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

Sam Poser - Sterne Agee Jay Seo - Morgan Stanley Corinna Van Der Ghinst - Citi Chris Svezia - Susquehanna Financial Group Danielle McCoy - Wunderlich Jeff Van Sinderen - B. Riley Scott D. Krasik - Buckingham Research Jim Chartier - Monness, Crespi, Hardt.

Greetings and welcome to the Skechers USA Incorporated First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this point, I’d like to turn the conference over to Skechers.

Please, go ahead..

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 statement 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 the 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?.

Good afternoon and thank you for joining us today to review Skechers first quarter 2015 financial results. Our sales for the first quarter were 768 million, a 40.5% increase over last year and the highest quarterly sales in the company's history.

The outstanding first quarter growth is attributable to the continued strong demand for our men’s, women’s and kids footwear collections globally. This resulted in double-digit increases in our domestic and international wholesale and company owned retail businesses and single-digit increases in our domestic e-commerce business.

Further in the first quarter our average price per pair increased by 5.9% or $1.27 in our domestic wholesale business. We saw a 9.3% comp store increase in our global company owned retail business.

We also achieved double digit increases in several key countries that were negatively impacted by currency and triple digit increases in two of our largest international markets. All of these factors are testament to the continued strong demand for our brand and product.

First quarter sales and financial highlights include record quarterly revenues of 768 million, a 38.2% increase in our domestic wholesale business with a 30.5% increase in pair shift and a 5.9% increase in average price prepare.

A 59.5% increase in our international wholesale business with a 62.7% increase from our distributors and 58.5% increase from our subsidiaries and joint venture partners.

A 19.9% increase in our company owned retail stores which included an additional 54 net new stores compared to the prior year period including net four stores opened in the first quarter.

Earnings from operations of 88.2 million, gross margin of 43.3%, net earnings of 56.1 million and diluted earnings per share of $1.10, inventories up 25.6% from the prior year period and in along with the expected sales and a strong balance sheet with 396.7 million in cash or approximately $7.76 per diluted share.

Despite headwinds including the stronger U.S.

dollar, the slowdown at the west coast ports and seasonably cold weather in certain key markets and less efficient operations than originally anticipated at our European distribution center due to the transition to a new automated systems combined with than expected sales, we never the less achieved the new quarterly sales record maintains an 11.5% operating martin and strong gross margins of 43.3%.

We believe these accomplishments are due to the strength and demand of our many product lines and the diversification of our business across many accounts globally.

With a significantly increased worldwide bookings, our year-over-year worldwide backlogs were up mid double digits at March 31, 2015 which we believe is a clear indicate us that the momentum will continue throughout the year.

Now turning to our business in detail, as I highlighted earlier in our domestic wholesale business first quarter sales increased 38.2% or 88.8 million as compared to the prior year period with a 30.5% increase in pair shift, 5.9% increase in average price per pair.

The growth was the result of the double digit increases in our men’s, women’s and kid’s footwear. Specifically, we achieved triple digit increases in our women sport active and women USA Lines. Double digit increases in our men’s and women’s Skechers Sport, Skechers GO and Skechers Work.

Men’s USA, Mark Meson as well as our women Active, Kelly and on the GO line To further drive sales and support our many product lines we ran numerous commercials, front end digital campaigns and participated in several key events during the first quarter. In January, we were again the official footwear and parent sponsor of the Eastern Marathon.

Before the event in which Meb ran the half marathon and Skechers Go Mebs P3, we blanketed the city with Meb and [indiscernible] sketches performing advertisements.

We also ran TV campaigns featuring the two elite runners throughout the quarter and are very proud of Meb who at 40 years of age finished in the top 10 at the Boston marathon earlier this week after coming of a 2014 victory at the event. February began a Super Bowl and our Relaxed Pete Rose commercials.

The campaign created a buzz in the press and social media as we championed the baseball greats place in the hall. Also Demi Lovato who regularly appears in Skecher’s shoes is creating tremendous engagement on social media gaining hundreds and thousands of likes, shares and comments.

Our Skechers TV campaigns have more than 3.9 million views on YouTube. In the quarter we also act several new adult campaigns including Stretch fit featuring Brooke Burke-Charvet, Skechers Memory Foam featuring British actress Kelly Brook, who is also starring in the NBC comedy One Big Happy, Skechers go golf, featuring pro-golfer Matt Kuchar.

Skechers go walk free and our first sandal campaign in many years.

