Q2 2023 Skechers USA Inc Earnings Call
Greetings and welcome to the Skechers second quarter 2020 suite for earnings Conference call.
At this time all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
Now like to turn the conference over to Skechers. Thank you you may begin.
Hello, everyone. My name is Shannon broker from the ERF PMA team. Thank you 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 that involve risks and uncertainties.
Forward looking statements involve known and unknown risks.
Including but not limited to global national and local economic business and market conditions, including the impact of inflation foreign currency fluctuations, Russia, as a war with Ukraine and supply chain delays and disruptions.
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 any of our forward looking statements will occur.
Users are 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 S. E C as required by federal Securities laws for a description of all other significant risk factors that may affect the company's business financial condition cash flows and results of operations.
With that I would like to turn the call over to Skechers, Chief Operating Officer, David Weinberg, and Chief Financial Officer, John Vanda more David.
Thank you for joining us today on our second quarter 2023 conference call.
Our results exceeded expectations with a new sales record of 2.013 billion and gross margin of 52, 7%.
These results are due to a 29% gain in our direct to consumer segment double digit growth internationally and our focus on innovation throughout the business.
Has the third largest athletic footwear brand in the World. We continue to be the go to source for footwear for the entire family by.
By creating fresh takes on proven sellers, expanding our comfort technologies and offering new looks and collaborations we continue to serve our engaged and loyal consumer base, while expanding our reach to new demographics.
Through every collection, we consistently deliver on our designer tenants of comfort style innovation and quality at a reasonable price.
I'd like to take a moment to congratulate our global team and acknowledge their dedication and expertise, which enabled skechers two joined the fortune 500, and honor that belongs not only to every employee, but every partner and consumer.
In addition to our successful and in demand Skechers hands free slip and Skechers arch fit and Skechers Udo collections and further building on our walking in performance offerings. We successfully launched several collaborations during the quarter.
Most notably with the legendary raw fan the rolling stones.
The mens and womens collection, featuring their iconic logo first hit stores in North America, and if the bands official store on Carnaby Street in London before rolling out across Europe , and other markets. Just last week. We also launched a limited edition collaboration with Skechers Ambassador Ashley Park.
For a capsule of fashion forward footwear. This came on the heels of the release of our hits Summer movie Joy right.
We have plans to launch more exciting collaborations over the remainder of 2023.
We have a diverse team of notable and relatable talent, appearing in Skechers marketing campaigns, including Martha Stewart with our namesake collection singer Dodger Cat and entertainer Snoop dog among others. We have also signed regional ambassadors that resonate locally including European footballers Franklin.
And Jamie Redknapp and Bollywood actress Treaty Sinan for India. We also have an elite team of golfers runners in pickle ball approach training and competing in Skechers performance footwear.
Our marketing efforts connect with consumers wherever they are to build brand awareness to educate shoppers on our features and technologies and most importantly to drive demand for our innovative products.
Throughout the company review, our accomplishments and Activations as an opportunity to elevate the skechers brand to offer more people the comfort technology products, they want and need and to make their sketches shopping experience as seamless as always the goal is to grow and operate an even more efficient sustainable and impactful manner.
Before I discuss the business segments I would like to note that in the quarter. We completed the acquisition of our long term Scandinavian distributor they.
They helped sketches successfully build our brand in the Nordic region with stores and e-commerce platforms, and a network of wholesale customers across Finland, Sweden, Denmark and Norway.
We welcome the sports connection team and look forward to further broadening our reach and growing this important market.
Looking at our second quarter results.
<unk> achieved record sales of $2 billion $13 million, an increase of nearly 8% year over year and 9% on a constant currency basis.
These results were driven by a 29% increase in our global direct to consumer segment, which represented 47% of our total sales in the quarter.
Regionally, we grew 20% in APAC and 16% in EMEA, including 19% in China, 29% in Germany, 13% in the U K, 35% in Spain, and 27% in India.
Sales in the Americas were slightly down as.
As expected challenges in domestic wholesale were nearly offset by continued direct to consumer strength and wholesale improvements outside the United States.
