Q3 2023 Skechers USA Inc Earnings Call
Greetings and welcome to the Skechers third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
I would now like to turn this conference over to Skechers. Thank you you may begin.
Hello, everyone. My name is David approach from the SG&A team. Thank you for joining us on Skechers conference call today.
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Operator: Greetings, and welcome to the Skechers 3rd quarter, 2023 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn this conference over to Skechers. Thank you. You may begin.
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David Roach: Hello everyone. My name is David Roach from the FPNA team. Thank you for joining us on Skechers conference call today.
Unknown Executive: I will now read the safe harbor statement. Certain statements contain herein, including without limitations statements addressing the beliefs, plans, objectives, estimates, or expectations of a company or future results or events may constitute forward looking statements that involve risks and uncertainties. Such forward looking statements involve known and unknown risk including but not limited to global national and local economic business and market conditions, including the impact of inflation. 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.
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 Vandemark David.
Good afternoon, and thank you for joining us today for our third quarter 2023 conference call.
Before we discuss our record quarterly results I would like to express our concern for those impacted by the devastating crisis in the middle East and the ongoing war in Ukraine.
This is a very difficult and uncertain time for many of our colleagues partners and customers with whom we remain in close contact offering whatever comfort and assistance we can.
Once again, our financial results exceeded expectations with a new quarterly sales record of $2.025 billion.
Our strong gross margin of 52, 9% and earnings per share of <unk> 93.
Along with our continued momentum in the quarter, we extended our product portfolio, which we believe will further strengthen our position in the global footwear market.
Unknown Executive: Users of forward looking statements are encouraged to review the company's filing with the U.S. Securities and Exchange Commission, including the most recent annual report on form 10K, quota reports on form 10Q, current reports on form 8K, and all other reports filed with the SEC as required by federal security laws or description of all other significant risk factors that may affect the company's business financial condition.
We released three capsules from our new Snoop dog collaboration across North America, Europe, and several other key markets, creating media attention and expanding our reach with fans of the legendary entertainer.
Our collection with Snoop dog, along with our collaborations with Martha Stewart and the Rolling stones heightened awareness and consumer engagement for the Skechers brand.
We also launched an exciting expansion to our Skechers performance Division Skechers football or soccer as it's known in the United States with boots built for speed and control.
David Weinberg: With that, I would like to turn the call over to Skechers Chief Operating Officer David Weinberg and Chief Financial Officer John Van Damor. Good afternoon and thank you for joining us today for our third quarter of 2023 conference call.
In support of this initiative, we signed hurricane the leading strike us as a band Munich and captain of the England National football team.
David Weinberg: Before we discuss our record quarterly results, I would like to express our concern for those impacted by the devastating crisis in the Middle East and the ongoing war in Ukraine. This is a very difficult and uncertain time for many of our colleagues, partners, and customers, with whom we remain in close contact offering whatever comfort and assistance we can. Once again, our financial results exceeded expectations with a new quarterly sales record of $2 billion, $25 million, a strong gross margin of 52.9% and earnings per share of 93 cents.
Carey along with a roster of athletes from the Premier League and Womens Super League had been instrumental in testing and launching of this product.
Harry's move to bear in Munich created additional excitement and generated headlines as he made his inaugural Bundesliga parents and Skechers foods with a goal and an assist.
The S K X one and Skechers razor are currently available in key football specialty retailers select skechers stores and online in Europe.
Just this week, we announced the further expansion of our technical performance footwear with the addition of Skechers basketball and the unveiling of the S. K S Reza grip and the SK ex float.
David Weinberg: Along with our continued momentum in the quarter, we extended our product portfolio, which we believe will further strengthen our position in the global footwear market. We released three capsules from our new Snoop Dogg collaboration across North America, Europe, and several other key markets creating media attention and expanding our reach with fans of the legendary entertainer. Our collection with Snoop Dogg, along with our collaborations with Martha Stewart and the Rolling Stones, heightened awareness and consumer engagement for the Skechers brand.
Similar to our approach with football we have partnered with two time all-star Julius Randle from the New York Knicks and local Star parents man from the Los Angeles Clippers, both of whom have been training and playing in Skechers basketball footwear, leading up to the 2023 M. B a season.
Skechers basketball will be available shortly in North America, China, and the Philippines, the world's largest basketball markets.
David Weinberg: We also launched an exciting expansion to our Skechers performance division, Skechers football, or soccer as it's known in the United States, with boots built for speed and control. In support of this initiative, we signed Harry Kane, the leading striker for Baron Munich and Captain of the England National Football Team. Harry, along with a roster of athletes from the Premier League and Women's Super League, have been instrumental in testing and launching of this product.
With the launch of Skechers football and basketball, we expanded our Skechers performance Division with two of the biggest sports in the World building on our assortment of award winning running golf and Pickle ball footwear taken.
Taken together the expansion of Skechers performance footwear, and our collaborations with Snoop Dog, Martha Stewart, the rolling stones, as well as others illustrates our commitment to innovation and our determination to deliver comfort style and quality in every pair we continue to develop fresh takes on our successful and in demand.
David Weinberg: Harry's move to Baron Munich created additional excitement and generated headlines as he made his inaugural Bundesliga appearance in Skechers Boots with a goal and an assist. The SKX-1 and Skechers Razor are currently available in key football specialty retailers, select Skechers stores and online in Europe. Just this week, we announced the further expansion of our technical performance footwear with the addition of Skechers Basketball and the unveiling of the SKX Rezegrip and the SKX Float.
<unk> hands free slippage arch fit Max Cushioning go walk and street collections as well as many other styles.
All of our key initiatives, whether they are related to performance of lifestyle has targeted and unique marketing campaigns to drive awareness and purchase intent. This includes athletes and brand ambassadors who are admired in their respective countries like newly signed former footballer Fabio Cannavaro in Italy and <unk>.
David Weinberg: Similar to our approach with football, we have partnered with two-time ball star Julius Randall from the New York Knicks and local star Terrence Mann from Los Angeles Clippers, both of whom have been training and playing in Skechers Basketball Footwear, leading up to the 2023 NBA season. Skechers Basketball will be available shortly in North America, China and the Philippines, the world's largest basketball markets. With the launch of Skechers Football and Basketball, we expanded our Skechers Performance Division with two of the biggest sports in the world, building on our assortment of award winning, running, stealth and pickleball footwear.
And television personality Leeco in Japan.
As we review our accomplishments in the third quarter, we want to note that our goals and objectives remain unchanged. We are committed to delivering the ultimate comfort technology products to the world enhancing the skechers shopping experience in operating in an increasingly efficient sustainable and impactful manner.
Looking at our third quarter results.
We achieved record sales of $2 billion $25 million, an increase of 8% year over year.
International sales increased 9%, representing approximately 61% of our total sales and domestic sales increased 7%.
David Weinberg: Taken together, the expansion of Skechers Performance Footwear and our collaborations with Snoop Dogg, Martha Stewart, the Rolling Stones, as well as others, illustrates our commitment to innovation and our determination to deliver comfort, style, and quality in every pair. We continue to develop fresh takes on our successful and in-demand Skechers hands-free slip-ins, arch-fit, max cushioning, goalwalk and street collections, as well as many other styles. All of our key initiatives, whether they are related to performance or lifestyle, have targeted and unique marketing campaigns to drive awareness and purchase intent. This includes athletes and brand ambassadors who are admired in their respective countries, like newly signed former footballer Fabio Connevaro in Italy and actress and TV personality Lilleco in Japan.
Gains were driven by a 24% increase in our direct to consumer segment, our wholesale sales decreased 1% due primarily to lower distributor sales in the quarter, which led to international wholesale being down 2%.
Excluding distributor sales international wholesale was up 5% domestic.
Domestic wholesale was significantly better than expected at flat to prior year.
Driven by accelerated deliveries in the third quarter.
We are encouraged by the positive signals, we continue to see in the domestic wholesale marketplace, including request for early deliveries solid sell throughs healthier inventory levels and most importantly booking trends for the first part of 2024 after a difficult year. We are optimistic about the prospects of a return to growth in domestic wholesale.