The renewed strengthen in our kids business was driven by our growing collection of lightweight sports footwear, the innovative new games kick lines which features a built-in memory game, new developments within our twinkle toes, hot lights and [Audio gap] each of these lines were supported by television campaign design to appeal to kids.

Further, we signed a licensing agreement for co-branded Starwest footwear for boys which will launch in fall 2015. To support men’s lifestyle business earlier this month, we launched a relaxed feet television campaign starring legendry drummer Ringo Starr and signed legendary boxer Sugar Ray Leonard whose campaign will begin later this year.

We belive both Ringo and Sugar Ray will not only help elevate our men’s business in state but also around the world. Based on our domestic wholesale backlog, our continued focus on delivering innovative product in relevant marketing and spring sell-throughs, we believe we will continue to achieve strong gain in 2015.

International achieved the highest percentage gains of all our distribution channels. Total international wholesale and distribution sales increased by 59.5% in the first quarter. Further, our subsidiary and joint venture sales improved by 58.5% and our distributor sales improved by 62.7%.

As in our domestic business, we believe this success is attributable to our innovative and diverse product range and our on-target global marketing and branding campaigns. Additionally, we are pleased with the continued growth in our international business especially given foreign currency headwinds particularly in Europe and Canada.

Our wholly owned subsidiaries through a net sales increased up 42% for the quarter. In our European subsidiaries, we achieved increases of 58.1% for the quarter. The highest dollar increase has came in our too largest subsidiary Germany and the UK both of which also shipped more than a million pairs in the quarter.

The only market we did not achieve growth and sales was in Canada which was down slightly where the currency headwinds had a negative impact though we still had a 15% increase in pairs shipped in the quarter.

To maximize our presence in Central Eastern Europe in the first quarter, we began transitioning several distributors to a wholly owned subsidiary that will oversee 14 countries including Croatia, the Czech Republic, Hungary, Romania and Serbia.

With headquarters opening in Budapest in the second quarter, we believe this new subsidiary will positively begin to impact our operations in 2016. With the increasing shipping of the subsidiaries handled through our distribution center in Belgium, we believe we are already outgrowing a new automated European distribution center.

We are in the process of two expansion phases, doubling the size of our EDC bringing us to more than 1 million square feet of distribution space by early 2016. Our joint venture in Asia grew by 136.9% for the quarter. This growth includes triple digit increases in Singapore, India and China.

We believe China are biggest joint venture will be a standalone $100 million business in 2015.

Our international distributor growth of 62.7% for the quarter is the result of triple digit growth in Scandinavia, Turkey and the United Arab Emirates and double digit growth in Australia, New Zealand, Indonesia, South Korea, the Philippines and Taiwan as well as strong results from many other countries.

To showcase the brand in our complete offering, most of our international distribution partners have opened Skechers retail stores and we have a growing network of franchise Skecher stores. At quarter end there were 610 Skechers branded stores owned and operated by our joint ventures, franchisees and distributors outside of the United States.

Of these 392 are distributor owned or franchise Skechers retail stores. 185 Skecher stores are in our joint venture countries in Asia including those run by franchisees in the region. Additionally there are 33 company franchised stores in Brazil, Canada, France, Ireland, Portugal and Spain countries where we directly distribute our product.

34 third party stores are reopened in the first quarter including five each in China and Taiwan, three in India, two each in Australia, Hong Kong, Malaysia, Saudi Arabia, South Korea and Sweden and one each in Bahrain, Denmark, England, Indonesia, Latvia, New Zealand, Portugal, Turkey and the UAE. Three stores closed in the quarter.

Eight third party Skecher stores have opened to-date in the second quarter including our first in the Czech Republic and Nigeria and another 140 to 150 are expected to open during the remainder of the year. International is fast becoming instinct with our new product launches and marketing.

Kids and men’s are growing in countries worldwide mirroring the product mix in the United States and wherever you go around the world you see the same strong looks in every market. In Asia we have also reintroduced one of our heritage styles which is going on with young men and women.

Our advertising campaigns are translated into numerous languages appearing on TV and in magazines around the world. With double-digit backlog increase, the strong growth planned in many countries including Germany, the UK, China and the UAE, we believe this momentum will continue through the back half of 2015.

Now with over 37% of our total sales, we expect international to become 50% of our total business in the next three years to four years. Worldwide sales in our company owned retail stores increased by 19.9% for the quarter with domestic sales growing by 18.1% and international sales by 28.5%.

