Full year 2013 gross margin is expected to improve by up to 10 basis points compared to 2012, including the effect of deferring approximately $2.3 million of gross profit into 2014 as a result of the previously announced plan to transition to a joint venture in China, effective January 1, 2014, from the current independent distributor arrangement.
Full year 2013 selling, general and administrative expenses are expected to increase approximately 1.5 percent, including approximately $3.5 million in pre-operating expenses related to the China joint venture and pre-tax restructuring charges of approximately $4.8 million, resulting in approximately 140 basis points of SG&A expense deleverage.
Full year 2013 licensing income is expected to be comparable to 2012, including the effect of deferring approximately $3.9 million of licensing income into 2014 in conjunction with the transition to the China joint venture.
As a result, full year 2013 operating margin is expected to be approximately 6.8 percent. Full year 2013 operating margin is expected to be approximately 7.6 percent if the following items are excluded: the anticipated $4.8 million in restructuring charges, the deferral of approximately $2.3 million of gross profit and $3.9 million of licensing income into 2014 and pre-operating costs of approximately $3.5 million related to the China joint venture.The company is modeling a full year effective tax rate of 26 percent; however, the actual rate could differ, perhaps significantly, based on the status of tax uncertainties, the geographic mix of pre-tax income, as well as other discrete events that may occur during the year. Third Quarter 2013 Financial Outlook The company expects third quarter net sales to decline up to 6.5 percent compared with the third quarter of 2012, driven by lower wholesale sales in the U.S. and Europe, due primarily to a slight shift in customers’ requested delivery dates and lower advance orders, and lower sales to LAAP distributors, due primarily to import restrictions and currency constraints in key South American distributor markets and the transition to a new distributor in Australia. These declines are expected to be partially offset by a timing shift of shipments of EMEA distributors’ Fall 2013 advance orders, and increased direct-to-consumer sales in North America.