David Weinberg: As we review our accomplishments in the third quarter, we want to note that our goals and objectives remain unchanged. We are committed to delivering the ultimate in comfort technology products to the world, enhancing the Skechers Shopping Experience and operating in an increasingly efficient, sustainable and impactful manner. Looking at our third quarter results, we achieve record sales of $2 billion, $25 million, and increase of 8% year-over-year. International sales increased 9%, representing approximately 61% of our total sales, and domestic sales increased 7%.
In 2024 on the back of our incredible product lineup.
Turning to direct to consumer where our 24% growth was the result of a 33% increase internationally with strong performance in both online and brick and mortar locations and a 14% increase domestically driven by our stores. This.
This includes growth of 17% in the Americas, 24%, and APAC and 61% and EMEA.
At 42% of our total sales are direct to consumer segment is a key driver of our long term growth strategy as such we are focused on improving efficiencies and creating a more seamless experience for consumers driving demand and ensuring we have a fresh flow of inventory.
David Weinberg: Gaines were driven by a 24% increase in our direct-to-consumer segment. Our wholesale sales decreased 1%, due primarily to lower distributor sales in the quarter, which led to international wholesale being down 2%. Excluding distributor sales, international wholesale was up 5%. Domestic wholesale was significantly better than expected at flat to prior year, driven by accelerated deliveries in the third quarter. We are encouraged by the positive signals we continue to see in the domestic wholesale marketplace, including requests for early deliveries, solid sell-throughs, healthier inventory levels, and most importantly, booking trends for the first part of 2024.
In the third quarter, we opened 72 company owned Skechers stores and closed 23.
Store openings included 40 free in China.
The big box stores in the United States five in Vietnam or in South Korea, three in both Chile, and India, two each in France, Israel, and Hong Kong and one each in Canada, Colombia and Peru.
In the period 324 third party stores opened including 282 in China and 11 in India, bringing our third party store count to 3399, and our total worldwide count to 4992 Skechers stores.
David Weinberg: After a difficult year, we are optimistic about the prospects of a return to growth in domestic wholesale in 2024 on the back of our incredible product line-ups. Starting to direct a consumer, where our 24% growth with the result of a 33% increase internationally, with strong performance in both online and brick and mortar locations, and a 14% increase domestically driven by our stores. This includes growth of 17% in the Americas, 24% in APEC, and 61% in the media.
In the fourth quarter to date, we've opened three company owned stores in the United States and one each in the U K, Colombia, and Chile, We expect to open 45 to 55 company owned stores worldwide over the remainder of the year.
Reflecting our diligent efforts to manage our inventory levels declined 24% from year end 2022, while simultaneously, increasing our gross margins and maintaining growth.
We have also begun shipping out of our new distribution centers in Canada, and Chile, and we expect to be operational at our facilities in India and Panama before the end of the year.
David Weinberg: At 42% of our total sales, our direct to consumer segments is a key driver of our long-term growth strategy. As such, we are focused on improving efficiencies and creating a more seamless experience for consumers, driving demand and ensuring we have a fresh flow of inventory. In the third quarter, we opened 72 company-owned Skechers stores and closed 23. Store openings included 43 in China, five big box stores in the United States, five in Vietnam, four in South Korea, three in both Chile and India, two each in France, Israel, and Hong Kong, and one each in Canada, Colombia, and Peru.
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 record sales, surpassing $2 billion and growing 8% led by the continued strength of our direct to consumer segment, which grew double digits in all regions.
This sustained momentum highlights the strength of the Skechers brand globally and the successful execution of our long term growth strategy.
Now, let's review, our third quarter financial results.
David Weinberg: In the period, 324 third-party stores opened, including 282 in China, and 11 in India, bringing our third-party store count to 3399, and our total worldwide count to 4992 Skechers stores. In the fourth quarter to date, we've opened three company-owned stores in the United States, and one each in the UK, Colombia, and Chile. We expect to open 45 to 55 company-owned stores worldwide over the remainder of the year. Reflecting our diligent efforts to manage our inventory, levels decline 24% from year end 2022, while simultaneously increasing our growth margins and maintaining growth. We have also begun shipping out of our new distribution centers in Canada and Chile, and we expect to be operational at our facilities in India and Panama before the end of the year.
Direct to consumer sales grew 24% year over year to $854 million driven by increases of 33% internationally and 14% domestically.
We saw continued strong performance in our retail stores globally and meaningful outperformance on our international E Commerce platforms.
System with what we are seeing across the industry, we experienced a slowdown in our domestic e-commerce channel as consumers shifted to our stores, which are once again at target inventory levels.
The growth in direct to consumer reflects the continued demand for our innovative products.
We deliver on our strategy to enhance our omnichannel capabilities.
Wholesale sales decreased 1% year over year to one $1 7 billion domestically sales were flat versus the prior year, which was a significantly better result than we expected due to the accelerated timing of orders.
John Vandemore: 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 record sales, surpassing 2 billion, and growing 8%, led by the continued strength of our direct-to-consumer segment, which grew double digits in all regions. This sustained momentum highlights the strength of the Skechers brand globally, and the successful executions of our long-term growth strategy.
International wholesale sales declined 2% predominantly due to a decline in sales to our distributor markets, which can be influenced heavily by the timing of orders and which we're facing a particularly difficult comparison to the prior year.
Excluding distributor sales international wholesale sales were up 5%.
Overall, we were encouraged by the performance of the wholesale segment in the quarter as well as the positive booking trends we have observed for the first half of 2024 now.
John Vandemore: Now, let's review our third quarter of financial results. Direct-to-consumer sales grew 24% year-over-year to 850.4 million, driven by increases of 33% internationally, and 14% domestically. We thought continued strong performance in our retail stores globally, and meaningful outperformance on our international e-commerce platforms. Consistent with what we are seeing across the industry, we experience a slowdown in our domestic e-commerce channel as consumers shifted to our stores, which are once again at target inventory levels.
Now turning to our regional sales in the Americas sales for the third quarter increased 7% year over year to 1.02 billion driven by growth across markets. We continued to see the strength of our direct to consumer business drive growth in the region, particularly within our retail stores.
In EMEA sales grew 2% year over year to $484 million driven by strong direct to consumer growth nearly offset by lower sales to our distributors.
Excluding distributor sales from the equation EMEA grew double digit year over year, particularly reflecting the strong demand for our brands and innovative product assortment and our direct to consumer channels.
John Vandemore: The growth in direct consumer reflects the continued demand for innovative products as we deliver on our strategy to enhance our omnichannel capabilities. Sales were flat versus the prior year, which was a significantly better result than we expected due to the accelerated timing of orders. International wholesale sales declined 2%, predominantly due to a decline in sales to our distributor markets, which can be influenced heavily by the timing of orders, and which were facing a particularly difficult comparison to the prior year.
In Asia Pacific sales increased 14% year over year, $527 1 million on the back of robust growth across segments in most markets.
In China sales grew 18% driven by double digit growth in all channels.
As this market continues to recover we are encouraged by the sustained growth rates and positive retail trends we have seen.
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John Vandemore: Excluding distributor sales, international wholesale sales were up 5%. Overall, we were encouraged by the performance of the wholesale segment in the quarter, as well as the positive booking trends we have observed for the first half of 2024.
Third quarter gross margins were 52, 9% up 590 basis points compared to the prior year.
The improvement was driven by favorable pricing and channel mix as well as lower unit costs.
John Vandemore: Now turning to our regional sales, in the Americas, sales for the third quarter increased 7% year-over-year to 1.02 billion driven by growth across markets. We continue to see the strength of our direct consumer business drive growth in the region, particularly within our retail stores. In Amia, sales grew 2% year-over-year to 480.4 million driven by strong direct consumer growth, nearly offset by lower sales to our distributors. Excluding distributor sales from the equation, Amia grew double digit year-over-year, particularly reflecting the strong demand for our brand and innovative product disormant in our direct consumer channels.
Operating expenses increased 230 basis points as a percentage of sales year over year to 42, 4%, reflecting increased investments in demand creation retail store growth and expanded distribution capabilities.
Selling expenses increased 80 basis points as a percentage of sales year over year to eight 8%, mainly due to higher brand marketing expenses globally, including investments focused on brand building and driving consumer awareness for our collection of comfort technologies and newly launched categories.
General and administrative expenses increased 150 basis points as a percentage of sales year over year to 33, 6%.
