David Weinberg - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Principal Accounting Officer and Director

Scott D. Krasik - BB&T Capital Markets, Research Division Jeffrey Wallin Van Sinderen - B.

Riley Caris, Research Division Sam Poser - Sterne Agee & Leach Inc., Research Division Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Thank you, everyone, for joining us on SKECHERS' conference call today. I will now read the Safe Harbor statement.

Certain statements contained herein, including without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements involve known and unknown risks including, but not limited to, global, national and local economic, business and market conditions in general and specifically as they apply to their retail industry and the company.

There can be no assurance that the actual future results, performance or achievements expressed or implied by such forward-looking statements will occur. Users of forward-looking statements are encouraged to review the company's filings with the U.S.

Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other reports filed with the SEC as required by federal securities laws for a description of other significant risk factors that may affect the company's business, results of operations and financial conditions. With that, I would like to turn the call over to SKECHERS' Chief Operating Officer and Chief Financial Officer, David Weinberg.

David?

Thank you for joining us today to review SKECHERS' second quarter 2013 results. Net sales for the second quarter were $428.2 million, earnings from operation were $17.2 million.

The strong sales improvement of 11.5% was the result of double-digit growth in our international wholesale and company-owned retail businesses, as well as single-digit gains in domestic wholesale. We are particularly pleased with the growth, given that Easter fell in the first quarter this year and the gains achieved despite unseasonably cooler spring temperatures in the U.S.

and in many other regions around the world. We believe the strong sales in all our revenue channels indicates the broad-based demand for our products.

And the 16.5% increase in domestic and international comp store sale indicates the strong acceptance of our fresh new product worldwide. Our gross margins also improved to 45.5% as a result of the improvements in our retail stores and international subsidiary and joint venture businesses, combined with the expected decrease in our international distributor sales which carries a lower gross margin.

Second quarter sales and product highlights include: a 6.6% increase in our domestic wholesale business; a 10.7% increase in our international business; an 18.9% increase in our company-owned retail business, with a 16.5% increase in comp store sales; a 37.2% increase in e-commerce sales; and a 7.1% increase in pairs shipped within our domestic wholesale business, with double-digit growth in our men's and women's divisions. Further financial highlights for the second quarter include: net earnings of $7.1 million and diluted earnings per share of $0.14; inventory in line for expected third quarter shipments and down $53.5 million from the fourth quarter due to strong sell-throughs; and a strong balance sheet with $333 million in cash, or approximately $6.59 per share.

We are pleased with our continued strong performance in the second quarter, and believe the first 6 months with sales of $879.9 million, which is a 19.7% increase over the prior year period, are an indication of the strong demand and momentum for our brand which we believe will continue into the back half of the year. Now turning to our business in detail.

In our domestic wholesale business, sales increased 6.6%, or $11.7 million for the quarter, versus the same period last year. With double-digit improvements in our men's and women's lines, the growth came across several of our divisions and was driven by sport athletic footwear.

Several key initiatives have received the broad acceptance including SKECHERS GOwalk, SKECHERS Relaxed Fit, BOBS from SKECHERS and SKECHERS Kids. We experienced double-digit growth in several of our core divisions including men's and women's sport, we also achieved double-digit growth in our SKECHERS Cali division, a significant achievement given the unseasonably cool weather.

Our Performance division continued to improve in the second quarter with double-digit growth in our Men's Performance line. We believe this success is in large part due to our determination to develop technical footwear with needs of runners in mind.

We achieved this by working closely with men as well as numerous other runners in the development of our product. Our Performance footwear has earned 9 awards from running press, including the most recent accolade for SKECHERS GOrun 2 from Inside Triathlon magazine.

Our SKECHERS GOwalk collection has become an in demand line for retailers across the country. In April, May and June, SKECHERS GOwalk placed in the top 10 sellers list for sports footwear according to SportScanInfo; and in May, it was the #4 behind Nike and Jordan.

