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Executives

Angel Martinez – President and Chief Executive Officer

Zohar Ziv – Chief Operating Officer

Tom George – Chief Financial Officer

Analysts

Jeff Klinefelter – Piper Jaffray

Bob Drbul – Barclays Capital

Omar Saad – ISI Group

Mitch Kummetz – Robert Baird

Camilo Lyon – Canaccord Genuity

Diana Katz – Lazard Capital Markets

Taposh Bari – Jefferies & Company

Christian Buss – Credit Suisse

Eric Alexander – Stifel Nicolaus

Chris Svezia – Susquehanna Financial Group

Scott Krasik – BB&T

Howard Tubin – RBC Capital Markets

Deckers Outdoor Corporation (DECK) Q4 2011 Earnings Conference Call February 23, 2012 4:30 AM ET

Operator

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Deckers Outdoor Corporation Fourth Quarter and Fiscal 2011 Year End 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. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions) I would like to remind everyone that this conference call is being recorded.

Before we begin, I would also like to remind everyone of the company's Safe Harbor policy. Please note that certain statements made on this call regarding the company's expectations, beliefs, and views about future financial performance, brand strategies, and cost structure are forward-looking statements within the meaning of the Federal securities laws. These forward-looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. These statements relate to the company's anticipated revenues, expenses, earnings, gross margin capital expenditures, brand strategies, and cost structure as well as the outlook for the company's markets and the demand for its products.

The forward-looking statements made on this call are based on currently available information and because its business is subject to a number of risks and uncertainties, some of which may be beyond its control, actual operating results in the future may differ materially from the future financial performance expected at the current time.

Deckers has explained some of these risks and uncertainties in its earnings press release and in its SEC filings, including Risk Factors section of its Annual Report on Form 10-K and its other documents filed with the SEC. Listeners are cautioned not to place undue reliance on forward-looking statements, which may speak only as of the date hereof. The company undertakes no obligation to publicly release or update the results of any revisions to forward-looking statements.

I would now like to turn the conference over to the President, Chief Executive Officer, and Chair of the Board of Directors, Angel Martinez. Please go ahead sir.

Angel Martinez – President and Chief Executive Officer

Well, thank you and thank you to everyone for joining us today. With me on the call are Chief Operating Officer, Zohar Ziv and Chief Financial Officer, Tom George.

We're very pleased to report fourth quarter sales and earnings that exceed the levels that we outlined back in October. Our performance was driven by higher than expected demand for the UGG brand, primarily in our domestic wholesale channel. Fourth quarter UGG brand sales increased 38% easily pushing the first full year brand sales past $1 billion for the first time ever. This tremendous performance is a testament to the hard work put in by our UGG brand team year-in and year-out. Congratulations to Connie Rishwain and the global UGG brand team.

Tom will go through the financials in a moment, but I do want to highlight some of our key achievements. Fourth quarter net sales rose 40% to a record $604 million and diluted earnings per share increased 40% to a record $3.18. It was very gratifying to end 2011 on such a high note.

For the year, annual sales were $1.377 billion up 38% over 2010 and full year diluted EPS increased 26% to $5.07. A record financial performance was a result of our global team successfully executing the growth strategies that we have implemented over the past few years. While we regularly fine tune our strategies to adapt to market changes, our central theme has not changed, which includes reinvesting in our business and our brands. And in 2011, this included new product development, marketing, expansion of our consumer direct platform, which consists of our retail stores and eCommerce business and international growth, including the startup of subsidiaries in Europe.

2011 also included the acquisition of the Sanuk brand, a terrific addition to our brand portfolio and a compelling new growth vehicle for the company. Each of these investments contributed to our results while at the same time strengthening our connection with consumers, improving our position with retailers, and enhancing our future prospects.

Let's talk about new products. New products and styles, which continued to spearhead growth in 2011. For the UGG brand, we introduced new styles in our classic collection significantly expanded the style count in our women’s fashion, cold weather, clog and casual collections launched our high-end Italian collection, and broadened our men's offering. In aggregate, the response of the 2011 fall and spring lines was very positive and we are confident that the evolution of the UGG brand is creating repeat customers and attracting new customers.

The popularity of our classic boots was further enhanced this year by the Sparkles and Triplet Bailey button, which along with selected price increases help drive steady growth of our largest collection. As planned, our non-classic collections were the main growth drivers. Based on the sales mix, it is evident we are gaining share in new categories as we introduced more fashionable, functional, and of course, comfortable boots, comfortable sneakers, sandals and casual footwear for women and men, and continue to create growth in our highly successful slipper category.

Importantly, distribution for these new collections is not limited to our own stores, website and select wholesale accounts. Across our department stores, specialty retail, and independent network, more and more shelf space is being dedicated to our growing lifestyle product offering. It was a similar story with the Teva brand, as new products particularly our growing assortment of closed toe footwear fueled the brand's second consecutive year of 20% plus growth.

Expansion of our multi-sport product lines was especially critical to the Teva brand success during what was a very cold and wet spring season. In past year, this would have dealt a huge blow to the brand's performance when the line was almost exclusively sandals. So, the transformation of the Teva brand into a more well-rounded year-round outdoor performance brand is also extending its selling season deeper and deeper into the year.

On the marketing front, we know that product isn't the only thing evolving at Deckers. Our marketing has also taken a significant step forward. I’ve spoken of this before, but it’s worth repeating. We have made the transition from being an exclusively product-driven company to a product and marketing driven company, which is an important step in altering consumer perception of the UGG brand and putting us on a more even playing field with other global lifestyle brands.

Our UGG brand marketing team did a terrific job in 2011, especially with the Tom Brady campaign and the launch of our men’s initiative. Across the brand, print will continue to serve as primary platform, but you will also see us become more aggressive in our use of media and use of mobile and digital technology to reach consumers and creatively educate the audience on our brand's development.

In consumer direct, which is another way we are connecting with consumers. We are expanding our company-owned retail stores and the improvement of our eCommerce capabilities. In 2011, we opened 18 new locations, primarily in China and in Japan. We’ll end the year with 45 stores globally. Our consumer direct channels do a great job showcasing from the breadth and depth of each season's product line, while providing us with great insight in the consumer behavior and buying patterns. Important data, that we are now able to mine and incorporate into our decision-making processes.