This included positive comp store sales of 8.3% domestically and 14.8% in our international stores for a total 9.3% comp store sales increase worldwide. At the end of the quarter we had 453 company owned Skechers retail stores around the world including 88 international locations.

In the first quarter, we opened six stores including an outlet in England. We closed two domestic stores in the quarter. With 45 to 55 planned for the remainder of the year including 15 stores to 20 stores this quarter of which 10 are expected to open internationally, we should reach to 500 company owned store milestone by year-end.

Domestic e-commerce sales increased 7.9% for the quarter and currently comprise less than 1% of our total net sales.

In an effort to make the shopping experience more intuitive and provide a more impactful branding platform, we are revamping the skechers.com site to a more responsive design, ideal for mobile devices which will also include unit generated content. Now turning to our first quarter 2015 numbers in more detail.

As I discussed earlier, first quarter sales increased 40.5% to 768 million compared to 546.5 million in the first quarter of 2014.

The significant growth from the prior year period was the result of both double and triple-digit improvements in our domestic and international wholesale and retail businesses benefiting from our universally appealing men’s, women’s and kids product.

Due to a shorter product introduction cycles and our worldwide distribution capabilities, our international business continues to grow at a faster pace than our U.S. business. First quarter gross profit was 332.5 million, or 43.3% of sales compared to gross profit of 240.4 million or 44% of sales in the prior year period.

The 70 basis point decrease was primarily attributable to negative currency impact. First quarter selling expenses were 49.1 million or 6.4% of sales compared to 36.7% or 6.7% of sales in the prior year.

The dollar increase in advertising and marketing expenditures was to support our diversified product categories both domestically and internationally. For the first quarter, general and administrative expenses were 197.1 million or 25.7% of sales compared to 158.5 million or 29% of sales in the prior year.

Of the $38.6 million increase in G&A, 7.6 million was related to operating and additional 54 stores when compared to the prior year period and 18.5 million was due to the increased expenses related to our international operations which included increased personnel cost of 7.3 million primarily at our European distribution center from the implementation of our new automated equipment.

We expect to leverage the operating cost of our international DC as we move through the year. During the first quarter of 2015, earnings from operation were 88.2 million or 11.5% of revenues compared to 48.2 million or 8.8% of revenues in the first quarter of 2014.

This 270 basis point improvement reflects the operating leverage in our model as we continue to expand globally. Also included is a $9.8 million negative currency translation and transaction impact. Net income increased 81% to 56.1 million compared to 31 million in the prior year period.

Net income per diluted share in the first quarter was $1.10 on approximately 51.1 million average shares outstanding compared to $0.61 on approximately 50.8 million average shares outstanding in the prior year period. In the first quarter we recorded income tax expense of 19.1 million, compared to approximately 11.4 million in the prior year period.

Our effective tax rate was 23.7%. We currently anticipate our effective tax rate for 2015 to be 21% to 25%. And now turning to our balance sheet. At March 31, 2015 we have 396.7 million in cash or approximately $7.76 per diluted share.

Trade accounts receivable at quarter-end were $442.7 million and our DSOs at March 31, 2015 were 42 days versus 45 days at March 31, 2014. Total inventory including merchandise in transit at March 31, 2015 was $392.2 million, representing an increase of $80 million from the prior year period and a decrease of $61.6 million from December 31, 2014.

Given the strength of our business including our extremely strong backlogs and increased retain store count; we are very comfortable with our inventory position. Long-term debt at March 31, 2015 decreased to $13.7 million, compared to $113.4 million at March 31, 2014.

The decrease is primarily due to the reclassification of long-term debt to short-term debt on our distribution center and distribution center equipment. We expect to refinance the distribution center building before the end of 2015. Shareholders’ equity at March 31, 2015 was $1.2 billion versus $1 billion at March 31, 2014.

Book value or shareholders equity per share stood at $23.40 as of March 31, 2015. Working capital was $832.9 million versus $743.4 million at March 31, 2014.

Capital expenditures for the first quarter were approximately $14.6 million of which $5.4 million was related to 6 new stores and 12 store remodels and $2.8 million was related to continuing phases of the automation upgrades of our European distribution center and $3.3 million for additional equipment upgrades at our domestic distribution center.

We expect our capital expenditures for 2015 to be approximately $55 million to $60 million, which includes 50 to 55 retail store openings, equipment upgrades at our European and domestic distribution centers and an additional real estate purchase.

