Nov 5, 2010
Executives
John McCarvel - CEO and President Russ Hammer - CFO, SVP of Finance and Treasurer
Analysts
Jeff Klinefelter - Piper Jaffray Jim Duffy - Stifel Nicolaus Jim Chartier - Monness, Crespi, Hardt & Co Sam Poser - Sterne Agee Reed Anderson - D.A. Davidson Steven Martin - Slater Capital Management
Operator
Please stand by. Thank you for standing by, everyone.
Welcome to the Crocs, Incorporated fiscal 2010 third 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. Instructions will be provided at that time.
I would like to remind everyone that this conference is being recorded. Earlier this afternoon, Crocs announced its third quarter 2010 financial results.
A copy of the press release can be found on the company's website at www.crocs.com. Reconciliations of the non-GAAP measures mentioned on the call today can be found on the Investor Relations section of the Crocs website.
The company would like to remind everyone that some of the information provided in this call will be forward-looking and accordingly are subject to the Safe Harbor provisions of federal security laws. The 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 Factors section of the company's 2009 Annual Report on Form 10-K, filed on February 25th, 2010 with the Securities and Exchange Commission. Accordingly, actual results could differ materially from those described on this call.
Those listening to the call are advised to refer to Crocs' Annual Report on Form 10-K, as well as other documents filed with the SEC for additional discussion of these risk factors. Crocs intends that all of its forward-looking statements in this call will be protected by the Safe Harbor provisions of the Securities and Exchange Act of 1934.
Crocs is not obligated to update its forward-looking statements to reflect the impact of future events. Now at this time, I would like to turn the call over to Mr.
John McCarvel, Chief Executive Officer of Crocs. Please go ahead, sir.
John McCarvel
Thank you, operator. Welcome to everyone for joining us on our third quarter earnings call.
With me today is Russ Hammer, our Chief Financial Officer. We are pleased to have delivered another quarter with solid results.
Our recent success has been broad-based from six to the progress we have made, diversifying our business in terms of products and collection, distribution channel geographies. All areas of the business are contributing to our growth with the performance of our new credit feeling our current momentum.
Our result of past quarter in a year-to-date have been very encouraging and we are ahead of where we thought we would be at this time. Our 2010 was about returning the company to profitable growth.
We did not plan to achieve these levels of sales and earnings at this point in the company’s development. Importantly, the out performance has been across the board with sales, tracking ahead of the expectation in each of our distribution channel.
Wholesale, retail and internet and the geographic region in America, Asia and in Europe. In the U.S, this past quarter, we had a productive summer and back-to-school selling season.
Our wholesale partners reporting very good weekly sales through, pharmacies of our Spring-Summer collections throughout June and August. And this trend was repeated with our new back to school line later in the quarter.
After a small changed last year, we doubled the numbers of SKU for back-to-school and featured three of them and a TV ads campaign that ran on Cartoon Network, Nickelodeon, E-Network amongst other. We’re very pleased with our first attempt to capitalize on this key selling period.
And we look to build on a performance with a broader, assortment on products next year. Makes a wholesale backlog for Spring, 2011 has more than double which exists spread across abroad, crossed section on wholesale account.
This account includes foreign goods, better department stores, family footwear at approximately 40% of our U.S wholesale business is still coming from independent. This is a reflection of the hard work that is going through restoring these key relationships and a success of our visual merchandising program in 2009 and 2010.
Two additional areas of focus for Crocs in the Americas, first, the development of Crocs [flagship store] with some of our key customer. This program provides our customers with the access across products on their internet site.
Orders have been shipped direct from our distribution operation. Our initial partners experience thing, extra ordinary demand for Crocs product and this model will exceed our projections over the traditional business model today.
We have two more; the ship partners live in 2010 and will have an extensive roll out in 2011. Secondly, expansion of the brand into other markets in Americas.
Specifically, in Q3, revenue grew by 40% in Canada and nearly a 120% in Central and South America. The Central and South American markets are clearly growth opportunities for Crocs.
Asia's growth year-over-year in Q3, 2010 has once again exceeded our expectations. And is being fueled by the acceptance of new products and continued expansion and our wholesale business in Japan, Korea, and China.
We continue to expand our retail presence and key markets as well. And this also assist us in building brand equity in the region.
Our new line of products preformed well in a quarter and a pre-booking for the Spring-Summer ‘11 line have been very positive. We anticipate growth would be steady and broad-based with China, Korea and Taiwan being stronger market.
