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

Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division Scott D. Krasik - BB&T Capital Markets, Research Division Sam Poser - Sterne Agee & Leach Inc., Research Division Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division Matthew Berry - Lane Five Capital Management, LP William J. Dezellem - Tieton Capital Management, LLC

Good day, ladies and gentlemen, thank you for standing by. Welcome to the SKECHERS USA, Inc. Second Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, July 25, 2012. And at this point, I would 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 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 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's Chief Operating Officer and Chief Financial Officer, David Weinberg. David?

Thank you for joining us today to review SKECHERS's Second Quarter 2012 results. As always, we will open the call to questions following our prepared comments. Net sales for the second quarter were $384 million and loss from operations was $1.5 million. Net loss for the second quarter was $1.8 million, and diluted loss per share was $0.04 on approximately 49.3 million average shares outstanding. Our second quarter 2012 sales decreased by 11.6% over the same period last year. This was due to lower sales across our domestic and international wholesale channels, which was primarily the result of the clearing of excess toning inventory and the winding down of our fashion brands last year. This was offset by increased sales in our retail stores due to an additional 39 stores, as well as growth in some of our heritage lines in our domestic wholesale business, and the addition of our performance lines. Our international sales were negatively impacted by a combination of factors: challenging economies in several European markets, the euro exchange rate, and the change of our business operations in Japan from a third-party distributor to a wholly owned subsidiary and the restructuring of our business in Brazil. We expect both of these countries to begin to positively impact our international sales next year. While our sales decreased in our domestic wholesale business, our average price per pair improved 8.4%, or $1.61, as more in-line product was delivered. Our domestic and international company-owned retail stores also had mid-single-digit improvements, primarily from the addition of 33 new domestic and 6 international stores from the prior period. Second quarter financial highlights include: increased gross margin percentage by over 1,100 basis points, decreased selling expenses by $14 million and total operating expenses by $18.4 million, reduced inventory by more than $67.7 million from a year ago and a strong balance sheet with over $374 million in cash or approximately $7.59 per share. We feel positive about the overall direction of our business, including the launch of our Performance division. Our new product looks sensational and is trending positively, and our backlogs are up double digits year-over-year. We are anticipating a return to profitability in the second half of 2012 and building momentum for 2013 and beyond. In our domestic business, second quarter sales decreased 18% or $39.2 million over the same period last year. The $39.2-million reduction was primarily the result of lower sales of toning and non-SKECHERS-branded product. In the second quarter last year, these items totaled in excess of $35 million. We are pleased with the improvements in many of our heritage lines, including very strong sales in our women's Sport line. This is the result of numerous new looks and updates to many of our classic styles. We are continuing to update our key product divisions and are looking forward to the introduction of some new initiatives in the second half of the year. Our charitable line, BOBS from SKECHERS, grew significantly in the quarter. We are pleased to have donated our first million pairs of shoes to kids in need in the United States and around the world as part of our "buy a pair, give a pair" program. We're also encouraged by the strong initial results of our men's and women's Performance footwear line. SKECHERS GOrun and SKECHERS GOwalk launched earlier this year in our wholesale accounts, and we are looking forward to the introduction of several new Performance lines, which are currently testing very well in our company-owned retail stores. Our Performance lines benefited from the continued airing of our Super Bowl campaign in the second quarter, and SKECHERS GOrun has received numerous positive reviews from influential bloggers and the running media, including being most innovative by 2 running magazines: Competitor and Women's Running. To help launch the next generation of our Performance lines, we began airing a new campaign in June that featured elite marathon runner, Meb Keflezighi in SKECHERS GOrun Ride. Our Kids footwear business was also supported by several new commercials that ran on key children's networks in the quarter. In addition, on July 31, Twinkle Toes: The Movie will be available on DVD at major retailers nationwide, continuing to build on our most successful children's character. We believe we have been very efficient with our recent marketing campaigns and have been able to create tremendous