In summary, we are extremely pleased with our continued strong financial performance, specifically our record quarterly sales in the first quarter. Our strong gross margins of 43.3% and double digit growth in our domestic and international wholesale and retail businesses.

We’re also pleased that these achievements came in-spite of weak currencies in Canada, Europe and the UK, the West Coast port slowdown and additional challenges we faced in the period due to cold weather and stronger than expected sales in Europe which resulted in less efficiencies than originally anticipated in our European distribution centre.

Between our three business segments, domestic wholesale, international wholesale and company owned retail stores the highest rate of growth in dollars and percentages came from international with most of our key countries achieving double-digit increases in the first quarter and several key markets including China achieving triple-digit growth.

Given the significant increase in our backlogs, we expect this momentum to continue as we look to international to become 50% of our total business in the next three years to four years.

Based on the reaction by key accounts during our interim meetings this month in our corporate offices, we believe the strength of our brand and product has not slowed. And our company owned retail business, we expect to open another 45 Skechers stores to 50 Skechers stores this year reaching the 500 mark for company owned stores by year-end 2015.

We believe the global growth in our business is due to the continued strong demand for our men’s, women’s and kids products as well as our focused marketing execution including new campaigns with Demi Lovato, Ringo Star and Meb.

With few exceptions the key sales drivers around the globe were consistent and are comprised of our stylish comfortable footwear across our lightweight sport, casual and walking lines.

We are introducing new lines for adults and kids this year including the Star Wars cobranded line for boys that will be available in the United States and select markets around the world.

Our record 2015 first quarter and a strong start to April in terms of revenues and backlogs including double-digit domestic and international retail comps leads us to believe that our accelerated growth trend will continue through the second quarter and into the back half of 2015.

We believe we are well positioned to maintain this growth with 396.7 million in cash and in line inventory levels. We are looking forward to what we believe will be a record for second quarter delivering our back-to-school product and new annual sales record.

Given the key performance indicators, we are comfortable with the second quarter analyst estimates and believe there’s upside opportunity in the third quarter. And now I’d like to turn the call over to the operator to begin the question-and-answer portion of the conference call..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Sam Poser of Sterne Agee. Please go ahead..

A quick question.

International I mean it’s trending so strong, does this hit a billion this year, I mean just based on how it’s going? And could you give us some idea of sort of the kind of increase you’re foreseeing for the full year given the start I mean – are we looking in the 40 plus percent range?.

We usually don’t go a lot that far, but I will tell you I would be very surprised if international business hit $1 billion this year. As far as the growth rate continuing, the back half is a slower time I would be surprised if there’s sell below 40% for the full year..

So you’re expecting….

I am not seeing there is significantly more currency transactions, that’s something we can’t control. There were a little shop during the first quarter than we had originally anticipated..

But I mean as you think about it, is it sort of is it going to dip a little bit more in Q2 just because you brought in a lot of stuff earlier and then ramps back up from year-over-year increase in the back half?.

I don’t think that’s true. We didn’t get things out too much earlier in Europe. We tried to bring some stuff in early, but the inefficiencies in distribution centre obviously got better through the quarter, so we weren’t able to send it out at the early stage.

I think they got them and we completed them, but we were basically on time, so nothing really came in too much earlier.

I think the differential certainly in percentages is because last year’s second quarter already had a very big step up and it was a significantly higher increase in the first quarter and the comparisons are much tougher and it’s never a very strong quarter for us subsidiaries they are much bigger in first and third that’s why we say even with increases in the third quarter we think the significant upside is in the third quarter 25% is the concern.

.

And then when we think about the U.S., the domestic also business because I was kind of thinking there, who do you think about that?.

Yes.

They would get tougher comparisons but [indiscernible] I don’t know they stay quite at 38% but I’d be surprised if they did significantly at the early stages now, we’ve worked very well for the initial stages of back to school and borrowing any significant downturn which we haven’t heard of any – we actually started to sell very well going through Easters, as my understanding even at the retail level I really wouldn’t anticipate any significant slowdown in the growth that domestic as we get into third quarter.

.

Thanks. You’ve originally guided the first two quarters for the gross margin or the first quarter gross margin to be down 100 to 200 basis point. It didn’t come down that much.

Would you expect gross margins in future to be sort of in line with what they were in the first quarter?.