In the second quarter, we supported the SKECHERS GOwalk with a TV campaign which we are again running this quarter. In the second quarter, we supported our lifestyle lines with commercials for Women's Sport Flex, Daddy's Money, SKCH Plus 3, Men's Relaxed Fit starring Joe Montana, and BOBS from SKECHERS, starring Brooke Burke.

We'd also like to note that the continued success of our charitable footwear line, BOBS, has resulted in more than 5 million pairs of shoes donated to children in need, including to those impacted by the tornadoes in Oklahoma. Led by Twinkle Toes, we believe our SKECHERS Kids business remains strong and viable.

Sales were down for this quarter primarily due to the shift of Easter to the first quarter, but only down low single digits for the 6 months. We continue to support our Kids business with numerous television campaigns on prime children's network programming.

Our product diversity and multiple key initiatives have allowed us to redefine many of our lines and grow the offering with many of our divisions, including the expansion of BOBS into a year-round business and the takedown of SKECHERS GOrun Ride and GOwalk into Kids. We have spent much of July in key account meetings at our corporate offices in Manhattan Beach and the feedback has been unlike anything we have experienced before.

The demand remains strong and we are continuing to ship for what we believe will be a very healthy back-to-school season, and we are already receiving some at-once orders. In the second quarter, our total international subsidiary, joint venture and distributor sales increased by 10.7%, with our subsidiary and joint venture sales improving by 35.1%, while our distributor sales declined by 27.7%.

The decrease is both a timing issue as product delivered earlier this year in many international markets, as well as the result of political challenges in several key markets. The subsidiary growth is attributable to growth in 6 of our 11 regions, including triple-digit growth in one country and the transition of Japan to a wholly-owned subsidiary.

While relatively small, we are pleased with the transformation of our businesses in Brazil and France, 2 countries that have historically been a challenge for us. We're also pleased with the double-digit growth in 2 of our largest subsidiaries, Chile and Canada.

While we remain cautious about several European countries due to the challenging economic environment, including Spain and Italy, we believe Europe will benefit from the product successes we are currently experiencing domestically in spring 2014. The joint venture growth is attributable to triple-digit improvements in China and double-digit improvements in Hong Kong and Singapore, which were the primary growth drivers in the quarter.

We're very pleased with the continued success [ph] in the region and the growths that we have experienced in China, which could be one of our largest international markets. We are also beginning to see growth and great in-store presence in India, our most recent joint venture business.

India, like China, holds tremendous opportunities for us and we expect to positively impact our sales in the next 2 to 3 years. As I mentioned, the decrease in our international distributor business is a combination of political and structural issues in 2 key markets, as well as timing with distributor sales down just 3% for the first 6 months.

We believe our international distributor business will also begin to feel product successes we are feeling here, next spring and summer 2014. Several distributors did experience growth in the quarter, including Russia, Serbia and Israel.

And we are pleased that we have shipped our first product to our new distributor in Argentina. At quarter end, there were 276 distributor, owned or licensed SKECHERS retail stores around the world; 124 SKECHERS stores in our joint venture countries in Asia, including those run by licensees in the region; and an additional 23 company-licensed stores in Canada, Spain, Portugal, Ireland and the Netherlands.

Of the 423 SKECHERS stores owned and operated by our joint ventures, franchisees and distributors, 32 were opened in the second quarter, including our first store in Myanmar and 3 stores in the UAE, including an exclusive SKECHERS Kids store. Additional store openings in the quarter include 7 in Indonesia, 3 in Mexico, 2 each in Peru, South Korea and Singapore, and 1 each in Lebanon, Egypt, [indiscernible], Columbia, Taiwan and India.

Already in the third quarter, our distributors and JVs opened an additional 5 stores, with another 30 on plan for the balance of this quarter. Two stores closed in the second quarter, 1 in Singapore and 1 in Russia.

We are pleased with the growth of our international business, which we had expected to be flat due to the shift of Easter to the first quarter. Given the continued economic and political troubles in some markets, we expect our international distributor business to be down for the year, while we anticipate our subsidiary and joint venture businesses to grow.