John Vandemore: In Asia Pacific, sales increased 14% year-over-year, 527.1 million on the back of robust growth across segments in most markets. In China, sales grew 18% driven by double digit growth in all channels. At this market continues to recover, we are encouraged by the sustained growth rate and positive retail trends we have seen, which have exceeded our expectations.
The increased expenses were primarily due to higher rent depreciation and labor to support volume driven growth within our direct to consumer segment and the expansion of our distribution infrastructure to advance our capabilities worldwide.
Earnings from operations were $213 2, million% to 64% increase compared to the prior year and our operating margin for the quarter was 10, 5% compared to six 9% in the prior year.
John Vandemore: Third quarter growth margins were 52.9% of 590 basis points compared to the prior year. The improvement was driven by favorable pricing and channel mix as well as lower unit costs. Operating expenses increased 230 basis points as a percentage of sales year-over-year to 42.4%, reflecting increased investments in demand creation, retail store growth, and expanded distribution capabilities. Delling expenses increased 80 basis points as a percentage of sales year-over-year to 8.8%. Mainly due to higher brand marketing expenses globally, including investments focused on brand building and driving consumer awareness for our collection of comfort technologies and newly launched categories.
Our effective tax rate for the third quarter was 19, 5% compared to 17, 9% in the prior year.
Earnings per share were <unk> 93 per diluted share on $156 2 million diluted shares outstanding a 69% increase.
This brings our year to date earnings per share to $2 93.
Which when excluding unusual items.
<unk> all prior full year results a remarkable accomplishment.
And now turning to our balance sheet, we ended the quarter with $1 $2 7 billion in cash cash equivalents and investments an increase of $591 $5 million versus the prior year from improved working capital management and operating efficiency.
Inventory was 138 billion, a decrease of 22% or $397 3 million compared to the prior year, when we experienced acute capacity challenges and processing constraints at our distribution centers.
John Vandemore: General and administrative expenses increased 150 basis points as a percentage of sales year-over-year to 33.6%. The increased expenses were primarily due to higher rent, depreciation, and labor to support volume-driven growth within our direct consumer segment and the expansion of our distribution infrastructure to advance our capabilities worldwide.
Notably, we lowered inventory levels in both the Americas, and EMEA by 33% or over $400 million compared to the prior year.
We believe that our current inventory levels are healthy and well positioned to support demand during the key holiday selling period and early 2024.
Accounts receivable at quarter end were $929 4 million essentially flat compared to the prior year and in line with our wholesale business.
Capital expenditures for the quarter were $91 3 million.
John Vandemore: Earnings per share were 93 cents per deluded share on 156.2 million deluded shares outstanding, a 69 percent increase. This brings our year-to-day earnings per share to $2.93, which when excluding unusual items exceeds all prior full-year results, a remarkable accomplishment.
Of which $32 9 million was related to general corporate purposes, including construction of our new corporate offices in transportation.
$5 $6 million related to investments in our retail stores and direct to consumer technologies and $19 2 million related to the expansion of our distribution infrastructure globally.
Our capital investments are focused on supporting our strategic priorities, which include growing our direct to consumer business and expanding our brand presence globally.
John Vandemore: And now turning to our balance sheet, we ended the quarter with 1.27 billion in cash equivalence and investment, an increase of 591.5 million versus the prior year from improved working capital management and operating efficiency. Inventory was 1.38 billion, a decrease of 22 percent or 397.3 million compared to the prior year when we experienced acute capacity challenges and processing constraints at our distribution centers. Notably, we lowered inventory levels in both the Americas and Amia by 33 percent or over 400 million compared to the prior year.
During the third quarter, we repurchased approximately 805000 shares of our class a common stock at a cost of approximately $40 million.
We continue to deploy our capital consistent with our stated philosophy, while maintaining an enviable balance sheet and abundant liquidity.
Now turning to guidance, we are confident in the strength of our brand globally and underlying consumer demand for our differentiated product portfolio and compelling value proposition.
For the balance of the year, our outlook remains cautious due to continued uncertainty around the macroeconomic environment in general and the consumer spending environment in particular.
John Vandemore: We believe that our current inventory levels are healthy and well positioned to support demand during the key holiday selling periods and early 2024. Accounts receivable at quarter end were 929.4 million, essentially flat compared to the prior year and in line with our wholesale business.
For the full year, we expect sales in the range of $7 95 billion to 8.05 billion and net earnings per share in the range of $3 33.
John Vandemore: Capital expenditures for the quarter were 91.3 million, of which 32.9 million was related to general corporate purposes, including construction of our new corporate offices and transportation. 25.6 million related to investment in our retail stores and direct consumer technologies and 19.2 million related to the expansion of our distribution infrastructure globally. Our capital investments are focused on supporting our strategic priorities, which include growing our direct consumer business and expanding our brand presence globally.
Two to $3 43.
This implies fourth quarter sales will be in the range of $1 91 billion to 2.01 billion and net earnings per diluted share in the range of 40% to 50.
Our effective tax rate for the year is still expected to be between 19% and 20% and we expect total capital expenditures to be between 300 and $325 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 Chile.
John Vandemore: During the third quarter, we repurchased approximately 805,000 shares of our class A common stock at a cost of approximately $40 million. We continued to deploy our capital consistent with our stated philosophy while maintaining an enviable balance sheet and the funded liquidity.
We thank all of you for your time today, and we look forward to updating you on our fourth quarter and full year financial results, which we expect to release on Thursday February one.
With that I will now turn the call over to David for closing remarks. Thank you John.
John Vandemore: Now turning to guidance, we are confident in the strength of our brand globally and underlying consumer demand for our differentiated product portfolio and compelling value propositions. However, for the balance of the year, our outlook remains cautious due to continued uncertainty around the macroeconomic environment in general and the consumer spending environment in particular. For the full year, we expect sales in the range of $7.95 billion to $8.05 billion, and net earnings per share in the range of $3.33, $3.43.
<unk> delivered record quarterly sales and expanded our footwear offering to two of the largest sports worldwide.
We believe this positions us for continued growth reflects our commitment to offering top quality comfort in performance technologies to our consumers and enhances the Skechers brand.
We recognize that the macroeconomic and political challenge in the United States and around the World were a factor in the third quarter and we expect that these headwinds will continue to impact our business for the remainder of the year.
John Vandemore: This implies ¼ sales will be in the range of 1.91 billion to 2.01 billion, and net earnings per deluded share in the range of 40 to 50 cents. Our effective tax rate for the year is still expected to be between 19 and 20 percent, and we expect total capital expenditures to be between 300 and 325 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, Chile.
We're well positioned to reach our goal of $10 billion by 2026, and we believe our diverse distribution and ability to deliver our product more efficiently will allow us to continue our positive momentum as our tenants of comfort style innovation and quality and at affordable price resonates with consumers.
Skechers is truly for all walks of life. We were on the go to brand for comfort lifestyle, and occupational footwear and we deliver comfort that performs see it on the golf course trail soccer pitch Pickle ball Court and now basketball court.
We are grateful to the entire sketches team for delivering another successful quarter.
We are excited to end the year with what we believe will be a new annual sales record more notable achievements and driving growth in an efficient and profitable manner and in the years to come now I would like to turn the call over to the operator for questions.
John Vandemore: We thank all of you for your time today, and we look forward to updating you on our fourth quarter and full year financial results, which we expect to release on Thursday, February 1st.
David Weinberg: With that, I will now turn the call over to David for closing remarks. Thank you, John. Skechers delivered record quarterly sales and expanded our footwear offering to two of the largest sports worldwide. We believe this positions us for continued growth, reflects our commitment to offering top quality, comfort, and performance technologies to our consumers, and enhances the Skechers brand.
Thank you we will now be conducting our question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary.
David Weinberg: We recognize that the macroeconomic and political challenge in the United States and around the world were a factor in the third quarter, and we expect that these headwinds will continue to impact our business for the remainder of the year. We are well positioned to reach our goal of 10 billion by 2026, and we believe our diverse distribution and ability to deliver our product more efficiently will allow us to continue our positive momentum as our tenants of comfort, style, innovation, and quality and an affordable price resonates with consumers.
Sorry to pick up your handset before pressing the star keys.
Our first question comes from the line of Jay sole with UBS. Please proceed with your question.
Great. Thank you so much.