Yes. I don’t see too much of a change. I think the reason they weren’t down as much as we anticipated obviously we try to take a conservative view anyway. It was China which didn’t have an issue and Great Britain had lesser of issues than Europe hold up very well and increased in that level and sort of compensated for more short declining Canada.

So, yes, I assume we run through the same change and there is no more significant currency changes which is always the [indiscernible] I would anticipate this would be give or take a little bit the running rate as we go forward. .

As far as been down about 70 [bips] until we get to the fourth quarter when you would expected to probably improve just because you should have lack of it by then. .

Well, wont lack until very first quarter, there will be some in the fourth quarter but yes – and like I said it really in the dark because currencies you don’t know how far the Europe or the Canadian dollar will depress based on all the interventions in those currencies.

So, yes given the current running rate and the current currencies that’s what we’d anticipate. .

Thank you. The next question is from Jay Seo of the Morgan Stanley. Please go ahead..

I just want to follow up on that just with the sales growth is so strong and the outlook seems even as speak today it seems really even better than Canadian it’s just been last quarter.

Can you talk about SG&A and kind of a trade of a higher thinking about between letting allow that incremental sales growth flow through or maybe investing some of the upside in projects that whether it’s marketing or systems or whatever it might be.

How you are thinking about the flow through versus incremental investing that can drive the business even years out. .

I don’t think our thinking has changed significantly at all. As we said in the past it would depend where the growth is coming from, an outsized growth will require outsized investment at a faster or earlier time than it was originally anticipated.

If you think back our European business is one of our oldest businesses and it was very stable but this new product cycle and competitive nature in Europe has outsized the growth significantly.

We planned the distribution center what we thought was the significant amount from the running rates of over the last couple of years and we worked significantly behind.

I think it’s fair to say we will do whatever is necessary to do it all in all parts of the world and I think we would have shown even more flow through to the bottom line, headwind would be more efficient in the distribution center and we will catch that as a go forward.

So, we are increasing our spend this year, we’re doubling our size of our distribution center that doesn’t all flow to additional G&A because we had rent odd size premises just for storage because it got so big and we had to turn so much merchandise. But we are doubling the size it will be 1 million square feet more efficient.

We are now complementing more automation in this new part of system to become even more efficient and anticipate that sometime going to the end of the year certainly through to 2016 it will become as efficient and leverage quite well as it does in the United States.

China remains to be seen I assume if they continue to have a 100% growth year-over-year that we will have to sooner than later going to more sophisticated distribution there and the rest remains to be seen. There are two new—Chili is up and running on its own and they don’t anticipate to require too much of distribution automation in that country.

So right now we are in pretty good shape we only have Europe to really grow, China to think about on the horizon and we should leverage even more as continue to grow into the back-half of the year and the early part of next year..

Yes, and then may be can you just speak to, the other piece that you mentioned in the prepared remarks, just about updating the website making up into the mobile site, it’s something that will go global, how does that impact, what kind of investments does that take to do what you really want accomplish there to enhance the brand online?.

Given the balance that what we are doing and in other words, 55 stores and the distribution centers, it’s negligible, it’s a small investment relatively speaking because most of it flows through our in house crew. We’re not going to hire too many more people, so it’s just a matter of time. We use it as a branding tool.

We’re not very big on our own e-commerce sales are driving in too hard, so this is more branding and becoming usable for the entire generation of new customers that we’re getting. So we continue to do it in house. We continue to invest in it.

It will continue to get better and the investment won’t be significant compared to the overall capital investment we have talked about for full year..

The next question is from Corinna Van Der Ghinst from Citi. Please go ahead..

Okay the first question, the 40% top line was much stronger than your guidance back to the quarter, can you just comment on where specifically you saw the biggest applied where as your internal expectations and just clarify on your language in the prepared remarks, are you saying that the backlog accelerated from the 60% you reported in February?.

The second part first, no it didn’t accelerate from the 60% and it actually came down somewhat in real dollars, not a significant amount, I think it’s in the – okay it comes down but not a significant amount but most of the decrease is currency denominated, a constant dollars that would have accelerated from the year end.

So that’s first part, the biggest surprise I don’t have how to rate them from top to the bottom as far as surprises are concerned, I think given all the headwinds between the weather and the port and the distribution center in the Europe the fact that we powered through and continue all of them probably pretty much peak.

We always evaluate each channel of distribution and prepare for the year, but there’s always some downside. We were pretty much at peak and shipped very efficiently throughout the quarter. I think our brand stayed hot. There were no cancellations, there were no move but I think everything was as solid as could be.