We're working on an expanded strategy for India in 2011 that will allow us to tap on a broader demographic and open up more wholesale channels We are planning to launch new website with enhance functionality in Australia, Hong Kong, Taiwan and Singapore in the fourth quarter thus broadening a multichannel footprint in Asia. Our researching in Europe continued throughout the summer.
With distribution in the UK, France and Germany back under our control, our new products are beginning to gain important traction with consumers in those markets. Thanks to a more cohesive marketing program and brand messaging our recent investment in media, advertising in key markets seems to have clearly resonated with consumers.
This performance has led to increased orders for Fall and holiday, gained important shelf space with several retailers for next year and strong pre-bookings for Spring-Summer ’11 product line. Our new products have also performed very well in company-owned retail stores.
A 14% increased in global retail location, coupled with the 9% cost store gains in the US yield 35% increased in global retail sales in the third quarter. We're certainly pleased by our comp-store sales in the third quarter; however, I think and undue amount of attention has recently been focused on this one data plan.
Our retail has become a larger percentage of a total business approximately 28% year-to-date; we have thus far only being recording comp store sales results for the U.S. Our retail footprint comprises of multi format including carts and kiosks outlet stores.
More store, shopping shops with major retailers and high street stores globally. As such providing comp results doesn’t really provide truly active picture of our overall retail performance.
We believe a better way to look at our retail business is a growth of retail locations, coupled with our overall retail revenue growth. Russell, now, review the financials and I will return to outline our growth initiative for the next year.
Russ?
Russ Hammer
Thanks, John. Good afternoon, ladies and gentleman and thank you for joining us.
Total revenues for the third quarter increased 30% to $215.6 million over adjusted revenue of $165.7 million we reported in the third quarter of last year, which excludes $11.5 million and previously impaired sales and we stated would be non-recurring. On a GAAP basis, revenue increased 22% year-over-year.
By channel, wholesale sales rose 16% million to $123.9 million. Retail sales were up 35% to $72.5 million and Internet sales increased 19% to $19.2 million.
We ended the third quarter of 2010 with 354 company operated retail locations, compared to 310 this time a year ago. Now, by geographic region.
Sales in Americas rose 31% to $104.8 million from $79.3 million a year ago. Asia sales increased 16% to $79 million compared to $68 million a year ago.
Sales in Europe increased 9% to $32.6 million versus $29.9 million a year ago. For Q3 2010, 62% of our sales came from outside the United States.
This reflects the strong global reach of the Crocs brand. Our average selling price for the third quarter 2010 increased to $18.23 from $17.59 a year ago.
Our product mix continue to diversify over the same period last year with 31% of Q2 sales coming from new 2010 products, including the popular Crocs-brand collection. Classic and Core represented 10%, and 18% of Q3, 2010 sales respectively.
As our mix shifts towards a higher percentage of new products with higher price points, we expect that our ASPs will continue to increase in future periods. Gross profit increased 32% to a $118.8 million, compared to $89.9 million with the gross margin up 440 basis points to 55.1% from 50.7% a year ago.
The increase in gross profit is result of our effective cost reduction actions namely, the consolidation of our global warehouse footprint, a more efficient supply chain, including a greater degree of direct shipments to our customers as well as the increased sales contribution from our consumer direct division, which carries a higher gross margin in our wholesale channel. SG&A expense for the quarter increased $10.5 million or 13% to $91.4 million compared to SG&A of $80.9 million a year ago.
As a percentage of sales, Q3, 2010, SG&A decreased to 42.4% from 45.7% versus Q3, 2009. Continuing to leverage down as a percent of sale.
The increase in SG&A dollars expenditures is primarily attributable to higher marketing, advertising and cost associated with 44 new retail store location that were not opening year ago. As a reminder, all of our retail expenses including occupancy costs and stored labor are in our SG&A which now make up by one-third of our operating budgets.
Retail related costs included in SG&A was $33.2 million up from $26.9 million a year ago but remain fairly confidence as a percent of revenue. Operating income in 2010 was $27.4 million compared to $9 million in Q3, 2009.
Our operating margin for the third quarter 2010 improved to 12.7%. On a GAAP basis, the third quarter net income improved to $25 million or $0.28 per diluted share compared to $22.1 million or $0.25 per diluted share in the corresponding period last year.