Both consumer direct channels, eCommerce and retail, generates strong operating income margins. And one of the more critical investments we made over the past year was the build-out of a subsidiary infrastructure in Europe. Now, under the leadership of Steve Murray, we have developed the very strong foundation that will serve the company well in the years ahead as we look to penetrate new and existing markets throughout the continent.

We are pleased with how the initial transition to wholesale distribution in the U.K. and Benelux progressed, particularly given the total size of the businesses we assumed and the macroeconomic issues facing these markets on their consumers. By working directly with retailers, we have been able to better highlight the long-term benefits of merchandizing a broader selection of the UGG brand and the entire product line, change the way they view the UGG brand and how they think about successfully growing our partnerships with us, which in turn is changing consumer perception of the brand. Now, this will be an ongoing process, but the results from 2011 were encouraging.

We are confident that with – that what we are beginning – that we are at the beginning of an exciting new chapter for our international business. One that we believe has great long-term potential given the vast opportunities available for our broader product lines. And I should be clear that these opportunities are not limited to just Europe. In Asia which is now being led by Pete Worley, former Brand President of Teva, sales, particularly in China and Japan, are growing at a quick pace driven by investments and retail stores at a positive consumer response to new products.

Now, to the Sanuk brand which turned out to be our largest investment in 2011. This is the brand we are very excited about. It's very authentic in surf and action sports and has very strong lifestyle potential with a devoted customer base beyond core sports. The fact that Sanuk brand has been able to expand as fast as it has past few years, and develop such a passionate fan base, speaks to the success it has had walking that fine line between growth and maintaining the brand's original identity.

Now, this will not change going forward. We plan to develop the key retail relationships in department stores, outdoor sporting goods, and specialty footwear channels to increase distribution and shelf space, but we will not use our size and leverage to maximize the brand's opportunities overnight. Growth will be achieved methodically and strategically. And primarily through product line extensions that are more appropriate for broader distribution and do not jeopardize the continued success of the Sanuk brand with the core surf and action sports channel.

I'll now turn the call over to Tom. Tom?

Tom George – Chief Financial Officer

Thanks, Angel. In addition to what Angel discovered, there is a good amount of detail about our fourth quarter and full year sales and earnings results in today's earnings release, including sales by brand channel and geography. So, in an effort to leave more time for Q&A, I am going to limit my discussion primarily to gross margins, operating expenses, the balance sheet, and guidance. Gross margin for the fourth quarter was 51% compared to 54.2% in the fourth quarter of last year. The decline was due to an increase in product cost and a higher close-out sales partially offset by higher margins in our international business as a result of the transition to direct subsidiaries in the UK and Benelux. For the full year, gross margin was 49.3% compared to 50.2%.

Total SG&A expense for the quarter was a $131 million or 21.7% of net sales compared to $92.6 million or 21.5% of net sales a year ago. SG&A increased primarily due to operating expenses related to our inversion to a wholesale business model in the UK and Benelux and additional expenses of acquiring and operating the Sanuk brand. In addition, fourth quarter 2011 SG&A includes additional marketing investments of $3.9 million, higher legal spend totaling $2.2 million, and $4.2 million in the amortization of intangible assets and purchase price accounting tied to the Sanuk brand earn-out payment. There are also 8 new retail stores that were not opened during the fourth quarter last year and additional increases in variable expenses for the increased sales. For the year, SG&A expense was $394.2 million or 28.6% in net sales compared to $253.9 million or 25.4% in net sales.

Let me summarize some of the identifiable expenses that drove the year-over-year increase in SG&A. There was $9 million of one-time costs related to our transition to a wholesale model in the UK and Benelux, $11 million of additional marketing and advertising spend to support the UGG brands' men's and women's prospect initiatives, $6.7 million of additional legal spend to further fund the protection of our intellectual property and trademarks, $4.1 million of due diligence audit and transaction fees related to the Sanuk brand acquisition, $8.6 million associated with the amortization of intangible assets and purchase price accounting tied to the Sanuk earn-out payment. On top of these, there were additional expenses for opening and operating 18 new stores and increased payroll as a result of running the larger company, particularly with addition of our new subsidiaries in Europe.

Now to operating income. For the fourth quarter, operating income was $176.8 million or 29.3% of sales, compared to operating income of $140.7 million or 32.7% of sales last year. For the year, operating income was $284.8 million or 20.7% of sales, compared to operating income of $249.1 million or 24.9% of sales. The decline in operating margin was a result of the slightly lower gross margins and the aforementioned investments in our global operating platform. Our effective income tax rate for the fourth quarter was 28.2% compared to 35.2% in the fourth quarter last year, and for 2011, our effective tax rate was 29.2% compared to 35.9% in 2010. A lower tax rate was driven by the increased mix of international pre-tax profit. Capital expenditures for the full year were approximately $35.8 million, higher by $32.7 million from 2010 driven mainly by the build-out of 80 new retail stores and the land for the new corporate facilities.

Turning to the balance sheet at December 31, 2011, inventories increased 102.6% to $253.3 million from $125 million at December 31, 2010. By brand, UGG inventory increased $107.1 million to $201.8 million at December 31, 2011. Teva inventory increased $6.6 million to $29.3 million at December 31, 2011. Our other brands inventory decreased $1.5 million to $6.1 million at December 31, 2011.

The newly-acquired Sanuk brand inventories were $16.1 million at December 31, 2011. The increase in inventory from a year ago is fairly equally balanced between the growth and spring orders, inventory for our direct subsidiaries in the UK and Benelux, the addition of the Sanuk brand and growth of our customer direct division, carryover product from the holiday period which will be utilized to fulfill orders during 2012 and an increase in product cost.

In addition at December 31, 2011, we had cash and cash equivalents totaling $263.6 million compared to $445.2 million at December 31, 2010. The decrease in cash and cash equivalents is primarily attributable to $125.2 million of cash payments associated with the acquisition of the Sanuk brand as well as approximately $20 million of cash payments for land for the – for our new headquarters facility. At December 31, 2011, we had zero borrowings outstanding under our credit facility.

Accounts receivable at December 31, 2011 were $193.4 million compared to $116.7 million at December 31, 2010. The increase was attributable to increased sales and the conversions from distributor models to wholesale models in certain European markets.

Now moving on to our outlook based on current visibility, we expect 2012 revenues to increased approximately 15% over 2011 level, but the full year, we expect UGG brand sales to increased by approximately 11%, Teva brand sales to increase 10%, Sanuk brand sales to be approximately $90 million, our other brands combined to be flat. Note that Sanuk brand sales were $69 million in 2011, which includes $42 million from the first half of 2011 before we acquired the brand.

