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Volcom, Inc. (NASDAQ:VLCM)

Q4 2010 Earnings Call

February 24, 2011 4:30 pm ET

Executives

Seth "Hoby" Darling – Senior Vice President, Strategic Development and General Counsel

Richard R. Woolcott – Chief Executive Officer

Douglas P. Collier – Executive Vice President, Chief Financial Officer and Secretary

Jason W. Steris – President and Chief Operating Officer

Analysts

Mitch Kummetz – Robert W. Baird & Company, Inc.

Sean Naughton – Piper Jaffray

Claire Gallacher – Capstone Investments

Christian Buss – ThinkEquity

Jeff Van Sinderen – B. Riley & Company

Christine Chen – Needham & Company

Charu Sharma – KeyBanc Capital Markets

Andrew Burns – D.A. Davidson & Company

Operator

Good day, ladies and gentlemen, and welcome to the Volcom Fourth Quarter 2010 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I will now like to introduce your host for today's conference, Hoby Darling.

Seth "Hoby" Darling

Thank you, John. Good afternoon, everyone, and thank you for joining us today to discuss Volcom's 2010 fourth quarter and full-year financial results. Joining me on the call today are Richard Woolcott, Volcom's Chairman and Chief Executive Officer; Jason Steris, Volcom's President and Chief Operating Officer; and Doug Collier, Volcom's Chief Financial Officer.

If you like to be added to Volcom's e-mail distribution lists to receive company information, or if you'd like to change your contact information, please contact Rob Whetstone at PondelWilkinson.

In addition, please be advised that this conference call is being broadcast live on the Internet at volcom.com, as well as earnings.com. A playback will be available for one-year and maybe assessed on the Internet at both websites. Please also note that the information discussed on today's call is covered under the Safe Harbor provisions of Litigation Reform Act. The company's discussion today will include forward-looking information reflecting management's current forecast of certain aspects of the company's future.

Particular statements about the future regarding guidance, outlook for future business, margins, financial performance, customer demand, growth and profitability, all constitute forward-looking statements. These forward-looking statements are based on management's current expectations, but they involve a number of risks and uncertainties. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. Certain risk factors associated with our business are set forth in our Form 10-K and subsequent filed SEC reports. The company disclaims any intent or obligation to update these forward-looking statements except those required by law.

With that said, it's my pleasure to turn the call over to Richard Woolcott. Richard?

Richard R. Woolcott

Well, thank you, Hoby, and good afternoon, everyone. As we head into 2011, I believe we're in a great position to continue building upon many of the successes that we have accomplished in 2010. We have made good progress gaining market share and strengthening the foundation of our business.

Our teams are fired up and very focused on advancing our key growth drivers in what feels like a more stable economic environment. Last year at this time, along with many others, we shot out of the gates quickly responding to depleted retail shelves with the mindset that consumers would be back in stores and ready to spend. Clearly, things were not that simple either in the U.S. or anywhere else for that matter.

But as we navigated the constantly changing landscape, we stay true to the core drivers of our business that we believe will enable us to achieve our financial targets. We are still on track to achieve our previously stated goals by the end of 2014, which include consolidated revenue of approximately $550 million, gross margin of approximately 50%, and return to operating margins of 15% to 20%.

In my mind, a summary of achievement came a few weeks ago when Volcom was honored with the TransWorld Business Industry & Retail Award brand of the year. This acknowledgement came from over 3,000 core retailers who cast their votes for the company that fell – that they felt did the most throughout the year to support their stores growth, goals and continued success.

It is this very connection that I think was the essence of what we are working to achieve last year and while it is apparent and while it is apparent in our numbers, this stamp of approval from our retailers is a very important point of validation. I'm incredibly proud of our team for their passion and dedication as we fight daily to keep both the Volcom and electric brands front and center in a very competitive market.

Let me now review our achievements for the fourth quarter and full year in the context of our seven growth drivers, which are number one, keep Volcom the hottest brand in action sports to effective marketing; number two, focusing on innovative high-quality Volcom product; number three, maximizing our wholesale distribution; number four, carefully increasing our direct to consumer business; number five, driving international expansion and becoming a truly global company; number six, growing the electric brand; and number seven, re-enforcing a mindset of operational excellence throughout our organization.

For a company like ours, it's all about the brand. Everything we do revolves around nurturing our brand and ensuring that the Volcom magic resonates deeply with our customers. In 2010, we continued our relentless marketing push to cast Volcom as one of the most desirable and sort after action sports brands in the world.

From the Volcom branding skate tour to the proving grounds Boardshort campaign, our marketing managers and team riders have done excellent job keeping Volcom top of mind with our retailers and consumers. And as we move forward, we will leave no stone unturned in our pursuit to help drive sales at all levels of distribution. Our marketing efforts will continue to focus on our athlete programs, pre-contest series, specialty events, rock tours, film projects, social networking, demos and autograph signings, in-store merchandising programs and innovative advertising campaigns.

We've already come out of the gate strong this year with no intention of letting up on our branding attack and to get a detailed look of what's been going on, please visit our website at volcom.com.

Let me now turn to the second pillar of our growth strategy, which is to consistently design and deliver innovative high-quality products to the market. And given the time of year, I'd like to start with our snow product, which performed well at retail this past quarter and is gaining strength on a global scale.

One thing we can never count on is the weather. But this year, winter came early with plenty of snowfall in most of the key out of our regions. This contributed to solid sell through of retail, which generally resulted in minimal promotional activity.

Volcom snow continues to be strong at the core and stand-up categories that are gaining momentum include our TDS and Gore-Tex products, Volcom Brand Jeans outerwear styles, the new modern articulated fit for men and the junior skinny pants.

Our outlook for 2011 is very positive based on the good season we are having now and the upbeat response at the recent showings of SIA and regional trade shows. In addition to snow, we have two other developing product categories, our Creedlers footwear and our girls swim, which on a percentage basis, both grew about 20% in 2010 over the prior year.

For Creedlers, the reaction to our Proving Grounds campaign, now in its second year, has been very positive and we feel we are now getting this program dialed-in with the right assortment and distribution. Girls swim also has done – has also done consistently well and we expect this momentum to continue in 2011.

Now juniors has been a tough category for all the actions sport port brands for a few years now. However throughout 2010, we started to see a positive shift. While we're still down on an annualized basis, 2010 fourth quarter was our first positive comp in a while marking a long-awaited inflection point. Last year, we infused new talent into the design, merchandising and sales teams and we believe we should reap the rewards from these efforts in 2011.

