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Crocs, Inc. (NASDAQ:CROX)

Q1 2011 Earnings Call

April 28, 2011 17:00 pm ET

Executives

John McCarvel - CEO, President

Jeff Lasher - CFO

Analysts

Jim Duffy - Stifel Nicolaus

Reed Anderson - D. A. Davidson

Jeffrey Klinefelter - of Piper Jaffray

Jim Chartier - Monness, Crespi, Hardt

Sam Poser - Sterne Agee

Operator

Welcome to the Crocs, Incorporated Fiscal 2011 first quarter earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions)

Earlier this afternoon, Crocs announced its first quarter 2011 financial results. A copy of the press release can be found on the company's website at www.crocs.com. The company would like to remind everyone that some of the information provided on this call will be forward-looking and accordingly are subject to the Safe Harbor provisions of the federal securities laws.

The statement 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 Factor section of the company's 2010 annual report on Form 10-K, filed on February 25, 2011 with the Securities and Exchange Commission.

Accordingly, actual results could differ materially from those described on the 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 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 would like to turn the conference over to Mr. John McCarvel, Chief Executive Officer of Crocs. Please go ahead, sir.

John McCarvel

Thank you and thank you for joining us on today's earnings call. Before I begin with comments I am pleased to announce that Jeff Lasher has been appointed Crocs' new Chief Financial Officer and he is with me again on the call today.

After an exhaustive search and lengthy interview process, Jeff emerged as the most qualified candidate to fill this critical role. Our business continues to expand both in size and complexity and I'm very confident that Jeff's financial expertise, deep understanding of our global multi-channel business will service well into the future.

Now to our results, we are very pleased with our first quarter performance which was highlighted by record revenues and earnings that were significantly better than a year ago. The momentum that we created during the past 12 to 18 months with our compelling new products and effective marketing programs has carried over into 2011 and is driving important market share gain in the Americas, Europe and Asia which were up 35%, 42% and 33% respectively in Q1.

Last year, the spring 2010 season started off well with the launch of the Crocband collection and we followed up with other new collections and products throughout the year that built on the aspects of the brand’s original DNA. Crocs continue to evolve from an iconic product to a lifestyle brand that appeals to a wider audience and consumers today.

This year for Spring 2011, we launched fresh new ideas and collections like our Translucent and own take on sneakers and (inaudible).Our backlog at yearend and at March 31st underscore the confidence retailers have in Crocs and they are now being rewarded as early sell-through rates in Q1 have been solid.

Where many companies today aspire to be global and grow their international presence we continue to execute our plan on an already global business platform. Our non-domestic US international revenue was 65% for up total revenue for Q1. In the Americas, we experienced solid growth across our diverse customer base of department stores, sporting goods, specialty retailers, independent shops and family footwear chains..

Shoppers are being presented with a much boarder assortment of products than a year ago and in a much more appealing environment. Thanks to our investments in new visual merchandizing and point of sales fixtures. With a significant number of new different styles spread across multiple collection, we now have the ability to segment our product within our distribution network.

This has created scarcity for select new products, something we weren’t doing a couple of years ago which I believe is good for the long-term health of our business. In the first quarter we are also launched our newest foot wear collection, Jibbitz by Crocs. We rolled out Jibbitz by Crocs initially in 550 doors and are now sold in many target locations. The initial consumer response has been very encouraging. We’re currently in the process of increasing sales count for holiday 11 and for spring summer 12 for the comfortable fund in affordable line of footwear.

The strength of the spring line is also driving growth in our retail location throughout the United States. Our translucent, sneaker, sandals and core CROCS sales are all selling well while the reaction to tuning products has been mixed in the US. As we discussed on last year’s Q1 call, when we had delayed the launch our new product into our direct-to-consumer channel, this year we transitioned our retail stores to the new spring summer 2011 line earlier in the season. This has provided a lift in revenue growth and our customers have reacted favorably. We’re seeing similar results in Europe with the exception of toning which has been well received in several markets.

I was recently in Europe visiting with our retailed teams in stores and wholesale accounts and the toning market is clearly more active than the US today. We continue to diversify our product offering in the European market and are very pleased with the initial sell-in of our new product in Q1. The results of our work is in the revenue in the 42% gross we posted in Europe from last year. While we’re still focused in growing the wholesale channel, we’re also pushing ahead with the expansion of our direct-to-consumer with strategy in the European region.