We currently expect diluted earnings per share be roughly flat with 2011 levels, which assumes a 200 basis point year-over-year decline in gross margin and SG&A as a percentage of sales of approximately 29%. Our effective tax rate is expected to increase to approximately 31% in 2012 driven by the increased mix of domestic profit compared to 2011. With regard to gross margin, we expect cost of goods sold, which comprised about 51% of sales in 2011 would have been up approximately 10% in 2012 over 2011 as the result primarily of higher raw material cost namely sheepskin, which are up approximately 40% over 2011 levels and up approximately 80% versus 2010.

The higher sheepskin cost, the higher sheepskin prices are costing us about 500 basis points of gross margin roughly a $1.40 and earnings per share in 2012. However, primarily through selective price increases, the full year addition of Sanuk and a greater contribution from a retail division will be able to offset about 300 basis point of the gross margin decline and fully offset the negative impact to our bottom-line.

As we have discussed before, we have also implemented long-term programs to help further mitigate the impact from higher sheepskin and raw material cost. These include increasing the mix of non-sheepskin products, new footwear materials and new production technologies, and taking advantage of lower cost production including the United States where we will begin sourcing product from later this year.

Included in our SG&A projection, our non-cash charges of approximately $13 million associated with the amortization of intangible assets and purchase price accounting tied to the Sanuk earn-out payment. We also make additional investments in marketing and European and Asian wholesale and retail infrastructure that we feel are important for the long-term development growth of the company.

Our capital expenditures in 2012 were expected to total approximately $90 million, up from 2011 level of $56 million driven mainly by the build-out of 25 new retail stores in corporate facilities. We continue to evaluate the financing of our new corporate headquarters, including securing longer term financing as well as potential sale and leaseback scenario.

For the first quarter of 2012, we currently expect revenues to increase approximately 19% and diluted earnings per share to decrease approximately 50% compared to the first quarter of 2011. First quarter guidance includes estimates of approximately $3.5 million or $0.06 per diluted share associated with the amortization and accretion expenses related to the Sanuk acquisition. This guidance also assumes a gross profit margin of approximately 48% and SG&A as a percentage of sales of approximately 43%. As a reminder, a significant amount of our operating expenses were fixed and spread evenly on an absolute dollar basis throughout each quarter. This includes the cost associated with the 15 new stores that were not open until the second half of 2011.

Therefore, due to the aforementioned increases in SG&A, we expect our earnings to decline in the first half of 2011 as compared to the first half of 2011, which are typically our lowest volume sales quarters, an increase over 2011 in the back half of the year. With regard to the second quarter which with last year's international wholesale conversions is by far our lowest volume quarter. We expect our loss per share to more than double from the same period last year, as a result of the lower sales growth and the higher expenses I just mentioned.

And finally, as we announced in today's earnings release, the Board of Directors has authorized a $100 million stock repurchase program, thanks to our strong operating performance. We have the cash available to fund a program while continuing to invest in our brands and business. Our earnings per share guidance for 2012 does not include the impact of any potential share repurchases.

And I'll now turn the call back over to Angel.

Angel Martinez – President and Chief Executive Officer

Well, thanks Tom. Well, we begin this year with more conviction than ever about the long-term growth opportunities that lie ahead for the company. This is reflected in our upwardly revised targets that call for sales of $2.4 billion by 2015, up from our previous estimate of $2 billion that we introduced just last year, which represents the compound annual growth rate of about 15% from 2011.

Our new target includes $1.85 billion in UGG brand annual revenue versus $1.2 billion in 2011, the compound annual growth rate of about 11% over the four-year period ahead. A similar exercise for the Teva brand using our target of $250 million in annual revenues versus $125 million from this past year yields the compound annual growth rate of about 19% and based on $200 million for the Sanuk brand compared to approximately $69 million in 2011 that equates to a compound annual growth rate of roughly 30%.

Looking at our long-term goal by region, we believe 40% or about $960 million will come from outside the U.S., up from $432 million in 2011, which means the compound annual growth rate of about 22% for the international markets and around 11% for our domestic business. Based on our current momentum, we believe these goals are achievable using a same strategy that generated 38% growth in 2011. Namely, product and category expansion, increased emphasis on marketing and advertising, retail store expansion, and capitalizing on the untapped international opportunities in both existing and new markets. And with regard to the near term, we are equally as optimistic.

Despite the mildest winter in recent memory, we still grew UGG brand sales 38% in the fourth quarter. We believe this is a testament to the growing popularity of the brand and the strength of the product collections that we have developed. While we are not immune to weather, especially with our small, but growing line of cold weather boots, we believe that the comfort factor combined with the new fashion products we provide positions us better than the majority of our peers. That said, the fact is when retailers are sitting on excess inventory of winter apparel and footwear, it impacts everyone including us as opening the buy dollars to the following season are reduced. But as we heard from Tom, we are projecting sales to grow 15% in 2012, which again I believe speaks to the power of the UGG brand and it's important to retailers.

To breakdown 2012 further, our backlog is up 15.1%. We expect our domestic business grow approximately 12% on top of 24% increase in 2011. This will be driven by increased demand for both spring and fall collections, and increase in shop-in-shops and the addition of four new retail stores including our first ever men’s only store adjacent to our Madison avenue location.

We project international sales to increase 20% through steady growth from new products in our subsidiary markets of the U.K., Benelux, China and Japan and our European and Asian distributor market, plus the opening of 21 new stores including locations in Paris, the U.K., the Benelux, China and Japan. International sales are projected to represent approximately 33% of the company’s net sales in 2012 compared to 31% in 2011.

Looking at our consumer direct division, 2012 retail sales are projected to grow approximately 49% driven by 25 new store openings and mid single-digit comp increase on top of a 6% increase this past year and eCommerce sales are expected to be up approximately 21%. We believe that the combination of growth I just outlined speaks to the success we have had diversifying our business in terms of distribution channels and geographies and underscore the strategic benefits of the brand portfolio that we put together.

In the face of 40% higher sheepskin prices it’s a growth of our retail business and contribution from Sanuk along with selectively raising prices that providing us the opportunity to hold our bottom line flat in 2012. As we continue to diversify our business this year and beyond, we believe that will be well positioned to take advantage of any pullback in material costs, and better absorb other challenges that potentially arrive down the road.