And finally, our mens and boys business that collectively represented approximately 60% of our total sales in 2010 continues to perform very well. Our mens business grew to 23%, and our boys business grew 26% and with particularly strong at the core throughout the year. Volcom boys is one of our fastest growing divisions and has become a dominant player in the actions sport boys business.

With a great branding and solid product, the next pillar growth, of our growth plan is our distribution. And we look at this in three distinct categories. The core, which include the key, small, influential writing shafts, National specialty retail stores like Pacsun, Jimmy's and Tilly's and then the department stores such as Nordstrom, Macy's and the like.

Throughout 2010, one of our primary initiatives was to expand our footprint and gaining shelf space. At each level of distribution, this was accomplished in a different manner and to a different degree, but we make good progress and we believe this has put us in a great position going forward. What is most important is that we saw very solid sell through at all levels of distribution, which generally bodes well for the subsequent season and year.

Generally speaking, Volcom consistently performed well at the core throughout 2010 and this continues through the fourth quarter. As expected, the mens and boys categories were out performers in traffic drivers. For the most part, inventory levels seem to be better and more consistently in line with sales.

Looking at our National and Specialty retail, business was within our expectations for the year as we have experienced good growth with some of our key partners. This area of distribution has a lot of potential, but also demand strong attention from our design, sales and marketing teams. From exclusive product assortments to customized marketing initiatives, we've been busy making sure these accounts are getting what they need. And so far things are trending in the right direction and we're excited to continue building on this important area of growth.

Turning to our department-store channel, we did experience some good successes last year, and it looks like that momentum will continue into 2011. With a focused sales team strictly dedicated to this channel, we’ve been able to not only grow our business, but also increase margins, improve our in-store presentations and strengthen our relationships. We are making good progress here and have a solid foundation to build on. Overall, I'm very pleased with how we're performing in most of our distribution and believe with continued effort our business will only get better.

Another important channel of distribution is our direct-to-consumer initiative. We now have 12 Volcom owned retail stores, nine in the U.S. and three internationally with one in London, one in Hossegor, France and one in Tokyo. On top of this, there are 11 Volcom licensed stores, the last of which was opened in Margarita, Venezuela in 2010. We also have two multibranded LS in our stores.

Lastly, you will recall that last September we launched our e-commerce initiative along with the completely new website. We're pleased with the success of the launch and look forward to fine tuning the program in the year ahead.

Another important component of our direct consumer strategy is the outlet business. And today, we announced that we have signed a definitive agreement to purchase the assets, related to the operation of our 10 licensed Volcom outlet stores. The average size of these stores, is approximately 2800 feet and they are located in four states, with four stores in California, three in Nevada, two in Washington, and one in Utah. We believe this complements our (Inaudible) program and we are excited to fold it into our business.

Now, the fifth component of our growth plan is to expand internationally and this has been a major initiative for some time. With about 50% of our consolidated revenue coming from outside of the U.S. by the end of 2010, we clearly have become a global organization.

Europe has been a natural point of focus and has not been without some challenges over the past 12 months. However, Volcom has done a good job of holding its own in a volatile environment with sales relatively flat year-over-year. We have an exceptionally strong team over there that is focused on growing the business in 2011 and beyond.

France is still Volcom's largest territory, well predicated at the core level and growing at the next level of distribution. This now includes some sport store distribution, particularly in the mountain resorts. We also have seven shop and shops, which all seem to be working well.

In addition to France, Germany, Austria and Switzerland are strong territories for Volcom. Norway, Sweden and Denmark are also picking up. Thanks to some new distribution. The U.K. is still somewhat tough, although we believe we have good representation for the brand in that territory.

Finally, the first phase of establishing Volcom Spain is complete. Our country manager is in place and our sales and customer service are now operating from the new office and showroom in Bilbao. Our reps are on the road and taking orders for fall and for snow 2011. As a reminder, the previous distributor will ship products for the first half of 2011, and we will assume responsibility for the second half of the year. Investments in Europe in the current year include additional racks and build-outs in select core stores, increased advertising, more visibility at key events and music festivals and additional web campaigns.

Turning to Japan, this is a tough country in which to operate, this is still a tough country in which to operate. However, we are focused on finding ways to strengthen our presence throughout the territory. Volcom has well penetrated at the core level, and we are now working with Boutique and leading street wear accounts to build our business. We've recently hired a new sales director in the fourth quarter, and we are working closely with him and the rest of the sales team to better service and grow within this unique market.

In Australia, our business gained some momentum going into the fourth quarter, aided by better on trend product and an increased marketing spend. We have completed several in-store build-outs around the country and are hearing good feedback from our retailers.

The Australian and U.S. teams are working as closely as ever to make sure we have the correct product, infrastructure and branding strategy to gain market share. It's going to take some time, but I'm confident that our efforts and investment will pay-off in the long run.

Looking at other points of interest in our international business. Latin America is an area we are particularly excited about, and we are pleased to see increased activity in Mexico, Venezuela, Peru and even Ecuador. Our business in Brazil and in Argentina, which is managed by separate licensees, is also doing well with lots of potential in the future.

Let me now turn to electric, which was a bright sport in our business throughout 2010, growing at an exceptional rate quarter-after-quarter, contributing to both revenue growth and gross margin expansion. Much of this was accomplished in North America, where expenses only increased modestly, driving solid operating income.

When the retail environment became difficult two years ago, the Electric team dug in and focused on what it did best, sunglasses and goggles and stepped up its softwoods and accessories program by leveraging the combined strengths of both the Volcom and Electric teams.

Today, in all, in all four activities, you can see the results of this effort, which has excited both the retailers and consumers. The fourth quarter was very successful for goggles in North America and we believe Electric will continue to gain significant market share in existing doors and several key territories.

And now that the first quarter is well under way, Electric has shifted its focus to Eyewear. Four new frames are being released this quarter, two for men and two for women, and also be on the look-out for the new polarized program with an exciting marketing campaign featuring Electric's newest athlete Hawaiian, Warmen and Mark Healey.

And finally, as we advance all six of our growth initiatives, we are adhering to strict fundamentals throughout the company to ensure that we are optimizing our resources and focusing our efforts on the critical activities that add value within the organization. Some of these include leveraging our SG&A on a global basis and investing wisely in our people and infrastructure.

And as we look forward to the future, both from a growth and profitability standpoint, our goal is to drill down and constantly challenge ourselves to improve our operations and efficiency. It's a tough market out there, and in order to be successful, we must push ourselves to get better at all levels of the business.

As 2011 begins to take shape, I'm confident in our team's ability to compete and deliver a great Volcom experience to our retailers and loyal customers. Generally speaking, I believe the retail environment we experienced during the last four to six months of 2010 feels like the new normal, dynamic and competitive both from the brands – both from a brands perspective and a retailers perspective. And as we move forward in this new landscape, we are armed with one of the industry's strongest assets, a powerful brand that has a 20-year history in action sports. And we have the resources to do what we need to do and the determination to get it done.