For the quarter, total sales on our company-owned retail business increased by 18.9%, with domestic sales improving by 19% and international sales by 17.7%. For the quarter, we had positive domestic comp store sales of 16.5% and international comp store sales were up 16.8%, for a combined increase of 16.5%.

At quarter end, we had 355 company-owned SKECHERS retail stores. In the second quarter, we opened 2 stores in both Puerto Rico and Chicago, and 1 each in Japan, Santa Barbara and Phoenix, and closed 5 stores.

To date, in the third quarter, we have opened another store in Puerto Rico and 1 each in Atlanta and the suburb of Chicago. We have also closed 1 store this quarter and plan to close another next month.

We anticipate opening another 35 to 40 stores this year, including additional stores in Chile, Canada, Spain, France and the U.K. We view our SKECHERS retail stores as profitable branding vehicles, and along with opening new stores, we continue to remodel key locations.

Though a small part of our total sales, our SKECHERS E-commerce business in the U.S. continues to grow with an increase of 37.2% in the second quarter.

Our licensing division generated $1.4 million in revenue in the second quarter from our many licensing partners, including eyewear, apparel and backpacks, all branded SKECHERS. Now turning to our second quarter 2013 numbers in more detail.

As I discussed earlier, second quarter sales increased 11.5% to $428.2 million, compared to $384 million in the second quarter of 2012. Second quarter gross profit increased to $194.9 million or 45.5% of sales compared to gross profit of $171.3 million or 44.6% of sales in the prior year period.

The improved profitability and higher gross margin was due to a combination of factors including double-digit gains in both our international wholesale and company-owned retail businesses, and single-digit improvements in our domestic wholesale division. Second quarter selling expenses were $42.1 million, or 9.8% of sales, compared to $39.1 million, or 10.2% of sales, in the prior year.

The slight dollar increase was due to advertising and marketing expenditures to promote both our new and existing product lines, as well as to support the growth of our business overseas. For the second quarter, general and administrative expenses were $137.1 million, or 32% of sales, compared to $135.4 million, or 35.3% of sales in the prior year.

This represents a 330 basis point improvement in our operating leverage. The slight dollar increase in G&A was primarily due to a combination of higher salaries and wages and increased warehouse and distribution cost related to higher sales volumes, plus additional distribution cost in Japan and Brazil.

During the second quarter of 2013, earnings from operation were $17.2 million, compared to a loss from operation of $1.5 million in the second quarter of 2012. Net income during the quarter was $7.1 million compared to a net loss of $1.8 million in the prior year period.

Net income per diluted share in the second quarter was $0.14 on approximately 50.5 million average shares outstanding, compared to a loss per diluted share of $0.04 on approximately 49.3 million average shares outstanding in the prior year. Our effective income tax rate for the quarter was 34.4%, primarily due to increased domestic profitability.

In the second quarter, we recorded an income tax expense of $4.6 million compared to a tax benefit of $2.9 million in the prior year period. We currently project our tax rate for the full year to be approximately 30%.

Net sales for the 6-month period ending June 30, 2013, increased 19.7% to $879.9 million, compared with $735.3 million in the prior year period. Gross profit was $387.6 million, or 44.1% of sales, compared to $327 million, or 44.5% of sales in the prior year period.

Selling expenses were $79.8 million, compared to $69.4 million from last year. General and administrative expenses were $278.5 million, compared to $266.3 million from last year.

Earnings from operations for the first 6 months of 2013 were $32.5 million versus a loss from operations of $5.9 million for the same period last year. Net income for the 6 months was $13.8 million compared to a net loss of $5.4 million last year.

Diluted earnings per share were $0.27 on approximately 50.5 million average shares outstanding, compared to a diluted loss per share of $0.11 on approximately 49.3 million shares last year. And now, turning to our balance sheet.

At June 30, 2013, we had $333 million in cash or approximately $6.59 per share. Trade accounts receivable at quarter end were $252.1 million and our DSOs at June 30, 2013 were 48 days, versus 51 days in the prior period.