I want to close today’s prepared remarks by thanking our entire organization around the world for all the hard work that went into making this past year such a great success and that will carry forward the momentum into 2012 and beyond.

Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We will go first to Jeff Klinefelter with Piper Jaffray.

Jeff Klinefelter – Piper Jaffray

Thank you, Angel for the detail today. I just wanted to follow-up Angel with a question or a couple on the UGG outlook. You said domestic up 12% is your plan. Could you give us a little bit more of breakdown on that, generally speaking what kind of pricing versus kind of unit growth as I know pricings been an important driver of your business with the mix. And then any further breakdown on actual separating wholesale growth from retail would be helpful. Thank you.

Angel Martinez

Well, generally speaking from a category perspective we expect as we have been doing over the last two years. Managing the classic business as a percentage of total to a modest growth because we feel that we have the distribution we need for those kinds of products. We’ll continue to drive our growth in the new categories of fashion apparel. The men’s category is a growth opportunity. The kids’ category is a growth opportunity. We typically don’t breakout wholesale versus retail growth in this call or actually in any call.

But that said we’re being aggressive when it comes to our retail strategy. As you can see we’re opening four more stores there are going to be more aggressive in our eCommerce business. We have historically taken really the tag that eCommerce was as much as service opportunity for our consumers as anything else. But now we’re behaving and strategizing more like an online seller and competing and marketing as effectively as anyone should in this particular area. We’re getting a lot smarter about it made some investments in that area. So, we expect that channel will continue to evolve very nicely, keep pace with the rest of our growth agenda across the other channels.

Jeff Klinefelter – Piper Jaffray

Okay and would you say pricing for 2000.

Angel Martinez

Yeah go ahead Tom.

Tom George

Jeff, if I could just add there in terms of the 12% domestic growth that included all brands it included Sanuk as well. And I think just give you some general direction, its more volume driven relative to price driven and its more retail growth versus wholesale growth just general speaking.

Jeff Klinefelter – Piper Jaffray

Okay. And so the UGG specific growth domestically I think you said 11% in total for the year, what would UGG domestics specifically for the year?

Angel Martinez

That is a larger mature business obviously so that 11% is on a global basis that includes retail as well so.

Jeff Klinefelter – Piper Jaffray

Okay.

Angel Martinez

We are being cautious with the UGG domestic growth number at this point in time.

Jeff Klinefelter – Piper Jaffray

One just last clarification, you said out of your inventory, which no doubt people are watching closely coming out of the season, there is some carry of inventory. It’s a relatively modest component of the current inventory at this point, you know, kind of how you plan to manage it. I know you called this out a year or two ago as well and said you would sell it throughout the year the same strategy, not planning to put in off price, maybe you can give a little color on that?

Angel Martinez

Sure. The majority of the product that’s carrying over is classic type product. Now that product as you know, we sell that year in and year out, that really doesn’t absolute and in the past we have successfully done. We are doing that at this year. As we have evolved to more fashion oriented product, obviously then a bigger part of the mix is going to be product that runs the fashion cycle and then gets closed out. That’s the normal way of doing business in fashion as you know, Jeff.

Jeff Klinefelter – Piper Jaffray

Yeah.

Angel Martinez

So, over the next few years you are going to expect to see more close outs from us, not necessarily in the classic front, but certainly on some of the more forward fashion items because they have a lifecycle and at the end of the lifecycle they have to be closed out. And that’s a planned thing. I mean that’s just the way business is done as you know.

Jeff Klinefelter – Piper Jaffray

Okay, great. Thank you very much guys.

Angel Martinez

Thank you.

Tom George

Thanks.

Operator

We will take our next question from next Bob Drbul with Barclays Capital.

Bob Drbul – Barclays Capital

Hi, good afternoon.

Angel Martinez

Hi, good afternoon.

Tom George

Hi, good afternoon.

Bob Drbul – Barclays Capital

Hi guys, couple of questions, on the 2012 outlook with regard to short of the gross margin outlook specifically around pricing. The decisions that you guys have made on price for the line throughout 2012. Do you believe that you have pricing power still or you choosing can you price I guess is the question and are you choosing not to take price as you look at the trends of the business and where we are today.

Tom George

We are comfortable with the pricing targets we now have. We really don’t want to go any higher on some of our classic products. We think that we have always felt that is an accessible brand to consumers. The price gets pushed up too high. I just don’t feel that’s a good strategy. You end up with the risk of putting market share risk and I don’t want to do that. I think we have to remain very competitive in the market. We have a lot of people that imitate our product. They are facing the same sheepskin issue problems that we are and so their prices have gone up as well. So, in relative terms we always want to remain accessible to our consumer, not pushed that edge too far. So, we are pretty comfortable that we are at the pricing that we need to be at.

Bob Drbul – Barclays Capital

Okay. And then if you were to fast forward 12 months from today on 13 when you look at sort of the expectation around cost of pricing. Would you expect to get back all the gross margin in 2013? How would you think about it sort of one year out from where we are?

Angel Martinez

Bob on that the biggest, biggest determining factor again 2013 is going to be where we land on sheepskin. What the sheepskin pricing will be for mostly fall 2013 and we did discuss some of that in that we feel we have come to a high water mark at this point in time that just the biggest determining factor at this point in time. To Angel's point on some of the classic product especially I think we pushed at the sales, the pricing to as far as we can at this point in time.

Bob Drbul – Barclays Capital

Got it and then I guess can you talk a little bit about your retail stores at the comp performance in the fourth quarter and anything that you sort of learned in the different stores or any cards that you would make around different regions for your retail store?

Zohar Ziv

Hi, Bob this is Zohar. The retail store, the comps really followed what we've seen through the macro environment. Overall in the earth, we have a good comp depends on the region, less in where the cold climate, you don't materialize. In the international market, we have been impacted the same way as others especially in Europe in the performance of the stores.

Bob Drbul – Barclays Capital

Okay, thanks very much.

Operator

We'll go next to Omar Saad with ISI Group.

Omar Saad – ISI Group

Thanks, good afternoon. Two questions actually, the first one is on the 500 basis points of the sheepskin impact this year. Could you help us, I mean, we cover a lot of these companies that are dealing with cotton pricing and here cotton is publicly quoted. Could you help us remind us all the different kind of factors going into that sheepskin pricing that inflation there? I know LVMH recently brought a crocodile farm as a way for them to better control the crocodile skin costs for some of their bags. Their strategies on the cost side you can do to deal with the sheepskin inflation and the volatility in that pricing in the marketplace. And then I have another follow-up. Thanks.