John I wanted to ask about the guidance for the fourth quarter.
You mentioned, obviously, there is concerned about macro and the consumer spending environment, but if I look at the first three quarters of the earnings are up 55%, which is obviously tremendous and the midpoint of the guidance for Q for earnings earnings will be down 7%. So just help us understand what magnitude are you seeing right now in fourth quarter that tells you that you are seeing a slowdown and give us maybe a little bit helpful.
David Weinberg: Skechers is truly for all walks of life. We are the go-to brand for comfort, lifestyle, and occupational footwear, and we deliver comfort that performs, be it on the golf course, trail, soccer pitch, pickleball court, and now basketball court.
On margins like what you what you expect for margins in <unk> that would be if you don't mind. Thank you.
Sure Jay.
For this entire year I think we've all had concerns about the consumer spending environment and what we've continuously seen is that as we get intra quarter things shape up better than we had expected but.
David Weinberg: We are grateful to the entire Skechers team for delivering another successful quarter. We are excited to end the year with what we believe will be a new annual sales record, more notable achievements, and driving growth in an efficient and profitable manner in the years to come.
We haven't adjusted our full view of the year much because the general parameters against which we plan remained relatively consistent this quarter. Another. Good example of really high flow through pull forward and better than expected direct to consumer performance, particularly internationally.
Operator: Now, I would like to turn the call over to the operator for questions. Thank you. We will now be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation template indicates that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
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This is why we outperformed so significantly our expected range in Q3 EPS. Some of that is coming from Q4, so we're pulling a bit of that and I would say the other wildcard in Q4 is going to be how some of the international markets perform.
Jay Sole: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star teams. Our first question comes from the line of J-Soul with UBS. Please proceed with your question. Great. Thank you so much. David Jen, I want to ask about the guidance for the fourth quarter. You mentioned obviously there's concern about macro and the consumer spending environment. If I look at the first three quarters of the year, earnings are 55%, which is obviously tremendous, and the midpoint of the guidance are for a queue for earnings.
Jay Sole: The earnings will be down 7%. It will help us understand what magnitude are you seeing right now in fourth quarter that tells you that they are seeing a slowdown. Give us a little bit of help on margins. What you expect from margins in the fourth queue, if you don't mind.
Particularly China and as you all know China is incredibly sensitive to the events and performance surrounding Singles' day.
That's been a very difficult to read market for us on the quarters.
As you saw this last quarter, though it continued to outperform our initial expectations. So you know what.
What we're doing in the items that are attempting to ensure the stuff that we know came from Q4 into Q3 that rewarded us with EPS. This quarter is carried forward.
John Vandemore: Sure, Jay. For this entire year, I think we've all had concerns about the consumer spending environment. What we've continuously seen is that as we get into a quarter, things shape up better than we have expected. But we haven't adjusted our full view of the year much because the general parameters against which we plan remain relatively consistent. This quarter, another good example of really high flow through pull forward and better than expected direct consumer performance, particularly internationally flowed through, which is why we outperformed so significantly our expected range in Q3 EPS.
We are sensitive to how China will perform in Q4 as well as kind of the the consumer spending environment globally. There are certainly indicators kind of going in both directions, but we felt it was probably more important to be prudent about our expectations around consumer spending, particularly in some of those international markets.
I would also note again similarly to last quarter. When we recognized that we are definitely some green shoots we were seeing in the domestic wholesale marketplace. We saw those again this quarter. Its why we were able to actually get our domestic wholesale business flat to prior year, which was substantially.
And then what we thought what we haven't yet seen is the trickle down effect of people pulling orders forward. Good sell through good margin good pricing and that's that's a condition is carrying on into the fourth quarter. It's entirely possible that ends up leading to some pull forward in Q4.
John Vandemore: Some of that is coming from Q4. So we're pulling a bit of that in. I would say the other wild card at Q4 is going to be how some of the international markets perform, particularly China. And as you all know, China is incredibly sensitive to the events and performance surrounding single day. That's been a very difficult to read market for us on the quarters. As you see, it saw this last quarter though.
It might even be necessary from our point of view relative to some inventory levels and sell through rates, but.
We haven't yet seen that happen, we haven't seen that trigger pulled and until we do and it's tough for us to predict exactly the timing of when those orders are going to go out to domestic accounts. So.
John Vandemore: It continued to outperform our initial expectations. So, you know, what we're doing in the items is attempting to ensure the stuff that we know came from Q4 to Q3 that rewarded us with EPS this quarter is carried forward. We are sensitive to how China will perform in Q4 as well as kind of the consumer spending environment globally. There are certainly indicators kind of going in both directions, but we felt it was probably more important to be prudent about our expectations around consumer spending, particularly in some of those international markets.
This is a kind of a downward pressures on on the on the guidance for Q4, specifically, although again I would note. If you look at it on a on a full year basis. This has been a tremendous year and one we're quite proud of and we think that carries through to the balance of the year certainly as it relates to the full year results and then again I'd just point out what we mean.
Made the comment of in our opening remarks, we are seeing some very encouraging signs for the bidding in next year and that's an incredible positive as well.
Alright, well that's very helpful. Maybe if I can just transition I want to ask you about basketball.
John Vandemore: I would also note, again, similarly to last quarter, when we recognized that we're definitely some green shoots we were seeing in the domestic wholesale marketplace. We saw those again this quarter. It's why we were able to actually get our domestic wholesale business flat to prior year, which was substantially better than what we thought. What we haven't yet seen is the trickle down effect of people pulling orders forward, good sell-through, good margin, good pricing, and that's a condition that's carrying on into the fourth quarter.
David Obviously basketball has been something that companies had an ambition to grow into for a long long time.
And also you've always been very careful to invest ahead of an opportunity. Once you really have confidence that that opportunity is something you can take advantage of.
What gives you confidence today that basketball is something that the company can really build the business.
What do you what do you see that makes now the right time to.
Really try to make a big push into basketball.
Well I think it's it's not only basketball, it's the technologies that we have and the technologies around the world and I'll tell you. What gives me. The most confidence is the acceptance we've seen from the athletes who we're talking to to where then to promote them to enjoy them and it's not one of those things.
John Vandemore: It's entirely possible that ends up leading to some pull forward in Q4. It might even be necessary from our point of view relative to some inventory levels and sell-through rates, but we haven't yet seen that happen. We haven't seen that trigger pulled until we do. It's tough for us to predict exactly the timing of when those orders are going to go out to domestic accounts. Those are kind of the downward pressures on the guidance for Q4, specifically, although, again, I would note, if you look at it on a full-year basis, this has been a tremendous year, and one we're quite proud of, and we think that carries through to the balance of the year certainly as it relates to the full-year results. And then, again, I'd just point out what we made a comment of in our opening remarks.
We're buying our way in the sense that we're paying more than anybody else for an athlete for something that they're not comfortable with that they were going to push them to where these are very serious athletes. That's certainly make significantly more from what they play and how they get paid and.
They are very receptive to the brand. So it starts you know we started with pickle ball. We started running we have great running shoes more difficult market theres not many people that you can get to.
Speak to them, but we win awards all over the world as far as we are running shoes are concerned when we went to soccer football. It was Greg we have a player like Harry Kane, who was.
John Vandemore: We are seeing some very encouraging signs for the bidding in next year, and that's an incredible positive as well.
Unknown Executive: All right. Well, that's very helpful.
David Weinberg: Maybe if I can just transition, I want to ask about basketball. David, obviously, basketball has been something that comes as an ambition to grow into for a long time. And also, you've always been very careful to invest ahead of an opportunity once you really have confidence that that opportunity is something you can take advantage of. What gives your confidence today that basketball is something that the company can really build a business, and what do you see that makes now the right time to really try to make a big push into basketball?
With very receptive, who loves the brand who wear the brand he's familiar with it he played with the shoes the black shoes.
Before he committed to come with us he loves them.
Certainly helped them out will be very receptive to him I think people are finding out that the quality, we make in our shoes is truly to quality that they can play in and enjoy they have comments like they don't worry about their feet as much anymore. Its very comfortable to play with even though they can play and Harry has told US that this is the fastest start he's had may be in there.