Our teams are ready for the next chapter and I believe we have what it takes for Volcom and Electric to be among the very best in action sports. I extend my sincere appreciation to our entire team, our athletes, retailers and shareholders for their continued support and dedication to the stone and the bolt.

I'd like to now turn the call over to Doug to review our financial results for the quarter. Doug?

Douglas P. Collier

Thanks, Richard, and good afternoon, everyone. We are pleased with our results for the fourth quarter, which are consistent with the guidance provided on our Q3 conference call. In 2010, we executed our plan for the year, achieved solid sales growth and market share gains, expanded our global footprint and further cemented our relationship with our retailers. I will now review the financial results for the fourth quarter ended December 31, 2010.

For Q4, total consolidated revenue increased 22% to $78.6 million, compared with $64.2 million in Q4 of '09. Let me now break down our fourth quarter revenue by each of our four business segments: the U.S., Europe, Electric and Australia. First let's look at the U.S. segment.

As a reminder, this segment includes revenue from the U.S., Canada, Japan and most other international territories outside Europe and Australia, as well as our domestic Volcom branded in LSNS retail stores. Total revenue from the U.S. segment for the fourth quarter increased 18% to $54.3 million, compared to $46 million in Q4 2009.

Our breakdown of U.S. segment product revenue in Q4 by category is as follows. Our men's product revenue increased 21% to $31.6 million for Q4, compared with $26.2 million in the fourth quarter of 2009. Mens is our leading category and has demonstrated above market growth in every quarter this year, indicating that we made considerable market share gains.

Our juniors product revenue increased 1% to $9.6 million versus $9.5 million in the fourth quarter of 2009. We're excited to see the girls business come positively for the time in many quarters. We believe we had turned the corner with our juniors program and we look forward to building back market share in 2011.

Boys revenue increased 15% to $6.2 million compared with $5.4 million in the fourth quarter of 2009. Volcom Boys has become one of the fastest-growing brands in the category, with solid sell-through retail. Snow revenue was up 62% to $4.2 million, compared with $2.6 million in Q4 of 2009. As Richard discussed earlier, the Volcom snow line continues to gain momentum.

Revenue from our girls' swim line was up 42% to $1.1 million versus $752,000 in Q4 2009. Revenue from our Creedlers footwear line was up 39% to $827,000, versus $596,000 in the 2009 fourth quarter. International product revenue, which is reported as part of our U.S. segment and consists primarily of sales in Canada and Japan and does not include licensing revenue, increased 15% to $17 million, or 32% of our US segment product revenue for the quarter, compared with $14.8 million or 33% for Q4 of 2009.

Looking at our US segment revenue by distribution channel, revenue from our five largest full-price accounts increased 19% to $15.4 million in the fourth quarter, representing 29% of U.S. segment product sales. In Q4 2009, revenue from these accounts was $12.9 million, and also represented 29% of U.S. segment sales.

Revenue from PacSun, our largest customer, increased 31% to $7.9 million for the quarter, representing 15% of U.S. segment product revenue. In 2009, fourth-quarter revenue from PacSun was $6 million or 13% of our U.S. segment product revenue. For the full year, revenue from PacSun was $31.1 million or approximately 10% of total consolidated revenue.

In 2009, PacSun represented approximately 11% of total consolidated revenue, or $30 million. Excluding PacSun, revenue from our next four largest full-price accounts increased approximately 10% for the quarter. In Q4, revenue from accounts outside of our five largest full-price accounts, which represented 71% of total U.S. segment product revenue for the quarter, increased 19% to $38.5 million. In the fourth quarter of 2009, revenue from the same group was $32.4, million representing 71% of total U.S. segment product revenue.

Now let's look at revenue from the Europe segment. In Q4, revenue from the Europe segment decreased slightly to $12.8 million, compared with $12.9 million in Q4 of 2009. On a Euro to Euro basis, Q4 revenue increased 2% for the quarter. In Q4, the revenue by category in Europe is as follows. Mens decreased 8% to $6.4 million, compared with $6.9 million in Q4 2009. Juniors decreased 15% to $1.8 million, compared with $2.1 million in 2009.

Boys increased 7% to $318,000 compared with $297,000 a year earlier. Snow increased 26% to $4 million compared with $3.2 million in 2009. Creedlers was $10,000 versus $101,000, and girls swim was $19,000. Revenue from the Electric segment increased 21% to $6.4 million, compared with $5.3 million in Q4 of 2009. The Electric business continues to outperform the market with solid growth in goggles and soft goods. Finally, from Australia, revenue from Australia totaled $5.1 million for the fourth quarter.

Turning to gross margin, on a consolidated basis, Q4 gross profit as a percentage of total revenue was 45%, consistent with the guidance provided on our last call. Consolidated gross margin was 49.2% in the same period in 2009. In our U.S. segment, Q4 gross margin on product was 42%, compared with 48.1% in Q4 of 2009. As stated on our last call, our overly optimistic projections for in-season business in 2010 resulted in some excess inventory, which was liquidated in Q4.

In our Europe segment, gross margin increased to 50.3% versus 49% in 2009. Gross margin in the Electric segment grew to 57.6%, compared with 52.6% in Q4 of 2009. This increase in gross margin was due to more favorable FX rates on sunglass purchases, better pricing on liquidation of sunglasses and goggles and additional synergies with the Volcom product teams on soft goods. In Australia, gross margin was 43.2% for Q4. When this territory is fully integrated, we project the gross margin in Australia to be near 50%.

Selling, general and administrative expenses on a consolidated basis were $34 million in the fourth quarter of 2010 versus $28.1 million for the same period in 2009. As stated at the beginning of last year, we made calculated investments in marketing and brand building to expand our business and build market share. As a percentage of sales, consolidated SG&A expenses were approximately 43.3% of total revenue for the fourth quarter of 2010, compared with 43.8% for the same period in 2009.

For the US segment, total SG&A expenses were $21.3 million, or 39.3% of revenue. In 2009, SG&A was $18.4 million, or 40.1% of revenue. For Europe, SG&A expense was $6.9 million, compared to $6.1 million in Q4 of 2009. At Electric, SG&A expense was $3.9 million compared with $3.6 million the prior year. And in Australia, SG&A expense was $1.9 million.