Angel Martinez

Let me take that one, sheepskin, it's a little bit different market that you have for cotton and so forth. First of all, you talk about sheepskin you talk about the quality of the sheepskin. For example, we don't source sheepskin from New Zealand because the skins over there, they are not a good fit for our products. We use the premium the highest quality of sheepskin. So the bulk of our sheepskin is coming from Australia.

Sheepskin is a by-product of the mid-industry. You don't slaughter a sheep for just for the skin itself. So, the demand for sheepskin and the market for that is really being demand by the demand for red meat. It's also impacted by the weather, the drought. It also depends on wool prices. So what you have seen in the last few years that the supply of sheepskin, mainly in Australia, has been declining while the demand for sheepskin has increased throughout the world and that's why you've seen a compound increase of 80% from 2010 to 2012. What it has done and what we're hearing is, first of all, as Tom said it appears that we are at the top of the market.

Earlier indications we are getting we're going to start to see some relief for next year. And hopefully some slight indication of price reduction. We won't know it until Q3. What it has done it pushed a lot of people out of the market while you saw a year ago and couple of years ago, people are coming and using sheepskin products, people are getting out of the market because of the cost of the product.

The thing that we have done to counterbalance, and Tom talked about it. There is not a silver bullet that you can compensate for the 80% increase. It's looking through the whole supply chain and making it as efficient and as lean as possible and start all the way from the design of the items, how much product you are using, product innovation sourcing, where you are sourcing, how you are delivering. For example, this year, as Tom indicated this is the first time, we're coming back to the U.S., believe or not. And we are seeing some savings by doing that. So, that's our plan how to address it – it's – as Tom said, it's a long-term. You are not going to see an impact over one season, but that's our plan how to mitigate it and address it for the long-term.

Omar Saad – ISI Group

Thank you. And then I guess my follow-up on another topic, yeah, how are you thinking about, I know you mentioned that you are really focused on the retail, expanding your own retail stores, the stores are very productive. But how you are thinking about your channel mix overall in the types of retailers that are distributing through both in the U.S. on a global basis. There has been a bit of a renaissance in some of the higher-end department store marketplaces, I know you are in some of those. You're not in all those. But at the same time, it seems like there has been leased globally with the kind of specialty type regional and local chains, they seemed to be operating a little bit weaker across lot of categories, I know if you have any updated thoughts on coming your channel distribution mix strategy, thanks.

Angel Martinez

I think over the last few years, you've seen us involve to especially with the shop-in-shop approach that we've taken to retailers who understand brand, have the real estate to devote to brands for the appropriate presentation. Our spread and assortment has grown to the point, where it's a very significant investment for a retailer. So, it represents a very long-term commitment. And so there were people who were not as committed to the brand and the evolution of the brand who over the last few years have fallen a little bit off the pace, and they've been replaced by larger people. They've been in some cases our own stores have been a better draw for consumers. And so it's just the evolution of a brand. I mean, this is what happens to all brands. We remain totally committed to all the retail partners we have and that we have had over the years that have built our business, but the brand is not going to await for people to sort of come around and the brand is growing, has momentum. It is growing across multiple categories. And it requires, I think, a commitment from retailers as well as us giving them the commitment. So, we are ploughing forward.

Omar Saad – ISI Group

Thanks guys. Good luck.

Angel Martinez

Thank you.

Operator

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

Mitch Kummetz – Robert Baird

Yeah, thank you. I've got a few questions. Let me start on pricing on how just you talked a little bit about pricing and I just want to clarify, I guess, I've heard from some retailers you guys were taking up some prices for 2012 including on the classics, but it doesn't sound like that's the case. I mean, could you say exactly what you are doing kind of pricing across the UGG brand for 2012. Is it truly sort of flat or is it up a little bit?

Angel Martinez

We have taken price increases on classic product. We've taken price increases on classic short, classic tall. Yeah, I'd say pretty much, there is an across-the-board increase. Now, it varies. Some products selectively have increased more than others. Certain iconic products, as I said, were pretty careful about not hitting our head against the ceiling with consumers on some of these products. I think, for example, that you don't want to get too far above $200 on a classic tall. I think that could be too exclusive and leaves a lot of consumers out of the mix. So, we try to stay right around $200 and close to that. So, it's really by – it's a combination really by products, by item, where we feel that we have headroom, and in some areas, we choose not to for competitive purposes.

Mitch Kummetz – Robert Baird

Okay. And then couple of things on Q4, first of all, Tom, could you maybe talk about what the impact on gross margin was from the higher close-outs? And then also could you tell us what your own retail comp was on the quarter?

Tom George

Yeah, Mitch, on the impact on the margin for the quarter relative to close-outs was roughly 50 to 100 basis points at the most.

Mitch Kummetz – Robert Baird

Okay. And then the comp on the quarter for your own stores? And maybe while you are looking that up, I was also hoping just you can give us a little more color on kind of the gross margin puts and takes for 2012? You talked about 5 points of pressure from sheepskin and then about a 3 point offset from some benefits, I was hoping maybe you could just speak a little bit more towards those benefits? I mean how much gross margin do you get back from DTC? How much from Sanuk? And are there any other kind of big items gross margin items that benefit you in 2012 that we should be thinking of?

Tom George

Yeah. So, I'll get back to you on the – let me get back to the puts and takes on 2012 and what we talked about the sheepskin cost pressure for 2012 puts 500 basis points relative to that. We are going to recover 300 of that in the form of pricing Sanuk, and mix of retail and all that. And of that $300 million, it's pretty split between half of that roughly being pricing and the other half related to those mix items.

Mitch Kummetz – Robert Baird

Okay.

Tom George

The fourth quarter comp for our own stores was 1%.

Mitch Kummetz – Robert Baird

Okay, alright, thanks guys. Good luck.

Tom George

Alright, thanks.

Operator

We'll go next to Camilo Lyon with Canaccord Genuity.

Camilo Lyon – Canaccord Genuity

Thanks and good afternoon everyone. I’ve just had a question. Can you discuss what conversations are with some of your wholesale partners domestically around the shop-in-shop strategy and how that slated to unfold for 2012 and if the fourth quarter had any negative impact on how people want to or customers of yours want to adopt that strategy.