In Asia, where consumer adoption in new product has historically been faster than the US and Europe, we had another very good quarter. However, it could have been stronger and shipment to Japan not been delayed and pushed into the second quarter. China was once again our fastest growing market in the region filled by new products and new retail storage and new wholesale accounts.

Japan, our second largest market behind US and one of our oldest was up significant year-over-year. Our wholesale accounts pre-book credit for Q1 delivery than ever before. I recently spend a week in Shanghai and Tokyo and met with two of our largest wholesale partners in Tokyo. Each of them have over a 100 retail stores in Japan. Like them we have pretty significant presence throughout the country which made with the tragic event of March 11 even more personal. Thankfully all of our employees and their families survived. We did lose one store an outlet in Sendai while two others are temporarily closed due to damage and power outages.

Beyond the loss of those retail sales it is hard to quantify the impact of the earthquake and tsunami and what it will have on the market for 2011. At this point we have not experienced any significant order cancellation. The potential impact will more likely be felt in the level of replenishment orders in Q2 and Q3. CROCS Japan has contributed time, money and 100,000 pairs of shoes to those affected in Japan.

Merchandising is the only thing that’s driving our improved results, this has been a collective effort of our entire company. Our fine marketing, visual merchandising and brand building programs, which include more social and mobile strategies and new in-store merchandising is creating a stronger connection with new consumers while generating increased demand.

We continue to focus on internal programs to streamline our business globally and our SG&A for Q1 was 40%. Jeff will now review the financial, outline our guidance for the second quarter, then we will be happy to take question.

Jeff Lasher

Thank you John. Hello everyone and thanks for joining us. Today I will be discussing Q1 results for 2011. Revenue for the quarter increased by $60 million or 36% to $227 million, which exceeded our guidance of $215 million. We saw a sales increase in all three of our channels during the first quarter.

In wholesale, revenue increased 37% to $165 million as we saw a broad acceptance of our key new styles in collection. We ended the quarter with a backlog of $260 million, which represents a 27% increase over a last year's backlog of $204 million and a slight increase from year-end.

Average selling prices in our backlog appears strong and they are inline with our expectation at our $16.50 per unit compared to first quarter average selling price in our wholesale channel of $15.45.

Retail sales for Q1 increased 32% to $45 million. All three regions showed strong year-over-year growth. We ended the quarter with 371 company-owned retail locations globally, which is down slightly from 378 at the end of 2010.

We ended the quarter with 135 full-price stores, 90 store-in stores, 80 factory direct stores or outlets and 66 kiosks.

In the quarter, we closed 12 kiosks in North America but open 3 stores and one outlet. In Asia, we opened five locations. In Europe we opened 2 locations. For the second quarter we plan on opening approximately 35 stores globally and an additional 50 to 70 stores by year-end.

While the store count was down on a sequential basis from year-end, compared to the first quarter in 2010, location count was up 11% from 333 to 371.

Retail sales increased in all regions as our average revenue per store grew by 18% due to a combination of larger location, product breadth and higher prices.

Internet sales increased 36% in the first quarter to $70 million, we continue to view internet sales as an essential part of our growth strategy as it provides guaranteed direct access to our end customer.

Each of our three geographic regions saw strong revenue growth in Q1. Sales in the Americas increased 35% to $100 million, Asia increased 33% to $73 million and Europe increased 43% to $54 million.

In our largest region Americas, we saw a strong Q1 revenue increases in all three channel. Retail sales in the Americas region increased 32% while store count at the end of the quarter was only up 3% from prior year. Sales from wholesale grew 40% for the quarter. In the USA revenue was up 33% and for the quarter represented 35% of total global sales.

Sales from our Asia segment were strong across all channels and up 33% overall. As John mentioned the devastation in Japan resulted in a temporary closure of three retail locations and a delay of delivery for some products.

We anticipate that most of the first core deliveries will roll into Q2 but there maybe some impact on full year sales pending the extent consumer demand returns later in the spring. Following the Japan natural disaster, we donated a large amount of products in the region. The impact of that donation was about $700,000 in the quarter or approximately one penny per share.

Europe sales growth of 43% versus prior year was driven by stronger wholesale demand and doubling of our internet volume in the region. We now operate our Europe internet site in eight languages and reach 25 countries.