awareness for our footwear lines while still reducing our selling expense by 26%, a significant accomplishment. The reception to our new product offering, both performance and lifestyle, during our buy meetings in our corporate offices this month has been very positive. While our domestic wholesale business is down compared to 2011, we believe we are stabilizing, and our backlogs has improved double digits to last year. We are also seeing many new opportunities in several lifestyle and performance segments to grow our business. In the quarter, our international distributor sales decreased by 5%, and our international subsidiary sales by 21% for a total decrease of 16%. This was due to a combination of several factors: very difficult comparisons against a record second quarter 2011 for our international business, the transition from toning to new lower-priced products, the transition of our business in Japan from one of our largest distributors to a wholly-owned subsidiary, the restructuring of Brazil with new management and a new -- and a fresh focus on product and challenging economic environments across western Europe, as well as the impact of the weaker euro. While our international sales declined in the second quarter and the trend is expected to continue in western Europe and Brazil, which, together, represent a significant portion of our international business, we are seeing improvements in certain key market. The Asia-Pacific region continue to perform well, led by South Korea and Australia, New Zealand, 2 of our biggest distributors, as well as Indonesia, Taiwan and Hong Kong. The Middle East also continues to see growth in spite of unrest, and they continue to open up more stores. Earlier this month, we began shipping our first pair to accounts in Japan as a subsidiary. We expect to see growth in Japan year-over-year in the remaining 2 quarters of 2012 and for Japan to positively impact our international business in 2013. Key to growing our brand worldwide is the opening of SKECHERS-branded retail stores. At quarter end, there were 98 SKECHERS stores in our joint venture countries in Asia, including those run by licensees, and 219 additional distributor-owned or licensed SKECHERS retail stores around the world. 18 SKECHERS stores opened in the second quarter: 1 each in Serbia, Jordan, Philippines, Thailand, Guam and Venezuela; 2 each in Malaysia, Mexico and Australia; and 6 in South Korea. In the second quarter, 2 stores closed in South Korea and 1 in China. We believe that there are continued opportunities for long-term growth in our international markets, given the right product, marketing, management and stabilization of economies. We do expect to be trending positive in the back half of the year as we begin to deliver more fresh product into our international markets, and Japan will deliver its first full shipment. For the quarter, total sales in our company-owned retail business increased by 5%, with domestic sales improving by 6%, primarily due to an increase of 33 stores, and international retail sales up by 3%. For the quarter, we had negative domestic comp store sales of 3.4% and negative international comp store sales of 6.7%. Importantly, we saw a 4% comp store sales increase in our concept stores, which have our new products. This, combined with our increased backlogs, provide good leading indicators for our business. At quarter end, we had 344 company-owned SKECHERS retail stores. In the second quarter, we opened 6 domestic stores and 1 international store in Chile, including a store in Christiana Mall, the largest mall in Delaware, and one in a new premium outlet center in Merrimack, New Hampshire. We closed 2 stores during the quarter. So far, in the third quarter, we've opened an additional concept store in Chile. We expect to open an additional 5 to 7 stores in the second half of the year. Before we move on to our financial review, I'd like to mention our licensing division, an additional profit channel for our company. We received $1.6 million in licensing revenue in the second quarter from our many licensing partners, which include eyewear, apparel, backpacks, watches and socks, all branded SKECHERS. Men's and women's SKECHERS Performance and Sport apparel are planned for a holiday launch, which we believe could add meaningful licensing revenue in the coming years. Turning to our second quarter 2012 numbers in more detail. As I mentioned earlier, second quarter sales were $384 million compared to $434.4 million in the second quarter of 2011, a decrease of 11.6%. Second quarter gross profit improved to $171.3 million or 44.6% of sales compared to gross profit of $143.3 million or 33% of sales in the prior-year period. The increasing gross margin percentage was due to a variety of factors, including improved quality of our inventory, strong product sell-throughs in our retail stores, as well as a higher average selling price of 8.4% per pair in our domestic wholesale segment. Second quarter selling expenses decreased over 26% to $39.1 million or 10.2% of sales compared to $53.1 million or 12.2% of sales in the prior-year period, The nearly $14 million decrease in selling expenses for the quarter was primarily the result of significantly lower advertising and marketing expenditures from the prior-year period. For