Welcome to the Deckers Outdoor Corporation Third Quarter Fiscal 2009 Earnings Conference Call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. (Operator Instructions) I would like to remind everyone that this call is being recorded. Before we begin, I would like to remind everyone of the company’s Safe Harbor language. Please note that some of the information provided in this call will be forward-looking statements within the meaning of the security laws. These statements concern Deckers plans, expectations and objectives for future operations. The company cautions you that a number of risks and uncertainties, some of which maybe beyond its control, could cause Deckers actual results to differ materially from those described on this call. Deckers has explained some of these risks and uncertainties in its earnings press release and in our SEC filings, including the Risk Factors section of its annual report on Form 10-K and its other documents filed with the SEC. Among these risks is the fact that the company’s sales are highly sensitive to consumer preference, to general economic conditions, to the weather and to the choice of its customers to carry and promote its products. Deckers intends that all of its forward-looking statements in this call will be protected by the Safe Harbor provisions of the Securities Exchange Act of 1934, as amended and the Securities Act of 1933 as amended. Deckers is not obligated to update its forward-looking statements to reflect the impact of future events. I would now like to turn the conference over to the President, Chairman and Chief Executive Officer, Angel Martinez. Please go ahead, sir.

Thank you operator and welcome to everyone joining on this call today and listening via the web. With me are Zohar Ziv , our chief operating officer; and Tom George, our recently appointed Chief Financial Officer. Today after the close of the market, we reported very solid third quarter results, highlighted by sales and earnings growth that exceeded expectations. This earnings release can be found on our website at deckers.com. In addition to our better than expected financial performance, there were several operational highlights that gave us confidence of the strategies that we are implementing to evolve the product lines, broaden our growth opportunities and expand the market positions for all our brands succeed. Sales for the quarter rose approximately $31 million or 16% to $228.4 million compared to the third quarter of 2008. This was slightly ahead of previous guidance due to higher demand for the fall UGG line. At the same time diluted earnings per share for the quarter rose 32% to $2.59 versus a $1.97 a year ago above our guidance. The third quarter diluted EPS was up approximately 10% over last year. The earnings upside was driven by the higher sales, as well as roughly $5million less in operating expense versus our guidance, roughly $3 million of permanent realized savings, and the remaining $2 million of marketing programs that we postponed until the fourth quarter. The UGG brands fall retail sales were led by our new Baily Button boots in our Classic collection. At the same time we were experiencing strong sell-through from our core classic products, our entire knit collection, our fashion collection and our cold weather and casual collections. New styles such as the Classic Argyle, [Abby] and the Highkoo are helping to have our third quarter retail performance as well. Over the last…

Thanks Angel. For the third quarter of 2009 net sales increased 15.8% to $228.4 million, up from a $197.3 million for the third quarter of last year. Including sales from the whole sale division as well as the consumer direct business our net sales of UGG products increased 19.1% to $202.8 million, up from an $178.7 million for the third quarter of UGG last year. Net sales of Teva products decreased to 19.5% to $9 million in the third quarter compared to $11.2 million in the same period of 2008. Simple brands net sales decreased 31.4% to $3.5 million for the quarter versus $5.2 million in the same period last year. Combined net sales for the company's other brands, which were acquired in 2008 and 2009 were $3.1 million for the third quarter of 2009. Included in these numbers are global retail sales for all brands of $12.3 million up a 128.3% from $5.4 million in the third quarter of 2008, driven by two new stores and the same-stores sales increase of 31.1%. Sales for our eCommerce business which are included in the brand sales numbers as well decreased 21.2% to $8.4 million for the third quarter compared to $10.6 million for the same period a year ago. Decreased eCommerce sales resulted from more second quarter back orders carried into and shipped in the third quarter of ‘08 and 2009 for the UGG brand and decline in our conversion rates for all brands. Also included in the brands sales numbers, domestic sales for all brands increased 10.3% to $179 million compared to $162.3 million in the third quarter of last year and in international sales increased 41.1% to $49.4 million compared to $35 million in 2008. International sales were 21.6% of total sales in the third quarter. Our gross margin…