Global footwear unit sales were $12.6 million during the first quarter which compares to $9.8 million during Q1 of last year. Our new products globally represented a third of our Q1, 2011 unit sales.

Average selling price Q1 was up 6% for the quarter adjusted for changes in channel mix in geography ASP was up 9% representing a combination of higher content new products, favorable currency movement and efforts to raise prices.

For the quarter we saw Americas and Europe wholesale revenue grow faster in the quarter than overall revenue. Gross profit for the first quarter of 2011 was $119 million up from $87 million in the first quarter of 2010. Gross margin was 53% in Q1 versus 52% in prior year. This is the result of average product cost increasing above 6% more than offset by pricing, product mix and increased leverage in supply chain cost.

First quarter 2011 SG&A increased 18% to $91 million compared to $77 million in Q1 2010 or about 40% of revenue. Our direct channel SG&A grew inline with revenue as we saw rent related cost salaries and wages in store selling cost increase.

The first quarter 2011 yielded an operating profit of $28 million versus $9 million last year. As reported earlier today, net income for the first quarter of 2011 improved to $21.5 million or $0.24 per diluted share on 90.3 million shares with an effective tax rate of 23% compared to $6 million or $0.07 per share in the first quarter of 2010.

We ended the first quarter with $150 million in cash or 115% improvement from 2010 model, a 54 million. Our accounts receivable balance was $123 million or 40 million days sales outstanding down from 53 days in a same period in 2010.

We ended the quarter with inventory of 154 million. Our inventory increase from 2010 is broken down as follows. About $6 million of the $47 million increase is in direct support of our increased store count and larger locations stores compared to last year. Our average cost prepare was up 6% driven by slightly higher product cost and changes in product mix which increased our inventory value by 16 million and the remaining increase is in unit account which is up about 25% and inline with our backlog for the quarter compared to the same period last year.

We expect our inventory will decline in the second quarter approximately 8% to 10% as we sell-through our spring and early summer season. For the second quarter of 2011, we expect to generate approximately $280 million in revenue and expect a diluted EPS of approximately $0.43.

With that operator we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll take our first question today from Jim Duffy of Stifel Nicolaus.

Jim Duffy - Stifel Nicolaus

Good afternoon, a couple of questions. First on the backlog, is it fair to say that the transition for greater pre-book volume is now complete and are on an apples-to-apples situation with the backlog?

Jeff Lasher

Jim, I think that that’s probably directionally fair to say I’m not sure we’ve reached a level of status quo where we won’t see a growth in pre-books greater than our overall revenue growth in 2012. I think that’s a little too premature to say. When we do look at our pre-books, the $260 million, about half of that going to be delivered in the second quarter. The other half will be delivered in Q3 and Q4. So we can already start to see the fall holiday 2011 results with a $130 million already in the back half of the year for backlog, looks pretty strong.

Jim Duffy - Stifel Nicolaus

Jeff, is there a way to isolate the fall holiday backlog growth on year-over-year basis?

Jeff Lasher

The $130 million of backlog for delivery in Q3 and Q4 predominantly is fall holiday products. Those would be delivered starting July 15, all the way out through the end of the third quarter which would predominantly be the fall holiday.

Jim Duffy - Stifel Nicolaus

Okay. And then as we look to the 2Q guidance for revenue growth, can you speak to this relative to growth expectations for the different regions?

John McCarvel

So the growth rates that we saw in first quarter with Europe and Americas growing massively relative to the Asia growth. We anticipate more of a kind of a common growth rate across the board in Q2 versus Q1 and kind of different dynamics. Asia will be adding additional storage in a greater pace than in Americas, as in the Americas we have a map that’s pretty well filled out, but we have a lot of store opportunities that have identified themselves in Asia. So for different reasons, we should see approximately the same kind of growth rate, very similar to Q1 spread between regions.

Jim Duffy - Stifel Nicolaus

Okay. And then you saw great improvement in the European business. Can you isolate the wholesale growth versus a direct consumer growth and speak to any improved traction you are getting there on a wholesale basis?

Jeff Lasher

Sure. On the wholesale business, we saw a 36% increase, Jim, Q1 2011 versus Q1 2010. The internet business, as I mentioned, doubled year-over-year. So we were really satisfied with that as we reach further into the Europe region. On a retail basis, the absolute sales were up 60% as we have added some stores there.