Total inventory, including merchandise in transit at June 30, 2013, was $285.5 million, representing a decrease of $53.5 million from December 31, 2012, and an increase of $27.4 million from a year ago. Long-term debt at June 30, 2013 decreased to $122.5 million, compared to $128.5 million at December 31, 2012.

The decrease primarily relates to payments made on our distribution center equipment. Shareholders equity was $935 million versus $919.1 million at December 31, 2012.

Book value, or shareholders equity per share, sit at approximately $18.52 as of June 30, 2013. Working capital was 666 -- $663 million versus $647.8 million at December 31, 2012.

Capital expenditures for the second quarter were approximately $9.8 million, which primarily consisted of 7 new store openings and several store remodels. In summary, we are very pleased with our second quarter sales growth and the continued demand for our product in the marketplace.

We have a broad assortment of key product that is enjoying exceptional sell-throughs, which is reflected in the double-digit gains in our retail and international businesses, along with the single-digit gains in our domestic channel and our strong comp store sales increases. We're looking forward to further developing our new successful product categories for long-term success, expanding our retail footprint with another 35-plus company-owned stores this year, and more distributor-owned stores around world.

In June, our domestic sales, international partners and retail teams came together for our 21st annual Global Sales Conference, and the feedback was unlike anything we have experienced before. We are receiving similar reaction to our product this month during our key account meetings at our corporate offices in Manhattan Beach.

Based on these meetings and other key performance indicators, including our double-digit backlog, we believe our product mix is on target and well-balanced. Our return to profitability, operating leverage, cash balance of $333 million and in-line inventory levels are an indication of our determination to efficiently manage our business.

We are looking forward to building on our solid position in a global marketplace, capitalizing on our proven key initiatives, and achieving what we believe will be a continuation of our momentum this year and into next. And now, I'd like to turn the call over to the operator to begin the question-and-answer portion of the conference call.

So obviously, a lot of moving parts, and I know you were a little short on inventory. But can you dig into exactly why the growth rate in domestic wholesale was sort of below that low double-digit, maybe we had talked about last quarter, and also, what your expectations are for the real growth rates of domestic wholesale over the next few quarters?

Well, as we've said before, with Easter moving into the first quarter, everybody loaded up in the first quarter. And we had an outrageously high growth rate.

Something north of 25% in the first quarter, which was twofold. It was December moving into January, because nobody realized how hot we would be.

And obviously, Easter falling in March, so deliveries coming earlier, which obviously took from the fourth quarter. By the time everybody realized how exactly hot we were moving orders, our order rate increased.

And we had exceptionally good booking periods through May and June, but obviously, too late to catch the second quarter. While we did try to move some in, it was just too far behind in April or early May to catch any.

And so, I think 6.6% is about what we had talked about. We'd said we would be relatively flat up a little bit depending on deliveries.

Now some of that also had to do with the June and July. While we shipped very well the last 2 weeks of June, we also shipped very well in the first 2 weeks of July.

So some of it has moved in. So needless to say, we think our growth rates for Q3 on a domestic wholesale basis, even though it's a more difficult comp, will be at a significantly higher percentage than it was in Q2.

And without giving guidance, do you feel comfort? I mean, the consensus estimates, they're up sort of 20% for total sales, $0.60, $0.61, I mean, is that crazy?

I don't know that it's crazy. It's not crazy.

It would be at the upper end of what I think is possible here. But of course we surprised in a number of places.

So it depends on what comp store sales are and how well we do in Southeast Asia. I think the number's aggressive, but I certainly wouldn't say it's out of the question.

Okay. And then we're going to see it, I guess, in the queue, but can you just help us understand the moving parts of gross margin?

How much the mix from lower distributor sales, how much gross margin, and the retail mix, how much that helps gross margin versus 1 year ago?

Yes. Well, I think it's more than that as well.

I think what you see here is because the growth in retail was so high and retail is our highest piece. We increased some of retail, and retail had a significant increase in margin as well.

So that was the first piece. Second piece, obviously, is distributors, which is our lowest margin business, decreased the most.