Well thanks Tom’s. We’re very pleased with our third quarter and nine months results. In light of the number of challenges facing our industry and economy as a whole, I am very proud of our ability to continually execute at a very high level. Additionally, I like to congratulate Connie Rishwain and the rest of the UGG team for achieving the highest Q3 sales in the brands history, an exceptional effort and a great job. As Tom, just mentioned, we are raising our fourth quarter guidance. This is being driven by strong retail sell-through and the lower than forecasted cancellation rate. We especially pleased with the demonstration of commitment to our brands by consumers during these time of more discriminating spending. As usual, we won’t be commenting on 2010 specifically, until we complete our budgeting and forecasting processes and report our year end results in February. We are however encouraged by our prospects for spring based how we’re today particularly in the knit products, the flair flick-flop, our slippers and cold weather products, specially early in the quarter, in the first quarter. With Teva we’re building on the success of our light hikers this fall to expand the brands penetration to the outdoor footwear category. While infusing the line with more compelling open toe styles to capitalize on the market share gains we made this year. We’re seeing increased commitment throughout our account base including outdoor specialty stores like REI and EMS, sporting goods retailers like Dick's and TSA, department stores such as Dillard's and Nordstrom and new distribution with [Glamour] and various regional independents. As I mentioned earlier spring will feature the debut of BIO -D, the Simple brands newest collection as well as updated style from ecoSNEAKS and Green Toe. In the distribution front, we’re adding additional doors…

(Operator Instructions) Our first question is from Mitch Kummetz of Robert W. Baird. Please proceed with your question.

Angel, could you just generate comments on retailers under inventory in UGG right now. Are they chasing and to what extend can you accommodate them in the chase? Do you have much open stock inventory or any reliability at this point to chase production on your end in order to may be get the more product before year-end?

I was having a conversation with someone earlier and had to remind them that Q3 ended on September 30. The time since September 30, our indications are that there has been some pretty significant activity of retail which has perhaps also curved little bit. So we’re seeing a lot of excitement of our products. We are in position to chase pretty aggressively and we will obviously do everything we possibly can. I suspect that there are quite of few retailers who perhaps a little earlier in the year cancelled some orders if they wish to have cancelled and those products are sold. We are scrambling as well and I’m feeling pretty bullish about it.

You made a couple of comments in your remarks. One, I think you said spring UGG to several countries next year, could you elaborate on that?

Greece, for example, those are smaller countries where the brand really is just kicking off. There are some countries for example, Germany which had been evolving the product line over the last several seasons and that’s a fairly new distributor and as these distributers build their models, they built it on core products. So they have been very delicate in how much of the line they could afford to bring in. So across the board, we’ve had great response to spring line and we are going to begin to see the impact of the expanded product line across most of the international markets.

You made some favorable comments about the reception to spring across Teva and Simple, I mean, are you prepared to say whether or not your spring orders are up in those brands compared to last year?

We really don’t talk about that, but I will say that if we’ve had some very strong reception to the knits, the Cardy, the Argyle, the [stripe] knit on the UGG side. The Bailey Button has been in colors for spring and has been very strong. We have got a sneaker collection for women in the UGG brand that’s been very well received. On the Teva side, various clothes, footwear now for spring that we didn’t have in previous seasons. We’ve also got a couple of new ideas, apart sleeve and the sandal world and BIO-D is something that we got a great response to in and pretty excited about that coming in the Spring. So I have to say that I am feeling very positive about the reception to spring. I haven’t seen a reception across the Board to our spring collection like this since I have been here.

Lastly, you mentioned in your closing remarks that you are taking over distribution in the Benelux, I think you said for Teva. Could you elaborate on how you expect that to transpire? How are you setting up your own operations and what’s the timing of that?

Mitch, this is Zohar. I’ll take that one. As we indicated, we are going to take over the distribution in the beginning of 2010, and initially the transition is going to be that we are working with the distributor to accommodate the transition and over the next year, we will be building up in transition to infrastructure into the Deckers Europe’s operations. We’ve been over the last year or so, building a team in your Deckers Europe exist currently, it’s robust operations. We’ve got great talent pool there, and so I think it will be a very smooth transition through our own organization, not only this distributor but others potentially in a transition as well.

Our next question is from Todd Slater of Lazard Capital Markets. Please proceed with your question.

Last quarter you said that your fourth quarter plan conservatively assumed no increase in reorders compared to last year’s pretty depressed level. I am wondering if you can tell how your re-order or your chase assumptions have changed, you said, just now that you are scrambling and you are optimistic. How is that changed? What’s assumed in your new upwardly for fourth quarter revenue guidance?