Jim Duffy - Stifel Nicolaus

Okay. That's very helpful. And Jeff, you broke up when you were outlining the -- go ahead.

Jeff Lasher

I was going to say, just recalled in Q1 of 2011, 90% of the Europe business is wholesale. We are still relatively immature or don’t have the map filled out for retail in the first quarter for Europe.

Jim Duffy - Stifel Nicolaus

Okay. That's great. And then, Jeff, you broke up, at least, on my end when you were talking about the factors contributing to the inventory growth. Could I ask you to go through that again?

Jeff Lasher

Yes. No problem. Sorry for the technical difficulties there. So, what we said was about $6 million of the $47 million increase in inventory, Jim, was in direct support of increased store count in larger locations compared to last year. Our average cost per pair was up 6%, driven by slightly higher product costs and changes in product mix. That increased our inventory by about $16 million.

And the remaining is in association with our backlog increase. Our unit count is up about 25% versus prior year. And like we said, we anticipate some strong Q2 deliveries off our backlog. At the end of second quarter, we believe that our inventory will be down about 8% to 10% versus our Q1 2011 closing numbers.

Jim Duffy - Stifel Nicolaus

Okay and then the last question and I will let someone else jump in, what's a good tax rate to use for the year?

Jeff Lasher

We said at the beginning of the year 25% to 27%, we think we will be on the lower end of that 25% to 27% concerning that first quarter came in at 23%, I really kind of as you know Jim we’ve discussed in calls in the past. It really kind of depends on where we make the money, Japan and USA being relatively high tax rates compared to the rest of the world. So we are still estimating around that 25%, 26%, 27% tax rate.

Operator

Next you will hear from Reed Anderson of D. A. Davidson.

Reed Anderson - D. A. Davidson

Good afternoon and congratulations Jeff on your promotion. A couple of things I want to follow-up on, first on Jim's question on Europe. In terms of the dynamics that led to that being very fast growth, but then you are saying that going forward it’s more kind of a consistent growth rate across the regions, I am just curious why Europe wouldn't grow faster and it sounds like the things you articulated would lead that to be a little bit better performer on a relative basis.

John McCarvel

Yeah, Reed that's relatively true and over time that should play out that way but in particular to Q2, we did see a shift in volume from Q2 to Q1 as we continue to grow our pre-book as a percentage of our overall wholesale business and Europe is a predominant wholesale play, 90% of our sales in Q1 were wholesale and still the vast majority of our unit sales in Europe are wholesale.

So we have identified some store opportunities in Europe. We are very pleased with our internet growth like I said that doubling in size, but still on a relative basis the direct-to-consumer model in Europe represents a lower percentage of overall sales than it does in the Americas and Asia region. Overtime as we grow that percentage of direct to consumer closer to where we are in Asia and America the growth rate for Europe will be more sustained and shift to direct to consumer.

Reed Anderson - D. A. Davidson

Okay, that’s make sense. Another question was on gross margins, just kind of curious I mean probably don’t to precise forward basis but this was a quarter where margins were up a little bit but I think we are going to talk in more kind of consistent margin at least for the full year what are some of the puts and takes as we think about the next couple of quarters. Just revisit that and give us some color on things to remember with that.

John McCarvel

Sure, as we look forward I think the forward first and I’ll go back on Q1. As we look forward we continue to see product cost pressure, we are always looking for ways to save cost both in our supply chain and our product cost to offset some of the raw material and labor cost challenges that we have in the macro economic world. Certainly in the supply chain we will continue to look forward to leveraging of our structure there. In addition we always looking for opportunity to save cost in the SG&A side of the ledger all the rest of our margin and we’re always looking for opportunity on the SG&A side. The reality of the macro economic world is that we have got to find ways to offset those cost in order to maintain margin on a year-over-year basis comparable to 2010.

Jeff Lasher

When you look back on Q1 are you looking to 53% in line with that we have brought. You know John did mentioned we lost some sales in Japan in our -- as we look that you know we have had all of the cost structured in place where those sales and we didn’t have those sales there was slight change to our gross margin percentage on a percentage basis with those shift in units into Q2. So we are looking at our gross margin in total at 53% I think it’s in line with where we want it to be. So we’re not disappointed in our Q1 results.