For the third quarter, our effective tax rate was approximately 8% versus guidance of 22%. Due to a one time tax benefit, totaling $3 million or $0.3 per diluted share, this tax benefit was a result of new international treaty which reduces certain taxes which accruals have previously been made.
The third quarter 2009 net income included a one time tax benefit of $14.4 million or $0.16 per diluted share related to a change in the company’s corporate tax structure last year. Now, turning to the balance sheet.
We ended Q3, 2010 with $143.1 million in cash, an increased of 88% over cash of $76 million at September 30th, 2009. At the end of Q3, 2010, the company had no bank debt.
We were in compliance with all our convergence. Important to note that, we amended this agreement on September 30, 2010 was extended to maturity date to September 2014, decrease our interest rate and fees and the maintenance, certain restrictions governance be more favorable for the company.
Inventory grew 25% to $142.5 million at September 30th, 2010 from a $113.7 million at September 30th, 2009. The increase is a result of multiple factors including a 37% increased in backlog as of September 30th, 2010, an increased of 44 retails locations over Q3, 2009, strong new products sale through and support and anticipated 21% higher Q4 revenue.
For the quarter ended September 30, 2010 our inventory turnover to 3.0 on an annualized basis. Another driver is a strategies expansion of our in-house manufacturing of high bid products in the Mexico factory which results in lower duty costs.
Our Q3, 2010 inventory is significantly cleaner with new impaired products. We are comfortable with inventory growth and taking a context with our increased revenues and backlog.
We ended Q3 with account receivable of $81.3 million compared to $65.8 million a year ago. Now, to our guidance.
The fourth quarter of 2010, the company expect revenue of approximately $165 million, and 21% increased over fourth quarter 2009. The company expects ‘Q4 inventory to decrease to 5.10% from Q3, 2010.
The company expects diluted earning per share for the fourth quarter 2010 to increase to approximately $0.2 per diluted share versus diluted loss per share of $0.13 for the fourth quarter of 2009. I will now turn the call back to John, for some closing comments.
John McCarvel
Thanks, Russ. As I stated earlier, we are ahead of schedule in the multi year turnaround, we outlined back in the spring of 2009.
Well, there is more work to be done and still a fair amount of seasonality in our business. Based on our backlog of $228 million on September 30th, we expecting a better holiday selling season than a year ago as evidence our chief guidance for the fourth quarter.
Our backlog as of October 31st is $262 million which is up 60% from 2009 and we will begin 2011 with a good year of momentum. Our recently improved results, combined with a future order have vote for their confidence, we have done the right to entry or the right pieces in place to drive this business forward over the long term.
We will continue to invest and the things that have perpetuated our recovery, beginning with the product design and development. Building on many successes from our 2010 collection, our 2011 product portfolio will comprise several new style and innovated collection that we believe over the brands appeal and attract new consumers to Crocs.
We would also continuing to expand our customer direct business which has been a key component not only in decorating our top-line but in creating a stronger more and more emotional connection with consumers worldwide. We anticipate ending 2010 with approximately 400 company-owned retail locations and our initial plans for 2011 include roughly 25% location growth.
The majority of our new locations will be outside of the U.S and will include a combination of full priced stores, shop-n-shop and outlet stores. At the same time, we are preparing to increase the number of e-commerce site and key markets around the world.
Finally, we remain committed to making ongoing investments to our systems and processes in order to provide the customer support and service that is expected of world class brand like Crocs. Thanks to IT upgrades, in our warehouses for the entry e-commerce and retail point of sale platforms we are in a much better position to managed and service out global customers and consumers.
Going forward, we will take advantage of these new technologies to drive greater efficiency improved profitability throughout our organization. With that, we will now be happy to answer any questions operator?
Operator
(Operator Instructions) And we’ll go first to Jeff Klinefelter with Piper Jaffray.
Jeff Klinefelter - Piper Jaffray
Yes. Thanks guys.
Congratulations, and it sounds like a very encouraging outlook. John, could you talk a little bit more about the bookings, the pre-book that you're looking and going into 2011.
Maybe, putting into context that dollar value versus last year. Should we think about this as 60% of your business being wholesale, that is your business running up roughly 60%, a majority of that shipping in the first quarter.
How should we think about that flowing into the first couple of quarters next year?