Consolidated operating income for the fourth quarter was $1.3 million with operating margin at 1.7%. In the fourth quarter of 2009, the Company reported operating income of $30.4 million, and operating margin of 5.4%. U.S. segment operating income for the fourth quarter was $1.7 million, compared to $4 million in 2009. Europe's segment operating loss for the 2010 fourth quarter was $502,000, compared with a loss of $223,000 in the prior year. Electric's segment operating loss for the fourth quarter was $201,000 compared with a loss of $814,000 in the same period of 2009. And in the Australian segment, operating income was $311,000.

On a consolidated basis, the Company recorded a provision for income taxes for the fourth quarter using a 32% annual effective tax rate. Consolidated net income for the fourth quarter of 2010 was $1.6 million, equal to $0.07 per diluted share. This compares with net income of $3.4 million or $0.14 per diluted share in the fourth quarter of 2009. Let me now take a minute to discuss the strength of Volcom's balance sheet.

At December 31, 2010 the Company had approximately $90.3 million in cash and short-term investments. We have no long-term debt, stockholders equity of $217 million, and a current ratio of 5:1. Consolidated accounts receivable increased 24% to $66.5 million at the end of Q4, compared with $53.8 million at December 31, 2009. The consolidated accounts receivable balance at December 31, 2010, represents days sales outstanding of 75 days, compared with 70 days at the end of fourth quarter of 2009.

Consolidated inventory increased 25% to $41.4 million, compared with $33.3 million at the end of 2009. Excluding approximately $2 million of incremental inventory in Australia, inventory increased 19%. On a consolidated basis, the inventory turn rate calculates to 4.4 times per year, or once every 83 days. Inventory turns calculated to 4.6 times per year at the end of 2009, or once every 79 days.

I will now turn to our financial outlook for the first quarter and full year of 2011. To put this forecast into context, I would like to mention some anomalies in the comparable first quarter of 2010. First, recall that we exceeded our earnings forecast by $0.12. This was driven by revenue that was above plan by $3.4 million, primarily in the U.S. segment. And, better than projected gross margins in Europe and Electric.

With this in mind, we project consolidated 2011 first-quarter revenue to be between approximately $83 million and $86 million, representing growth of approximately 7% to 11% over the first quarter of 2010. We currently anticipate revenue of approximately $47 million to $50 million from the U.S. segment, approximately $24 million from Europe, approximately $7 million from Electric, and approximately $5 million from Australia. Consolidated EPS, for Q1 of 2011 is anticipated to be approximately in the range of $0.16 to $0.19.

Turning to the full year, total consolidated revenue is projected to be approximately $366 million to $371 million, reflecting growth of 13% to 15%. We anticipate revenue of between $234 million to $239 million from our US. segment, approximately $82 million from Europe, approximately $32 million from Electric and approximately $18 million from Australia. The acquired outlet business is projected to add approximately $4 million in the back half of the year, and is projected to be accretive to earnings in 2011.

Please note that approximately 58% of consolidated revenue will be in the back half of the year. Consolidated gross margin for 2011 is expected to be approximately 50%. Consolidated SG&A is targeted is targeted to be approximately $145 million. Consolidated EPS for 2011 is expected to be in the range of $1.08 to $1.14. We expect the Q1 and full-year tax rate to be approximately 32%. And for both Q1 and the full-year we project fully diluted shares outstanding to be approximately $24.5 million.

In putting forth this outlook, we want to remind everyone of the complexity of accurately assessing future earnings and revenue growth given the challenging economic and credit environment, the difficulty in predicting sales of our products by key retailers, changes in fashion trends and consumer preferences and sourcing costs. Looking forward, we believe that Volcom, its worldwide brand strength, quality products, solid cash position, and dedicated team of employees, athletes, sales reps and distributors around the globe is one of the best-positioned action sports companies in the world.

We will now open for questions.

Question-and-Answer-Session

Operator

Thank you. (Operator Instructions) Our first question comes from Mitch Kummetz with Robert W. Baird.

Mitch Kummetz – Robert W. Baird & Company, Inc.

Thanks. Doug, on the guidance, particularly on the gross margin guidance, looking for gross margins to be up about 80 basis points for the year, can you kind of walk us through the puts and takes on that, I think on your last earnings conference call you talked about input costs being up like 15% to 20% in the back half. Can you reconcile that with the guidance? I'm sure you're going to make up for some of the inventory liquidation and incentives that you had in 2010. So just a little help on that.

Douglas P. Collier

Yes. Sure. You got a couple of them right there. As far as the cost increases go, generally, those are going to be passed through as price increases. We think will be able to cover most of the cost increases there. Looking at our US segment as you said, we look to have significantly less liquidation of inventory this year. that is probably the biggest factor this year in increasing our gross margins. Also we mentioned before, we are getting fewer incentives and discounts to some of our accounts.

Another thing to look at is just, there is a slightly different mix of revenue this year. We've got more high margin Europe revenue. A little more high-margin Electric business. And a little bit more direct to consumer. We've got the acquired outlet business coming in and a full year of e-commerce. When you combine all that, it's like you were saying, we look to pick up about a point on a consolidated basis.

Mitch Kummetz – Robert W. Baird & Company, Inc.

Okay. On the inventory, it still up – still up a significant amount on the percentage basis. You kind of walked through $2 million that goes to Australia. But, I know that over the last few quarters you guys have come out of the quarters with excess inventory that you've used to liquidate. Are you now comfortable with where your inventory is, if there isn't a lot of product in there that needs to be liquidated is going to put pressure on gross margin in the first quarter?

Douglas P. Collier

Yes. I think we are looking pretty good. Maybe Jason can add to this too. When you pull up the Australia, we're up 19%, looking at our overall consolidated revenue growth in Q4. And what we are looking for in Q1, we shall comfortable with that. Also just the way the environment is changed. We are carrying a little bit more inventory than we have in the past. Most of that is coming in a carryover products and things like that, because there is just more in-season demand than there used to be.

Jason W. Steris

Yes, hey Mitch. I will just add, we feel good about our inventories right now, and they're appropriate with our sales plans. We cleaned up a lot of them at the end of last year. Going into this first half, we feel our inventories are under control and right where they need to be.

Mitch Kummetz – Robert W. Baird & Company, Inc.

Okay. Then, one last question. As you guys are taking price increases, to offset the cost increases. What has been the reaction to your from your customers. You obviously booked spring, you have gone to the trade for shows on in the fall. I imagine your order book is building there. I guess I'm wondering what you're seeing, as that full order book is starting to come together in terms of the retailer reaction to those price increases.

Richard R. Woolcott

Yes, Mitch this is Richard here. We have not much seen much pushback from the retailers. I think, looking at the big picture, our industry is well-educated on what is going on out there. Other manufacturers are having to do this, retailers, they understand the need and the nature of what is going on with production costs going up. So everyone is well versed in it. And so far, we haven't seen any pushback, fall is coming in well.