Well as we said before we were anticipating cancellations in the third and fourth quarter. We haven’t seen cancellations. The people who did cancel early may be in second quarter, as I said earlier they kind of were looking to get those products back in the queue. So that’s a big factor right there, because we were been pretty conservative and assuming a worst and hoping for the best, but obviously the situation has far improved from that.

Usually you have some product staged or you said that all of your inventories is spoken for or most of it, how much is left for or how much of increase in your fourth quarter assumptions is driven by some, is it all driven by just less cancellation than you assumed or its your fair assumption in reorders.

Well you know for fact that we don’t have access to any more productions for the year. So at this time of the year its always a bit of [craft here] in terms of how much inventory do we back up, particularly around our core product, ticking on Classics for example and other core items in the UGG line. This year we’ve done that and we’ve taken our best guess and at some point we are going to run out of products. I hope that it continues to be, the demand continues to be as strong as it is. I think that’s probably in this year in 2009, not a bad situation to have run out of product. That’s something that lot of folks would love to have happened in other businesses. I think we’ve got as best, as we can sort of plan, a pretty good mix of product available in the core stores to fill-in, but again if the trends continue we could have both.

Okay and just lastly and then I’ll let others get on it. Your increase in the earnings guidance for 4Q was, looks primarily driven by revenue and by expense leverage improvement? If gross margin piece was down 50 basis points from before, obviously international continues to grow in mix and that’s probably a lower margin business, what else if anything should we read into that, the gross margin piece?

Okay and the stores with a 31% comp, I mean that’s obviously a positive gross margin driver?

Yes, absolutely.

So that should be bigger contributor to the fourth quarter I would assume?

Good assumption.

Our next question comes from Stephanie Wissink of Piper Jaffray.

You have given us a goal of 30% but when I look at your year-to-date figures its almost near that point. So is 30% a stop point or is there a willingness to extend beyond that percentage and if so, what would the key markets of opportunity for that? Thanks.

Okay, reorders. Right now I just said as we are scrambling to fill customers needs and the warehouse is very-very busy and we are doing the very best we can to fill what we possibly can with the manner we have. So that's really all I can say there. It's a crazy time right now. As far as the international business 30% that's not a stop point. There are big opportunities in markets like the UK, where we really feel that the brand is still very underdeveloped. Then Japan, Japan has a market that just judging from the response that we have in Honolulu to our product, not only in the stores we just opened but in other retailers. A large percentage of those consumers are Japanese tourists. We know from our store in Tokyo that the demand is much greater than we've been anticipating in the last few years and the previous relationship that we had. So there is a strong upside in Japan. Those two markets alone, particularly as strong footwear market as they are and in the case of Japan, has a luxury market as well, yield real significant upside opportunity. We've just got to make sure that our organization is prepared to manage the brand appropriately, managed distribution appropriately and continue the consistency that we've had so far in rolling the brand out around the world, but we are very bullish on this opportunities.

Okay, I have just one clarification on your comments regarding scrambling for the reorders. Would you qualify your reorder levels at this point in the season to be higher than what they were last year or is that an effect of just having a lower inventory balance overall?

Well last year were strange. Last year we had a real sell off on December 1st or last right after Thanksgiving. The current rate is probably stronger than that. There’s probably more confidence from the retailer about our brand. So it’s a very strong indicator, for example, so then like I said we are scrambling.

Okay last one perhaps. I guess just related to your eCommerce business and can you give us a sense of that additional $9million of inventory, I think you allocated towards your direct retail. If you could just help clarify some of those shifts last year and then the increase in inventory related to the stores. Thanks Ziv.

Yes I think we pointed out on the call that we made it with increase in our stores and we will update stores this year compared to the prior years. So as result that you have to invest in inventory open a store. So that we have about $9million of additional retail inventory globally now related to opening stores around the world.

Okay and the eCommerce. I knew you talked a little bit about conversion, any initiative there to improve conversion rate?

Yes. Our eCommerce business has been a down compared to prior year which by the way we have seen similar trend in other eCommerce side we are carrying out are the UGG brand, but what we have seen in the last couple of weeks, we have really seen a turnaround and that’s what was Tom was alluding when he was a talking about the margin. We have really seen improvement and if that trend will continue there will some upside potential both on the top line and the gross profit margin for the business.