the second quarter, general and administrative expenses decreased by approximately 3% to $135.4 million or 35.3% of sales compared to $139.8 million or 32.2% of sales in the prior year. The decrease in G&A was primarily the result of reduced salaries, lower research and development cost, as well as cost efficiencies in our new distribution center. These decreases were partially offset by increased store operating cost from the additional 39 domestic and international company-owned stores, along with $3.2 million of additional depreciation expense and $5 million in rent expense. During the second quarter of 2012, we had loss from operations of $1.5 million compared with a loss from operation of $48.2 million in the second quarter of 2011. Net loss during the quarter was $1.8 million, compared to net loss of $29.9 million last year. Net loss per diluted share in the second quarter was $0.04 on approximately 49.3 million average shares outstanding compared to net loss per diluted share of $0.62 on approximately 48.3 million average shares outstanding in the prior year. Net sales for the 6-month period ending June 30, 2012, decreased 19.3% to $735.3 million compared with $910.6 million in the prior-year period. Gross profit was $327 million or 44.5% of sales compared to $335.9 million or 36.9% of sales in the prior-year period. Selling expenses were $69.4 million compared to $90.7 million from last year. General and administrative expenses were $266.3 million compared to $281.2 million from last year. Net loss for the 6 months was $5.4 million compared to net loss of $18.1 million last year. Diluted loss per share was $0.11 on approximately 49.3 million average shares outstanding compared to diluted loss per share of $0.38 on approximately 48.3 million shares last year. And now turning to our balance sheet, which continues to remain very strong. At June 30, 2012, we had $374.2 million in cash or approximately $7.59 per share. Our cash position reflects payments of approximately $5 million for our previously announced global settlement with the FTC related to our toning products. The balance of the settlement of approximately $45 million is expected to be paid in the third quarter of 2012. These expenses were accrued and reflected in our fourth quarter 2011 results, and we do not expect any additional material cost related to the settlement. Trade accounts receivable at quarter end were $237.7 million, and our DSOs as of June 30, 2012, were 51 days versus 54 days in the prior-year period. Total inventory, including merchandise in transit at June 30, 2012, was $258.1 million, representing an increase of $31.7 million from December 31, 2011, and a decrease of $67.7 million from a year ago. Long-term debt at June 30, 2012, was $71.3 million compared to $81.1 million in the prior-year period. The decrease in long-term debt primarily relates to payments made on our distribution center equipment. Shareholders' equity was $894.1 million versus $946.9 million from a year ago. Book value or shareholders' equity per share stood at approximately $18.14 as of June 30, 2012. Working capital was $569.6 million versus $624.3 million from a year ago. Capital expenditures for the second quarter were approximately $11 million, of which $2.1 million consisted of 6 new store openings and several store remodels and $6.9 million related to our distribution center and distribution center equipment. As we reflect on our significant achievements over the last 20 years, we've made incredible strides to become the brand we are today. Over the last 2 decades, we have overcome many challenges, and this year remains no different as we focus on our goal to profitably grow. During the second quarter, we continue to see improvements in our domestic retail business with fresh new product and styles across many of our divisions, including the expansion of our Performance division. Our domestic wholesale business also benefited from the new styles introduced for spring 2012, but we're still negatively impacted by the closing of our non-SKECHERS-branded lines and the clearing of toning inventory this time last year. For our international distributor and subsidiary businesses, we face the challenges of a record quarter last year, a reduction in toning sales and a negative macroeconomic conditions across Europe. As we continue on the path of cleaning up our inventory and bringing in new and relevant product in the diverse categories of our brand represents, we believe our increased backlogs and positive pre-lines will result in improvement and increased shelf space in the second half of 2012. We are delivering new Kids styles for back to school, and we will be introducing new initiatives for Performance and lifestyle. Holiday 2012 and spring 2013 buy meetings with our key domestic accounts this month indicate we are on track for continued growth and expansion of shelf space. We also expect to see improvements in our international and retail businesses. With improved gross margins, inventory levels in line with our expected sales, continued attention to managing our expenses and a strong balance sheet, we expect a stronger second half as we build momentum into 2013. And now, I'd like to turn the call over to the operator to begin the question-and-answer portion of the conference call.