David Weinberg: Hello, I think it's not only basketball, it's the technologies that we have and the technologies around the world and I tell you what gives me the most confidence is the acceptance we've seen from the athletes we're talking to, to wear them, to promote them, to enjoy them, and it's not one of those things that we're buying our way in in the sense that we're paying more than anybody else for an athlete for something that they're not comfortable with that we're going to push them to wear. These are very serious athletes that certainly make significantly more from what they play and how they get paid and they're very receptive to the brand, so we started with Pickleball, we started with Running, we have great running shoes, more difficult markets, there's not many people that you can get to speak to them, but we win awards all over the world as far as the running shoes are concerned.
His career as far as Gulf Heasley works its way up into it and you're feeling very very comfortable when we went to the basketball players as well for players.
<unk> was with very interested right away. He wears them. He was wearing them before there was a deal he was on Instagram with them talking about them said he loved them.
When we took the Julius Randle, which is certainly on a higher level.
He is very receptive I hope you saw them on TV the other day.
Given the way a pair of shoes and tell them how comfortable they are and he's had made some very positive comments about the brand about the people working for them, how comfortably is and how well he does with them and we're speaking to others. So I think it's the reception they've given us and their willingness to do it and the fact.
David Weinberg: When we went to soccer, football, it was great, we have a player like Harry Kane who was very receptive, who loves the brand, who wears the brand, he's familiar with it, he played with the shoes, the black shoes, before he committed to come with us, he loves them, we certainly helped them out, we're very receptive to him. I think people are finding out that the quality we make in our shoes is truly the quality that they can play in and enjoy, they have comments like they don't worry about their feet as much anymore, it's very comfortable to play with even though they can play and Harry has told us that this is the fastest start he's had, maybe in his career as far as gold, he usually works his way up into it and he's feeling very, very comfortable.
I believe and I think youll see if they're proud of the brand gives us confidence that it is a product that sells well that competes well that will be part of the NDA and those that play on multiple levels and we will perform as well as anything that's out there. So.
All of those players so it's given us given us complete confidence in the brand and backing the brand I think that the brand is certainly capable and our people dealing with them are certainly capable of delivering something they can play with and promote and continue their careers with.
Got it alright very interesting. Thank you so much.
Thank you. Our next question is coming from the line of Laurent <unk> with BNP Paribas. Please proceed with your question.
David Weinberg: When we went to the basketball players as well, for players, you know, Terence was very interested right away, he wears them, he was wearing them before it was a deal, he was on Instagram with them, talking about them, said he loved them. When we talked to Julius Randall, which is certainly on a higher level, he's very receptive, I hope you saw him on TV the other day, given the way of pair of shoes and telling how comfortable they are and he's had made some very positive comments about the brand.
Okay.
Thank you so much for taking my questions.
I.
I would love to ask about the gross margin trajectory for fourth quarter. How do you think about the fourth quarter gross margin.
Then I think you mentioned.
John that there will be up there was a pull forward into <unk> on U S wholesale.
Do you think about U S wholesale for fourth quarter, and then moving into next year.
Thank you.
Yes, so for gross margin.
David Weinberg: About the people working from how comfortable he is and how well he does with them and we're speaking to others, so I think it's the reception they've given us and their willingness to do it and the fact, I believe, and I think you'll see is their proud of the brand gives us confidence that it is a product that sells well, that competes well, that will be part of the NBA and those that play on multiple levels and will perform as well as anything that's out there. So all of those players have given us complete confidence in the brand and backing the brand and thinking the brand is certainly capable and our people dealing with them are certainly capable of delivering something they could play with and promote and continue their careers with.
Let me, let me talk a lot about about this quarter and this quarter, we saw kind of a benefit from three different factors at once which is a little bit and unanticipated.
We definitely had some mixed benefit that's channel mix within the channels. There was some product mix as you know some of the newer technology as David mentioned materialize, particularly in the direct consumer channels those carry a premium price.
We also had some overt pricing that we had put in place internationally last year that benefited us some of that we're going to be giving back because as a result of that we did leave I think some opening price points that we'd like to get back into and you'll see some of that not carry forward.
And then you had some some significant cost savings I would expect for the fourth quarter will still get mix benefit and we will still get the cost savings.
Unknown Executive: God, all right, very interesting. Thank you so much.
Unknown Executive: Thank you.
The international side of the pricing mechanics, again, we expect to give back that that should put us at a very healthy improvement year over year, but probably not quite as significant as we've seen the last couple of years.
Laurent Vasilescu: Our next question is coming from a line of Laurent Missy-Luscu with BNP Paraba. Please proceed with your question. Thank you so much for taking my question.
John Vandemore: I would love to ask about the gross margin trajectory for fourth quarter. How do you think about the fourth quarter, gross margin and then I think you mentioned. John, that there will be up, there was a poll forward into three on US wholesale. How do you think about US wholesale for fourth quarter and then leaving into next year? Thank you.
In so far as the domestic wholesale market is concerned as I mentioned this quarter, we were actually up I think 3%. So we said flat, but we were being.
A little bit guarded there.
Because we haven't yet seen that trigger of accelerated deliveries coming out of many of the wholesale accounts some of whom are still cautiously watching the consumer spending market.
John Vandemore: Yes, so for Gross Margin, let me talk a little about this quarter. I mean, this quarter we saw kind of a benefit from three different factors at once, which is a little bit unanticipated. We definitely had some mix benefit. That's channel mix within the channels. There was a product mix as some of the newer technologies David mentioned, materialized, particularly in the direct consumer channels, those carry a premium price. We also had some overt pricing.
Our view is that our full year perspective hasn't changed much it's up a little but it's not.
Distinctly different and if you remember coming into Q3, we said Q3 and Q4 with both be down and that's that's what we expect for Q4 now on the domestic wholesale side I would just caveat that we could see that change pretty quickly. We saw that in Q3. That's why we were able to get to flat. So we're not <unk>.
John Vandemore: We had put in place internationally last year that benefited us. Some of that we're going to be giving back because is a result of that. We did leave, I think, some opening price points that we'd like to get back into. And you'll see some of that not carry forward. And then you had some significant cost savings. I would expect for the fourth quarter. We'll still get mixed benefit and we'll still get the cost savings kind of the international side of the pricing mechanic.
Convinced yet that we're going to be down in Q4, but that's what we're modeling because thats what the bookings tell us at the moment again, if it's a lean inventories the good sell through continues to hold that's certainly a distinct possibility, but for now from a planning perspective, we don't want to put too much of that into into what we expect for the forecast.
Very helpful. And then John maybe just you know there's always questions around SG&A.
John Vandemore: Again, we expect to give back that. That should be good to put us at a very healthy improvement year over year, but probably not quite as significant as we've seen the last couple of years. In so far as the domestic wholesale market is concerned, as I mentioned, this quarter, we were actually up, I think, 0.3%. So we said flat, but we were being a little bit guarded there, because we haven't yet seen that trigger of accelerated deliveries coming out of many of the wholesale accounts.
Love to hear about the economics.
Sponsoring key athletes like Hurricane can you just made for the audience, just maybe walk through a high level how it works.
And.
And maybe just maybe David if you could talk about the value proposition you, obviously, its a crowded field and global football.
And in basketball.
What do you think your value proposition will be going forward.
And these two categories.
John Vandemore: Some of whom are still cautiously watching the consumer spending market. Our view is that our full year perspective hasn't changed much. It's up a little, but it's not distinctly different. And if you remember coming into Q3, we said Q3 and Q4 would both be down. And that's what we expect for Q4 now on the domestic wholesale side. I would just caveat that we could see that change pretty quickly. We saw that in Q3.
Yeah, and so far as our relationships with ambassador everyone's a little bit unique I mean clearly.
First has to be a relationship both parties are comfortable with that to David's comments earlier I mean, we don't know.
Just go out and pay a big amount to get a big name. We're looking for folks who are going to collaborate with us, particularly when we're getting into a new category. So every one of the ambassadors that we've engaged.
For football soccer and really across the portfolio yes.
John Vandemore: It's why we were able to get the flat. So we're not, you know, convinced yet that we're going to be down in Q4, but that's what we're modeling because that's what the bookings tell us at the moment. Again, if the lean inventory is the good sell through continues to hold, you know, that's certainly a distinct possibility. But for now from a planning perspective, we don't want to put too much of that into into what we expect for the forecast. Very helpful.