Reed Anderson - D. A. Davidson

And I mean as we think about the full year, I mean it’s just a year though where given everything that’s a factored for gross margins that you’d be flattish with ‘10 would be a year that’d about okay, would that be fair?

Jeff Lasher

No, I don’t think so.

John McCarvel

No, I don’t think so. So I think when Jeff articulate through the you also have to think to read that with our business 30% roughly in Q1, 27% of our Q1 revenue comes from the direct channel and you see that shift in Q2, Q3 where the direct channel then become a small 42% of our overall revenue on projection today. So with that shift and channel mix, you’ll get that little bit of uplift that we’ve seen historically and our guidance have built in for Q2 and we think that happens in Q3. If we go back to Q4 again, we think it’s more like Q1 margins where our holiday products aren’t at the same margin structure as our, spring-summer products, so we get a little bit of a haircut for gross margin still in Q4 but much less dramatic may be than in previous years.

Reed Anderson - D. A. Davidson

That’s very helpful. Thank you. Then my last question is just Jeff you said that the retail stores I think the average volumes were up 18% and with that do you want to give a comp number or we do you not want to give a comp number. I’m just curious you would translate that into a kind of comp store sales on that.

Jeff Lasher

So that would and the average store went up by 18% year-over-year. The reality is the average store is larger than it was. So it’s a combination of both increased price, increased unit sales and larger stores. We are trying to stay away from comp I think as John mentioned a few times last year, we were going to move away from comps because it is difficult with our mixture of stores. If I gave you the comp store number that make sense to you given that the key aspects we have mentioned before have a difficult time showing a breadth of our product line. It is difficult for us to show you a relevant comp store. And frankly the way we look at the business is more on revenue per day than on a constant store basis.

Reed Anderson - D. A. Davidson

Understood. Hey, thank you very much, best of luck.

Jeff Lasher

Thanks Reed.

Operator

We go to the line of Jeffrey Klinefelter from Piper Jaffray

Jeffrey Klinefelter - of Piper Jaffray

Yes, thank you. Congratulations every one and a great start to the year and Jeff congrats on the promotion.

Jeff Lasher

Thanks Jeff.

Jeffrey Klinefelter - Piper Jaffray

Backlogs first as revisiting part of Jim's question, the approximately $130 million of that backlog number that is really a product or Q3, Q4 product. I think part of his question I think will be helpful to know this time last year how much is that up on a percentage basis starting to get a feel for the kind of back half booking trends year-over-year.

Jeff Lasher

When we look at the backlog versus the prior year, we are pretty happy with the way the second quarter is growing out. At this point last year we had pre-books for second quarter about $80 million. When we look at the Q3, Q4 combined number, we had about a $100 million this time last year versus that $130 million that we have so called in the bag today for Q3, Q4 delivery.

Jeffrey Klinefelter - Piper Jaffray

Okay and then, just the 150 million roughly that we would be implying here for the Q2, I guess reorder business or the ones business, just getting a sense for your visibility into that Q2 is much more about a reorder business and given all the different factors at Q1, the way it ended with the direct business trends, the way it ended with wholesale. Can you just give some sense, you know, John or Jeff, on your comfort level with that reorder? Obviously, it's your guidance, but I am just curious on how you get to that level of comfort with that volume?

John McCarvel

Yeah. You know I think, that the business model does clearly start to change this year and we will have to work through with you through the quarter. Our current kind of expectation is that we are not going to see that same amount of dependency on at affluent business that we have in previous years.

And partly because of the mix of our wholesale partners today and the way that they order and the way that they go to market and so our feeling at this point in time is that we are not going to see that level of re-order business that we would with the independents and some of the smaller retailers that we have dealt with in previous years. It's a little bit different for the family channel and for other major retailers.

And I also think as we've said repeatedly, that we are not going to maybe chase business into the Q3 timeframe and position inventory as we have in the past that there might be a certain amount of shortages for some of the key products that will be healthy for us long-term.

Jeffrey Klinefelter - Piper Jaffray

Okay. That’s helpful, John, and so maybe one more clarification on that point. So, I think Q1, you mentioned in your opening comments that you transitioned your U.S. stores earlier than last year that provided nice incremental lift to sales; if we think about Q1 upside to revenue coming from that and maybe the European e-commerce business. In Q2, what would likely end up being an upside surprise to revenue if it transpired? What would be the direct channel selling through faster than expected? Would it be reorders kicking in faster?