So I think we just went to the upper end of everything we anticipated could happen which is very rare..

And then can you provide a little bit more detail on the 26% inventory growth at the end of the quarter? Are you still affright any spring inventories in at this point? And are you seeing any changes to the cadence for that one quarter that you’re seeing just given some of the impact from the port delays and the weather and Easter shifts, et cetera?.

Well I’m going to have to take issue with that remark still we don’t affright a lot, never did affright a lot even during the system although more than in the past that wasn’t outrageously a lot. I think it’s grown because the business has grown. We have 50 more stores. We have a business that’s doubled in China.

We’ve moved into Central Europe and Europe is a much bigger piece has more stores. Every place continues to grow. I think this is base inventory.

If you look physically at the inventory that we had in our warehouse here domestically in the United States, the growth is not significant enough to support this kind of growth it’s mostly in transit and the growth is all new stuff, so we haven’t seen any -- there’s always something left hanging from the port but the port has picked up very efficiently and we are turning -- getting our goods in much quicker.

Our in transit inventory hasn’t grown as significantly as it did at the end of the year, so we’re turning things I think that the quarter inventory is just a larger piece for what we need to support our stores.

And also to support a bigger shipment in April – May both domestically and internationally because the business is growth were taken into stuff, and Easter is later I mean we will have a bigger April than last year and that would just require more inventory to be in half and in transit at the end of March.

So I think it is just our basic inventory or our inventory around the world which has grown and support them and we are having bigger growth in April - May then which we usually have [indiscernible] built for..

Okay just as a follow on to that are you expecting similar ASP grow through the rest of the year, I think from first quarter?.

Not through the whole year because if you remember the back half of the year it picked up then so I don’t know for comp on comp I don’t know it’s changed too much of a change in the mix but I don’t remember exactly when we had the big pick-ups last year so I don’t know what I’m competing against but this is pretty much our core movement unless there’s like we said in the past shift within categories or within countries we should be pretty much in these price points for this work..

Thank you. The next question is from Chris Svezia of Susquehanna Financial Group. Please go ahead..

So I want to go back on the backlog for a second just not to harp on it too much but if you’re up 60 on a dollar basis because of those movement in currency in Q1 it’s obviously incrementally lower than that but on a currency neutral basis you didn’t give us a currency neutral number before but I assume it’s actually incrementally accelerated from the growth rate in Q1 or is that from year-end of that, is that what you were saying..

Yes..

Q3 revenue, can you just, without being overly specific, but in acceleration potentially in growth rate, is that more like in excess of 25% growth year-over-year? Is that fair, given what you are saying in the backlog and international being a bigger piece in Q3 versus Q2..

I mean, I will also give like real number guidance, but that number wouldn’t surprise me. .

These are easy, two words to answer the questions. ASPs, just wanted to go back on that for a sec.

International, what are you doing there? I know domestically, it was up wholesale, what’s happening on ASPs just to combat some of the FX pressure? Can you talk about that a little?.

Well I guess, I could, but I rather not in a public forum because I don’t want the strategy to go public before it's announced to the customers and things like that. But we are reviewing our pricing and new offerings in all those territories, and would anticipate on margins trying to come back, but not earlier than the back.

At the end of the year or early 2016, we don’t want to be too aggressive on it. We have our business growing there. And we want to be in tune to the market place. So it's -- we have a strategy in place. But it is too early to announce it publically..

Okay, fair enough.

The DC in Europe just -- you mentioned a 7 million or so when personnel expense or -- I am just curious, can you just maybe walk through how dilutive the inefficiencies are in the DC in Europe and when that tide becomes starts to turn the other way? What point is that? Q3 is much more efficient as in Q3 last year, that's where it really crept up, trying to see some inefficiencies?.

That would depend on volume increase, which I have a whole handle on. I anticipate they would be significantly more efficient in Q3. It will be even more efficient in the first quarter of next year.

The inefficiencies relate around the $7 million an additional cost, we would have anticipated significantly less than that, probably 4 million or 5 million less, had the system B is efficient as to plan to be ultimately and then get overwhelmed with all these volumes.

You have to understand when you have an automated system and it can't keep up and you have to convert that to a manual system which is even more expensive than the fully manual system. Because if you have to take it out of a specific flow out of things that are moving around as much you put in there, it's very difficult to understand.