The domestic wholesale decrease was due to inventory related issues impacting many of our partners. In addition, it is worth noting that we faced a difficult comparison to a particularly strong quarter last year, where we grew 30%.
We saw strength in our international wholesale business, increasing 10% as we grew in almost every market.
Regionally APAC grew 14% and EMEA grew 7%, including robust growth in China, Germany, India and Spain.
The Americas wholesale business decreased 19%, primarily due to the previously noted domestic challenges broke grew 10% excluding the United States.
Overall wholesale average selling price per unit increased 8% from the pricing adjustments made last year and unit volume decreased 13%.
And turning to direct to consumer.
The strong demand for our comfort technology footwear improved in store product availability and effective demand creation led to 29% growth evenly balanced between domestic and international markets.
This includes growth of 28% in the Americas, 25% in APAC and 47% in EMEA in total direct to consumer unit volume increased 24% and average selling price increased 4%.
In the second quarter, we opened 50 company owned Skechers stores and closed 39.
Store openings included 28 in China, eight of which transferred from franchise to company owned eight big box stores in the United States and three each in Chile, and Vietnam. Additionally, we added 56, skechers stores and four Nordic countries and two stores in Germany from the acquisition of our Scandinavian distributor.
Sure.
We ended the quarter with 4705, Skechers stores worldwide of which 3161 with third party stores, which included the 228, we opened in the second quarter of which 157 were in China nine in India and <unk> in the Philippines.
In the third quarter to date, we have opened two company owned stores in the United States and one each in Colombia, and Chile, We expect to open between 90, and 100 company owned stores worldwide over the balance of the year.
We continue to increase awareness and emphasize the many features of our comfort technology products driving purchase intent and ensuring skechers remains top of mind through targeted marketing initiatives be it with our engaged ambassadors and athletes and memorable campaigns on networks and streaming platforms and publications.
On social media and through personalized digital content.
Efficiently meeting consumer demand is essential to our growth we have made significant investments in our distribution centers are flowing fresh inventory through our retail stores and are improving our delivery times and inventory levels, particularly at our North American distribution Center, we have already begun shipping out of our new distribution center in <unk>.
<unk> and expect to begin shipping out of our new facilities in India in Chile before the end of the year and now I would like to turn the call over to John for more details on our financial results.
Thank you David and good afternoon, everyone.
Skechers delivered another quarter of strong financial and operating performance, reflecting the execution of our long term growth strategy we.
We saw continued broad based strength across geographies and sustained momentum in our direct to consumer segment driving record quarterly sales over $2 billion.
This represents an 8% increase year over year, which despite anticipated headwinds in our domestic wholesale business exceeded both our top and bottom line expectations.
We believe that these results highlight the strength of our brand and the appeal of our diverse assortment of stylish comfortable high quality and reasonably priced product that continues to resonate with our consumers globally.
Before turning to our second quarter results, let me touch on the previously announced acquisition of our Scandinavian distributor.
This transaction closed at the end of May but had no material impact on the quarter given the timing of the close our comparable sales to the distributor in the prior year and the impact of purchase price accounting.
We do expect the transaction to be slightly accretive to earnings this year and we look forward to working more closely with the Scandinavia team to continue growing the Skechers brand in the Nordic region.
Now, let's review, our second quarter financial results.
Wholesale sales decreased 6% year over year to 1.07 billion due to a 25% decline domestically, partially offset by a 10% increase internationally.
As indicated in our guidance last quarter, we expected the inventory congestion at our domestic wholesale partners do impact us most significantly in the second quarter.
That expectation materialize the domestic wholesale sales were actually better than expected due in part to a shift in the timing of orders benefiting the second quarter.
National wholesale sales growth was driven by continued strength across APAC and EMEA with double digit growth in many markets.
Direct to consumer sales grew 29% year over year to $939 $5 million, representing nearly 47% of total sales for the quarter.
Our performance was driven by an increase of 29% domestically, 30% internationally and double digit growth across channels and nearly every market.
These results further demonstrate the robust demand for our comfort technology products complemented by the improved inventory availability in our stores and resident marketing campaigns that stimulated consumer demand.