John McCarvel
Okay. Thanks Jeff well.
so what we would like to think about is about $42 million of what we have in backlog at the end of October will shipped in the fourth quarter. What we have remaining in backlog about 60%, will shipped to a wholesale customers in Q1, 40% would shipped to customers in Q2.
Jeff Klinefelter - Piper Jaffray
Okay.
John McCarvel
And, keep in mind here. Jeff, that majority of orders that we have announced there from our major wholesale customers and we’ll still continue to book orders for product for delivering Q1 and Q2 with our smaller independent account.
Jeff Klinefelter - Piper Jaffray
Okay. So, in terms of retail, the retail side of the business.
You don't want to get too focused on comp, but what sort of promotional environment are you guys looking at as we go into the fourth quarter? I know last year, I believe it was particularly promotional with some of the chain businesses that you sell to.
What is back into this Q4 guidance at this point in terms of that the -- the retail direct business?
John McCarvel - Crocs, Inc. - President & CEO
Really not at this point time and anticipating the same discount levels that we saw last year in retail environment – it’s our retail. We can’t inspire over the next eight weeks before the Christmas holiday.
But, right now it’s not our expectation that will see discounting other way that we did. Our approach this season is a little bit different, we have new products that we have introduced, most of this year than in previous year and we’ve also introduce into the market at just this week.
Our turning line would shipped as well as our central line of products that are sold in our retail and outlets starting next week and on an internet site staring after there this week.
Jeff Klinefelter - Piper Jaffray
Okay. Just a couple of other quick ones.
The gross margin rate for Q3 relative to, obviously a great year-over-year gain, down sequentially from Q2. Could you put in context again, now you've got three quarters in for this year.
How we should think about modeling gross margin on forward? Are we still thinking about, sort of -- -roughly the mid-50s level?
Is the retail mix changing that? Q3 and Q4, I imagine, are more affected by Fall versus Spring margin rates within the product category?
John McCarvel
So we said on the last call, that you should think about to Q3 and Q4 kind of Q3 being in the mid 50’s range which is right where we came in it, we guided to the lower end of the 50’s for Q4 which is consistent what we have seen in our business overtime last year Q4 2009 gross margin were about 44% and after that we don’t see the same level of discounting right now as we did before. So, we feel comfortable on the low end of the 50’s as we had discussed in the last call.
I think on the free books going for- for next year we think that we have returns to the seasonality the normal see what margins going up in Q1 and Q2 as we are going to our prime selling seasons.
Operator
And moving on now to Jim Duffy with Stifel Nicolaus.
Jim Duffy - Stifel Nicolaus
Thanks. Good afternoon.
Very encouraging, spring quarter backlog. Russel or John, could you help us on a go-forward basis, how you think about your business -- the wholesale side of the business with respect to pre-book versus in-season business?
John McCarvel
I think Jim as we touched on a last quarter we have desire at comfort level that we would really like to see our pre book business running at 65%to 70% range and it remains that target with our sales force and I think comfort zone that we discussed on last call that we feel that is best for the Crocs business.
Jim Duffy - Stifel Nicolaus
Okay. That's hopeful.
And then, John, the retail growth that you mentioned for 2011, is that unit growth number or should we think about that as square footage growth? You mentioned a -- majority of the growth to come internationally those are smaller stores, correct?
John McCarvel - Crocs, Inc. - President & CEO
What we said was is that we would expand our retail footprint plan about a 100 new locations next year an three or four different types of formats and Asia was the more shop and shops storage some outlets this year and some retail full priced retail in the US that we are going to see very investment some conversions still, a carts and kiosks into full priced stores and then Europe it would be in investment on that on three various spectrum.
Jim Duffy - Stifel Nicolaus
Okay. Ant then with respect to the backlog, what type of ASP increase.
did you see in the backlog?
Russ Hammer
You know, Jim, at this time, we feel in the middle of our planning session and we will give you guys more color on 2011 on a February call. But then I mentioned as I did mentioned I said we used to continually introduce new products at higher than ASP levels overtime our trade is increase our ASP.
We’ll give you more color on that and we’ve going to start planning cycle here on the next call.
Operator
.
Jim Chartier - Monness, Crespi, Hardt & Co
Good afternoon. My first question, I was wondering if you could just talk a little more about the India strategy.
What you're doing there, will you see a big growth in India in 2011 or is it more 2012?