He is somebody we know is going to work well with the brand and with the team to help build the brand overall, it's not just about getting the biggest name for the biggest dollar clearly there are economics. Some are shared based on success of the output. Some are fixed based on appearance levels et cetera.
I would say the recent ambassador shifts that we brought on board are a variety.
John Vandemore: And then John, maybe just, you know, there's always questions around SGMA. Love to hear about the economics of, you know, sponsoring, you know, key athletes like Harry King. He just made for the audience just maybe walks through high level how it works. And, and maybe just maybe David, if you could talk about the value proposition, obviously it's a crowded field and global football and, and, and basketball, what, what do you think your value proposition will be going forward in these two categories?
Most importantly, we feel like they very much augment both our credentials in the categories in which we're entering but also they love the brand. They are engaged with the brand the economics fit within our overall parameters on sales and marketing so we fit it within there. The one other thing I'd mention is because were.
We're just entering categories, we're trying to be very thoughtful with our partners, but also with just the numbers we want a good complement of athletes supporting the brand and the category in the products, but we're not looking to sign everybody everywhere that that's not going to be our strategy I think youll see us nurture. These these entrants.
John Vandemore: Yeah, in so far as our relationships with ambassadors, you know, everyone's a little bit unique. I mean, clearly, it first has to be a relationship, both parties are comfortable with it. Today, it's comments earlier. I mean, we don't just go out and pay a big amount to get a big name. We're looking for folks who are going to collaborate with us, particularly when we're getting into a new category. So every one of the ambassadors that we've engaged for, you know, football, soccer, and really across the portfolio is somebody we know is going to work well with the brand and with the team to help build the brand overall.
Then try to make them instantaneously successful because what we want to do is build a business not just reward a given quarter.
So the economics fit with that structure as well.
Yeah, and as far as the value proposition.
I'm not sure this is.
Our complete value proposition, what we do is we offer a multitude of issues for a multitude of people as it goes through and as we move through we're starting right now only was the higher price is very competitive.
John Vandemore: It's not just about getting the biggest name for the biggest dollar. You know, clearly there are economics. Some are shared based on success of the output. Some are fixed based on, you know, appearance levels, etc. So I would say, you know, the recent ambassadorships that we brought on board are a variety. Most importantly, we feel like they very much augment both our credentials in the categories in which we're entering, but also they love the brand.
Top notch basketball and football shoes of course as we go forward. We know there is a great marketplace for more moderate price with people as I still haven't quality and comfort that we will give more quality and comfort and value at that particular point not necessarily at the top end, which will then.
Carried down to kids, because we have a great kids business as well. So we think as we go out over time, we certainly will expand through all the demographics that we deal with and we will have something for everyone, but we're taking most.
John Vandemore: They're engaged with the brand. The economics fit within our overall parameters on sales and marketing. So we fit it within there. The one other thing, you know, as mentioned is because we're, you know, we're just entering categories. We're trying to be very thoughtful with our partners, but also with just the numbers, you know, we want a good complement of athletes supporting the brand and the categories and the products. But we're not looking to sign, you know, everybody everywhere.
Price now.
Delivering the best quality top notch and it's not.
Necessarily a price play and I would just to add another plant what everybody's been talking about wholesale and how wholesale fits and how it fits into our guidance for the coming year.
You think about it.
John Vandemore: That's not going to be our strategy. I think you'll see us nurture these, these entrants more than, you know, try to, you know, make them instantaneously successful because what we want to do is build a business not just reward a given quarter. So the economics fit with that structure as well.
The difficulty now and the differential in our businesses that we have such a big piece of direct to consumer so a big part of the quarter will obviously depend on the holiday period, which hasnt begun yet so its different difficult to tell Singles' day, which also is difficult to tell because.
David Weinberg: Yeah, and as far as the value proposition, I'm not sure this is a complete value proposition. What we do is we offer a multitude of shoes for a multitude of people as it goes through. And as we move through, we're starting right now only with a higher price, very competitive top notch basketball and football shoes. Of course, as we go forward, we know there's a great marketplace for more moderate prices. For people that play still having quality and comfort, that will give more quality and comfort and value at that particular point, not necessarily at the top end, which will then carry down to kids because we have a great kids business as well.
We're just starting to preorder period.
October is a very difficult months in which to gauge all of those items also from a wholesale perspective, where the big pieces come to us as at the end of the quarter, which is too early to tell when we move forward spring as the sales for the holidays go through this significant potential, especially on a worldwide basis to deliver spring in late November early December.
All of that is coming towards us and personally I feel very positive about it but it's way too early in the process being October which is a difficult month to make those reach to make that so we're trying to be as honest.
Transparent and let everybody know this is where we sit right now, but the potential both for spring coming early and our direct to consumer breaking out around the world certainly is a possibility and by no means maximized in our in our guidance at least from my perspective.
David Weinberg: So we think as we go out over time, we certainly will expand through all the demographics that we deal with and we'll have something for everyone, but we're taking most pride now in delivering the best quality top notch and it's not necessarily a price play.
Super helpful. Thank you gentlemen, and best of luck.
David Weinberg: And by the way, just to end of the point, everybody's been talking about wholesale and how wholesale fits and how it fits into our guidance for the coming year. If you think about it, it's the difficulty now and the differential in our business that we have such a big piece of direct to consumer. So big part of the quarter will obviously depend on the holiday period, which hasn't begun yet. So it's difficult to tell single stay, which also is difficult to tell because we're just starting to pre-order period.
Thank you. Our next question is coming from the line of John Kernan with TV Cowen. Please proceed with your question.
Good afternoon. This is krista zuber on behalf of Jon just one one check on Asp's just to get a better sense of how you foresee additional pricing actions as you head into 2024, I mean, certainly you are lapping some more challenging compares particularly and I believe domestic in Q4 versus last year or so.
David Weinberg: And October is a very difficult month in which to gauge all those items. Also from a wholesale perspective, where the big pieces come to us is at the end of the quarter, which is too early to tell, when we move forward spring as the sales for the holidays go through this significant potential, especially on a worldwide basis, to deliver spring in late November, early December. All of that is coming towards us.
Could you shed some light on that that'd be great. Thank you.
Yes, So I think as you as you look at Asps.
We wouldn't expect to be making a lot of movement on asp's in kind of comparable products. So.
This increases et cetera, what you when youre likely to see them, what we have seen a little bit this year.
David Weinberg: And personally, I feel very positive about it, but it's way too early in the process being October, which is a difficult month to make those reads to make up. So we're trying to be as honest, transparent. Let everybody know this is where we sit right now, but the potential both for spring coming early and a direct to consumers breaking out around the world certainly is the possibility. And by no means maximize them in our guidance, at least from my perspective.
Is.
Certainly if youre looking at.
After FX, some FX inflated ASP growth, but also some mix trade, which is customers coming in and consciously choosing the higher price point product.
Because that's the product that has our skechers hands free slip in technology has our Skechers art Fitch arch fit technology. So you are seeing customers trade up within the portfolio for some higher priced product that's the type of ASP.
Activity, we would expect a little too early for us to talk specifically about 2024, but that's I think a good reflection of what we expect for the balance of the year.
Unknown Executive: Super helpful. Thank you, gentlemen, and best of luck. Thank you.
John Kernan: Our next question is coming from a line of John Kernen with TD Cowan. Please proceed with your question. Good afternoon.
Great. Thanks, and just wanted to follow up if I may just on the inventory kind of how do you see the balance sheet inventory levels, finishing at the end of 2023.
Krista Zuber: This is Krista Zuber on behalf of John. Just one check on ASPs. Just get a bit of a sense of how you foresee additional pricing actions as you head into 2024. I mean, certainly you're lapping some more challenging compares, particularly in, I believe, domestic. Thank you for versus last year. So if you could shed some light on that, that'd be great. Thank you. Yeah, so I think as you, as you look at ASPs, we wouldn't expect to be making a lot of movement on ASPs in kind of comparable products.
Thanks.
Well, we've made a lot I mean.
We've made a ton of headway on inventory, which if you recall.
12 months ago is exactly what we said we would do when.
When we were swimming in inventory and we had distribution challenges so.
I mean, the fact that we can tell you today that were down by a third in both Europe and the Americas. I think gives you every ounce of proof you need that we will do what we say we're going to do we feel inventories are very well positioned right now for the holiday. They are very well positioned for early 2024.