So we became more efficient than we anticipated. I think if we had the equivalent volume next year, that we had in first quarter this year, I would anticipate that 7 million would come down by somewhere in the $4 million to $5 million range..

Last question I have, just on the retail comp, being up double digit so far in April, how much of that is just because of Easter being earlier, I am just curious that was it stronger in the first half of the month, and then weaker in the back half, because you're getting closer to the Easter comparison, just a color on that?.

I won't tell you that it's just significantly higher than in the first half of the month. But when I said double digits, we made a comparison between Easter and the week after Easter, this year and last year, and it's up 10%. So we took out that timing differential. For the Easter holiday we are up double digit.

I don’t know if it holds for the whole quarter. I mean, last year we had significant, I think 12% to 13% comps or so increases in the second quarter which was significantly larger than the first. I don’t know that we can comp double digits upon those double digits but we have started off that way..

The next question comes from Danielle McCoy of Wunderlich. Please go ahead..

Just back on to the AUR, you can just give us a little bit of color as you are raising AURs and just between competitions -- what are your thoughts around how high you guys could take prices versus competition?.

I don’t know that we think in those terms. We think of pricing the product we developed and its value in the marketplace. I don’t know if it is all competitive that we have to stay in a certain range. Certainly that's not true of all products.

But as we develop enhancement, I think that have a higher perception of price and the brand does carry a higher price point now and we get more technical, we will continue to raise prices, as those who thinks to develop.

I don’t think we have a floor or ceiling just based on the taste in the marketplace and what kind of product sells and what the demand is and those that we can put more technical features in..

And then in term of international is there any differences I guess in the consumer who is shopping Skechers or any differences in shopping behaviors compared to the U.S.

that you can call out?.

As far as what they buy or how they react to the line..

I guess how they’re buying.

Are they buying more in store or more online or any specific categories or even age groups that you might have there that you don’t have here or vice-versa?.

So I could tell I think the demographics are very broad around the world. There are some places where we built -- where we have more teams [indiscernible] but that’s growing for us in the United States as well. I think the new ones is some are from a country specific just based on population as it exist there.

As we said in the prepared remarks the core products that are the base of pretty much every place we sell in the world are the same.

There are new [indiscernible] in each country, but basically the core product is the same which is the same core customer I don’t think we leave anybody off the table around the world so we have a very broad demographic and a very broad list of categories that sell the new [indiscernible] between the countries could be very difficult to take up on [indiscernible] country by country but the [indiscernible] Skechers brand and product are the same around the world..

Thank you. The next question is from Jeff Van Sinderen of B. Riley. Please go ahead..

David maybe you can just help clarify a little bit I’m just trying to understand the difference in how much the backlog is up for Q2 compared to Q3.

Maybe you can also just touch on the breakout for domestic backlog a little more versus international backlog again just trying to get a sense of how much international is growing faster obviously that would be a good place to start?.

I’m not sure where to start. The backlogs in the United States have been fairly consistent.

They haven’t modulated as significantly as international because there’s obviously no currency risk so the change is different, so I would tell you that our backlogs continue relatively the same level the differential is not that big on a domestic level and are only lower than last year because of the currency differential in our international business.

So it’s held up very-very well.

I mean we still have a significant -- given that scale and pace of our growth and even after the first quarter, well first quarter was an easy comparison than the second quarter will be obviously just because second quarter grew so big last year both from a wholesale and the retail perspective, but it still have up at these losses why we have confidence that Q3 can be significantly to the upside.

It’s not Q2 will grow but just given the comparison that it can’t go at 40% low because that was just up too high last year, so I don’t think anything is really slowed down or changed it’s just the comparisons have changed.

We still see significant growth and significant demand and as far as where the backlog is obviously the closer we’re booked in the higher we are full, we’re pretty much booked up for second quarter but you understand in our analysis also we try to keep in very even [indiscernible] on that June-July differential we have for shipping where a lot of July can move to June if there’s big demand for back-to-school and vice-versa so that still is out there and could change our outlook for Q2 and Q3 but right now given an even distribution and not significant move we think we’ll have significant growth in Q2 while certainly not the 40 but the upside in Q3 because that’s where demand around the world will converge into the larger shipments..

So wasn’t really a matter of pull forward in the Q1 it’s really just obviously a tougher comparison in Q2 and then the booking window is still open for a part of Q3 correct so that could also fill in?.

That’s also true and so really through now we might have had a pull affect in Q1 that made it even bigger but that was made impossible by the distribution centre in Europe and the port slowdown here..