Our next question comes from Sam Poser of Sterne, Agee.

I just want to clarify some things on your guidance versus your inventory levels. I’ve already been getting calls, people are concerned their inventory levels are high and personally I have not. However, guidance versus your inventory levels still looks fairly light, especially given that you are chasing the business and over the last few years, you virtually sold the entire inventory you’ve had and if you take cost of goods, those are clean number for comparison. You basically liquidated the entire inventory you’ve had, but right now, which released tremendous upside especially given as you put at the wheels falling off at the beginning of December last year. I mean with chasing it, given the inventory level, how much of that inventory is spring versus fall? How much opportunity is there on top of that given the 30% increase in the UGG?

Sam, this is Tom. I am going to address the inventory first. I think going through the inventory, as Angel mentioned, we are in a really good inventory position in terms of what product we have available, the faster moving product and you don’t sell inventory down to zero. You always have to have certain amount of inventory on hands, especially when you have a retail that you should have retail in stores as well, so you never sell down the inventory to zero. I think we’ve got the appropriate inventory levels and the sufficient inventory to support our current forecast.

Last year you had a $157 million going into the quarter. You had a $166 million in cost to goods sold, so you got $180 million going in right now, 190 million almost. Should we be looking at sales in that? It’s up on that cost to goods range just based on the history which has happened literally last four years

We do have some receipts of additional products coming in the fourth quarter.

I am not saying you are going to end at zero. You probably end at around 80 million or some thing like that if this is the quarter where if you are chasing right now, it just seems like that the guidance is fairly conservative, could we go there?

Sam, as we have indicated there are upside potentials. When we gave guidance last quarter where we were conservative as regard to a consolations as the quarter have proceed and we are not seeing any cancellation, so right now in our guidance there are no assumptions as to cancellations. We still have credit issues. We have customers that want the product, but they are on credit hold with us just because they are credit concerned. Additionally you have our consumer direct business, which is both the combination of eCommerce and our retail stores. As we indicated when we did the projection our eCommerce business was down. So if the trend of eCommerce will continue as we’re seeing the last few weeks and they trend in the stores, you will have an upside potential and we will have the inventory to be support it.

Two other question, number one, could you give us break up by group of wholesale, retail eCommerce by divisions, for UGG, Teva and Simple?

We are not going to give it until we release in the Q.

Our next question is from Howard Tubin of RBC Capital Markets.

The growth rate in inventory over the last three quarter hasn’t moderated. So now you are up 19%. Is that a trend we can expect to continue at the end of the fourth quarter? Should we expect total inventory to be up less than 19% at the end of the year?

I think the trend continue as the percentage increase is lower as we had in prior years quarter-over-quarter.

Just one question on the shop-n-shop, Angel maybe you can give us the metrics on shop-in-shops in the fourth quarter this year versus fourth quarter last year and what performances like in retail is with those shops?

Obviously I can’t tell you how they are going to perform in the fourth quarter, but I can tell you that we’ve continued to see the type of increases in shop-in-shop as compared to the regular distribution. So typically shop-in-shop is 40% to 70% top-line, but depending on the shop-in-shops we also have along in the US 40…

40 last year, 70 this year and internationally from 30 to 80%.

So we continue to drive the shop-n-shop concept as aggressively as we can based on the ROI and so retailers are pretty bullish about the shop-n shop opportunity.

Our next question is from Jonathan Garcia of Longbow Research.

This is actually, Beth. Can you hear me?

Yes.

I am actually in London so I feel lot of people wearing the (inaudible)

I have a couple questions I guess. Have you even broken out the size of the UK business currently?

We have not at this point in time.

Could you give any color as to what percentage of international it comprises?

It's the majority part of our business of international.

It's the majority of the international business?

It's the largest end market outside the United States for us.

When did you guys start selling to Victoria's Secret, I just noticed that this year. Was that the case in prior years as well?

Yeah, it's been quite a few years now. They are one of our longstanding customers, we've been with Victoria's Secret now for at least five years and probably longer, since before I came

Do you think they will be in the top 10?

We can look that out. We typically don’t disclose where they fall, but they are one of our bigger accounts and a very important one.

Okay. Then I guess the other thing is, I might have missed it. I still have question on a lot of UGG stores. The sneaker collection that's for UGG and is that already out or is that coming out?

That's a spring product line.