Krista Zuber: So price increases, et cetera. What you're likely to see, what we've seen a little bit this year, is certainly if you're looking at after FX, some FX inflated ASP growth, but also the mix straight, which is customers coming in and consciously choosing the higher price point product. Because that's the product that has our sketchers hands-free, slip-in technology, has our sketchers arch-fit technology. So you are seeing customers trade up within the portfolio for some higher price product. That's the type of ASP activity we would expect. A little too early for us to talk specifically about 2024, but that's, I think, a good reflection of what we experience for the balance of the year.
They do leave us a little bit of room to move things up if the opportunity permits as David as David talked about a second ago.
But overall I would tell you, we're very well positioned from a from an inventory perspective, and we feel very good about both the inventory we have but also the orders we have in the early part of 2024 year history.
<unk>, we tend to build inventory at the end of the fourth quarter, because we need to build spring early and it has to be on the water before Chinese new year.
Which you know it comes early in the next quarter and we've now.
Given where we stand.
We're trying to get everything in earlier this year, rather than later and we will take it in November and December.
John Vandemore: Great thanks, and just one follow-up if I may, just on the inventory. Kind of how do you see the balance sheet inventory levels finishing at the end of 2023? Thanks. Well, we've made a lot, I mean, we made a ton of headway on inventory, which if you recall, you know, 12 months ago is exactly what we said we would do when we were swimming in inventory, and we had distribution challenges. So I mean, the fact that we can tell you today that we're down by a third in both Europe and the Americas, I think gives you every ounce of proof you need that we'll do what we say we're going to do.
In early January because we had positive feelings about the first quarter and we'd rather have it early rather than late and not take any chances and be prepared should the demand kick up and move back into the fourth quarter of this year.
Thank you.
Thank you. Our next question is coming from the line of Gaby Carbone with Deutsche Bank. Please proceed with your question.
Hi, good evening.
For taking my question. So on the margin front, what do you have us thinking about the path for expansion beyond this year, maybe where the biggest opportunities are and then how should we be thinking about maybe gross margin, particularly given you know, but then potentially turn of wholesale in the next year that could happen. Thank you.
John Vandemore: You know, we feel inventories are very well positioned right now for the holiday. They're very well positioned for early 2024. They do leave us a little bit of room to move things up if the opportunity permits. David, David talked about a second ago. But overall I would tell you, we're very well positioned from an inventory perspective and we feel very good about both the inventory we have, but also the orders we have, you know, in the early part of 2024.
Yes, I think on gross margin I think we just have to recognize for a moment, what we've done on the year, because it's a pretty astronomical.
Every year some of that is certainly some benefit of costs that are now fading out of the system, which we do expect to be a meaningful contributor to the improvement we're going to see in the fourth quarter.
John Vandemore: Yeah, you know, historically, we tend to build inventory at the end of the fourth quarter because we need to build spring early and it has to be on the water before Chinese New Year, which, you know, comes early in the next quarter. And we've now given where we stand, we're trying to get everything in earlier this year rather than later, and we'll take it in November and December at early January because we have positive feelings about the first quarter, and we'd rather have it early rather than like not taking any chances and be prepared to demand, kick up, and move back into the fourth quarter of this year. Thank you.
Part of it is also though that we're selling more profitable product and more restraining the promotion environment as best we can relative to the took the competitive environment. We're in I would say as a longer horizon view, what do we expect to drive margin, it's kind of the same.
The same factors, we've talked about before it's increasing our mix of direct to consumer it's increasing our mix of.
Our international wholesale business, both of which are accretive overall I think a part of this year's story is also that right, which is we've increased our overall contribution from both of those categories in particular, the direct to consumer with its outsized growth. This year and that's been a that's something that's been a meaningful contributor we're not we're certainly not.
Gabriella Carbone: Our next question is coming from a line of Gabby Carbone with Deutsche Bank. Please proceed with your question. Hi, good evening. Thanks for taking my question. So on the margin front, what do you help us think about the path for expansion beyond this year, maybe where the biggest opportunities are? And then how should we be thinking about maybe gross margin, particularly given, you know, but the potential return of wholesale and the next shift that could happen.
Looking to give any of that back and we continue to have abundant opportunities. We think to open stores open doors in our in our retail business. So that those will continue to be the main factors that drive opportunity there should be some lingering benefit although not nearly the scale or size of what we've seen this year from cost.
Gabriella Carbone: Thank you. Yeah, I think on gross margin, I think we just have to recognize for a moment, you know, what we've done on the year because it's a pretty, you know, astronomical year over year. Some of that is certainly some benefit of the costs that are now fading out of the system, which we do expect to be a meaningful contributor to the improvement we're going to see in the fourth quarter. I, you know, part of it is also though that we're selling, you know, more profitable product and we're, you know, restraining, you know, the promotion environment as best we can relative to the competitive environment we're in.
Into the early part of next year that wont be again as significant as we saw this year, but there'll be some trailing benefits there as well from <unk>.
From lower freight.
Those are going to be the primary the primary contributors.
Got it that's really helpful and I just wanted to ask a follow up I was wondering if you could just dig into what youre seeing in the consumer backdrop within Europe I understand distributor, so, but excluding that maybe how did trends play out in that market kind of versus your expectations.
Gabriella Carbone: I would say, you know, as a longer horizon view, what do we expect to drive margin? It's kind of the same factors we've talked about before. It's increasing our mix of direct consumer. It's increasing our mix of our international wholesale business, both of which, you know, are a creative overall. I think a part of this year's story is also that, right, which is we've increased our overall contribution from both of those categories and particularly the direct consumer with its outsized growth this year and that's been a meaningful contributor.
Yes, it's kind of an interesting situation, because it's becoming a little bit more similar to what we've seen in the domestic market, which is our direct to consumer business, both online and in store in Europe, and EMEA was incredibly strong this quarter significantly outperformed what we thought.
We should expect given the situation.
Obviously, it out distance the growth in our wholesale market, although even that was relatively strong when you take out the distributors as we mentioned EMEA wholesale grew double digits. So that market continues to be very strong I would say relative to the fourth quarter is going to face some difficult comparisons I mean, we had some markets last.
Gabriella Carbone: We're certainly not looking to give any of that back and we continue to have abundant opportunities we think to, you know, open stores, open doors in our retail business. So that, those will continue to be the main factors that drive opportunity. There should be some lingering benefit, although not nearly the scale or size of what we've seen this year from cost into the early part of next year. That won't be, you know, getting as significant as we saw this year, but there'll be some trailing benefits there as well from lower freight. Those are going to be the primary contribute. Got it. That's really helpful.
Year that were up in the fourth quarter.
Above 40% or 50%, that's a really hard comp base in Q4, which is which is one of the drags on Q4.
But overall I would say in general the consumer environment remains incredibly encouraging in Europe and I.
I would also just add to that the domestic store performance that we saw was also incredibly encouraging of the same variety. So at the consumer level things look good where we continue to see.
John Vandemore: And I just want to ask a follow-up was wondering if you could dig into what you're seeing to consumer backdrop within Europe, I understand the distributor shift, but excluding that maybe how to trends play out in that market kind of pursue your expectations. And in store in Europe and Amia was incredibly strong this quarter, significantly outperformed, you know what we thought we should expect given the situation. You know, obviously it outdistance the growth in our wholesale market, although even that was relatively strong when you take out the distributors as we mentioned, Amia wholesale group double digits.
Our concern is that that wholesale customer level, who asked to sell through.
To the consumer that's that's if we're seeing any any concerns in order patterns any unusual behavior, that's where it remains today.
Great. Thank you so much for that.
Thank you. Our next question is coming from Jim Duffy with Stifel. Please proceed with your question.
Hi, Thanks, good afternoon I have a.
A question on the inventory and then on the DTC business.
And then this progress from you guys on the inventory congratulations to the team for that I'm curious if you can comment what you're seeing with respect to channel partner inventory any sense that that's becoming more normalized or are there still pockets of excess which are a challenge.
John Vandemore: So, you know, that market continues to be very strong. I would say relative to the fourth quarter, it's going to face some difficult comparisons. I mean, we had some markets last year that were up in the fourth quarter, you know, above 40%, 50%. And that's a really hard comp to face in Q4, which is one of the drags on Q4. But overall, I would say in general, the consumer environment remains incredibly encouraging in Europe.