John McCarvel

I think all of the above and I don't think we are looking at one channel that could be solely accretive to top-line growth. I think we are positioned, we do have sufficient inventories. We've said we grew our inventory a little faster in Q1 in revenue and we expect it will be the inverse in Q2 as we fell through those core products that we have positioned for either retail or wholesale.

I would say also to the Q2 revenue projection, we've estimated what we think is a reasonable revenue flow in Japan for the quarter and if there's you know a sell-through and settling in that market then I think we are in a position to take advantage of potential uplift to guidance in Japan if things materialize in a positive way.

Jeffrey Klinefelter - Piper Jaffray

Okay. One last thing, on Europe at any particular markets that you can call out within Europe that are driving that strength of sell-through and then also where do you stand currently at kind of your store opening plans for the year you know how many do you anticipate and how many have been already negotiated?

John McCarvel

I’ll do the revenue piece and Jeff can go through the retail store piece with you. I think again one of the things that we’re most proud of is this continued balanced growth in our markets. And we said today that we are now at 65% non-US revenue and in the past it was about 62% to 63% so again we've seen nice growth across all region, in all channel.

The same thing is true in Europe Jeff; we see a nice balanced growth in the Nordics, in Russia, in all of the western European more developed countries, distributors have taken good inventory positions for Q1 and into earlier Q2 for key core products. And so I think the nice thing about that is we are not having predominance over one market is just kind of outstripping the other there.

On the retail question I’ll let Jeff answer that.

Jeff Lasher

Yeah, thanks Jeff. So when we look at the retail business in Europe, in the first quarter we opened two locations in the market that we go direct to; as you know the primary locations the UK France and Germany, Finland and Russia are the areas that we have direct influence implements on and we have the rights open our directly owned retail stores.

So as we look into Q2, Q3 and Q4 we are actively in negotiations with a number of stores in the Southern part of France along the Mediterranean Coast, the cities of León or Marseilles other large metropolitan areas on the South side of France. We are looking at locations in Paris for opportunities within the metropolitan area of Paris.

In the UK, we are actively looking and negotiating on properties throughout the island. We are also looking for opportunities within the Moscow area of Russia, Helsinki and in parts of Germany.

So we are actively out looking for locations; I am hesitant give you kind of expectation of where we think we get stores open, because we are still negotiating with those landlords and trying to finalize those deals and make them make sense for both us in the landlords. That gives you a kind of favor we are looking and how aggressively we are looking for store opportunities

Operator

(Operator Instructions) Next question is from Jim Chartier with Monness, Crespi, Hardt.

Jim Chartier - Monness, Crespi, Hardt

Good afternoon. My first question, could you tell us how much you have haircut your expectation for Japan, what kind of impact you expect to have on sales and earnings for second quarter?

John McCarvel

I think Jeff touched on in it in his portion of the presentation, Jim. We rolled over about $3 million of orders from March end to April on a variety of different reasons, transportation, logistics, customer readiness that are being delivered and I think next week it’s going to be telltale sign as we see what the appetite is in the Japanese market when we go into golden week and we’ll see what the retail market looks like.

Having just been there and spent time over four and a half days talking to two large retailers plus lot of our own people. Yes, but there is a big difference between East and West. East being Tokyo and everything east of Tokyo and North and to the West in which you see in the Tokyo marketplace in the first two months of the year, everybody is comping up retail environment was pretty positive.

After 311, you saw a significant degradation in the buying patters of consumers especially in the Tokyo market. So what would that look like, we would be in the western region Osaka, and Kyoto, Hiroshima, Nagasaki, that would be seven of the top ten cities in Japan accounting for about 65% of the buying power, that’s a 100% on par year-over-year, where Tokyo everything east, is at about 75%-76% of what they purchased a year ago. So you see a significant difference in the different regions in Japan. It's a little bit hard April for most retailers bounced back and showed a positive comp gain in the first month of the quarter there.

And so it's a little bit hard to truly determine what that might be. Internally, we have haircut our expectations in Japan between $3 million to $5 million in the forecast and guidance that we have given today.