Angel Martinez

We’ve had no negative impact on that. It’s been an ongoing strategy for us, particularly as the brand evolves to multiple categories of product and multi-season. So the investment of UGG brand is a year-round investment. Shop-in-shops are strong performers on a square foot basis in every single location we’re in they performed in the spring, they performed in the fall. As a matter of fact over the years we’ve been some more reticent to open shop-in-shops. We could have opened a lot more shop-in-shops than we have. We’re very selective about the shop-in-shops. The retailer pays for that build out, that’s not something that we fund. So, it is in a fact a great way of showcasing and evolving brand on a year-round basis.

Camilo Lyon – Canaccord Genuity

And could you remind us where you at right now, where you entered the year at and what that could look like for 2012?

Angel Martinez

Ended the year about 390 shop-in-shops globally and roughly for 2012 we’re looking at another 100 roughly.

Camilo Lyon – Canaccord Genuity

Another 100?

Angel Martinez

Yes.

Camilo Lyon – Canaccord Genuity

Okay. And then my final question Tom, if you could just breakout what the benefit was to the gross margin line in the fourth quarter from the international transition?

Tom George

Yeah that was roughly 300 to 400 basis points positive.

Camilo Lyon – Canaccord Genuity

Great. Thanks and good luck for ’12.

Tom George

Alright thank you.

Operator

We’ll go next to Diana Katz with Lazard Capital Markets.

Diana Katz – Lazard Capital Markets

Hi thank you for taking my questions. I wanted to know if you could talk a little bit more about inventory. How should we think about for the rest of 2012? Do you set to go down on any subsequent quarter and at any point more normalized with sales?

Tom George

Yeah I think the way to look at inventories for the year are in the first half of the year the inventories will be up -- at every quarter inventory will be up relative to 2011 for each quarter. First half of the year higher then the back half of the year and by the end of the year in the fourth quarter, we expect to sort to exit the year at quarterly inventory turn calculations pretty similar to how we exited 2011.

Diana Katz – Lazard Capital Markets

Okay. And then on the SG&A line outside of the amortization of the accretion expense with Sanuk. Can you help us quantify some of the other SG&A buckets like marketing, legal et cetera?

Tom George

Is that for 2012?

Diana Katz – Lazard Capital Markets

2012. Yeah.

Tom George

I think way to look at that in terms of relative to the guidance in absolute operating expenses in 2011 versus 2012 for the total year. You go to the guidance there is roughly third of the increase that you’d be modeling as it related to Sanuk and that’s going to include Sanuk’s amortization of it’s intangibles as well as it’s purchase price accounting about half of the increase year-over-year is relative to the retail and international infrastructure where investors were trying to grow. And then roughly 20% of the year-over-year increase in SG&A is related to our marketing.

Diana Katz – Lazard Capital Markets

Okay. And then can you talk about in terms of your order book how much is comprised of the new men’s business initiative and how orders ended up there?

Angel Martinez

Well, we haven’t generally broken out what the order book looks like. But we had a very healthy increase in our men’s business in 2011 and it was up over 30%. That we felt that was a great performance driven primarily by great new product and the men’s campaign featuring Tom Brady. So, we’re going to continue driving on that path, we know that’s an opportunity for us, we're getting more and more distribution on the men's product for both spring and for fall. So, we are excited about that.

Diana Katz – Lazard Capital Markets

Okay, thank you very much.

Operator

We'll go next queue Taposh Bari with Jefferies & Company.

Taposh Bari – Jefferies & Company

How are you doing guys? Quick question, I wanted to ask a question I guess on just the fourth quarter and what we're seeing here in the first quarter. I get that UGG is very much a comfort brand, but it seems inevitable that weather is playing a role for a lot of companies here – this past holiday season. So, I'm just hoping you can talk about maybe is there any parts of the country in the U.S. or any geographies globally where weather played lesser role and if you can talk to how those businesses did, just to get a cleaner perspective on how the UGG business performed ex-weather is possible.

Angel Martinez

I always try to point to California. I always use California as a reference point. Yeah, we're having a warm winter around the country. It's still colder than it is in California. And the consumer in California has from many years now been in replenishment mode with UGG as a comfort product. The minute the evenings cool, and we're not talking 30 degrees if we don’t see that here very much, but 50s. It just time to where UGG and that is the pattern. That’s the pattern that emerges everywhere in the country where you start to see the consumer embrace the brand as a comfort brand and then get into the replenishment of the product, weather its slippers, whether its classic, that’s the pattern.

So, I think its vitally important to understand the brand from the perspective, I mean the brand did evolve in Australia which have a climate very similar to California and continues to be down there its iconic. The type of product is iconic. So, we have faith in the power of the brand to do that. And we haven’t seen any example around the world were that’s not the case. And there is common reference to the brand as cold weather etcetera. It is a not a cold weather brand, it is a comfort brand as I said on many occasions.

Now as I said in my comments, the warm weather did impact our retailers. There is no doubt about that. And we're not immune from the impact of our retailers. So, they are adjusting their open the buys for fall for next year based on performance of product this year. And it’s the weather is had a lot to do with decision making, the one most important thing of all the brands that they depend on for the fall season and for holiday, UGG performed the best. And that continue to be the highlight for retailers, the UGG brand performance in the fourth quarter.

Taposh Bari – Jefferies & Company

Great, that’s very helpful. And then if I could just ask a follow-up along lines of the iconic stature of where UGG has been historically, now you're entering more as non-classic styles. How do you see that kind of iconic brand positioning translating to some of these more competitive styles and also along those lines? Do you expect, so we expect to see similar types of net product margins on those businesses as move forward to what we've seen historically with the classic product.

Angel Martinez

We'll, what’s iconic about the brand, obviously the brand has a certain look and in terms of classic, but the consumers are where UGG love it for the way it feels. Nothing feels like UGG, I mean that just the fact so as we've successfully infuse the comfort and the feeling of UGG into other products. Consumers have preferred that feeling to similar silhouettes that don’t have – what UGG does, the sheepskin, the premium luxury comfort, nature of it and that’s where we've been very successful, I mean we can take a pattern that's a fairly common pattern in men's for example a certain type of boot, certain style boot, their motorcycle boot and UGG if I as we say that boot.