So that came out of the mix, or the average. We had the biggest growth in Southeast Asia, where our joint venture has better margins than some of the other subsidies we have around the world in Europe.

And for the last piece, we had increased margins, slightly increased margins, on our domestic wholesale business simply from the new product and limited closeouts than we had last year. So I think you throw it all together, you get what we talked about at the end of the first quarter, is that we have a mix that moves towards slightly higher margins and we get to the top end of where we could possibly be.

I know that going into the quarter, you sort of just covered, I think, some of the metrics around which product get shipped and which product couldn't get shipped. I know it was somewhat of a challenge to sort of have retailer's chasing.

Just wondering how much you actually were able to ship out the door at the end of the quarter and how much maybe pulled forward from Q3 into Q2? Or if maybe you could just kind of paint a picture for us, I guess, in terms of where you stood with the backlog that maybe you would have wanted, you always want to get more out by the end of the quarter.

But any more color you can give us on that?

Actually, I don't think there's anything outrageous. We tried to pull as much forward on some of the key products as we could, but as -- I think I had the conversation the last quarter with somebody on the phone.

Once we're committed, our customers realize that when we're committed, we hold inventory for them. So I don't know if there's a rush on the customer end to ship the end of June or early July so long as they say know they'll get it in the key period and they manage their own inventories real well.

I would tell you that this time, there were no major shifts between second and third quarter, I think we had fairly even distribution. We had a very strong last 2 weeks and we had a very strong opening 2 weeks.

So I don't think there's any significant moves one way or another. It's just it's been very strong all along.

I will tell you, June was, by far, the strongest month of the quarter for us. So it was the new product going out that really made the quarter.

While our retail stores and comp stores held out throughout the quarter, April will -- obviously, after Easter was slightly below what we had originally anticipated going into the quarter. So it really didn't make it up with new product as we moved along.

Okay. So your comps, you ended the quarter with strong comps, it wasn't a fade, it sounds like your comps ramped.

The comps, yes. We had 16-plus percent, I don't think you can do much better than that.

We're going to try, but I don't know that you can.

Right. Okay.

And along the lines of those comps, is there any more color you can kind of give us on what the waiting was in terms of what drove the comp? Was it more heavily weighted toward more transactions or AUR or UPT?

It was obviously UPTs. AURs were slightly higher.

It comes from more unit sales. It's predominantly about the product categories.

And UPTs and the hot product is there because when people come into the store, they come out with multiple products most of the time. So -- and we had a lot of add-on type of sales.

It was -- I think it's pretty much across the board. I -- people don't like to hear that, they want to know something specific.

But we were hot in our men's and our men's sports, men's USA. Our women's active and sport active, as well as the Performance division.

BOBS has performed very, very well in the store, and that gives us extra UPTs because of its price point, that it hangs on rack. So it really is a cross section of multiple product categories in the store.

Okay, good. And then I know you touched on Europe earlier.

Now we've got, we're starting to see talk about Europe, the European macros stabilizing later this year and whether that happens or not remains to be seen, obviously. But just wondering if there's anything you can point to in your booking trends, any of the softer countries in Europe that might suggest a stabilization or something of that nature?

Yes. We had said, and I think it continues from into the second quarter and going into the third quarter, that we have seen stabilization, and certainly no significant deterioration.

The only issues we have is we brought out -- well Italy, really, and Spain, which are the worst. But in other countries, our bigger countries, like the U.K., Germany, Switzerland in Europe and Austria, they all are holding well.

And our big countries, U.K. and Germany obviously being, by far, our largest, are showing some increases as we go into the back half of the year.

So we think there's certainly no more deterioration that we could see in the near term and should have some, if nothing else, modest growth with the big countries within Europe, in general, for a subsidiary base as we get to the back half of the year.

Gross -- well, I mean, I'm going to bug you on your -- sort of how you're thinking about the balance of the year. Gross margin, you said prior, was 42% to 44% range, given -- and given that the distributor business is going to remain softer, that's the bank [ph] in your favor.

How should we think about that?