We are actually getting fall orders in earlier, the retailers know we need to get orders in earlier so we can deliver on time. So that – that's a positive and also the orders are looking good compared to last year. I think the outstanding question is going to be how does the consumer react to the price increase. And some of these price increases are on certain goods that are more innovative, more exciting, and in some of the other increases, more of the – what do we call those goods, Jason, where the...

Jason W. Steris

Commodity items

Richard R. Woolcott

Commodity items, there's only so much you can add to it.

Jason W. Steris

T-shirts, basics, shorts, chino programs, things like that.

Richard R. Woolcott

You have to be selective in this pricing strategy, but so far so good. The real test is going to be one step products on the floor and seeing how the consumer react to it. We just don't have that information yet. But where we are at right now, we feel good about things.

Mitch Kummetz – Robert W. Baird & Company, Inc.

Okay thanks, good luck.

Richard R. Woolcott

Thank you.

Operator

Our next question comes from Sean Naughton with Piper Jaffray.

Sean Naughton – Piper Jaffray

Hi guys. I guess, Richard you mentioned in your prepared remarks in terms of distribution, pretty happy with the sell through and all of these different channels that you are currently competing in. Can you talk, are you planning on getting a little bit more aggressive with any new distribution channels, or are you continuing to focus on increasing the volume or doors with the current accounts that you are in?

Richard R. Woolcott

I think generally speaking, we have a lot of distribution out there. And as they broke it down in the different segments, I think our real focus now is going in and really customizing not only the product, but the merchandising and the marketing initiatives behind each level of distribution to maximize those sales. And we've seen that's what we really zero end on targeted particular – even down to the retailer or distribution level or around the country. We've seen a significant increase in business.

Now that's anything from specific SMU products or custom build outs, and focusing on better merchandising. And programs around marketing programs and athletes coming into town and doing autograph signings and gift with purchase. That is really where our focus is at and I think we talked about this morning, the biggest focus right now is delivering quality on-time. Really going back to the fundamentals, and leaving no stone unturned, in the way that a business should be run. We are seeing success of that. So that's what we're focused on right now, I don't see is opening up a bunch of new doors right now. I think we've got plenty of doors out there to work with.

Sean Naughton – Piper Jaffray

Makes sense. Then maybe to follow-up, too you were talking about taking back Spain directly later this year. Maybe you could walk through or attempt to quantify some of the types of lift that you've seen historically when you've taken back some of these markets directly, and how long does it take you do start to see some of those sales increases, and the benefit of actually operating that territory directly?

Richard R. Woolcott

Sure. I will jump in here and maybe I can hand it over to Doug and chat about the numbers. I mean, definitely one thing that we talked – we just actually had our international meetings last week with all of our subsidiaries. One thing we talked about, is when you take a territory, you are instantly that much closer to the market, whether it be the customer, the product, the retailer. There's not a distributor that's between you and the market, so, you eventually become more plugged-in and you have a better understanding over what is going on in the market and what is needed in the market. So, that's a big gain just in itself.

In terms of the effect that it has. The minute we take over a territory and we began shipping, we will see a lift obviously of the revenue. And even in the margin too. But it does take like – what was said here, Doug you said remarks about how we ship, we have to build the infrastructure without the revenue. So that is some expenses that were having to carry before we actually see the payoff of bringing the territory in-house. Second half of the year is when we really will see it. That is typical with any other territory that we brought in.

Douglas P. Collier

Sean, it really is a low-risk move for us because we know the business that is being done over there, and we can actually save a little bit of money doing this and this example, Bilbao is driving distance from our French headquarters, and we can ship directly out of France. We can reduce the cost that the distributor used to have in Spain. It will be more profitable for us than it was the distributor. I guess the only downside to it is what Richard was talking about, the one time that you've got to have your staff and your sales team and all of that customer servers in place for the first half of this year taking orders and all of that kind of thing. While you don't have any revenue. We saw that when we took over the whole European territory. But the costs are relatively small and it's a one-time deal. So taking over these territories looks really good for us financially.

Sean Naughton – Piper Jaffray

Okay then lastly on the SG&A guidance. It looks like it's below the low-end of your total revenue. That would be kind of the first time in the last four or five years where it would grow at that rate. Do you think we're at a point where we can start to see some potential SG&A leverage as we start to move forward here? Thanks.

Richard R. Woolcott

Yes. Glad you noticed that, Sean. We worked hard on that. We actually if we didn't have some our newer initiatives, it would have looked better, with our existing business. But we are taking on Australia for the entire year. And that one, is still an investment one for this year. That is going to be a break even on its own on its own segment, and that when you take away the royalties that we lost, it's a little bit dilutive this year.

But we see much bigger longer-term potential for that. So you got that affecting it, you will have Spain, expenses for the full year. With only revenue in the back half. You've got the outlet business, which while that will be accretive, that is going to have some SG&A in the back half. We have e-commerce for the full year, and we're also doing a retail store in Bordeaux France. Those are all incremental items even with that we are able to leverage the SG&A. So, we are happy about that and we definitely think we are at the point where we will continue to that.

Sean Naughton – Piper Jaffray

Great, thanks, guys best of luck this year.

Operator

Our next question comes from Claire Gallacher with Capstone Investments.

Claire Gallacher – Capstone Investments

Hi guys. I just want to ask about the outlet store acquisition. Just is this something you've been looking to do for a little while now? Questioning the timing. And also if you have plans to expand. I know you really weren't that interested in expanding your full priced stores but do you see this maybe as an opportunity to increase your footprint here in the US?

Richard R. Woolcott

Hi Claire, this is Richard. The outlet business, it has been a good business for us. Obviously it was being run by a licensee. It has been something I think as a company as you are growing, you have to have this channel to help with off-price goods. In the long-term, it's better to own it yourself, once that time is right to bring it in.

We just – as we went into this year the opportunity was there, we worked very closely with the guy who was running that business. He is still going to stay on and he and his team are coming aboard and they are great operators and so we have a great partner. We just both were talking both have been talking and saying, this is the time to do this. Both in the right mindset and said let's do this. And our – from a strategic standpoint, we have always wanted to have this business in-house at some point, when the time was right, and the timing just felt right and we are excited to bring it in.

In terms of the future of it, right now we have 10 doors and we do think we can add some more doors over the next couple of years. Doors that make sense and locations that make sense. And I think – I think it is an exciting part of our direct to consumer platform. We'll keep you abreast as we move forward of what we are going to do this year, but definitely think we can grow some more doors in areas that make sense. And we are excited, we have a good team.