So you can wear with no socks and your feet stay perfect, you're not cold, you're not hot, just right. Find that sort of Goldilocks zone for your feet and that is what makes the brand special. And around that idea, we have continued to evolve product now. As we do more and more fashion product and there is some product in line that does not have much sheepskin. If any I mean we have sandals that have no sheepskin. Those were seasonal items and those represent a small percentage of the product line and those products will be closed out. There will be markdowns on those products. That’s the nature of the beast. That’s what we do, but what it's doing in total is creating a much more powerful lifestyle brand and lifestyle statement for the brand through retailers. And it's a very compelling brand to be associated with as a retailer. I mean, delivers tremendous volume and profit and we'll continue to do that.

Taposh Bari – Jefferies & Company

Okay, thank you very much. Good luck in 2012.

Angel Martinez

Thank you.

Tom George

Thanks.

Operator

We'll go next to Christian Buss with Credit Suisse.

Christian Buss – Credit Suisse

Hello, I was wondering if you might be able to provide some color on how we should think about the margin profile of the business and the more normalized costing environment given the shift to more fashion-oriented styles, the shift to owned retail, how are you guys thinking about that longer term margin profile of the business?

Angel Martinez

Yeah. I mean, Christian what we have talked about there is it's all about the sheepskin and we feel that we have hit a highpoint there and if we can start getting sheepskin prices, then we've got the opportunity to get more leverage into the model and more earnings power. So, that's sort of something that needs to be sorted out and we have more visibility as the year goes on to what the fall '12 sheepskin prices will be then we'll have a better idea to answer that. But that being said still longer term we believe with the Sanuk, the retail expansion of eCommerce, some stabilization of sheepskin, cost, we think longer term we can still – we still are targeting and operating income margin of 20%.

Christian Buss – Credit Suisse

Okay, that's helpful. And then could you provide some color on your strategies to drive eCommerce business and the owned retail business in 2012?

Tom George

Yeah. As Angel mentioned Christian, we have done certain things, we have been building it both from internally and externally using more and more social media methodology and so forth and also upgrade our platform. We last year moved to Demandware, which is a cloud system that allows us to expand internationally. So, in addition to the U.S. now we are operating also in Canada, in the UK, in the Benelux, and we started this year also in Japan and we are looking for next year to be also in China. So, eCommerce is going to continue to be a very strong – both it's a brand building tool for us, but also a consumer direct selling vehicle for us.

Christian Buss – Credit Suisse

Thank you very much and best of luck.

Angel Martinez

Thanks.

Operator

We'll go next to Jim Duffy with Stifel Nicolaus.

Eric Alexander – Stifel Nicolaus

Hi, this is Eric Alexander in for Jim Duffy who is traveling. I just, thanks for all the color on everything, I do appreciate it. Just looking at the Sanuk, the $13 million in charges is that an incremental $8.6 million year-over-year is that, are we looking at that in total?

Tom George

The $13 million is the total number. It's not an incremental number.

Eric Alexander – Stifel Nicolaus

Okay. And then in looking at Sanuk, if you guys roughed out what you are looking at from an accretion standpoint that you'd be comfortable providing at this stage?

Tom George

We certainly have roughed that out with the guidance that we gave for the total year and even with the amortization and accretion, the operating margins are greater than the overall. Well, you axe out the accretion and the amortization. The operating margins are greater than the overall company average, and even with the accretion and amortization, the operating margins are real respectable.

Eric Alexander – Stifel Nicolaus

Okay. So you are not – but you can't provide a kind of EPS wise what you are looking from that?

Tom George

Certainly accretive.

Eric Alexander – Stifel Nicolaus

Okay, that's helpful. And then on the FX impact, what do you guys have built into your guidance as far as some of the assumptions that you are taking into account?

Angel Martinez

Yeah, what we have built into our assumptions there, I mean, crystal ball especially in today's FX environment, but we are looking at now is our guidance that assumes or the current forward rates which are pretty consistent with the current spot rates. And we actually deal with some of the contracts we have entered into were a while back, the hedging contracts. We've got some small benefit there from those, but that sort of net what our assumption is on FX right now.

Eric Alexander – Stifel Nicolaus

Okay, all right, that's helpful. And then if I could sneak one last one in here. On the – I apologize if you already touch on it, on the international wholesale growth, did you break that out as far as what you guys are assuming in 2012 growth wise.

Angel Martinez

No, we've been – we just gave out – gave a total international channel growth which included wholesale and retail.

Eric Alexander – Stifel Nicolaus

Okay, all right, well, thank you very much and best of luck.

Angel Martinez

All right, thanks.

Operator

We'll go to Chris Svezia with Susquehanna Financial Group.

Chris Svezia – Susquehanna Financial Group

Good afternoon guys.

Angel Martinez

Hi, Chris.

Chris Svezia – Susquehanna Financial Group

Hi, just on the international side you guys said there was a 20% growth, I know that's retail and wholesale, Tom just mentioned but, could you maybe just talk about what you're seeing in Europe, sort of your thoughts about how the transition unfolded and just sort of thoughts about the U.K. business and generally think about 2012. Is that a growth region if you guys from a wholesale perspective? Maybe add a little more color on the international side is what I'm saying.

Angel Martinez

Yeah, we think the transition as you recall we had a little bumpy road at the very beginning that we smooth that all out, I think when Steve Murray came on board. We were able to provide some leadership into the region. He is done a great job so, that is very stable and we feel it's a platform for growth across the entire European theatre. Now, U.K. is a tough market right now, every brand is struggling in U.K, business is soft. The economy has been pounded there. Yet we still see that as a growth opportunity we see this as a growth environment and brand has had good success for the store that we've open – we're opening another store in Piccadilly just in time to the Olympics. We think the Olympics is going to have a positive impact on the economy in the U.K. and the pricing that we'll be able to benefit from that with our store presence.

The rest of Europe looks pretty healthy, I mean, we've had nice solid performance in Benelux will be developing on growing and evolving business in France. We'll be opening a store in Paris relatively soon. We're developing our wholesale business in France, developing wholesale business in Germany through a distributor and then there are some untapped markets in Europe that offering tremendous opportunity, Poland, Hungary, the Czech Republic where we feel we have opportunity. Of course, there are markets like Spain that are struggling.

Italy has remained fairly solid for us. We have distributor there who does pretty well so, you know, Europe is just – is anybody is guess as to when it's going to turnaround, but the recent improvements in the macro environment via coming together and beginning to address some of the issues has really put us I think in a better mindset about it.

Chris Svezia – Susquehanna Financial Group

Okay, and then just on the Tom made some reference to Q2 and you expected, I think the loss – the loss is more than doubled due to lower sales growth. I'm just curious, I think you are up 12% Q2 last year, I mean is the sales growth rate lower than that and just trying to understand what you meant by that comment if I got that correctly.