John McCarvel
Yeah I think growth in the booked countries come a little bit more methodically and India’s no exception and so India’s strategy has really been to take some of our older products bids. So that did well into the Asian or into the Indian footwear, market place and to actually manufacture some of those products under what we call it approx basics program of our old core products into that market at a slightly lower price point and slow despite a lower cost point that we think opens up the Indian market of little bit further to cross.
I don’t think we anticipate in 2011 or 2012 significant or the material growth in the Indian market.
Jim Chartier - Monness, Crespi, Hardt & Co.
Okay. And then, can you give us an idea of what the impact on third-quarter gross margin was from the higher labor costs?
John McCarvel
Higher labor cost in terms of?
Jim Chartier - Monness, Crespi, Hardt & Co
In China, on the manufacturing slot. I think you start to feel the impact in the third-quarter?
John McCarvel
We saw nominal impact in third quarter we are going to see more of it in the fourth quarter as we said about 5% really with they will fall into the products being affected by the price increases.
Jim Chartier - Monness, Crespi, Hardt & Co
Okay. And then what's a good go-forward tax rate to use?
Russ Hammer
So on taxes Jim the go for tax rate that we gave you last time going into next year up 25% is the good rate to use that for fourth quarter 15% is the good level to use.
Operator
And we’ll move now to Sam Poser with Sterne Agee.
Sam Poser - Sterne Agee
Good afternoon. Just a few questions.
With the stores -- with the backlog firstly, you said Jeff asked you about -- you mentioned $42 million will be shipped in the fourth quarter. I didn't catch the rest of that, what is the total dollar amount of the backlog?
John McCarvel
$262 million
Sam Poser - Sterne Agee
All right, say that again?
John McCarvel
262
Sam Poser - Sterne Agee
Okay, and so break out is about $42 million is Q4 and then Q1 and Q2? I'm sorry?
John McCarvel
60% of that is scheduled to ship in Q1, roughly 48% ship in Q2.
Sam Poser - Sterne Agee
Of the balance?
Russ Hammer
Right, Correct
Sam Poser - Sterne Agee
Okay. And then just on the store opening.
I mean I know you don't give comps because you feels it's a moving target, but what about being able to give us some square footage and margin and some square footage information to be able to at least sort of gauge productivity, and so on?
John McCarvel
Sam, it really does create a bit of a difficult model. Because what revenue per square foot looks like in kiosk business like in a full retail store and Boston is completely different.
And when we try to do the some repair we just feel the comp-data can be confusing.
Sam Poser - Sterne Agee
I'm not looking for comp-data; I'm looking for just data. I mean, if we know that you are growing stores and you were doing a $100 in square foot in the stores and you open up five new stores, and all of a sudden you're doing $95 a square foot in the store, it isn't as productive.
It doesn't matter the size or anything is the total square footage to productivity. And the margin part of it.
I mean, I understand your opening and closing a lot of stores so the comp may not be the best judgment. But a square footage number would be a gauge for productivity that would be pretty straightforward I would say.
Russ Hammer
This time I think while we are in the strategy that we have been explaining converting carts and kiosk for four stores if the very misleading calculation because you’re taking very high square footage copying cards and kiosk and converting. So I think while we were in that conversion mode which is a very long term we have been added for two years and it will quite take us another couple of years it’s very misleading to look at that, that data as we said you think the right thing to do is look at our store gross location and our revenue which drives a higher margin on the business as John mentioned earlier.
John McCarvel
Well I mean So you were open 25% store growth next year. Does that mean you pickup 25% revenue next year on a flat comp or how should we think about that?
That seems more like a shot in the dark when I get squared number.
Russ Hammer
I think the store growth that we mentioned and then as we said were in the middle of our planning cycle right now so as we come to our February call and we complete our call cycle we will give you more color on our retail growth.
John McCarvel
We want to communicate in the best possible way so you can understand what’s happening in our business. And when we find a consistent methodology message there we are going to communicate that to you.
Sam Poser - Sterne Agee
Okay, and then one last question or a couple last questions. Included in your backlog you have the vendor manage program going on for Sports Authority.
And then you're selling some other goods to some of the more mass-channel now. Are those in the backlog or not?
John McCarvel
Crocs, authority is on a pay-on-hand basis so that is not in backlog that revenue recognized as Crocs has sold the backlog is comprised of our made to orders some our customers throughout the world.
