hammer - CFO

Analysts

Jeff Klinefelter - Piper Jaffray

Jim Duffy - Thomas Weisel Partners

Mitch Kummetz - Robert Baird

Reed Anderson - D.A. Davidson

Jim Chartier - Monness, Crespi, Hardt

Operator

Welcome to the Crocs, Inc. fiscal 2010 first quarter earnings conference call. (Operator Instructions) I would like to remind everyone that this conference is being recorded. This call will end no later than 6 p.m. Eastern Time.

Earlier this afternoon, Crocs announced its first quarter 2010 financial results. A copy of the press release can be found on the company's website at www.crocs.com. Reconciliations of the non-GAAP measures mentioned on the call today can be found on the Investor Relations section of the Crocs website.

The company would like to remind everyone that some of the information provided in this call will be forward-looking, and accordingly, are subject to the Safe Harbor provisions of federal security laws. The statements concern plans, beliefs, forecasts, guidance, projections, expectations, and estimates for future operations.

Crocs cautions you that these statements are subject to a number of risks and uncertainties described in the Risk Factors section of the company's 2009 Annual Report on Form 10-K, filed on February 25, 2010 with the Securities and Exchange Commission.

Accordingly, actual results could differ materially from those described on this call. Those listening to the call are advised to refer to Crocs' Annual Report on Form 10-K, as well as other documents filed with the SEC for additional discussion of these risk factors. Crocs intends that all of its forward-looking statements in this call will be protected by the Safe Harbor provisions of the Securities and Exchange Act of 1934. Crocs is not obligated to update its forward-looking statements to reflect the impact of future events.

Now at this time, I'd like to turn the call over to Mr. John McCarvel, Chief Executive Officer of Crocs. Please go ahead sir.

John McCarvel

Thank you. Good afternoon and thank you for tuning into our first quarter earnings conference call. On the call with me today is Russ Hammer, Crocs' Chief Financial Officer.

We are very happy with the performance of Crocs in the first quarter. Our revenue growth reflects the market acceptance of our new products, and operating income is solidly ahead of our Q1 guidance we provided earlier. In fact, this marks the fourth consecutive quarter we have exceeded expectations.

We are ahead of the multi-year strategy we laid out a year ago. Today's earnings call would be a little more concise and more focused on key metrics and events in our business than in our prior earnings calls.

When I wrapped up the Q4 2009 earnings call, I left you with five key objectives from the Crocs management perspective. They were, first, to bring innovative products to market; second, to continue to find creative ways to engage our targeted customer base; three, to grow the top-line, especially in wholesale to effectively manage the cost structure of our business; and fifth, to continue to invest in future enterprise wide systems. After all, we are a fairly young company with a significant global reach.

We were off to a good start in the first quarter, where our results were dramatically better than one year ago and above guidance, highlighted by diluted earnings of $0.07 per share. Improvement began at the top with sales of $167 million, up 24% from last year, and above high end of our forecasted range of a $155 million to $160 million.

As a reminder, last year's first quarter included $19.3 million in sales of impaired footwear that we previously stated, we would not expect to anniversary in 2010. Excluding last year's impaired footwear sales, our growth in this quarter was 44%.

Importantly, our growth this quarter was driven by strength of wholesale which was up 26% in the first quarter versus last year.

As you saw on the press release, we experienced double digit revenue growth in every region this quarter. Sales are benefiting from a much more focused product and marketing strategy. We've invested in considerable time and resources over the past 12 to 18 months to bring to market innovative footwear collections that are appealing to a broader audience and better represent the fun and relaxed lifestyle nature of the Crocs brands.

Some of the initial efforts can be seen in our spring 2010 line, highlighted by the Crocband collection, our women's wedges and flats collections, and a wide range of new kids' products. We rolled out our new Feel the Love marketing and advertising campaign in the U.S. in March and have started in Europe in early May.

Initial reactions have generally been very positive, and we are encouraged by April sell-through in both the U.S. wholesale channel and our own retail stores. Our customers already realize it's all about comfort. And our more consumer direct advertising strategy is about showing them we are much more than one ugly shoe.