Tom George

Yeah, sales growth, it did slow, last year Q2 was in spite of the distributor conversion last year with the shift, we still had sales growth, but this year's sales growth in Q2 – there is no distributor conversion impact this year, but it will be growth and it will be growth similar to last year's second quarter growth.

Chris Svezia – Susquehanna Financial Group

Okay, I got it. And then just I guess lastly, I guess Angel for you, just I guess on UGG branding sort of question. There is lot of just sort of chatter and thought process. one that, either the UGG brand has lost some momentum coming through 2011 and some camps just saying look, if weather was really the only issue to some degree of that moderated some of the growth and that’s fine. It's just weather did it happens and if the brand still have lot of momentum and demand for it and making people chase as you're going to the back half of the year for open to buy inventory commitment. So, I'm just kind of curious when you speak to wholesalers is that just really strictly the case that it was weather shrinking open to buy or did they make other comments about open to buy converting to other brands, just curious if you can flush out some of the thought process in and around that?

Angel Martinez

I have had no indication that our bigger customers have seen any slowdown at all other than the weather being the issue. The brand remain powerful throughout the year, continues to show great momentum. It is still the most important performing brand in the back half of the year for virtually every retailer we do business with. There are some small retailers out there, who are and I will be delicate because I don’t want to offend anybody. But let’s use the word resentful. They're a little resentful on occasion that maybe we have a store a little too closer to their store, maybe its they don’t like that we have opened a certain like we have some Journey stores in California that we really felt important to open and maybe ruffled a few feathers that we opened those stores.

And, you know, that's the way it is with brands like UGG. You do get to that place, where the brand has to continue to evolve, you have to keep growing. You have to keep powering forward and what I have found independent of anyone I talked to is that without UGG it’s very tough to make your fourth quarter number. UGG is a brand that delivers results every fourth quarter. It is a must have brand for most of our distribution, virtually all of our distribution.

Life without UGG is more difficult. So we're very respectful of all our retailers and we ask those who have taken the opinion that while maybe we're too big for our britches and for whatever reason they want to cast aspersion on the brand by spreading rumors and that’s a lot of what happens. And it’s annoying, a little frustrating, but we look right past it and go right to our consumer and they seem to not more, not less UGG. So, we are pretty confident around the right path.

Chris Svezia – Susquehanna Financial Group

Okay. Thank you very much and all the best in 2012.

Operator

We will take our next question from Scott Krasik with BB&T.

Scott Krasik – BB&T

Hi, thanks. Just one bigger picture question and then a housekeeping question. Angel, some of your biggest retailers Nordstrom, Dillard's, Journey’s they have seemed to have locked pricing up in the last weeks. The UGG tall is now 200. The Bailey button tall is 220. I’m assuming that’s on carryover a 11 products you guys don’t benefit from that. Are you doing that to test you have consumer react to the pricing and then I think at least what we have heard that there is going to be another step up after June on 12 products. So, if you could comment on that?

Angel Martinez

My guess is that they are people that have taken the price up prematurely and they are looking at the fall price list and raising the prices in advance of fall product hitting the shelves, actually where they see product that is carryover product, all the margin it has some opportunities.

Scott Krasik – BB&T

Exactly.

Angel Martinez

Okay.

Scott Krasik – BB&T

And does that give you testing? Do they tell you, you know, we're seeing elasticity of X and maybe we don't feel as comfortable with the fall pricing, where you change your fall pricing or the falling pricing is set and it is what it is?

Angel Martinez

And we haven't had any comments that there's resistance. Our fall pricing is set and the pricing as it is still great value for money. Yeah, the price went up, but we have never comprised the quality of materials and it’s the price you pay for the quality that we're putting into the product. If we wanted to mitigate, one mitigation efforts that we have not employed, we will not employ with the sheepskin issue is lowering the quality of sheepskin and we are just not going to do that. So, it just a vital part of who we are and quality is most important thing. I think it will differentiate us from the look alike. So, we are going to keep going down this path, the only path, where we don’t have any choice on this front.

Scott Krasik – BB&T

Okay. And then Tom just of the roughly $95 million increase in international sales in Q4. How much of that was just strictly related to the distributor subsidiary conversion.

Tom George

Hang on I’ve got that for you. In the fourth quarter the increase in international sales due to change in model.

Scott Krasik – BB&T

Yeah.

Tom George

Just for the fourth quarter alone it’s about $15 million to $20 million.

Scott Krasik – BB&T

Okay, alright. Thank you very much guys. Good luck.

Tom George

Alright thank you.

Angel Martinez

Thanks.

Operator

And ladies and gentlemen, we will take our final question today from Howard Tubin with RBC Capital Markets.

Howard Tubin – RBC Capital Markets

Thanks guy. Can you just give us a little more clarity on your retail store openings from next year or are any those in the U.S. or they are all on the outside the U.S. maybe a little more detail by location?

Tom George

Yeah, Howard, as we said, out of the 45 about four of them are going to be in the U.S. And the other are going to be broken down probably evenly between Europe and Asia, Asia its maybe China and Japan. In Europe, you will see handful of them in the UK. Angel talked about also France.

Howard Tubin – RBC Capital Markets

Got it. And they are U.S.

Tom George

And the Netherlands.

Howard Tubin – RBC Capital Markets

Got it and they all kind of full price stores or any outlet stores?

Tom George

The bulk of them are going to be constant store, full price stores.

Howard Tubin – RBC Capital Markets

Got it, okay. Maybe just one more question on the closeout product that you have, where does that end up? Does that go to TJ Maxx or Marshall's or does that go to your outlet stores? How does that stuff get sold off?

Angel Martinez

It goes out in proportional supply to DSW to T.J. Maxx, our outlet stores so it’s not enough product to overweight that any part of the market. It never has been and certainly isn't this year. We do a pretty good job of closing out the absolute inventory.

Howard Tubin – RBC Capital Markets

Got it that’s great. Thanks.

Angel Martinez – President and Chief Executive Officer

Thank you. Well, thank you all for participating today and really appreciate your support over the last year and look forward to your ongoing support in 2012. And once again thanks to the entire team around the world at Deckers and we look forward to talking to you next quarter.

Operator

Thank you. Ladies and gentlemen that does conclude today's conference call. We would like to thank you all for your participation.

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