Now turning to our regional sales.
In the Americas sales for the second quarter decreased 1% year over year to 1.03 billion, which we believe is a remarkable achievement given the challenges we faced in the domestic wholesale marketplace. Excluding U S. Wholesale Americas grew 24% year over year, primarily driven by the strength in our direct to.
<unk> business.
In EMEA, we continue to see robust demand for our products with particular strength in our direct to consumer business sale.
Sales in the region grew 16% year over year to $433 4 million driven by double digit growth in most countries.
And APAC sales increased 20% year over year to $552 2 million led by double digit growth in most countries across both our wholesale and direct to consumer segments.
In China, we continue to see evidence of recovery and sales there increased 19% driven by double digit growth across channels with particular strength in our retail stores, both owned and franchised.
We are encouraged by the improved trends, we are seeing in China and are cautiously optimistic about the near term recovery.
Longer term, we remain excited about the growth opportunities for our brand in the market.
Second quarter gross margins reached a record 52, 7% up 460 basis points compared to the prior year. The improvement was driven by a favorable mix of higher direct to consumer volume as well as the annualized <unk> of pricing adjustments made last year in our wholesale segment.
Operating expenses increased 210 basis points as a percentage of sales year over year from 39, 8% to 41, 9% as we leaned into demand creation investments and absorbed volume related costs across the globe.
Selling expenses increased 40 basis points as a percentage of sales year over year to nine 3%.
Primarily due to higher marketing expenditures, a significant portion of which were focused on driving consumer awareness for our new skechers hands free slip in this technology.
General and administrative expenses increased 170 basis points as a percentage of sales year over year to 32, 6%.
The increased expenses were primarily due to higher labor rent and distribution costs to support our volume driven growth within our direct to consumer segment and international markets.
Earnings from operations were $217 7 million.
A 41, 2% increase compared to the prior year and our operating margin for the quarter was 10, 8% compared to eight 3% in the prior year.
Our effective tax rate for the second quarter was 17, 7% compared to 21, 3% in the prior year, reflecting the beneficial recognition of several discrete items in the quarter.
Earnings per share were <unk> 98 per diluted share on $156 6 million diluted shares outstanding a 69% increase.
And now turning to our balance sheet, we ended the quarter with $1.07 billion in cash cash equivalents and investments an increase of $127 3 million or 13, 5% from June 32022.
Inventory was $1 $4 9 billion, a decrease of 5% or $77 9 million compared to the prior year, However, inventories declined over $300 million.
Or 18% versus December 31, 2022, and are healthy and well positioned both to meet consumer demand and continue the introduction of innovative products in the critical back to school and holiday selling periods.
Accounts receivable at quarter end were $940 2 million, an increase of $23 4 million compared to the prior year, reflecting higher wholesale sales in the back half of the quarter.
Capital expenditures for the quarter were $76 2 million of which 29 million was related to the expansion of our distribution infrastructure globally.
$26 million related to investments in our retail stores and direct to consumer technologies.
And $11 $4 million related to the construction of our new corporate offices or.
Our capital investments are focused on supporting our strategic priorities growing our direct to consumer business and expanding our brand presence globally.
During the second quarter, we also repurchased approximately 579000 shares of our class a common stock at a cost of approximately $30 million, we continued to deploy our capital consistent with our stated philosophy.
And now turning to guidance, while we continue to see robust consumer demand and strong brand momentum globally, several uncertainties remain including ongoing headwinds with some wholesale partners in several markets ambiguity around the pace and shape of the recovery in China and disconcerting macroeconomic trends.
Accordingly, our outlook attempts to balance these factors and we remain cautious about our expectations for the remainder of the year.
For the fiscal year, we expect sales to be in the range of $7 95 billion to $8 1 billion and net earnings per diluted share to be in the range of $3 25.
$3 40.
For the third quarter, we expect sales in the range of $1 95 billion to 2 billion and net earnings per diluted share in the range of 70 to 75.
Our effective tax rate for the year is still expected to be between 19% and 20% we.