With over 200 distinct models today there's so much to love about Crocs. We made significant progress in restructuring the business operations in Crocs in 2009, and the results reflect many of our accomplishments. We have benefited from stronger pre-book business in Q1.

We will continue to offer our consumers a unique replenishment model in-season or the summer on many of our core products. We also realize we have a lot more work ahead of us to create a company that can deliver consistent growth, enhance profitability over the long-term, and our entire organization remains committed to this objective.

Russ will now review the numbers.

Russ Hammer

Thanks John, and welcome to everyone for joining us on the call today and listening via webcast. In an effort to reduce the length of our prepared remarks and leave more time to take questions, we've condensed the financial disclosures section of today's call. Additional information on our first quarter can be found in our 10-Q, which was filed today after the close of the market. Now, to our results.

Total revenues for the first quarter increased 23.7% to $166.9 million compared to a $134.9 million a year ago. By channel, our wholesale channel sales rose 26.1% to $120.2 million. Our retail channel sales were up 23.3% to $34.4 million. And our internet channel sales increased 5% to $12.3 million.

We ended the first quarter of 2010 with 333 company-operated retail locations, compared to 290 this time a year ago. This is an increase of 16 stores from 317 stores in Q4 2009. Compared to Q1 2009, we have decreased the number of kiosks by 15 and have increased our full price and outlet stores by 58.

Our Americas same store sales increased 5% this quarter over first quarter last year. Our second quarter is also up to a good start with North America same store sales up 4% and global internet sales up 13% in April.

Now, by geographic region, Asia's sales increased 40% to $54.7 million compared to $39 million. Sales in the Americas rose 10% to $74.2 million from $67.6 million, and sales in Europe increased 34% to $37.9 million versus $28.3 million a year ago. 64% of our total Q1 sales were outside the United States.

Our other brands, Ocean Minded and Jibbitz combined, represented 4.2% of our total revenue in the first quarter of 2010. Combined, these brands grew 12.2 % this quarter compared to Q1 of last year. Our average selling price for the 2009 first quarter increased 9% over $1.30 to $16.41 from $15.11 one year ago.

The types of products we are selling has also diversified with 39% of our in-quarter sales coming from our new 2010 products, including the Crocband collection. As our mix shifts towards a higher percentage of new products with higher price points, we expect our ASPs will continue to increase in future periods.

Our successful cost reduction actions over the past year are clearly evident in the 52% gross margin we achieved in the first quarter this year, up 1,500 basis points over a year ago. Gross profit for the first quarter improved to $86.7 million compared to $49.7 million in Q1 '09.

The dramatic year-over-year improvement is primarily attributable to favorable product mix shifts and the cost savings realized from the restructuring of our business model in the past 18 months.

As we have discussed in previous earnings calls, we decreased our distribution footprint and logistic costs, and are more efficient with our pre-book and direct order processing.

SG&A increased to $74.8 million compared to SG&A of $68.7 million a year ago. As a reminder, all of our retail expenses, including occupancy cost and store labor are in our SG&A which now make up about one-third of our operating budget.

Retail related costs, including SG&A were $25.6 million, up from $20.4 million a year ago but remain fairly constant as a percent of revenue. Excluding retail related costs from SG&A, our SG&A as a percentage of non-retail revenue has leveraged down 800 basis points to 37.1%. We continue to better leverage our cost base.

Our improved top line performance, coupled with the benefits we reap over our cost saving initiatives helped reverse the negative operating results from a year ago in a very meaningful way. We have recovered the $22.6 million operating loss of Q1 2009, operating income of $9.4 million this quarter, and an operating margin of 5.6%, or 7.1%, excluding restructuring asset impairment, FX, and charitable contribution charges.

For the quarter, our effective tax rate was 37.2% higher than 30% we assumed in our guidance. We're still on track to hit around 30% for the full year. First quarter net income improved to $5.7 million or $0.7 per diluted share compared to a net loss of $22.4 million, or a loss of $0.27 per diluted share.

Now turning to the balance sheet, we ended the quarter with $53.8 million in cash, an increase to 5.7% over cash of $50.9 million at March 31, 2009. Net cash, that is cash less bank debt, was up $22 million from a year ago. At the end of Q1 2010, the company had no bank debt and we are in compliance with all of our covenants.