I still continue to think we'll be at the top higher end of that range as we go through. Obviously, it will depend on comp store sales, the stores can have a big third quarter for Back-to-School, but we have a big wholesale business, so if the percentage changes significantly, it would change.

And obviously, depending on which subsidiaries and the strength of the dollar, because the countries that are left, both the joint ventures and the subsidiaries, do have some currency risk. But everything being relatively equal, I still think -- I would anticipate we'd be at the top end of that range, if not, even somewhat better.

And Q4 should, theoretically, all things being equal, be better than that because that's where you move into doing a lot of retail again.

Well, we do a lot of retail and certainly we've done a lot of distributor ships in the past. So I think for the balance of this year, buying any big comeback or shifts in the strength of the dollar, we should be at the upper end of that range.

I don't think Q4 gets over that range unnecessarily because it's December. October is not a great retail month anyway.

I don't think the percentages go that way. And we're -- we have very big shipments to distributors and some of our subsidiaries in December to get ready for spring, so it takes it down some.

So I think there'll be a natural reduction in gross margins, but this year will be at the higher end of where they've been.

Great. And then you did a great job of controlling the spending.

We try.

Well, you did this time. And the only -- your spending in absolute dollars only went out -- in selling and distribution, it went up by about $3 million.

Are we looking at the same thing for next quarter or for this quarter on a year-over-year basis for -- I mean...

Not necessarily. I mean, I think a big piece of that was the shift in the opening of retail stores that we couldn't get.

We only opened 5 or 6 stores in the quarter, and we closed some concept stores and opened -- and replaced them with outlets and boxes which sort of changed the overhead both from a rent and people kind of perspective. As we've said, we're going to open 35 stores for the balance of the year.

We have 22 planned for Q3 and 15 planned for Q4. So there's going to be some expenses that will arise from that.

So I wouldn't anticipate quite the same. But we're going to try to keep it in check.

Like we said, the big spends are already done. The warehouse should continue to -- we continue to leverage our warehouse domestically here quite significantly.

Depending on where the rest of the business comes overseas, we don't have any big expenditures planned. It would really be dependent on our retail business.

The opening of so many stores in 1 quarter, we obviously took all of that expense and moved it from Q2 to Q3 and 4. Not necessarily planned, but the luck of the draw that way as to when these spaces are available.

So we'll have somewhat upward pressure on expense structures just from the store opening and the new rents and people that we pick up for training purposes.

Okay. I mean -- I'm sorry, I'm going to press this.

Because you said to Scott's question, the low 60s would be at the high end. With -- I mean, the only thing I have left -- at the high end of...

$0.60. I got it.

Yes.

I mean -- and from a revenue perspective, I mean, how should we -- I mean, you had said on the Q1 call that the U.S. business should -- or the domestic wholesale business should be up a lot closer to the Q1 number, but not that high.

I mean, how should we be thinking about this? I mean, what kind of revenue number, what kind of total increase are you thinking about here within...

Well, I'm trying not to think as big as you guys think most of the time.

No, I know. That's why I'm trying to...

But just -- I will tell you, if you look at the numbers on the Street, I took a quick look this morning before I got here and the consensus numbers on the Street are about $520 million and 50-some-odd cents. And if you take $520-some-odd million, whatever that number is, at a 44% margin and you use the same expense structure that you used in Q2, now we know we usually have somewhat less advertising, but we have more for store builds, add a perfect storm that way without an extra penny in spending, you only get into the low 60s.

So like I said, while it's possible, I would insist that for us to get 60s, we need a slightly higher revenue number where they could be some expenses that would make it slightly high on that end. But like I said, nothing is not possible, we are watching expenses.

But that is almost a perfect storm at that volume level. So obviously, there's always some one-time charges, things that can happen when you're moving this quickly in trying to move that product, whether it's freight.

And some things that come from the outside, whether they're freight cost, or customs, or duties or changes in structures or strikes some place. So things can change some, and it's perfect.

But like I said, I don't take it out on the realm of possibility, I just think it's at the upper end of where I would be. My most probable number's probably somewhere just south of there.