We expect total capital expenditures for the year to be between 300 and $350 million as we continue to invest in our strategic priorities, including opening additional stores, expanding our omnichannel capabilities and adding incremental distribution capacity in key markets like India, China and.
<unk>.
We remain confident.
Confident in growing our sales to 10 billion by 2026, as we continued to execute on our long term strategy of growing our direct to consumer business, both in store and online and expanding our brand presence globally, all of which is made possible by our differentiated product portfolio and attractive value.
Opposition that continues to delight consumers around the globe.
We thank all of you for your time today, and we look forward to updating you on our third quarter financial results, which we expect to release on Thursday October 26.
With that I will now turn the call over to David for closing remarks.
Thank you John .
We are proud to join the fortune 500 motivated by our record results and excited to build a global momentum.
Quarter was exceptionally most especially within our direct to consumer business. Our strong 52, 7% gross margin the robust demand for our comfort technology products and the buzz surrounding the brand from sketches hands free slipping footwear to our recent rolling stones collaboration to the marketing launches with Ashley Park.
<unk> sooner.
Skechers defines comfort no matter the footwear needs. We are the go to source for all casual lifestyle activities for our lead athletes on the Pickle ball court or golf course for those that work in an office or in the occupational footwear industry and for the record number of people. Once again flying this summer Skechers is truly for all walks of life.
As always we are focused on improving efficiencies scaling our efforts growing our business with new opportunities and delivering comfort style innovation and quality across our entire product line.
We're thankful to the entire Skechers organization for another successful quarter and we're looking forward to working together toward our plan goal of $10 billion in annual sales by 2026, now I would like to turn the call over to the operator for questions.
Thank you we will now be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad.
Formation, Tom <unk>. Your line is in the question queue.
Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing this time.
One moment, please while we poll for questions.
Our first question comes from Jay sole with UBS. Please go ahead.
Great. Thank you so much so I wanted to ask you about direct consumer sales in the quarter, which were up 29%.
Maybe tell us a little bit about how much E. Commerce grew in maybe the stores, maybe just help us understand.
The differential between the Americas, where it was up 28% and obviously wholesale where historically.
How can the trends be so different.
How do you explain that.
Yeah.
Thanks Jay.
That is.
A key question, we have is well what I can tell you about the direct to consumer performance is that it was it was significantly anchored both internationally and domestically in the stores.
Better traffic better conversion better units I mean, it really is I think a product driven demand, we're seeing consumers are coming into the store they're looking.
For our comfort technology products.
E Com grew in both markets discipline to realize the E. Commerce is at a different stage of development in each of those markets domestically, obviously, it's grown significantly it was up double digits.
But stores were really the anchor there internationally it was up more but again, that's starting from a slightly smaller base.
Intimately I think the benefit the stores have is that as we said in our comments they have the right inventory.
Have the product that is the most new that features our comfort technology product attributes and thats whats driving consumers into the store, particularly when activated with.
A lot of the demand creation spend we mentioned.
And I don't think Thats, the case everywhere else and I think thats, probably the advantage net net for US we're thrilled to consumers are able to find the product they want and need.
Thrilled to be able to give it to them.
Whatever channel distribution they prefer.
But clearly we're seeing robust consumer take for for the new product portfolio.
Jay I'd like to just pointed out if I can the timing differential of how these things happen when we point to things like we had a very tough.
Comp to last year as far as domestic wholesale is concerned we had the same issue last year. We had received a lot of goods from our factories, we had shipped a lot of goods. Although it took a long a while to get it into the stores. So what youre seeing basically if you were to look at our factories. They would show that their volume to us was down.
Over the last quarter as compared to last year because of all the back up after the pandemic and getting multiple months at a time and we D inventory since the end of the year I think the same is true for some of our customers that is true in Europe , and the U S and for our distributors they've taken a lot of inventory they were tougher comps for those that we booked.
When we sold it to them that when they sold out and now that our stores are full and you see a lot of our customers deep inventory, while while they're showing increased sales. So if you take a differential in timing those they took this stuff early we ended up with a big Bang last year, because we shifted out and didn't have to worry about getting it to store or getting it to consumer ourselves now.