[Operator Instructions] And our first question comes from the line of Jeff Van Sinderen with B. Riley. Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division: David, I wonder if you can talk a little bit more about which specific product is selling best in your own retail stores, what's driving the comp in your concept stores. Is it transactions or UPT or, largely, AUR? And then also, when do expect your regular domestic and international stores to turn positive comp? I know you -- I think you said in your prepared comments that you expect retail to be better in the second half. And then maybe you can also talk a little bit more about wholesale and which products your retail partners are responding to best and where you feel you have the most opportunity as you look at second half.

Well, the opportunities are about everywhere. And it's actually combining the first part -- the last part of your question is that our retail partners and our store are experiencing significantly better sales almost across-the-board. It goes from Active, which has become a very big part -- our women's Sport, men's Sport. Our Men's U.S.A. is picking up some and, certainly, our Performance, as well as Kids, both girls and boys. So we're getting a very good sell-through across-the-board. It's not a -- one particular item, although the Fitness product is still going very strong for us and doing well, but it's -- it's added to by everything else. Almost every part of our brand is showing increases and very solid sell-through and growth year-over-year. And you're correct. We anticipate that retail stores in totality will turn positive in the fourth -- in the third quarter, certainly, for easier comps, and we're off to a good start. So we feel pretty confident that we'll get to positive comps this quarter. Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division: Okay, great. And just wondering if there's anything else in the GO line. I know you said GOrun is still doing well and GOwalk. Anything else new developing there in terms of some newer-generation GO products that you're seeing?

Well, we continue to develop. And if you come up and see our room where you see them at the shelves when we present, the GO line can be move out to significant categories. But to date, the only other thing we've delivered to our stores so far is GObionic. And that's very recent, and it is off to a good start as well. Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division: Okay, great. And then maybe you can just touch a little bit more on what you're seeing in Western Europe and some of your other international segments that are worth pointing out.

Well, as we said, I believe Western Europe is obviously down significantly, and we anticipate it'll remain down, certainly, through the third quarter. Although we see some positive signs, some product selling, it's just -- it's seems across-the-board. It's in the places you'd imagine. Germany also shows down. The only one we have that's holding its own and possibly could break even for the back half of the year is the U.K. And since it's our largest, that's certainly something. But Germany, Italy, Spain, very difficult, and it's anticipated it'll stay that way. The balance, as you go around the world, South America, both Chile and our distributor that handles the biggest part of South America, being Venezuela, Columbia and all the way up to Mexico, along with Mexico, seem to be doing very well. Brazil, as I said, as we retrenched, we were very overly committed to non-SKECHERS brands and Shape-ups last year. So it was quite a significant cleansing process. And if you know anything about business in Brazil, it's very difficult, and there -- you have to cleanse it in Brazil. It's just -- you get no duty back. The duty rates are horrific, and you have to cleanse it out in Brazil. So that sets us back a bit. But we're now showing new product, delivering some new product and getting some good results, and it's just a matter of time before we continue -- we start growing and become significantly positive there. Southeast Asia has held up well for us. Korea continues to do well. Australia and New Zealand continues to do well. Our joint ventures outside of China, Hong Kong, Singapore, Malaysia, do very, very well and continue up. China's starting to get closer to positive. We still anticipate they'll be positive profit-wise by the end of the year. And they do continue to grow, and we continue to open new stores. So -- and Eastern Europe, where in Ukraine and Russia, we have significant businesses, are going to show increases in the back half. So right now, we're seeing the most difficulty in Western Europe. We've had problems with the currency, obviously, the euro there, as well as the existing business, and it is a big piece of our business. But that's going to take a little while before it comes back. Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division: Okay. One more question, and I'll jump back in the queue. Is it possible or feasible for you guys to be profitable, given the improvement trends you're running in Q4?