Sam Poser - Sterne Agee
Lastly, you said on the 10-Q you have broken out Classics Core and new on a year-over-year basis, saying that Classics are 10.4% versus 15.7% last year. Core 17.9% versus 34.7%, and new 31.2% versus 27%.
Maybe I'm not all there but that doesn't add up to a 100. What's the rest of the sales?
John McCarvel
Significantly rest of the in mind sales that they are not qualified.
Sam Poser - Sterne Agee
That's not new either?
John McCarvel
Not new 2010 product that we are that we are going to reduce them, for example Santa Cruz is not a new product in 2010.
Sam Poser - Sterne Agee
Got you. Thank you very much.
Good luck.
Operator
(Operator Instructions) Now I am going to load Reed Anderson with D.A. Davidson
Reed Anderson - D.A. Davidson
Hi Guys. A couple questions.
I'm just going to ask kind of this a retail piece, a little different way, and we can move on if it doesn't work. If you're looking at where your thinking is today and in positioning the various channels, etcetera.
Does it make sense to think that your retail business, based on what you pointed out, would probably grow may be at or above the overall company's growth? And might be one of your faster growth channels next year, is that a fair assumption, or can we not make that at this point?
John McCarvel
We think so there is a combination of factors that better driving to continue to investment to retail what we think would drive retail growth that’s why we are doing it I mean we are very bullish on the product collection that we are bringing to market in 2011 our point of sales system and merchandising planning systems we have worked on it installed in 2010 will give us what we think would be greater sell through numbers and 2011 so yes we think that we will see in our own stores an uplift just based on enthusiasm for the product on the wave of bring to market next year both in spring summer 11 is as well as we are equally excited about someone new products that will bring for next year.
Reed Anderson - D.A. Davidson
That's perfect, that's very helpful. And then just shifting gears a little bit.
You talk about SKU count has been helpful here too. But, you've done it in a thoughtful way with collections and etc.
Just where are we today John from a SKU count standpoint. And what does that look like from a growth projector, maybe in to the next?
Just some ball-park thoughts.
John McCarvel
Ballpark thought on more so probably think about it some dial today we have heard about 250 different styles of products we do take certain styles and customizes them for SN use to go into different channel. We are slowly methodically retiring some of the older products that has been in line.
We have gone through a different methodology when it come to building some of those products where consumers is looking for their old favorites. So we still want those available to a retail person and online that we think we see probably 20% growth in styles year-over-year.
Reed Anderson - D.A. Davidson
Great. I am curious if you look at your Internet business.
And it continues to grow nicely, as well. And I'm just curious if the more established Internet platforms are also growing, obviously they probably wouldn't be growing at the higher rate.
Or if you're seeing those starts to just kind of level off a little bit versus bringing on new platforms etc.
John McCarvel
I think we are really proud of where we are in and we feel we are ahead of the market for most of the other footwear that manufacturers are today. We have developed a sophisticated internet platform of digital marketing e-commerce, social marketing, all integrated together.
And we believe that this is our largest and probably more sophisticated flagship store I think our marketing strategy start’s to evolve and change a little bit next year as we have now about 2.5 million of loyal craft customers classified in our database and we are able to integrate those consumers we are in Facebook pages, we have a vitamin C program of brand ambassador. We have a fund program going on right now with Zoopa, which is if we go out and do Zoopa and search for Crocs it is a very fun advertising that people are doing trading there own advertisement for products.
So we think of the internet, e-commerce platform really drive very strong messaging branding marketing for Crocs that is not only a revenue, revenue driven today not on revenue driven on the e-commerce site itself.
Reed Anderson - D.A. Davidson
One more. You know Russ, looking into next year my thought was that we wouldn't see a lot of gross margin moving around I mean you're kind of at where you wanted to be.
There's probably niches factors and cost factors that play in there. But, generally speaking does that make sense if we look at year-over-year?
Or are there things I should be thinking about?
Russ Hammer
Yes I think we have been in the past art, art long range next one or two years in that load of mid fifties on our margin as we did finish our planning process here we will give you more color on that in February 12.
Operator
Over now to Steven Martin with Slater Capital Management
Steven Martin - Slater Capital Management
Hi guys. Congratulations, what a great turnaround.
You mentioned that TSA isn't in the backlog. How should we consider that business, they were very underrepresented this past year and you were catching up.
With that business, would you expect a business be up in mind with the rest of the backlog?