Jason W. Steris

Claire, just to add to that, we see what a lot of other companies see, the outlet business, is a potentially very profitable business and relatively low risk compared to some of the other direct-to-consumer initiatives, regular retail. We always had in mind that we would bring it in, the way that licensing agreement was set up with certain caps on the number of stores and things like that. We thought it was best to let someone to get it going, and I think we always knew that at some point, it would come back to us.

Claire Gallacher – Capstone Investments

Okay, that makes sense. And then, on that same kind of subject line, your e-commerce site, I wanted to get an update on how that performs in the fourth quarter, if it met, exceeded expectations, that kind of thing out of the gate there.

Jason W. Steris

Sure, Claire, this is Jason. We had a good holiday, we started in September, as I think you remember. We had a good holiday coming out of the gates. Kind of coming into 2011 right now and the first couple of months of the year, we are on plan. We are learning a lot about the consumer and channel, and we're definitely seeing that as a growing distribution channel. for Volcom and the industry as a whole, whether it's going direct or whether it's true that your affiliates.

There's definitely been some excitement, and a lot of activity around that channel, in terms of growth opportunities. So, as we move into the rest of this year, we'll learn a lot more, once we get a full year under our belt. And we've got a lot of exciting things coming down the pipeline on the merchandising side of things and updating our site, so this team is very focused and excited about it. So we are pleased so

Claire Gallacher – Capstone Investments

Okay. Last question, it looks like the four largest accounts outside of Pacific SunWear, it looks like it underperformed the Company average growth rate. If you could walk through kind of what is going on there. If you think it is a fourth quarter phenomenon or you expect that to continue as we look into

Richard R. Woolcott

You want to maybe start with the numbers, Doug?

Douglas P. Collier

The active growth rate was actually not that bad this quarter, I think for top five excluding PacSun was up about 10%, Which is better than it has been the past three quarters. We're actually seeing a little bit of a turnaround in these accounts.

Claire Gallacher – Capstone Investments

Okay.

Jason W. Steris

That group for us, we don't break it out specifically, but I think as Doug said, it is a higher rate than it has been. And we are actually pleased with those numbers.

Richard R. Woolcott

Claire, the big challenge that we have had was the juniors business. And, now I think when we start to look at that those numbers, the minute that those junior business starts turning, I think we will see a significant change in that. Right now in Q4 we started saw juniors up one saw juniors up 1%, and as we are going into this year, there's a little buzz around juniors right now, and I don't want to get ahead of myself but retailers are more optimistic about carrying juniors, and our teams in-house are clicking with the buyers, and we are seeing some good sell-through in certain key categories. So, if we can get the juniors business to turn, I think we are going to see and even more uptick in what Doug just mentioned I think was up 10% for Q4. We really want to keep our eyes in the juniors business in the larger accounts. If we could move the needle with juniors, it is going to move this needle in the business as a whole.

Claire Gallacher – Capstone Investments

Okay great, that's very helpful. Thanks, guys.

Richard R. Woolcott

Thanks Claire.

Operator

Our next question comes from Christian Buss with ThinkEquity.

Christian Buss – ThinkEquity

Hi, this is Christian. I was wondering if you could provide some perspective on what you are seeing from your order book and how that's shaping up?

Jason W. Steris

Yes, Christian, this is Jason. We've had on the road now for probably about four weeks with our fall 2011 collections as well as our snow collections and so far, so good. As Richard mentioned a second ago, we are definitely getting orders maybe sooner than we have year over year. Just with the lead times and the need to get the orders in ahead of time, to make sure we can fill the orders and the retailers have been receptive to that. But we kind of take a step back and look at the orders kind of individually, account by account, we are seeing some growth in there. And, that it's kind of getting – we're about halfway through the booking season so we still have a ways to go.

But the reaction to our products across the board from fall, to snow, to men, girls, boys, it's probably been the strongest it's been in a while. And that is speaking for really the globe from the Australia team, their product mixes to the Europe team, they just got back from ISPO and they had one of the best shows that they've had. I talked to the CEO of last week, and he said it was one of the best collections in the last three years. Here in the US we are getting the same response. So the order file is coming in, looking good, and the response that we have been getting on the product is amazing right now. Even particularly in the juniors, we've made some big changes there.

This is the first season kind of under the new management of our new merchandising team and some of the reshuffling that we did within the design infrastructure and that line is getting a great response as well. So, I think it is right what we need in terms of kind of building back that business this year. We'll know more on the next call, which is not too far off from here. What we get that order file filled up. So far we are pleased with what we are seeing for the fall booking file and everything for spring and summer is on track with our plan.

Richard R. Woolcott

Christian, just to add to that, which I think is an important point, looking at fall, I spoke with the majority of our sales managers this morning, and there is a good feel out there right now, especially at the last couple of weeks in terms of sell-through. Now that there is new floor sets at retail. Most retailers are switching to the majority of their spring goods. And customers are in the stores and shopping, particularly when the weather is cooperating, and there seems, from I gather this morning talking to my team, seems there is a positive upbeat mood out there, which I think is important as we are showing, as we are out on the road showing for the future season too. It felt optimistic talking to the gang this morning about how businesses in general happening right now out at retail.

We'll keep our eye on that. The other thing that will be interesting is that we have Easter later this year, so we have this window from now until Easter, and that definitely we want to monitor how the sell-through is happening and particularly, keep an eye on the weather too. So far so good as we get into February and we have gone into February and we enter into March and April and Easter break.

Christian Buss – ThinkEquity

One of the things that you talked about the last quarter was wanting to dial back some of the marketing and pricing support that you've been giving to gain market share. How are the retailers responding to that?

Jason W. Steris

This is Jason again. We have seen minimal resistance on getting the orders that we need. We have been working really close with our retailers kind of throughout the recession and throughout a couple of years, working on in-store, working on grassroots promotions. Things that drive the business and the bulk of energy with any particular region or retailer. We are not letting down on any of that support, and really focusing our dollars back on maybe not so much getting a discount but let's put that money into the account base, with the in-stores and fresh windows and continuing to do our events. And put money into the marketing to keep the brand hot so the sell-through is there. As long as we are keeping that focus happening and the communication dialogues happening through that process, I think we will be okay. From what I have seen so far, we have booked screen, we've booked summer, we are halfway through fall. We're looking good.

Christian Buss – ThinkEquity

Okay. One last question on the acquisition of the outlet stores. Is there a change in thinking of opening retail doors and owned retail doors, should we expect more openings there over the next couple of years?

Richard R. Woolcott

Chris, I think, right now the outlet business is obviously different than full price business. We are looking at the outlet bringing them in, as we said, about midway through the year. Getting that settled in, and at the same time we are always looking at opportunities for full price stores on a global basis. What we have seen lately, is when we partner up in terms of licensing with a key retailer around the globe, we've been very successful with that. The risk is not as great. We do see some opportunities there to partner up with retailers to do Volcom stores in the future.