Well, I think we've said before, it's certainly possible. It's way too early to tell. As we get acceleration from this type of products, certainly, around the world, anything is possible. It would take some increases from here, but I -- we still remain very, very positive. It seems -- our goal has always been to build up and to be very positive to go into first quarter of '13. And that means if we perform well for back to school and these products are as good as we think they are and as good as our customers are telling them they are, some of it could move back to December and push the whole quarter up significantly. So yes, it's possible, still.

Our next question comes from the line of Scott Krasik with BB&T Capital Markets. Scott D. Krasik - BB&T Capital Markets, Research Division: I missed it. What exactly was U.S. wholesale down in Q2?

It was down $39 million, I think, 11% -- 18%, something like that. Scott D. Krasik - BB&T Capital Markets, Research Division: 18%. Okay. And then is U.S. wholesale based on your best guess right now? Is that going to be positive in Q3?

Yes, I -- we anticipate it's going to turn positive in Q3. If -- we try to bring out in the prepared remarks, although it might have been difficult to pick up. Our non-toning, non-fashion brands, the eco stuff that we're sort of discontinuing now came pretty close last year to being flat, although, obviously, with slower margins and no performance in it. So yes, it's anticipated that our domestic wholesale business turns positive this quarter. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And I mean, you mentioned Kids. Is Kids going to be positive? And are you all the way around on Twinkle Toes again?

Twinkle Toes, we still have some new offerings, and Twinkle Toes remains a very active part. It's probable that Kids will break about even in Q3. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And then you're sort of at the sweet spot still with the inventory super clean. So I mean, you don't have a lot of sales into the off price from what we hear. So are gross margins still going to be way above 44%?

Right now, we have no reason for it to change other than the flip in international. While we anticipate international to be relatively flat for the quarter, it's going to be a bigger increase in distributors and, certainly, less from Western Europe. And that's obviously a big swing in margins. So we may have some margin impact from the switches in international. So other than that, yes, everything remains status quo. We think will actually pick up some margin at our retail stores in the third quarter. Of course, they are clean as well, and they're starting to sell, really, the -- a lot of the new product, which as it moves through the outlets, we'll pick up the margins there. And we should maintain pretty healthy margins in domestic wholesale. So we're still feeling pretty good about that. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And then I think it's on everybody's mind, as we get towards spring '13, you made some comment, I think, that backlog is up double digits. So at least, it's up double digits from the negative number that you had before, so maybe you can clarify that. But as we look to spring 2013, what sort of visibility do you have on sales from the new GO product? I mean, walk certainly seems to be accelerating.

I don't know that it's changed significantly. We were up double digits, but remember, that up double digits also includes a decline for our Western European subsidiary. So if that had remained relatively flat, margins would be up significantly more. The only thing I could tell you about first quarter '13 is the feedback I get from the larger customers we've had buy meetings with the last few weeks, and it's still all very positive about the product and about the shelf space we can acquire for first quarter. So while it's not in the bag yet, certainly, everybody is still looking around, all the comments we received and what we could tell and sell-through that we're monitoring as we go into back to school seem to indicate that everybody feels we'll have significant upside. And that includes the Fitness and the lifestyle product for first quarter of '13. Scott D. Krasik - BB&T Capital Markets, Research Division: I mean, could we look at first quarter '11 as a guide, or is that still even too much because that was inflated from Shape-ups?

That was still kind of inflated from Shape-ups, but I wouldn't take it off the table if Western Europe and international and Japan picks up as much as we think they might.