We are like John said, the most efficient we turn it over every week, we deliver to our stores throughout the week, some 234 times their fresh theyre new.
Getting it and I think some of our customers distributors are also in the same boat and as they clean out their inventories don't start to pick up the receipt, which is what we will get to a more normal by the end of the year I Hope we're in the beginning in the first quarter of next year.
Got it okay. Thank you so much.
Next question comes from.
Lorraine this is.
MS <unk>. Please BNP Paribas. Please go ahead.
Thank you John Thank you David Thank you very much for taking my question.
I was curious to know.
John If you can maybe talk a little bit about what youre seeing in domestic wholesale I think.
90 days ago, you talked about an inflection is that what youre seeing.
And in your channel in the U S wholesale marketplace.
Well I'd first point out that as we said last quarter, we expected this to be the toughest quarter for us from a domestic wholesale perspective.
Actually less challenging than we had thought we mentioned there were some orders that got pulled up which we believe reflects the active sell through the David mentioned on on some of our core core product that's out in the marketplace.
So in a way what we have seen it a little bit of a shift into Q2 the benefit that it was although 25% is not what we aspire to it is certainly less challenging than we would have expected. It does rebalance the back end of the year a little bit.
Look we're optimistic that the continued consumer demand in active sell through we're seeing youre clearly seeing in DTC youre seeing it in certain accounts on the domestic coil wholesale front will lead to an increased reorder pace I would still say, we believe Q2.
Was the most challenging and will have been the most challenging in retrospect I would only caveat to say that timing is something we're seeing more movement on.
Lately, so that could create a pocket here or there, but but definitely overall pleased with how we came out of Q2 and we're cautiously optimistic that things are starting to turn for the back half of the year, Although again timing being what it is we may see some shifts around although nothing like that is currently anticipated.
<unk> in our guidance.
Alright, very helpful and maybe you can talk about the gross margin.
Continues to be very impressive I think.
I think John remind me, but I think.
Freight was at least a 300 basis point headwind to last year's gross margin did you start to see.
The freight become a benefit and do you anticipate a recapture all of that freight over the next four quarters.
Any color on that would be very helpful. Thank you.
Well I first reiterate the big benefit to gross margin was we were nearly 50% direct to consumer this quarter. So there was a.
A rather significant mix benefit that you saw I think flow through into earnings which is which is terrific.
But also the previously discussed changes to the domestic wholesale pricing in particular, but also some international wholesale pricing that finally got annualized into the system.
I would say we are starting to see clearly in available rates.
Shipping come down it didn't materialize fully this quarter I do think there were some some pickup there.
A bit of an offset though because as we sell more of our comfort technology products you do see a slightly increased cost per unit now now we're able to charge more for that we're able to deliver more value to the consumer so it offset so there's a there's a little bit of a masking effect in there, but what I would say is we continue to expect year over year.
Your improvement in the margin for the balance of the year.
We'd like nothing better than that to be more about the shipping and the pricing then the mix because we'd love to see.
The domestic wholesale in particular catch back up to where we think it should be on a run rate basis, but but we continue to foresee improvement in gross margins quarter over quarter.
Year over year, so that.
Q3 will be better than last year, Q4 will be better than last year as well.
Very helpful. Thank you very much and best of luck.
Thanks, Ron.
Next question comes from Gabby Carbone with Deutsche Bank. Please go ahead.
Good afternoon, and congrats on the strong results.
Bigger picture would you help us think about the long term pathway for margins. It seems like you'll get back to 2019 EBIT margin this year, but beyond that where do you see the biggest opportunity to expand margins within the business.
First of all thanks Thanksgiving.
It's the continued growth trajectory of our international and our direct to consumer businesses. As we've said for a long time that that really is the longer term algorithm for growing both the gross margin and the operating margin I mean, obviously there are opportunities within operating expenses to create a little bit of a tailwind leverage but.
That's always going to be countenanced for us against what it takes to invest for the brand to grow too.
$10 billion in the numbers beyond that.
So I'd say again, the first emphasis is continued growth in those two key avenues for us.
With some potential upside opportunity to leverage operating expenses longer term.