We're also pleased with our inventory performance compared to a year ago, which is down 18.3% to $107.2 million from $131.2 million in March 2009. A significant portion of the reduction was due to our effectiveness in moving previously impaired and end of life footwear to our consumer-direct channels in 2009, and as a result, we began our prime 2010 selling season with a very healthy inventory mix.

Now to our guidance. For the second quarter of 2010, we expect to generate sales between $210 to $220 million. For comparison purposes, this represents 6% to 12% growth over the GAAP sales number of $197 million, and 20% to 26% sales growth over the non-GAAP sales number of $174 million we reported in Q2 '09.

As a reminder, last year's second quarter included $23.7 million in sales of impaired footwear that we have stated we would not expect to reoccur in 2010. We have excluded the $23.7 million in our non-GAAP growth guidance.

For the second quarter, we expect to report diluted earnings per share in the range of $0.18 to $0.22. This guidance assumes an effective tax rate of 30%. For the full year 2010, we are projecting capital expenditures to be about $30 million. And as I mentioned earlier, we still expect our annual tax rate to be 30%.

I'll now turn the call back to John for some closing comments.

John McCarvel

Thanks, Russ. You're starting to see a clear picture of Crocs. We are a global brand with the global consumers' who understands our products, who look for comfort, innovation, and surprisingly good design and value. To reiterate the management team's plan, our priorities are clear and straightforward.

First, we understand the importance of bringing compelling new products to the market. We are capitalizing on the brand's worldwide popularity and evolving our product lines into balanced footwear collections that incorporate updated versions of our original iconic classics' styles as well as new creations that appeal to a broader audience and extend our selling seasons.

We are very proud to say that at last check yesterday, we had 6 of the top 7 bestselling styles on amazon.com. Are forward-looking, but strong, with global pre-bookings for the fall/winter season up 82% from a year ago.

Backlog as of March 31st was up 74% from last year to $204 million. Fall holiday pre-book is led by our Crocband winter collection. Also booking well are our women's and kids' boots, demonstrating our ability to truly become a three season footwear company.

And finally, we are having success with our limited Back to School line of kids footwear. In fact, two of our top 10 fall/winter pre-books are Back to School products.

Second, our new marketing campaign in the U.S. and Europe is aimed at getting consumers to look at Crocs in a new light and draw attention to our broad, deep line of products for men, women, and children. Our advertising campaign, Feel the Love, featuring our Croslite character is about reinforcing the unique combination of comfort, color, and fun that the brand has come to stand for with our consumer.

To reiterate, this is a fundamental shift in our marketing strategy from sponsorship, event-driven marketing to a more consumer-direct marketing approach.

Third, we continue to improve our wholesale channel, so that business can grow in conjunction with our consumer-direct division. This provides us with well-balanced distribution strategy that allows us to reach consumers in different channels in which they shop.

In Asia, we continue to grow our wholesale channel in a number of key countries in the region. In the Americas this quarter, we were certainly helped by a strengthening economy, but more importantly, we successfully expanded our presence with major customers in the wholesale channel.

And in Europe, we see encouraging progress toward strengthening our wholesale distribution channel, as revenues increased 31% over the first quarter of last year.

As an aside, we continue to be excited about our potential of company-owned retail locations and plan to open 39 new retail locations globally in Q2. Roughly two thirds of these new retail locations will be in Asia, with the remainder primarily in North America.

We anticipate growing our global retail locations to over 400 locations by the end of the year.

We continue to focus on our business structure, aiming to further improve margins and effectively manage down our SG&A costs. As a percentage of revenue, SG&A costs went down this quarter, even as our retail presence expanded globally due to our ability to better leverage our cost base. We will continue to focus on cost savings initiatives, and exercise discipline as we seek out future investments.

And finally, we continue to invest in our enterprise wide business system, technology, and people, necessary to become a leader in casual comfort shoe market. We are working towards the completion on our major systems implementations in order management and retail point of sale systems, as well as global internet and e-commerce platforms. We anticipate completing a majority of these systems implementations by the fourth quarter of this year.