Our next question comes from the line of Sam Poser with Sterne Agee. Sam Poser - Sterne Agee & Leach Inc., Research Division: Can you give -- just some housekeeping. Can you give us the actual dollars for domestic wholesale, international wholesale, retail, e-commerce and then the U.S., Canada, other international? Can you just give us the actual sales numbers?

I'll tell you what, I'll give you an offshoot from what we're going to print in the Q. For the quarter, domestic wholesale was a little over 46% of the whole. International was just over 23%. That includes distributors and subsidiaries -- sorry, 23%, I think I said that. Retail, both domestic and international, was 29.25%, and 1% to 1.5% was in our direct marketing. So that's what you can expect to see in the Q. Sam Poser - Sterne Agee & Leach Inc., Research Division: So that was the e-commerce?

The e-commerce is a balancing number. It's about 1.25%, 1.5%. Sam Poser - Sterne Agee & Leach Inc., Research Division: Okay. And then can you tell us -- and then you talked about -- all right. So we have it, and then the U.S., we'll deal with that later. Just a -- when you're thinking about the kind of sales, I mean, you said you're going to be up for the balance of the year. What kind of sales increases are you foreseeing at the moment for the balance of the year?

Well, it's kind of early, and I said we don't give guidance. We show domestic wholesale will be up. And when we get hot like we are now and everybody's chasing some product, it tends to grow pretty significantly, but it's kind of early. We're still geared towards first quarter '13, where we think a lot of positive things and a lot of things that we can do with our production facilities happen, so. Sam Poser - Sterne Agee & Leach Inc., Research Division: But do you think you can be up -- is it like -- I mean, are you looking -- I mean, because you do generate fast and you're up -- coming up against some horrific decreases last year. So I mean, are we -- could we see a 10% increase in domestic wholesale in the third quarter?

In domestic wholesale in the third quarter, that's certainly possible. Sam Poser - Sterne Agee & Leach Inc., Research Division: And then when we look at Q4, that should be accelerating from there theoretically?

Correct. Sam Poser - Sterne Agee & Leach Inc., Research Division: Okay. And what -- are you finding -- as far as the GO series and women's athletic, women's lifestyle, women's Active product, did that -- you're back hitting the sweet spot in that $50 to $60 price point hard, and that's where you're -- is that where you're getting a lot of the positive responses from?

Well, in Fitness, that's sort of the GOwalk or the SKECHERS GOwalk kind of different price point, which is certainly hot. But the balance is higher, and they perform very, very well. And Active and Sport, I would tell you in women's and that's probably correct. Sam Poser - Sterne Agee & Leach Inc., Research Division: And then -- and so could you give us some idea within the GO product sort of what percent right now is GOwalk versus the higher-ticket product?

I hate to give that number on the street. We can talk about that directionally later. But GOwalk is certainly a big piece, but it's not half. I mean, if you go all around, our men's product is performing quite well, both run and ride. And the women's product in run and rides continue to perform well. It's just -- GOwalk is concentrated when it's very colorful, and there is a lot of SKUs in it. And it just an eye-opening experience for our customers as well, because it fits right in there, and they got delivery of that earlier.

Our next question comes from the line of Chris Svezia with Susquehanna Financial. Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division: So I just wanted to be clear about something. So if Q3, potentially, U.S. wholesale could be up 10%, so just, say, maybe it's up 5% to 10%, you made some comments, total international. Is that flat? How you breakout subsidiary versus distributor? How do we think about that for the third quarter?

Well, I think it's relatively flat. I think we'll show significant increases in distributors and slightly down. I mean, we're going to be down significantly in Western Europe, but part of that will be made up by Japan and part of that will be make up from -- which will be a subsidiary, so the subsidiaries will get that much closer, and the rest from distributors, which will grow significantly. So we tend to be somewhere around flat, maybe slightly, slightly positive, but it may have a little bit of margin impact. Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division: Okay. And then the retail business, assuming you comp, say, positive low single and you have store growth, you're probably talking 10 percent-ish kind of growth rate for the retail piece.