John McCarvel
I don’t know you know see that’s a hard one for us to call just one time we got to step back at the beginning of 2010 with each other we started to reengage we put select products and some select stores in 2010 so little bit part to read the data right now sometimes I think when people don’t feel they can find proxy and TSA they stop looking for them there and so that, that has a little bit of impact on, on where the consumer shops. So I think in all our channels we track about the calls before each channel which is nice for productive, each channel is only 10 to 15% of our overall wholesale business and so yes it is TSA as an important customer of ours in a relationship that we want to build but it’s not really impact for the overall UFO sale business or to our overall business.
Steven Martin - Slater Capital Management
Okay in talking about customers, you discussed with us all, the possibility of a Target-like deal or somebody in that channel. Is there anything further to discuss or is that still in the works?
John McCarvel
We actually will provide Target with a Jibbitz branded shoe that will replace similar Flip-Flop and cord type products that they were selling from no-name type of manufacturer. So it’s a nice merchandizing of a Jibbitz shoe with all the Jibbitz accessories.
Those shoes will be sold at a lower price point and are not made with our core graphite material, but still has the safe toughness and durability we think you get from Crox product today. And those will be available in some Target stores starting in the first quarter.
Steven Martin - Slater Capital Management
Will that come through as gross margin or is that going to blend down your gross margin?
John McCarvel
No it should blend it in at an equal rate. These are products that are purchased and shipped ex-factory in China
Steven Martin - Slater Capital Management
Okay and one last question. The Croslite too, you started producing with it?
John McCarvel
Actually we will products starting in the first part of next year now, based on kind of our output and use of material
Steven Martin - Slater Capital Management
Okay, because I was going to ask how you were experiencing it, but I guess we'll have to wait until next quarter?
John McCarvel
There is really no different from the product we built. We built lots of prototypes and we have worn them and tested the attributes of the material is equally better or even better in some cases.
Steven Martin - Slater Capital Management
All right, one last one. Unless I missed it, did you say anything about what you were thinking about the $140 million in cash?
John McCarvel
We didn’t say anything but our idea is to build it.
Steven Martin - Slater Capital Management
For any particular purpose in mind?
John McCarvel
No, not at the present time. I think when you look at us relative to other brands, that we weather these ups and downs in the consumer market, we feel that we would be better positioned to have additional cash.
So we aren’t touching that right now, just to continue to do the things that we are doing with business and investing capital as required and hopefully just continue to build cash for a short period of time here.
Operator
(Operator Instructions) We will take a follow-up question from Jeff Klinefelter with Piper Jaffray
Jeff Klinefelter - Piper Jaffray
Yes, just a couple of quick follow-ups. On that pre- book, John, the 60% are backlog or rather the 60% increase going into next year.
Can you give a little color on how that's what's between your major three major geographic regions?
John McCarvel
Sure, Ruff will give that to you.
Russ Hammer
For the 260 million that John mentioned its roughly about 95 million in the Americas and about 45 million in Europe and about a 125 million in Malaysia.
Jeff Klinefelter - Piper Jaffray
And we can go back and dig this up, what percentage-wise if it's 60% in total, can you give it the rate increase across those three? Year-over-year?
Russ Hammer
Sure, in the Americas last year it was around 47 million.
Jeff Klinefelter - Piper Jaffray
Okay.
Russ Hammer
Europe was about 36 million and Asia was about 83 million. I think it is important to note that in the first year where we were selling over 50 bucks.
And in that 260 million of that 42% of the backlog
Jeff Klinefelter - Piper Jaffray
I'm sorry, I missed that last point ,
Russ Hammer
42% of the backlog was spring summer kind of products.
Jeff Klinefelter - Piper Jaffray
And just one last thing on inventory for planning purposes our expectations going forward, would you see running your inventory, once you adjust for this owned and manufacturing in Mexico balancing that facility. Would you expect inventory to grow in line with like, future sales growth?
Or would you keep it below to your sales growth? How should we think about that going into next year?
John McCarvel
We think its going go low to sales growth, and out internal target is to continue to turn inventory 3.5 times or better and planning for 2011.
Operator
(Operator instructions) We have no further questions at this time, Mr. McCarvel.
So I will turn the conference back to your.
John McCarvel
Okay, thank you operator. Well, clearly this has been another good quarter.
We appreciate your support and we look forward to talking to you on the next call. Thank you.
Operator
And this does conclude our conference call for today. We’d like to thank you for joining us.