It is amazing to sit here and talk about Crocs in Q1 of 2010; it's a big change from 12 months ago. Our products continue to resonate with our consumers worldwide, and we are gaining traction in sales channels across all regions. Our gross and operating margins are expanding; we've returned to profitability.

We appreciate everyone who have faith in the brand and worked with us during the past year. We appreciate the extraordinary efforts of all Crocs employees globally. The hard work we've put into recreating Crocs is starting to pay off.

You could say we've taken a note from our namesakes to crocodiles, its relentless will to survive, to thrive even when conditions weren't exactly ideal. First quarter has positioned us well to execute on our long term plans, and we look forward to updating you on future growth.

We'll now open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we'll go to Jeff Klinefelter of Piper Jaffray.

Jeff Klinefelter - Piper Jaffray

Wanted to talk to you about the matrix of revenue in Q1 in a little bit more detail if possible. Could you give a sense for the direct growth rates by channel?

Russ Hammer

You got cut off there for a second, Jeff. Can you ask the question again?

Jeff Klinefelter - Piper Jaffray

Just in terms of Q1 revenue, in terms of wholesale retail internet, Americas, Europe and Asia, can you get a little bit more color on, for example, Americas up 10%. How much of that was wholesale versus retail? And a little bit more color on Asia and Europe that way as well?

Russ Hammer

So Americas' wholesale was up 7%, but keep in mind that we had a significant amount of impaired product in that number last year. So, if you look at an apples-and-apples basis, our wholesale growth would have been up in the mid-20s.

Our retail growth in the Americas was up 26%. In Asia, our wholesale growth was up 50%, and our retail growth was up 18%. And in Europe, our wholesale growth was up 31% and our retail growth was up 27%. So we saw a healthy growth in both channels in all markets.

Jeff Klinefelter - Piper Jaffray

And Russ, when you give those retail numbers, do those include internet as well?

Russ Hammer

They did not.

Jeff Klinefelter - Piper Jaffray

So internet was in addition to that?

Russ Hammer

Correct.

Jeff Klinefelter - Piper Jaffray

Do you have those numbers?

Russ Hammer

I do. The internet business was slightly down in the Americas; in Asia the same, and it was up in the Europe market. Total U.S. internet was up, the non-US piece for the Americas were down a little, as we're starting up.

Jeff Klinefelter - Piper Jaffray

Just noticing in your 10-Q, there's a little text in there about running a little lighter with e-commerce inventory. Was that one of the contributors to that slowing down?

John McCarvel

I think Jeff, our strategy for the first quarter was to bring new products into our own direct channels at the beginning of March to give our wholesales partners some advance selling on new products. So part of why we see a little bit slower sales in both retail and in internet was just when we launched products. And that's why I think one of the things that we noted in the call was just to give you a data point on, now that we're fully loaded with the new products in our direct channels what the growth rates looks like for April.

Jeff Klinefelter - Piper Jaffray

So Russ, just to clarify, if you go non-GAAP from last year in Q2, wholesale revenue was up mid-20s America, 31% Europe, and 50% Asia.

Russ Hammer

I only excluded the impaired out of the U.S. number, Jeff.

Jeff Klinefelter - Piper Jaffray

So those numbers would have been higher for you?

Russ Hammer

That's where most of the impaired was.

Jeff Klinefelter - Piper Jaffray

And then, in terms of Q2 guidance, how should we think about that revenue guidance range in terms of the channels and the geographies? Is there anything we should be aware of relative to how it performed in Q1, heading into Q2? Are you looking for any changes, deviations in that pattern?

John McCarvel

I think right now, the U.S. market is growing solidly, and we don't see that to be much of a change from Q1, and similarly for Asia. I think the one area where there could be a little bit of softness is in Europe where they just don't use the auto-replenishment model maybe the same way that the U.S. and Asian markets do. So we do see a little bit of a drop off in Q2 with Europe.

Jeff Klinefelter - Piper Jaffray

Could you just also, John, repeat those fall bookings numbers that you shared with us again?

John McCarvel

Fall/winter up 82% from a year ago. Then backlog for March 31 was up 74% to $204 million. Because, Jeff, we think the way we want to just kind of think about that is about half of what we're carrying in backlog going into Q2, will be shipped in Q2, and about half of that backlog will be shipped in Q3 and early Q4.