Certainly, possible. Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division: Okay. So looks like, potentially, a $450 million -- somewhere in that for $440 million, $450 million revenue number, potentially, through the third quarter, doesn't seem out of the realm of possibilities?

It's certainly a ballpark we would talk about. Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division: So let me -- so if gross margin sort of hold this line, maybe it's a little bit of a margin impact. I mean, you did a nice job on marketing expense, I think, relative to what -- or selling expense relative to what you communicated, I think, to us beforehand, last time you had a call. I mean, does that incrementally go up in dollars on the selling expense line just because it's back to school and marketing initiatives step-up? I mean, how should we think about that? Is that flat year-over-year? Does it go up slightly year-over-year on the dollars on the selling line?

I think the selling line remains relatively flat to net last year. I don't know if there's any projects. I mean, from the media point of view, the biggest single one will be relatively flat. I think what you're looking at is that third quarter last year and second quarter this year are equivalent in dollars, and I still would -- that would be the place I'd start my analysis. Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division: Okay. And the -- and just in and around the G&A line. I mean, this sort of $135 million number, is that sort of a fair proxy for third quarter? Does that go up slightly because you have more stores, or how do you think about that?

I think, actually, there are some room for improvement as we go through that. Obviously, I said there's only 5 to 7 stores in the whole back half of the year. So I think we can get some efficiencies in there. I think we'll make up some of it, obviously, with the legal fees and some -- we had a big 20th party. We're not going to upgrade the shelves. So I think there's a slight amount of positive leverage that we can get or a decrease in real dollar terms of the G&A line in the third quarter, certainly no increases from last year and maybe some slight decreases. Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division: Okay. And then I'm curious where -- I mean, when you guys think about a quarter, whereby you can be breakeven. I mean, you did as much revenue as you did here, $380 million. I mean, we're sort of -- how do you think about breakeven on a quarterly basis? I mean, obviously, you'll be profitable in the third quarter. I know fourth quarter has yet to be determined. But you need to be close to a $375 million number to be profitable in the fourth quarter. I'm just trying to get an idea where that stands at this point.

I don't think so. If you look at last year's fourth quarter and this year's second quarter, there's a $16 million differential in the selling line, and I don't think last year's increase in G&A flows through this year. It'll be more like first and second quarter of this year. So you could take that number down somewhat, and there could be some more efficiencies that we find as well. So yes, you could take the number down somewhat from there. Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division: Okay. So I mean, it could be more like a $350 million kind of top line revenue number, you could start to see breakeven?

Yes. If you think about $25 million is $10 million in gross margin and you have $16 million to play with, you can play back with the numbers, I mean, just if nothing happened and no efficiencies or gain. Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division: Okay. And just on the balance sheet. The accounts payable continues to be pretty high relative to inventory. I'm just...

It still has the accrual for the FTC settlement. Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division: That's what's in there. Okay, I see. So that will come down third quarter as you pay that out, correct?

Well, if I pay it out, it will come down, yes, can't argue that.

[Operator Instructions] Our next question comes from the line of Matthew Berry With Lane Five Capital Management. Matthew Berry - Lane Five Capital Management, LP: David, a couple of questions just on the accounting. Firstly, the $438,000 you put in the noncontrolling interest line, how much of that is for your sort of the net rent effectively to the DC partner?

I think the biggest piece is the partnership we have in the distribution center, certainly, but it's also a piece -- a fairly significant piece, although certainly not the biggest piece from our joint ventures in China and the beginnings of our joint venture in India. Matthew Berry - Lane Five Capital Management, LP: So how much is to the DC partner?

I have to go look. I don't have that off the top of my head. But if you call me later, I'll give it to you. Matthew Berry - Lane Five Capital Management, LP: Okay. And then one other thing on -- just disaggregating that a little bit. When I look at the direct subsidiary sales, which you include in your international wholesale, so the non-distributor bit, the direct bit, you include the JV, the retail JVs in there. That's right?