I think as we get more into this year, more opportunity will open up and we will be able to give a clearer picture of where we are going in terms of that strategy of opening up more doors. But we are not going to go aggressively open up a bunch of doors. It has to make sense, has to pencil out and just in looking at that area, the one that we have seen that is working that we are excited about, is partnering up and doing our license stores with our key partners.

Christian Buss – ThinkEquity

Okay think you very much. Good luck.

Richard R. Woolcott

Thank you.

Operator

Our next question comes from Jeff Van Sinderen with B. Riley.

Jeff Van Sinderen – B. Riley & Company

Good afternoon. I just had a follow-up on the gross margin rate. How should we think about gross margin on a quarterly basis as the year progresses? Should we think that Q1 and Q3 would be kind of the seasonal peaks in gross margin, or is there something else going on that we should consider for Q1 or Q2?

Douglas P. Collier

Generally, Q3, with a high margins that we got in some of the categories and the high-volume, that's pretty good. Really whenever you look at the mix of Europe, is going to be, like you said in Q1, Q3, that drives that up a little bit in those quarters, so I think your assumption is correct there.

Jeff Van Sinderen – B. Riley & Company

Okay. SG&A, basically is still relatively high. It sounds to me, and I haven't put all the numbers in the model yet, but it sounds to me the SG&A leverage your were going to get is really more later in the year than in Q1.

Douglas P. Collier

I think you have to look at some of those projects that we have that will be, Australia, that runs throughout the year. Those expenses are happening now. Like we said, the Spain expenses are happening throughout the year. The outlet, that really doesn't come on until we actually close that deal at the end of the second quarter. Got it. Okay, and on the outlets, I was wondering what the mix of product is there. It is, given that you were buying 10 more stores, does that change in terms of the mix of product that's just for clearance, that is product for outlet, how do we think about that?

Jason W. Steris

Yes Jeff, this is Jason. We have been shipping the outlet group for what, five years now? Five years now and they have been adding doors, a couple a year. For the majority of the product that we have been shipping them, is coming from our kind of our off-price when we break price throughout the season. There's a few stages where we'll start with our accounts and then we'll work it down to our outlet group and then these particular ones will go to the traditional off-price distribution.

So, we will continue to work at the same strategy that we have and kind of fit them into the buying or the kind of the tier process that we have been working with. I think over time, depending on inventory, if you are low on inventory, which for right now our strategy is to really lower our inventories while focus on the gross margin, we can put pressure on having enough products. You have to keep a close eye on that to make sure we have enough availability, and if you don't, sometimes you can make products from stores into that. For the most part in our minds, we're thinking this is a good outlet for our seasonal liquidation for us. And that is what we have really been doing and continue to focus on.

Jeff Van Sinderen – B. Riley & Company

Okay that leads into my next question, which is at this point, you mentioned more of your business is what I would call at-once business. Or in-season business. Any sense you can give us or the order of magnitude where that was and maybe where was in 2010. Do you see that mix shifting for 2011 to be maybe heavier in at-once or not?

Jason W. Steris

I would say it is going to be pretty similar. I think the retailers started last year with that mindset and buying a little more in season. Obviously getting a nice pre-book foundation laid. We started seeing that trend last year, and I mean, if you want to get the goods, you want to get the good stuff, you definitely need to place the pre-book. I think the accounts understand that from any of the brands that they are working with. They have to lay a good pre-book in there.

And in terms of the mix of pre-book versus at-once, I think it would be pretty close to what we saw trending last year. I wouldn't see anything. The only thing I would say, the business gets better than everybody anticipated. That is where you can change those percentage ratios. Where business is as good as maybe we thought it did last year. And then, if we do see things get better in the back half of this year, at least from a retailer's standpoint, that could change the ratio of all that and we will be there to capture those orders with more of our carryover styles.

Jeff Van Sinderen – B. Riley & Company

Got it, okay, thanks very much and good luck this quarter.

Richard R. Woolcott

Thank you Jeff.

Operator

Our next question comes from Christine Chen with Needham & Company.

Christine Chen – Needham & Company

Thank you. I was wondering, the fact that Easter this year is possibly as late as it could be, how does that affect your Q1 business in bookings, especially since you talk about more and more people booking immediates and is that factored into your guidance for the first quarter?

Jason W. Steris

Yes, this is Jason. It is all factored in there. We are pretty close to halfway through the quarter now. So, good visibility. How we are looking. We definitely factored all of that in. Yes, that is a late Easter. And then combined with retailers are definitely buying product a little later in season now, kind of more of that buy-now strategy. And we are seeing a lot more accounts bring in swim and board shorts as late as March when they were maybe front loading those in the past in January or even December.

So I think you have two things. You have people that are booking stuff out and we're seeing people, March is kind of the peak of that spring now and it got the later spring, for which, if anything, I think having a later March is good, in a sense that it can kind of open up that we do a little bit more. In some parts of – at least here in the US, there's people going on spring break still in March. I think having that wider window sometimes is good for just the season, but it would really depend on the weather. And kind of see what happens there. It's usually always wrapped around the weather. I think we will be we will be okay with I think a later Easter.

Richard R. Woolcott

I was talking to some of the team this morning, Christine. They like the fact that we have a wider window, because sometimes when the window is so short, and let's say the weather was not cooperating with a short window, you can just miss it. Now, we have people especially, starting right now, as I was saying earlier about we are seeing activity out there at retail, we have ski week right now and a lot of families and kids are traveling, a lot of kids are out of school this week. You have from now, until the end of February all the way to the end of April, which is really window for Easter. Schools are letting kids out at different times, and that is where I think, if there is any uptick, maybe it is later, maybe in April where you see some opportunities to fill in business. And I think with the who are retailers are filling their floors now, really what we are seeing, we are seeing that retailer confidence coming in and in the fall because I think Jason was talking about return to inventory levels and the retailers ordering in season.

When we were out booking spring and summer, we were telling retailers, you got to get on this. We are going to be sold out. These production windows are going to close quickly. I don't think the market really understood how intense the situation was in China. And if you don't get your orders in, we might not have the inventory. Where today, I think our industry as a whole is much more educated on what is happening with production right now. That is why we are seeing those fall orders, and when we compare fall orders from this year to last year, we have a lot more fall orders in now. That is retailers going, hey, I want my pre-book and I want to make sure I get my product and am not going to wait until in-season. I think we are seeing mindset changing a little but even right now as we are going in or looking at what is happening with the fall orders.