And then as far as the DC and Europe are we – I mean or the slowness issue is pretty much behind us as we’re getting I mean it’s getting better but I guess all they will be fully behind us..

But hopefully never, hopefully we can double every year and we will have that keep chasing it but it's later or soon they're getting better now. They are actually very efficient going into the second quarter but it's a very small quarter for them to even anticipate they get caught up in more efficient in that quarter.

We are making changes and do anticipate that in Q3 with the pick up that they will be significantly more efficient then they were in Q1. And then with advent of the new building and when we decide what automation to put into it, they should be significantly more efficient in Q1 and in the balance of 2016. So it will ever tightening slope..

The next question is from Scott D. Krasik of Buckingham Research, please go ahead..

You said the case was with that double digit, so relative to some of the stuff that happened last year, I mean is that business totally back on track and should that grow at the same rate as your adult business or faster even?.

I don’t know, that they are closer to same rate as it though -- certainly is double digit growth but it hasn’t caught up to the adult yet but I think it will continue to be double digit as we go through.

We’re getting very good responses and could even pick up the pace as we get to the back half of the year with Star Wars and the growth in the existing business. But right now it's up double digits. We continue to book and have backlogs up double digits.

So, yes, the new product and that's sure around the world by the way, so the new product is taking hold and it is growing and it certainly doesn’t have the same issues as last year..

So, no question it gives faster growth in the second half than the first half or both halves?.

It is hard to tell, but I would anticipate that. .

Okay, and then within domestic wholesale, any new distribution worth calling out, this all comp growth, what are we seeing on third year?.

Well, all new distribution is worth calling out, wherever we are. I don’t know what it means to be overall total. We have some accounts that have grown significantly. We're trying new other flagship and nothing that would move the needle as significantly.

Obviously the big piece of growth, to receive 38% growth requires our bigger accounts to jump on board and I think by and large from top to bottom, they really have some more than others. But yes, it resides where we sell the best..

And then just help us contextualize China.

So you said a 100 million in 2015, how many points of distribution would that equate to roughly and what's the growth potential beyond there?.

I don’t know that China has a quantifiable growth potential when you started with this smaller basis we have simply because it can be overwhelming with the amount of people.

It's predominantly franchised and retail oriented so the amounts of locations will grow significantly probably well into the thousands over the next two or three years given the franchise model because there really aren’t a lot of multi-branded stores there.

And we will have some bigger customers, there are some franchises that looking to significantly more locations. So the locations must grow at the same rate as sales. It's just everywhere but not all will be ours obviously. The bigger piece now would be franchises.

And as far as its potential, I mean it certainly has the potential to double and then re-double over the next two or three years..

How many -- just for perspective, how many points of distribution are there now roughly?.

Not sure exactly. I would think that there is a 1000 - 1500. .

Okay, so double, triple, something like that..

Yes.

I mean, look at how much territory you have and how much retailer is there?.

And how -- are you marketing that as positioned as a performance brand or lifestyle brand, what's the?.

It's positioned just like our stores here. It's from top to bottom. It's a men's brand, it's a women's brand, its performance, its casual athletics, its kids and it is open footwear..

And then just a last, I missed the number.

What did you say the retail G&A was this quarter?.

G&A or comp?.

No, the G&A associated with the retail stores?.

I think 5.8 million, or 6 million, something like that..

And our final question comes from Jim Chartier of Monness, Crespi, Hardt. Please go ahead..

Just quickly, in the other expense line, what was the impact of FX trends translations on that line?.

I think it was give or take 4 million. I will have to look it up, to something like that..

And then the earnings attributable to non-controlling interest, more than doubled, has the joint ventures have they hit an inflection point in terms of profitability and could you just talk about the margins for that business?.

That's very true. China is becoming significantly more profitable with their growth. They have already made up all the renewals and they should be profitable as a franchise model growth that will even accelerate that numbers. So they are very profitable and the southeast based joint ventures are obviously the biggest piece of what goes into that..

And then, this number you talked about trying to drive the sandal business this spring you just talked about, how that initiative did in performance so far?.

I think it has performed quite well for us. We've had actually had not many categories of ours that lag. So obviously the weather in the East Coast was part of the issue but we held up pretty well. I think all our categories have done well..

Thank you. At this time I would like to turn the conference back over to Skechers for any closing remarks..

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' filing with the SEC.

Again, thank you and have a great day..