Jim Chartier - Monness, Crespi, Hardt

Okay. That is helpful. And then can you talk about the new marketing that you are doing to shift away from TV, how that’s performing for you?

John McCarvel

Sure, so I think last year the feeling really with the brand was that consumers had kind of lost track with where we are and I think that’s true sometimes when we listen to some of the financial pundits. And we have moved far away from what the iconic shoes are into being a much larger lifestyle brand.

So the push last year was to put a lot of marketing dollars especially in the US into mainstream media on prime time television and by sales in a few billboards. This year we can see the brand’s strength in some of our marketing index. So now it's really how do we fill the new consumers. And there is a variety of different ways we do that socially today to reach out and touch consumers so that they stay and that we evolve in their mind as a lifestyle brand. And so, there is a variety of different things that we do there in the US market place today, a little bit in Europe and Japan. But it's much more how we engage with the consumer as they go about buying and as they got about looking at the potential purchases, especially footwear.

Jim Chartier - Monness, Crespi, Hardt

And then the Jibbitz by Crocs sub-brand? Did you say how many doors you would be in for fall in holiday?

John McCarvel

I didn’t give you door count and partially because I think that when we did the initial launch with Target, with the Jibbitz by Croc shoes, I don’t think that they thought the sell-through was going to be as significant, as what they experienced. And so, what they bought and what they sell-through was a significant mismatch.

So, they have about 1,785 doors that could put Crocs in. They haven’t bought sufficient product to put them in all 1,785 doors. But they've been very pleased with the sell-through. And so, I think, we will see a change maybe in what their thinking is for the back half of the year.

Jim Chartier - Monness, Crespi, Hardt

Okay. And then any thoughts on extending that brand outside of Target?

John McCarvel

Yeah, there is talk about it. But I do think as we've said before, it's not really our desire to build a significant revenue stream in that sub-channel. It's more opportunistic on our part. We continue to focus really on designing and building really state-of-the-art fun lifestyle products that go to the essence of color and comfort and that’s where the main focus is. I think in Q1 this accounts for about 3 to 3.5% of our overall revenue for the US marketplace. This is not a significant play or strategy, but it’s much more opportunistic on our part to be able to do that.

Operator

Next, we will hear from (inaudible), Robert W. Baird & Co.

Unidentified Analyst

This is (inaudible). A couple of questions, I just want to quickly go back, just for confirmation, did you guys say that you now expect the gross margin to be slightly up for the year versus compared to last year.

Jeff Lasher

We don't comment on full year guidance, I think we are talking in that conversation more about Q2.

Unidentified Analyst

Okay, so Q2 slightly higher than last year.

Jeff Lasher

No, that's not what we said.

Unidentified Analyst

Okay, that would be down then, and then that's just more of a product of the fact that it’s more, slightly more at one versus the pre-book model.

John McCarvel

I know we didn't really comment on overall gross margin, we talked about kind of the puts and takes around gross margin and SG&A and gave guidance to $0.43.

Unidentified Analyst

Okay and then I think going back to marketing, you guys talked about getting away from kind of the television campaign, was there a specifically big impact that you saw in terms of first quarter whether it be on sales or SG&A in terms of the new marketing.

John McCarvel

I wouldn't say that we see a big hit per se based on marketing I think so it’s hard to separate a little bit on the consumer's mind what drives them to point of purchase, you've got great marketing around great products. So what actually sold in that targeted marketing to be able to take the translucent line into consumers that are looking for any influencing you know other buyers for something front, something different for the season is the way we look at that direct marketing channel.

Unidentified Analyst

Sure. And with these new channels of marketing do you still expect the marketing levels to come in similar what we saw last year?

John McCarvel

Yes. We remain committed to marketing expense being a consistent last year-over-year.

Unidentified Analyst

Great and I appreciate. That’s all I got. Thanks guys, good luck.

John McCarvel

Thank you.

Operator

(Operator Instructions) And we’ll go next Jessica Bornn with Sterne Agee.

Sam Poser - Sterne Agee

Hi, it's Sam Poser at Sterne Agee. How are you guys? I just want to follow up on the question about Japan in your guidance what are you – are you presuming in the guidance that $3 million moves from Q1 to Q2 or are you thinking that position will be down in a quarter?