Got it that's helpful and just a quick follow up in your press release, you mentioned that Youre developing new categories are you going to be introduced later this year. Just wondering if you can elaborate on that.
Yeah.
Probably not.
Yes.
We try to be careful.
Not to get too far ahead or give too much notice where were planning something certainly something big to give everybody an idea of where to look and where to find it.
I think we're all secure and some launches youll see them I believe shortly and we will know them as they happen.
But we're not in a position yet nor are we ready to go forward and announce them and get everybody ready.
From a competitive point of view.
Understood. Thank you so much.
Thanks, Kevin.
Okay.
Next question comes from John Kernan with Cowen and company. Please go ahead.
Excellent. Thanks for taking my question.
Alright, so congrats on the great quarter, you beat the high end of the sales guidance by about $100 million, which is great and it's obviously a function of how much momentum you have on the business.
The flow through was quite high in the operating profit line can you just talk to what surprised you. The most John financially in the quarter. Obviously, there was some sales upside. It seems like gross margin also was an area of upside to your expectations and then just a follow up for the full year guide as well.
Yeah.
Well I don't know that I would characterize this as a surprise per say, but let me let me.
Textual lies within the prior guidance.
The continued extraordinary strength, we're seeing in the direct to consumer business certainly outdistance our prior guidance.
It's hard to put into guidance a growth rate nearly 30% so.
Now that being said, we have seen strong trends, we feel like we have the product for it so.
We were optimistic that that would continue and it did which was great, but I don't know that wisdom would've been putting that fully into the guidance so that definitely outdistance our guidance.
I would say China came back did really well this quarter, even even in kind of a mixed quarter from a consumer behavior perspective, but growing.
Nearly 20% with a great result for us in China, and then the domestic wholesale I know, it's again, we don't want our Lord ourselves for a 25% decline, but that is better than we thought we saw again sell through driven activity.
And other activity in some accounts that are a little bit healthier than others from an inventory perspective.
Lead to some accelerated take on the product and that was that was great because our hope is.
Does that really starts to indicate a change with the balance of our customers that being in stock and fallen sizes with a new product is the best way to go forward, which is what we're what we're doing in our own retail. So those were all those were all positive surprises of course, you never get just good news. So there were some.
Some a little bit of challenges here, there that we dealt with that but we're not going to talk about because they weren't material, but but overall I would say the net effect of it was definitely results that exceeded our expectations.
That's very helpful. Thanks, and then I guess with the $3 25 to $3 40, Scott EPS guidance, maybe talk too.
Some of the puts and takes within gross margin and also the balance between demand creation and marketing expenses.
To keep the topline moving at this pace.
Yes, I would say from from.
The balance of the year I think the one thing to note is we're getting to a point, where we're going to start comping against some stronger results last year over last year kind of the curvature. If you will of gross margin was that the first half of the year was better it was bad.
The back half of the year got better so some of that the comparability simply won't be as favorable because last year wasn't as detrimental.
Clearly, we still have we think benefits coming from a cost perspective.
We have now fully annualized pricing, though so that will offset the net effect of it is again, we feel like we're in a good resting spot going forward with kind of that improvement in each quarter relative to the prior year.
The one thing to keep an eye on is mix. We did obviously tilt favorably towards mix, we could see growth in our wholesale business, which would again be potentially detrimental to gross margin, but but more gross profit dollars and we will take that because that leads to more earnings for our shareholders.
And that's obviously our ultimate.
Our ultimate objective so.
There's always we're still not fully clear of Covid, there's a lot of noise, but I would just say that the comparability going forward becomes more normal.
And then I will just make the delta is a little bit smaller as a result of.
Being compared against a prior year that.
That started to get better the one thing I would note though is.
We are optimistic about back to school, we are optimistic about the holiday period.
We are currently in a position where if you recall last year. We had we had a lot of on hand inventory and we had to deal with that.
Obviously, we're much trimmer.
Today than we were at the end of the year were down were down nearly $300 million inventory versus just December which gives you a sense of how much we focused on that issue and resolve that but we also had last year not a lot of depth in stores and that's been resolved. So that our stores are generally in stock with the right product.