Jeff Klinefelter - Piper Jaffray

And then you shared some numbers on store growth; that is a step up from your last quarter, correct? The total number of stores you expect to have?

John McCarvel

It is. Quarter was up 30 to 50, and through the first half of the year, we now expect to be at about 55 stores. And maybe to give you a little bit of color on that. Some of the stores that are in the growth for Q2 will be seasonal stores in some locations, will be open for 6 to 8 months. So there'll be a little bit of growth as we then retract in the fourth quarter when (inaudible) down.

Jeff Klinefelter - Piper Jaffray

Maybe as a last question and let someone else get on. In terms of global trends, both import cost of goods is a topic of discussion these days with everything going on in the foreign markets. And then also, sales just as it relates to Europe, you commented Europe's not an order replenishment market, there's also just obvious concern right now about the European markets in general and what's happening there kind of real time.

Can you just share a perspective drawn on input costs and any inflation that you're expecting to see there, and then also any dynamics kind of real time you could point to as it affects your business?

John McCarvel

Okay, and may be on the first question, we look at the efficiencies that we can drive within our manufacturing model today. And we talked about some of the things on the last call that we were doing in manufacturing operations. We're bringing out second generation materials.

So we think we're cost-neutral going forward this year from the manufacturing standpoint, because of some of the things that we're doing, but I think as everybody knows, capacity is getting a little bit tighter, especially in China, with all the footwear companies doing so well and also with the cost structure changing in China with direct costs from us the manufacturers going out. But we think our own internal efficiencies will offset that.

I think the visibility in the European market right now, with the number of markets having been cleaned up from an inventory standpoint last year, it is a little bit of a potential upside depending upon what sell-through looks like. We don’t have a lot of products in channel, and we don’t have a lot of product that is sitting with our distributor partners. So sell-through is good and there is a potential to do auto-replenishment in quarter.

Operator

We'll next take a question from Jim Duffy of Thomas Weisel Partners.

Jim Duffy - Thomas Weisel Partners

I had a question on the restructuring charges, Russ. Seems to be somewhat of a change of convention in the first quarter; there was one excluded from reported results. Will the reported numbers and guidance from here forth reflect GAAP expectations?

Russ Hammer

So, Jim we reported the GAAP number, then we identified the restructuring, so you guys can back in or out whichever way you want to do your model.

Jim Duffy - Thomas Weisel Partners

And with respect to the guidance for the second quarter, does that include or exclude any restructuring charges?

Russ Hammer

There is no restructuring charges in that guidance. We don’t anticipate any, Jim.

Jim Duffy - Thomas Weisel Partners

And then with respect to the 52% gross margin, a really nice number. Do you see that to be a sustainable number, or given the increase in replenishment orders, do you expect there to be some seasonality with that?

Russ Hammer

When we think about our margins, we were very pleased with our first quarter margins. I think it's important to note that in the first quarter, when we have pre-books in the third quarter, we run a more efficient model where we're doing more direct ships and we're not utilizing the replenishment model where we are touching it more in the distribution center. So we were pleased with our first quarter performance, but our second and fourth quarters have more touch points with pre-books on our first and third quarters as we've said in the previous earning calls.

That being said, we still are projecting our gross margins to recover meaningfully over 2009 and be in the low 50s for the full year.

Jim Duffy - Thomas Weisel Partners

And then, John, very nice lift in the European wholesale members. You gave some commentary there. Can you speak more specifically to some of the progress? Maybe you mentioned specific accounts or types of accounts where you're getting increased traction in the European business?

John McCarvel

Sure, Jim, I'll be happy to. In 2008, we took back our distribution rates in three major markets in France, Germany and the U.K. And so what I think we start to see this year in the first full year in operations of running those countries is an uplift of having direct control in those channels, most notably this year in both Germany and in France where the product may be a little constrained in a distribution environment. We now feel we can invest direct sales.

In France, print top gallery slot by some of the major department store chains have picked up the brand this year where we were not there in previous years. So this is giving us a huge lift in distribution.

And as I said, I think in the U.K. market, last year was a very difficult year of both economic standpoint with the recession, but also just with the backlogs of all the products that we had in channel. And a lot of our independent retailers in the U.K. have come back to us this year to re-embrace the brand on new product.