So I'm curious, on the order book, I think as you went through June, you had one of the strongest booking periods x toning. I was just wondering maybe we can talk about how July looked, I guess, particularly domestically in terms of how you started booking there?

Any color about that? Has it accelerated?

Has it held the pace or what?

Well, July is historically not one of our biggest booking months. We've -- our biggest booking months of the year, certainly the back half of the year, August and September.

So we're tracking to certainly be significantly ahead of last year, July, but it's not as significant to the quarter as some of the other months. In the second quarter, especially in May and June, we did have our biggest booking.

We had our biggest booking quarter ever other than 2010 in the heart of the Shape-ups deal. So certainly our backlogs are growing, and we're booking quite well.

And if our meetings here are any indication, we certainly anticipate having a very strong August, September.

Okay. Okay.

And then just on the international side. Just curious, what -- how should we think about distributorship versus subsidiary in the third quarter?

I mean, distributor continue to be down at that rate, does it then become less negative and can subsidiary hold at that level of growth or no? How should we think about that?

I think the distributors won't be down quite as a statistically as large, but it's very difficult, some of them have timing issues. I think the subsidiaries will continue to grow.

I mean, I think Canada, Chile, certainly are growing significantly for us. I think Europe is fairly stable, it should show some slight increases.

The key will be whether this breakout from our joint venture in Southeast Asia and the beginning of sales in Japan can hold. I mean, the big growth, to have a double-digit growth came predominantly from the big growth we've seen in China.

China more than doubled second quarter from second quarter before. Now, from smaller beginnings certainly, but it did double and July seems to have started as well, so it could be a breakout with product and the infrastructure that we've built there.

So if it continues at that level, I would anticipate that the overall would go at current levels and we'd still be 10% to 15% ahead for the back half of the year as far as the overall international business, even given a precipitative fall in distributor business, which may start to come back. I think while we have some issues, the 2 big issues, as we said at the end of the first quarter, with pretty much South America, some big countries down there and Korea, and some in the Middle East.

The Middle East seems to have been a timing issue, they are very strong, they continue to open stores, so they'll come back. South America seems to be opening up.

Some of the political issues and currency issues are clearing up. So they could be on line.

And Korea, we're still waiting to see. So we could actually start closing that gap and you can get bigger growth for our international business as we go closer to the end of the year.

Okay. Helpful.

On DTC, any color on -- retail comps being up 16.5, I mean, any color as you stepped into the third quarter that was sustained as you came through or any changes? I think as you come to August, I think comparisons become a little tougher, so I'm just sort of curious.

August is a very big month, and obviously the biggest month of the year. I would tell you that July started off very strong.

I think there was a week that got very mild, it slowed back a little bit, although we're still comping very well. I would tell you, the first 3 weeks of July are probably still tracking along the same rates we had in Q2.

But like I said, that's a smaller piece of the business and we need it to really happen in August for it to show that kind of result for Q3.

Okay. And lastly, I just want to understand something on the expense structure.

Again, nice job there. But I'm just curious, as you go into the third quarter, when you open up more stores, last year did roughly $135 million and if we assume potentially you do somewhere in the $510 million to $520 million in revenues for the third quarter, I mean, is that something like a $10 million increase year-over-year in G&A?

Or is it more like a $5 million increase in G&A?

That answer depends on when the stores open and how much money have to put into them and how much -- how many units we have to ship and where the business is. If the business is predominantly in the U.S., if it really is domestic wholesale growth and comp store sales and sales in the U.S., then it's more -- it's a shorter number than if it starts to happen in Europe and China and in South America, in our subsidiaries, where we have more infrastructure to build.

But I would put it between $5 million and $10 million depending on where it is and depending on currency translation, not a bad place to be.

Thank you again for joining us on today's call. We would just like to note that today's call may have contained forward-looking statements.

As a result of various risk factors, actual results could differ materially from those projected in such statements. These risk factors are detailed in SKECHERS' filings with the SEC.

Again, thank you, and have a great day.