So we do think that that is a little bit of a continuing tailwind, particularly in the in.
In the third quarter and into the early part of the fourth.
That's great Congrats on all the success. Thank you.
Thanks, John .
Okay.
Next question comes from Tom Kelly Wedbush Securities. Please go ahead.
Hey, guys. Thanks for taking my question.
Wanted to follow up on the domestic wholesale.
How do inventory levels.
For your brand at the U S wholesale channel.
And have you gotten any sense that some of the.
Overhang of inventory for some of the other brands out there have started to alleviate.
Yes, I would say when we when we look into inventories that kind of our top 10 top 20 wholesale.
Customers in domestic markets.
Inventories look pretty good in fact, I would argue probably a little bit leaner than we than we want them to be.
And so we think that tees up well for strong sell through driven reorders.
Now again, they're dealing with inventory issue that extended beyond the skechers brand in that that we believe has been.
One of the bigger challenges.
Although I would just note it's not every customer we haven't we have wholesale customers out there who are doing fantastic.
And that's what led to some of the some of the improvement in results relative to our to our second quarter. So.
Look I don't know how long it will take them to deal with the totality of whatever congestion theyre experiencing what we do know is that our product is in demand and selling well there.
They are certainly doesn't appear to be any significant backup to our inventories.
And those key accounts.
And so we think that and pricing is good.
The factors Tfl for an.
On acceleration of Reorders once they're clear of whatever challenges there theyre experiencing.
Got it and if I could just follow up you know I think on the last couple of calls John you said.
Our hope would be are you would drive towards getting back to flat in U S wholesale.
For the end of the year.
Is it safe to assume that it will take a little bit longer.
Get to that point and.
We should assume that two eight U S wholesale as well.
But to a lesser extent than SaaS.
Well I don't want to I don't want to prejudge the range of possibilities I would say as we look forward and certainly when we considered our guidance. That's that's what we're currently expecting although again as I just mentioned, we think the situation is prime for.
Healthy consumer demand, we're seeing out there in the market stimulating some some early reorder activity, but.
But in so far as our guidance is concerned that's that's the position we've taken.
Understood.
Thanks, John Thanks, David Best of luck in the second half of the year.
Thanks, Tom.
The next question comes from D J.
Hi, Chris.
Please go ahead.
Great. Thanks for taking my question I was just wondering if youre seeing any of the same dynamics in terms of inventory congestion in any of the international markets, particularly Europe .
And then second are you what.
What are you seeing in terms of promotion. Thank you.
Well internationally.
It's probably not the order of magnitude is here in the states with the same things exist and while we are doing.
Better in EMEA, we still have customers there that are cleaning through inventory.
But the sell through rates as in the states and maybe even more so in the mid states continue to be at the top end and the brand performed very well. So we're starting to see a bigger influx of orders and certainly looking better as we get to the end of the year into Q1.
As you go around the world it varies from from.
From place to place a geography to geography, I would say that Europe is slightly better shape than the U S. As far as those sell throughs are concerned.
Sure.
South America Central America. If you go from Mexico down is a mixed bag like Chili's, a strong market for us does much better direct to consumer their wholesale business are having a little trouble cleaning out yet in Peru, and Colombia, it's picking up for us as it is in Central America.
Same holds true in Canada, we have significantly been a direct to consumer and still have a number of wholesale customers cleaning out as far as China is concerned they're getting back in line they started earlier.
They had a big pickup which was very good for them in Q2 and are looking.
Looking good as far as inventory is concerned they are a bigger piece direct to consumer and wholesale so that bodes well as we go forward.
In so far as promotions I would actually say, it's still pretty stable.
If you recall last year, we started to.
Introduced promotions kind of in the current quarter or maybe a little bit before sporadically but.
They look stable and again from our perspective the in store work in particular continues to motivate consumers to come into the store and shop and so it's.
Doing exactly what we wanted to do.
Great. Thank you.
Okay.
Thanks Sharon.
At this time. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
[music].
Hum.
Mhm mhm.
[music].
Hum.
[music].