Maybe lastly in Germany, we opened up our first outlet store there, and it has done extremely well. And again, a number of our major retail partners in Germany have also started to give us additional shop space and have taken additional style for 2010.

Jim Duffy - Thomas Weisel Partners

That's very encouraging. And then, John, can I ask you to speak about some of the progress that you're making in terms of service levels and doing a better job of keeping retailers in stock, rebuilding the Crocs brand with your retail or your channel partners?

John McCarvel

I think mainly in the U.S., we have taken, as you can see inventory position going up a little bit this quarter, a deeper position to support inventory on core products that we feel will sell-through throughout the season. And then I think our Crocband clogs and Crocband flips have done extremely well in the family channel. And even for the kids channel, we've seen double digit, up to 20% weekly sell-through on product, and we're in a better position to support them this year.

Operator

We'll next take our question from Mitch Kummetz of Robert Baird.

Mitch Kummetz - Robert Baird

A few questions, first off on the new CLO web marketing campaign. John, I think you said you started up in the U.S. in March and then in Europe starting in May. Could you just remind us on the TV side when did you kick that off? Are you done with it now or how much do you have left?

Was there any impact specifically on the quarter, both in terms of any spike in sales or any impact on the SG&A? And what are you seeing through the first month of the second quarter as far as that? And is there any TV tied to the European side of that campaign?

John McCarvel

Let me see if I can work through that. On the U.S. side, Mitch, it started in late March, around for six weeks. The television piece of that on initial launch finished last Sunday. And then we have options now to add on to television advertising going into Q3. Print advertising, web advertising that we did is split across really four major markets. To start with, we think right now the early indications are $1.2 billion to $1.5 billion impression came out of the marketing campaign on this initial launch.

From the product standpoint, it was a bit lumpy in late March. We don't get much of a lift per se this week. We think part of our sell-through in demand in April that we alluded to is due to the marketing campaign here in the U.S. On the European side, yes, we will do both print and media in European market, and that just started this week.

Mitch Kummetz - Robert Baird

Okay. And then how about the impact to the SG&A, I'm guessing more so in the second quarter than the first quarter, although you're anniversarying some things, some promotional strategies that you had in place last year at this time.

John McCarvel

I'll start and I'll let Russ add a little bit of color to the end. So I think as we've talked before, the majority of the marketing costing campaign will fall into Q2, and then some in Q1 as we first started, there is some into Q3. So we do want to think about SG&A costs going up in the quarter. And what we've said is if the brand required we will put more dollars into marketing provided that we're on target with our financial.

Russ Hammer

Mitch, I was just going to add, in the second quarter, John mentioned that our SG&A will be up. So we have 39 retail stores that we mentioned earlier. So that will cause SG&A, but obviously we have sales and incremental margin to profit pull through. And we also have the bulk of our advertising spin in the second quarter. So that's an increase as well.

But the total way to think about SG&A, Mitch, as a percentage of sales it's improving, as evidenced by our first quarter. We continue to identify areas in the business where we possibly pick up cost, and at the same time make those important investments in improving the efficiency and acceleration of top-line in the business systems that John mentioned earlier.

So we remain comfortable with our expectation for SG&A being at mid-to-high 30s over the long-term, and we expect to continue to make additional progress towards that goal over that balance of this year.

Mitch Kummetz - Robert Baird

And then on the U.S. wholesale business, which is actually pretty strong if you strip out the impaired product last year. Can you talk a little bit about your performance in the quarter as well as what you're seeing on your backlog in fall, winter pre-books on a bi-channel basis? How is that shaping up or how does it perform, family footwear versus sporting goods versus your mall-based specialty and independents?

John McCarvel

It's an interesting dynamic I think for us, because across all channels, it's slowly rebuilding confidence. And so you look at major retailers that we partnered with, sales are up year-over-year double-digit in April, as we grow (technical difficulty) as it starts to gain traction.

And as we've said before, this is our focus to rebuild the brand in multi-channel with two different styles in the line and growing. We believe we're now in a position where we can do proper market segmentation of our products, and we think that's going to be even more so true for 2011.