John McCarvel

Well, it's both let me; Sam we make sure I am clear. So we are shipping that backlog that we shifted from Q1 in Q2. Now the question really Sam will be is what the appetite will be for Q2 consumption; we will miss the turn in the retail cycle in Japan with the activities that are ongoing there. And if that’s the case then we think as I said that will take a hair cut which we factored into our guidance of $3 to $5 million out of our plan.

Sam Poser - Sterne Agee

So that’s already reflected in the $0.43 for the quarter. And in Q1 there was a penny for the charitable contribution so are you expecting that kind of thing to repeat once again in the second quarter?

John McCarvel

No, we’re not. Actually you know with all natural disasters like it takes a little bit of time for products that are being donated to be consumed in the process. So just being there a couple of weeks ago myself I can say that it will take them through the second or may be even into the early part of Q3 to actually distribute all that product.

Today almost the end of April, we’ve distributed about half of the 100,000 pairs of shoes that we have committed, the other half are still sitting with agencies waiting to be able to get logistics and people on the ground up in those affected regions to get product up and distribute it. So no, it’s not our expectation; that we’ll do that again in Q2 or probably even Q3 for that matter.

Sam Poser - Sterne Agee

Okay. And then thank you – and then what the US, when you look at the initial reads both and you might have answered it sorry I hopped on in the middle, the initial reads for spring selling in both the U.S. sort of the rate of filling outside of the Japanese issue that you’re starting to see, is it moving up to your expectations, are those snickers, translucents, toning the new products generally selling, where do they’re selling relative to your expectations?

John McCarvel

Yeah, I touched on that briefly at the beginning of my section, but we think yeah for translucents and snickers our sell-though has been solid, replenishment has been solid. And when it comes to the toning shoes you know what we really see in the U.S. market is not a disinterest almost by consumers on the toning products. It is sailing in okay. We didn't take a big position as we have said before on toning. It rounded out of portfolio.

The shoes are extremely comfortable and give you some additional muscle activity and so we liked the products that we developed in that space, but it wasn't a big play on our part. I did travel in Europe for a week and then in the Far East for a week and being in Shanghai and Tokyo.

And the interesting part was I saw a lot more toning products from most of the major players in those markets and I saw a lot more interest by consumers in those markets to buy toning products. So I think globally we see different things in different markets.

Sam Poser - Sterne Agee

Okay. I have two real quick, was the share count for the quarter was what and what is the tax rate that they are using for the rest of the year?

Jeff Lasher

Sure Sam, share count for the quarter was 90.3 million and what we said was the tax rate, you know 25%-27% is what we are trying to guide everyone to on the tax rate, kind of depends on where we make the money for the quarter. For the first quarter we made, we had a tax rate of 23%. So, that would bring us down to the kind of lower end of that 25% to 27% range as we look forward into the rest of the year as the first quarter was only 23%.

Sam Poser - Sterne Agee

Okay. Well, thank you very much. Good luck.

Jeff Lasher

Thank you, Sam.

Operator

And we have time for one final question. That will be a follow up from Jim Chartier

Jim Chartier - Monness, Crespi, Hardt

Can you remind us when you are going to start manufacture with Crosslite 2.0 and when you will start to see that benefit in gross margin?

John McCarvel

We have started building with the next generation Crosslite 2.0 material and you know you are going to see the slow impact to gross margin really over the year as we phase it into one more product going forward.

Jim Chartier - Monness, Crespi, Hardt

And what kind of impact would you expected to have on gross margin? Is it 100 basis point benefit over the course of the year to be quantify to an extent?

John McCarvel

I think it just depends upon the volume of products, Jim, that we put it into. I don’t know that we've quantified it. Maybe that would be a good topic for us to go into further when we do the Investor and Analyst meeting here in about two weeks time.

Jim Chartier - Monness, Crespi, Hardt

Okay. Thank you. Good luck.

John McCarvel

Thanks.

Operator

And that is all the questions we have today. I would like to turn the conference back over to management for any additional and closing comments.

John McCarvel

Thank you. And thank you again for joining us today. We look forward to speaking with you in about 90 days when we report our second quarter results. In the meantime, we will be hosting an institutional Investor and Analyst meeting here at our headquarters in Boulder on Monday, May 9th. If you are interested in attending please contact us and we will provide you more details. With that have a good evening. Thanks again.

Operator

Again, that does conclude today's conference and thank you all for joining us.

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