Correct. Matthew Berry - Lane Five Capital Management, LP: Okay. What is the split of the direct subsidiary sales between the JVs and sort of direct wholesale to the third parties?

The joint ventures probably represent about 5% of the total international sales, give or take. Matthew Berry - Lane Five Capital Management, LP: Okay, okay. And are they -- is that profitable at the moment, the JVs in total, including China?

Totally, if you include China, they are at about a breakeven. Matthew Berry - Lane Five Capital Management, LP: Okay. Okay, that's useful. And then one other thing, just on sort of the G&A side of things. We've talked over this a little bit. I was wondering if you could give me a little bit of a clue as to what your FT -- what your headcount was like at the end of the first half for full time and part time?

I don't know that we've ever given that out, and I have to add all the subsidiaries together. So I don't -- I look at them usually in pieces of operating pieces. So it's down significant from last year because of the distribution center. Other than that, it's remained fairly stable year-over-year. Matthew Berry - Lane Five Capital Management, LP: Okay, all right. Is it down from year end?

The distribution center or just in general? Matthew Berry - Lane Five Capital Management, LP: In general. Is headcount -- full-time headcount down from December?

I have to look at it. I think it might be down a little bit, but nothing significant.

And we have time for one last question, and our last question comes from the line of Bill Dezellem with Tieton Capital Management. William J. Dezellem - Tieton Capital Management, LLC: A couple of questions. First of all, I believe that you expressed some enthusiasm for Western Europe in the first quarter of 2013, that you may see some positive items there. Would you please share with us what you think is going to overcome what appears to be kind of an ongoing malaise over there?

Well, it is ongoing. What we see is, in some places that the new product we've put in, while people have been -- certainly being more careful and watching their open to buys and inventories way down, but what we've delivered seems to be performing quite well. So for whatever reason, and you could call it just being positive about worldwide how our new products are being perceived, is that we believe we can pick up shelf space because of our price points and because of the demand for our product in parts of Western Europe. William J. Dezellem - Tieton Capital Management, LLC: Great. So this is -- so your positive inclination is based off of actual sales that you're seeing of a -- of the early product being there as opposed to just thinking or hoping that it might actually resonate?

Absolutely. I mean, we're always looking to see results, sales results before we make any kind of decisions. William J. Dezellem - Tieton Capital Management, LLC: Great. And then the next question is relative to inventories, they increased pretty substantially from the first quarter. Would you help us understand what are the underlying dynamics behind that?

Well, it's a twofold thing. We're growing now, and we finish cleaning out. And as pendulums tend to swing, we think we swung too far in our non-toning inventory. We're certainly as lean as it's ever been. And if somebody had asked me on the call, we obviously have nothing left for users that we use for closeout material, that we still make some positive margins and, certainly, some sales from. So we think we're a little light going in. And historically, we tend to grow inventory at the end of the second quarter, certainly, if we're going into a positive selling time, because we count everything that's in transit to us. And since our biggest shipping months of the year are June, July and early August, there's a lot more in transit to us if we played it all right to deliver all the stuff for back to school. So it's historically places we beef up, especially when there's a lot of new product in the offering. William J. Dezellem - Tieton Capital Management, LLC: So the component that's different from the normal preparing for the big selling season is just that you started out with inventories that you felt were a little too skinny?

They were skinny, and I -- we're not building any. So we would have thought the way we were purchasing, we would've start to build a little bit by now. But the product performing so well that we haven't been able to build as much inventory even as we'd like. William J. Dezellem - Tieton Capital Management, LLC: But basically, the inventory that we're seeing is almost solely for the higher -- or your larger selling season. That's pretty much it right now.

Correct.

And at this time, I would like to turn the conference back to SKECHERS for any closing remarks.

Thank you again for joining us today on the 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.