Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Jim Duffy – Thomas Weisel
Jim Duffy – Thomas Weisel
Can you characterize the types of products from, maybe an example of the types of products from Merrell that you invested in in advance of the capitalized unfavorable costing and maybe quantify what the costing benefit was of taking that inventory early.
Blake Krueger
If you looked at it in terms of product categories it would concentrate mostly in the multi sport, in the chameleon area, as well as some in the moc area so it was basically core, carry over product. I think another thing you have to keep in mind about the inventory is we were down about $18 million at the end of 2007 so this $30 million or thereabouts comparison is against an inventory level that was probably a little low last year.
Just to quantify the whole inventory situation, I would think the strengthening dollar more then offset some of the cancellations we had in the quarter, that might be a good way to view it. And then the rest of it was split almost a third, a third, a third, between timing, our 53rd week, our strategic purchases and cost increases that came last year that frankly was built into our inventory.
Jim Duffy – Thomas Weisel
Its easy to bring some of the inventory in early can you characterize the margin benefits you’ll see from that.
Don Grimes
The benefit that related to the inventory pre buy actually is a little bit less now then what we thought we actually, with the excess capacity that factories have, the actual cost increases that we were anticipating that were being discussed when we made the pre buy decision have evaporated some, which is really a positive thing.
The net financial benefit is somewhat minimal but I think it was a good strategic decision at the time and obviously the only impact is on year-end working capital because we do have, its core product and we feel like we’ll be able to sell it a full margin.
Jim Duffy – Thomas Weisel
You spoke to price increases expected for the year, how much, what’s the order of magnitude there?
Blake Krueger
We’re really in the process of bringing those down. As you know we did a pretty good job last year of mitigating price increases for product in 2008, keeping it low to mid single-digits. Obviously the back half of the year there were much higher price increases that the factories tried to put through for 2009. We’re in the process right now frankly of reducing those and taking those price increases down.
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