A bunch of different dynamics going on right now. Later Easter, orders coming in earlier for fall and that is where – we are optimistic about the back half, we see things could be a better picture. Definitely what they were last year. We were hopeful last year for a stronger back half. And it didn't come. This year we think, well, the back half is going to be strong, we believe it could be this year and we're kind of starting to sense that a little bit.

Christine Chen – Needham & Company

Okay, great, thank you and good luck.

Richard R. Woolcott

Thank you.

Operator

Our next question comes from Edward with KeyBanc.

Charu Sharma – KeyBanc Capital Markets

Hi, this is Charu with Edward. I have a quick follow-up question to a previous point. Around the input cost pressures I want to clarify the price increases, because I think last quarter, you had mentioned a 15 to 20% anticipated cost pressures and you have planned for about 10% to 15% in price increases for fall product. I wanted to clarify on your ability to fully offset the cost pressures and also what was the case is when you bought fall product.

Jason W. Steris

This is Jason. When we talked on the last call, we were fine-tuning our costing for a season and we weren't quite complete with that and that was kind of where we were at in that point and time. As the dust has settled, and we have catalogued our fall product and adjusted our wholesales based on our pricing needs. We feel that we have been able to offset what we needed to do in order to kind of maintain our internal margin. And meaning, basically offset the other cost increases but with a wholesale increase. We were able to do that and we feel good about that. What was the second part of your question?

Charu Sharma – KeyBanc Capital Markets

Essentially I wanted to confirm your ability to fully offset the cost pressures which it sounds like for what you are saying...

Jason W. Steris

We were – when we look at our pricing internally, before we are wrapping up the season and cataloging the products with the wholesale prices that we will go out with. We'll put our projections in, and we'll do our weighted margin, and we just did not have that before. And we do now, and we were able to maintain our internal IMUs that we need to get to offset that. So, we feel good about it. So far, so good, and it goes down to buying the right amount of inventory and managing your liquidation. Out of the gates, we are right where we need to be.

Charu Sharma – KeyBanc Capital Markets

Great. My other question, was just around an update if you could provide on your relationship with Macy's in terms of how many doors you are in action sports stores now. And the growth opportunity there, which you have spoken about before. Secondly, in terms of the relationship with PacSun, just how should we be thinking about revenues for 2011 from that particular retailer?

Jason W. Steris

Absolutely. We had a good year with Macy's. We are in about a little over a 150 doors for men's right now. And, we have really been focused on the in-store kind of merchandising, the floor sets, the merchandising mix. And, on the replenishment side of business, of having that ability to get into fulfillment with whatever category it is that is selling. We are on that system now, with our sales team and the buying, and we seem to have kind of found that – that the working mechanics of working with that customer. And, it is going well.

For us right now, we don't see us opening a bunch of new doors, really just focusing on the doors that we are in. We are in a lot of the best doors for action sports, and there is growth within those stores. And that is where our focus is right now. The other category where we see a lot of opportunity is on the boys and kids side of business. Where, kind of the same thing, we're in about 100 doors, a little less than men's. But, focused on those key doors as well.

And then we are having a little bit of a bounce-back on the Junior side, I think we talked about a year ago the reduced in our door count to, I think we are at about 100 at one point and down to 18 and now back up to about 30. There is a little build back there and some excitement around the Junior's program and the collections. Really attribute it to the team and the product and sales team and working with that buying team really close. There's a lot of exciting stuff happening there. We are pleased with that. In terms of PacSun, the question on that was what full year?

Charu Sharma – KeyBanc Capital Markets

Full-year how we should think about --

Jason W. Steris

We are not breaking that out right now under the full year. We do see some growth there. Kind of coming off of this year. And, we will just kind of keep you guys posted on what is going on there. That being kind of – going into next year under our 10% mark there. We're not going to report that out at this point. It's our largest customer still this point. Key partner of ours and we do see a little bit of growth going into next year. Overall, everything is going really well there and we will keep you posted.

Charu Sharma – KeyBanc Capital Markets

Great, thank you, and best of luck.

Richard R. Woolcott

Okay, thank you.

Operator

Our next question comes from Andrew Burns with D.A. Davidson.

Andrew Burns – D.A. Davidson & Company

Thanks, just a quick question on Europe. The guidance there looks like 17% gross. I was hoping to get a little color in terms of contribution from Spain. Or, the Norway, Sweden, Denmark, you mentioned new distribution there. Ditto greater sell-through, expansions in sportswear industry there. Any color there would be helpful, thanks.

Richard R. Woolcott

In Europe, I guess a couple of highlights, obviously, bringing Spain onboard is going to be a big boost there. That's a couple few million dollars in the back half of the year there. The other highlight in Europe is the fall line was really well received, you have a good portion of their bookings in and real strong bookings season. As well as the initial read from the snow line. There was the ISPO show I think last week, a couple of weeks ago, a great reception there. So, really from the back half of the year, was really looking strong for Europe.

Spain, I think is in the top five, fourth or fifth largest territory there, so it is a pretty significant territory we can bring on board. As far as – we also have the store. So that, the Bordeaux store. Incremental revenue is planned for the second quarter to open at some time. What was the other question about Norway?

Andrew Burns – D.A. Davidson & Company

Maybe contribution from existing doors or new door growth and --

Richard R. Woolcott

Andrew, I think what we're seeing now, Europe has been obviously through a very tough environment, and we have been able to hold our sales flat for the last couple of years, and what we are seeing now is going 2011, the environment is starting to turn positive, and still some challenging areas for sure over in Europe, but there are some areas that have improved. We are just seeing that growth coming back, that we didn't have in the last couple of years. You got a few – a few key drivers like Spain and the store. We've talked about the reaction to our fall product has been very strong.

I think you are seeing just a natural spurt of growth coming again. Yes, we are working with some new distribution and those efforts are starting to take hold. And we are investing in our in-store – buildouts and our store within a stores. We are back on this – I would say this growth focus again, where the last couple of years, we've just been trying to hold steady through a very crazy economic environment over there. And, it's nice to see things start to turn, and we're just in a more positive environment in most of the parts of Europe. Some of the parts are still challenging. Our key areas, some of our biggest territories are starting to move forward from a growth perspective.

Andrew Burns – D.A. Davidson & Company

Great.

Richard R. Woolcott

Does that help you?

Andrew Burns – D.A. Davidson & Company

Yes it does, thanks.

Richard R. Woolcott

Okay, thank you.

Operator

At this time I would like to turn the call over to management for any closing remarks.

Richard R. Woolcott

I just want to say I thank everybody for being on the call and we look forward to speaking with you again at the end of April. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may disconnect. Have a great day.

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