I think we focus a lot on the U.S. marketplace. And I've said this before, 60%, as Russ said, of our business comes internationally. And I think we do an excellent job in international, segmenting our products there already also.

Mitch Kummetz - Robert Baird

And then on the ASPs, just looking in the Q, it looks like they're up about 9% year-over-year in the quarter, which is a nice increase. When you look at your backlog and your pre-books for the back half of the year, where could you see that number going? I mean I think it was $16.5, somewhere in there, for the third quarter. I mean are we talking high-teens by the back half of the year. John, I think you're talking about women's and kids' boots, and I would think that's probably on the women side at least, that's a higher price point.

John McCarvel

There are two questions in there. The first is that we think that ASP growth over the year is somewhere in the 10% to 15% range, as we lead through these periods where we sold our product at a slightly lower price metric. Second piece is, yes, we think that by the end of the year we're in the $19 to $20 ASP range when you (technical difficulty) third and fourth quarter (technical difficulty) with your products that sell at (technical difficulty)

Operator

(Operator Instructions) We'll take the next question from Reed Anderson of D.A. Davidson.

Reed Anderson - D.A. Davidson

Getting back to your closing remarks, John, you were talking about bringing some newer distribution online or some newer retail partners, et cetera. I was just curious if you could just give a little more color there. I mean was it more family specialty that came online in the first quarter and kind of what else should we be looking at? If you want to give names, great, but just want to get a sense by channel, what's been newer over the last few months?

John McCarvel

Well, I do, as I said. I think that U.S. wholesale business, it's really been across to all channels with major partners and then smaller retailers in each of the categories. And it's really what we have worked hard to do. Our U.S. sales force has really worked hard to build a lifestyle brand sale across multiple channels with the portfolio of products that we have today.

I think we have started in the family channel now with famous footwear DSW, Shoe Show and a number of retailers that we think really fit well with the brand and then with our consumer. I think the sell-through has been excellent for the first two quarters, as we have now expanded the number of doors with them and the number of SKUs that they're carrying for us.

Reed Anderson - D.A. Davidson

And then moving on to the margins, this may be obvious, but I'm going to ask it anyway. If you look at your margins going up the way they did at the same time that the wholesale mix actually moving in a different direction, it went up. Is it the wholesale margins that were actually that much better? Is that the right conclusion there or am I missing something?

John McCarvel

Well, I think Russ talked to this earlier. If you look at the wholesale margins in Q1 of last year, some of it was impacted by the amount of impaired product we sold through those channels and at the discount that we did sell some of the core products that we were a bit (inaudible). And so I think we have explained through the call that really by going to a pre-book and by some of the innovative things that we've done from a logistic standpoint in being able to pack product-wise store in the factory and even ship to our own retail location, it's taken a significant cost, even more better than what we had expected. And that's why we're very happy with the progress that we've made during this quarter.

Reed Anderson

And on ASPs, circling back to that as well, if you looked at ASPs, just looked at the classic and core product, would they be on ASP basis flattish or would they actually be down a little bit year-over-year?

John McCarvel

In our core products, we haven't reduced prices, great product at a great price.

Reed Anderson

And then last one, Russ, on inventory. Does it make sense now whether you really rationalize that to where I think you wanted? Sales are picking up. Do we start to see inventory level sort of build year-over-year or there's still opportunity to take some out of the channel?

Russ Hammer

Yes, we think they're going to be flat. We've got the inventory moving at a nice clip now. We're getting the efficiencies that we want. So we see a flat inventory right now.

Operator

We'll next take a question from Jim Chartier of Monness, Crespi, Hardt.

Jim Chartier - Monness, Crespi, Hardt

The first question back on to the ASPs, last year I believe you estimated, excluding the impaired units, the ASPs were about $18.65? And so just curious what drove lower ASPs from (previous stat) number in the first quarter?

Russ Hammer

Well, Jim, our ASPs in the first quarter without impaired are about flat.

Jim Chartier - Monness, Crespi, Hardt

Okay. And then on the backlogs, how is that growth being driven between your new door growth, SKU expansion within existing doors and then just as part of your greater emphasis on pre-booking?

Russ Hammer

So the backlog is all of our wholesale accounts, and we saw that growth in all markets across the board, as John mentioned earlier.