Is that kind of like the HOGAN sneaker but with sheepskin on the inside?

It's really soft leather on the outside obviously and lined in sheepskin not completely, but in certain parts of the shoe the sheepskin is used to enhance comfort. They are beautiful shoes and we've got a great response from retailers.

What's the price band on that?

Top of my head $120.

Our next question is from Andrew Burns of Thomas Weisel.

Great, this is Andrew Burns in for [Jim Duffy]. You highlighted the $5 million in cost savings in the quarter. Could you discuss the potential to take any additional cost out of the system in additional to that $3 million? Also does all of the $2 million that was postponed falls directly into the fourth quarter? Thank you.

Yes. The $2 million does shift over in the fourth quarter but it is part of our forecasting process. We did find some additional savings in the fourth quarter even to offset that. So, that's why you see we've improved our guidance for the fourth quarter on SG&A as a percentage of sales and the $3 million is that there are permanent savings as we march on here and gain efficiencies and gain leverage on our operating expenses, we find savings as time goes on. We got a big effort from a distribution center and warehousing point of view that cut our cost and may increase efficiency. So that is one of the other things that we had a good improvement here relative to our original expectations and the product is selling very well. So as result of that you don’t need as much sales and marketing, as originally anticipated. So that some of the reason why we had the permanent savings in the third quarter.

Great and the tremendous comp that you’ve produced in the retail stores. Is the primary driver there increased traffic or has there been any significant changes in average ticket or transactions

I think the breadths of the product line has contributed significantly to the average ticket in the stores. The accessories sell well, the outerwear has sold extremely well. Our slippers often add on sales. In another words, a consumer comes in looking for a say a classic tall and they end up buying a pair of slippers for their boyfriend or husband, for example. So I think its just a matter of people discovering the breadth of the product line and that is translating into a higher average ticket.

Our last question will be from Omar Saad of Credit Suisse. Please proceed with your question.

All right thanks good afternoon thanks for taking my question, just two quick question. Number one we have been hearing a lot of there about the strong boot cycle year plus denim. I think goes well with that trend as well. Is that what you’re seeing and if so, how do you still about the UGG positioning in the new product line positioning, are there any other kind of styles or competitors out there in the core and core boot arena that you look and that you are watching carefully?

Well yes it is a strong boot cycle write now I think one of the advantages our product line it tends to by consumers be seen as a comfort item independent of it’s nature as a boot. People wear the cozy UGG product. Its very light weight, it’s very flexible. It doesn’t like a boot on your foot yet it keeps you warm. So it’s a little different than a conventional boot, which is a more structured type of product. That said we also have quite a few new, if you go on our website you see a lot of new boot items that are performing quite well at retail. Wedges, heels, flat boots in additional to our Classic and now knit boots. So it just seems as if the entire category is so diverse that it’s hard to compare, its everyone else’s boot offering. We offer products that by comparison make other peoples boot offerings very one dimensional it seems and I think that’s the real strength of what we are doing.

Okay. It sounds like boots are in?

Boots are in but more important for UGG comfort is in and once comfort’s in it never goes out.

One more question. Can you kind of help me understand the disparity? I know there was a little bit of timing issue last year but the disparity between your online kind of trends versus the virtually kind of every other channel for the UGG brand.

Disparity in what way? You mean the...

The fact is that the internet sounds like the sales are down a little bit you are still experiencing strong growth kind of pretty much on all the other channels.

I think this year what we are seeing is that seems to be a trend across all of Internet selling. The consumer in some cases this year perhaps the UGG product was more available than it had been in previous years, so the consumer didn't have to buy it only online, they could see it in their local Nordstrom door or Dillard's door. What we are seeing in the last few weeks. However. Is that the online trend is starting to parallel the regular retail trend, which is a good indicator, but, prior to the last few weeks, online sales have lagged behind this year.

Thanks, we’ll see how that plays out. Thanks for taking my questions, good luck.

Thank you, ladies and gentlemen. I would now like to turn the floor back over to management for closing comments

Thank you all very much, appreciate your questions and your support I just want to again congratulate the UGG team, Connie Rishwain and her group, as well as the Simple group and Teva group. They have done a wonderful job in inventory management and bringing new product to the market which bodes well for 2010. So take care and we will speak to you next quarter

This concludes today’s teleconference. You may disconnect your line at this time. Thank you for your participation.