Jim Chartier - Monness, Crespi, Hardt

Is it being driven primarily by increasing the door counts that you are selling in, expanding the assortment within existing doors?

Russ Hammer

It's expansion within existing doors. I think as we've talked our plan really for 2010 is not to expand door growth greatly in existing markets. It's to more efficiently sell the products that we have in the channels that we're already in.

Jim Chartier - Monness, Crespi, Hardt

And then kiosk advertising dollars, have your partners started spending that and if so, what kind of list are you seeing?

John McCarvel

We do some kiosk marketing with a number of our nature partners and we think a part of the lift that they're seeing in their door is that visibility to new Croc's products that they haven't been exposed to before.

Operator

We'll now move back to Piper Jaffray's Jeff Klinefelter.

Jeff Klinefelter - Piper Jaffray

Thanks guys. I just have a couple of follow-up questions. Russ, on the DNA, what are your expectations for that as kind of a run rate quarterly through the balance of the year relative to what you did in Q1?

Russ Hammer

On the SG&A, we will see an increase in the second quarter in both the retail stores as I just mentioned --

Jeff Klinefelter - Piper Jaffray

On the G&A?

Russ Hammer

So our CapEx, which is coming down, as we mentioned from our earlier expectations was $30 million to $40 million, looking at 30 million we'll be coming down slightly.

Jeff Klinefelter - Piper Jaffray

So we would see a moderation in the G&A charge through the year?

Russ Hammer

That's correct.

Jeff Klinefelter - Piper Jaffray

And then, actually, I did have that other question. SG&A, before you were talking about an SG&A dollar figure that would be slightly up year-over-year in total. And it sounds like two things are changing; slightly higher expansion or faster expansion of company on doors and then a little bit more being allocated to marketing with the momentum that you have in wholesale, would that be accurate?

John McCarvel

That would be accurate. I think as we talked before, Jeff, it's a major shift in marketing spend year-over-year from the ABP tour and the event marketing that we did in 2009 to the consumer direct marketing that we're doing in '10 and overall marketing spend year-over-year is up, but it's also the focus of the marketing dollar also.

Jeff Klinefelter - Piper Jaffray

Are you comfortable giving just a general sense for what the total dollar range would be up for the year?

SG&A total dollars flat year-over-year?

John McCarvel

Yes.

Jeff Klinefelter - Piper Jaffray

Okay. So after being up 7% it's going to come down pretty quickly after Q2?

John McCarvel

That's the plan.

Jeff Klinefelter - Piper Jaffray

Okay. And then, the break point for quarterly profit at this point. I know you've been working very hard getting your leverage points down, that something you feel comfortable talking about, Russ, in terms of kind of your general revenue range that is required on a quarterly basis for break even?

Russ Hammer

Last call I think Jeffery spoke about that in that 150ish range and a little above that and we're in that ballpark, maybe a little lower at this point in time.

Jeff Klinefelter - Piper Jaffray

Okay. Just lastly, I mean anything, John, or, Russ, that you could provide. I know you don't want give full year guidance yet, but your off to a very good start with a strong forecast in Q2, is there any way that have start thinking about the topline environment for the balance of the year and context of these bookings, this backlog that you have, in general actually?

John McCarvel

Yes, Jeff, I think that 10% growth on a GAAP basis is the right way to look at it four with all of the impaired product sales in 2009, if you're carving that out in your model we think that it's 20% non-GAAP without the impaired sales.

Jeff Klinefelter - Piper Jaffray

Okay. So 20% low 50s gross margin, you think you'll be directionally going toward a flat SG&A number by year-end.

John McCarvel

That's correct. Thank you very much.

Operator

There appear to be no further questions at this point, I'd like to turn things back to our speakers for any additional or closing remarks.

John McCarvel

On behalf of all of us at Crocs we'd like to thank everyone on the call today, we try to keep ourselves light and we think we've proven ourselves to be a successful global brand that knows how to float even from the beginning. We have a loyal customer base that has kept us afloat through tough times and we're still there to buoy us during this next phase of our journey. So we thank all of you for joining us today.

Operator

That concludes today's conference call. Thank you all for joining us.

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