I'm speaking for the industry not Scott your specific necessarily.
Yeah.
Well I would say, we can speak to skechers specific because we can see that directly.
In aggregate I would tell you if you compare back as far as 2019.
Or last year as a reference point things look pretty look pretty lean.
John Vandemore: And, you know, I would also, to add to that, the domestic, you know, store performance that we saw was also incredibly encouraging of the same variety. So, at the consumer level things look good where we continue to see, you know, concern is that that wholesale customer level who has to sell through to the consumer. That's, that's if we're seeing any, any concerns in order patents, any, you know, unusual behavior. That's where it remains today. Great. Thank you so much for that.
I would say within that if you look down a layer it depends on which account which customer you're talking about some have grown their business. Some have gotten much more efficient more turns et cetera.
And some have lagged and so it is not.
A similar environment for every account, but but in aggregate I would say things continue to look lean to us and I would I would remark about that in context of also seeing again good sell through good margin good price and we know from our own stores that the product. We have is more innovative it's new.
Jim Duffy: Thank you. Our next question is coming from Jim Duffy with Cecil. Please proceed with your question. Well, thanks. Good afternoon. I have a question on the inventory and then on the D to C business. A tremendous progress from you guys on the inventory. Congratulations to the team for that. I'm curious if you can comment what you're seeing with respect to channel partner inventory. Any sense that that's becoming more normalized or there's still pockets of excess, which are a challenge.
It's fresh.
That a lot of other accounts out there can offer so we feel really good about the position both on our own account, but also downstream in <unk>.
Just not yet leary, leading in terms of Reorders that we would expect to see under normal circumstances, and I think the concern is simply whats going to happen with consumer spending.
In major markets.
Jim Duffy: I'm speaking for the industry, not sketchers specific necessarily. Well, I would say, you know, we can speak to sketchers specific because we can see that directly. In aggregate, I would tell you, if you compare back, you know, as far as 2019, or, you know, last year as a reference point, things look pretty, look pretty lean. I would say, you know, within that, if you look down the layer, it depends on which account, which customer you're talking about.
Can't really speak broadly to the industry other than.
We have heard very similar stories and tales from other brands. So it seems like that's a pretty similar set up to what others are seeing.
That makes sense. Thank you and then I wanted to ask on the D to C business you do have some unique comparisons.
Versus a year ago. When you had inventory congestion that was limiting inventory availability in the store compromising store productivity.
Made some tremendous games here lapping that in the D to C business do you see that strength continuing or is.
Jim Duffy: You know, some have grown their business, some have gotten, you know, much more efficient, more turns, et cetera, and some have lagged. And so it's not in, you know, a similar environment for every account, but in aggregate, I would say, you know, things continue to look lean to us. And I would, I would remark about that in context of also seeing, again, good sell through good margin, good price. And, you know, we know from our own stores that the product we have is more innovative, it's new, it's fresh, you know, that a lot of other accounts out there can offer.
Should we think about there being some.
Some degree of moderation just given the uniqueness of the comparisons.
Well I would say, we still expect there to be strength and we've continued to see strength so far this quarter.
What really happened last year at this time as the stores, we're suffering from a lack of inventory online had much more than ever we pushed consumers online and online made up a lot of the detriment we saw from stores not being full this quarter, we've kind of unwound that stores were well stocked.
Jim Duffy: So, you know, we feel really good about the position both on our own account, but also, you know, downstream. It's just not yet leading to the reorders that we would expect to see under normal circumstances. And I think the concern is simply, you know, what's going to happen with consumer spending, you know, in major markets. You know, can't really speak broadly to the industry other than, you know, we have heard very similar stories and tales from other brands, so it seems like that's a pretty similar setup to what others are saying. That makes sense. Thank you.
Were they had product available at our newer product and we brought down the inventory available online to a more normalized level. That's why in part we think theres a little bit of a slowdown on E. Commerce. It was more than offset obviously by what happened in the stores I would tell you. We're encouraged by what we've seen thus far even.
Getting to a point, where we're lapping having comparable levels of inventory in stores. So far this quarter, we're still seeing strength as we said last quarter, though I mean, it's hard to plan.
John Vandemore: And then I wanted to ask on the D to see business. You do have some unique comparisons versus a year ago and you had inventory congestions that was limiting inventory availability in the store, compromising store productivity. You've made some tremendous gains here, lapping that in the D to see business. Do you see that strength continuing or is, you know, should we think about there being some degree of moderation just given the uniqueness of the comparisons?
[laughter] at plus 20% levels.
When you think about normal retail behavior. So so we're definitely being cautious about what we're planning for it but overall, we saw really good strength at the consumer level really good activity.
And I think we're going to start to see our E comm normalize a bit from the unfavorable comparison AD last year when it was bearing more of the burden of our direct to consumer performance. So overall, we still feel really good about what we see both domestically and internationally, obviously to David's point made earlier, we're going to get into the key.
John Vandemore: Well, I would say we still expect there to be strength and we've continued to see strength, you know, so far this quarter. You know, what really happened last year at this time is the stores, you know, we're suffering from a lack of inventory online had much more than ever. We pushed consumers online and online, you know, made up a lot of the detriment we saw from stores not being full. This quarter we kind of unwound that stores were well stocked.
Selling period here shortly from from holidays, and that will determine a lot and so it is still too early to be able to call.
What we expect in holiday because that's all that's all ahead of us.
Maybe just one last question on the D to C. If I may what are you seeing with respect to traffic trends.
John Vandemore: They were they had product available to add our newer product and we brought down the inventory available online to more normalized level. That's why in part, we think there's a little bit of a slowdown on e-commerce. It was more than offset, obviously, by what happened in the stores. You know, I would tell you we're encouraged by what we've seen thus far, you know, even getting to a point where we're lapping, you know, having comparable levels of inventory in stores so far this quarter, you know, we're still seeing strength.
<unk> is a lot of the strength being driven by increased volume increased conversion or are you seeing good traffic as well.
It depends on the channel and some some channels youre seeing traffic continue to drive performance I'd say on average, it's a little bit less about traffic traffic has faded off in some areas, particularly regional traffic traffic behavior, where that's happened, though we've made up for it from a <unk>.
John Vandemore: As we said last quarter, though, I mean, it's hard to plan, you know, at plus 20% levels when you think about normal retail behavior. So we're definitely being cautious about what we're planning for. But overall, we saw, you know, really good strength at the consumer level, really good activity. And I think we're going to start to see our e-com normalize a bit, you know, from the unfavorable comparison at last year when it was bearing more of the burden of our direct consumer performance.
<unk> perspective.
In an <unk> perspective, and so we're making up for it on conversion.
Very good nice work guys.
Thanks, Jim.
Thank you. Our next question is coming from the line of Alex <unk> with Morgan Stanley. Please proceed with your question.
Great and congrats on a nice quarter guys. Just a quick question on SG&A spend going forward and maybe in particular next year I think it typically grows a couple of points below sales I'm just trying to understand if that's the right go forward level or just maybe what the puts and takes are around what could impact that your SG&A spending next year.
John Vandemore: So overall, we still feel really good about what we see both domestically and internationally. Obviously, to David's point, you know, made earlier, we're going to get into the key selling period here shortly from all of the days. And that will determine a lot. And so it's still too early to be able to call what we expect in holiday because that's all that's all ahead of us.
Thanks, a lot.
Yes, I mean, SG&A is always kind of a big basket of a lot of different things Alex the number one factor is always volume where the volume happens I think in this year, what we saw as volume was happening in areas, where it wasn't allowing us to leverage as much as we would like.
John Vandemore: Maybe just one last question on the D to C of MA. What do you see in with respect to traffic trends? Is a lot of the strength being driven by increased volume, increased conversion or are you seeing good traffic as well? It depends on the channel. You know, in some, some channels, you're seeing traffic continue to drive performance. I say on average, it's a little bit less about traffic traffic has faded off in some areas, particularly regional traffic traffic behavior.
In the future we would expect those to come more into line that should enable us to manage the SG&A again, particularly that volume portion.
Distribution et cetera, more in line with sales growth, but we had some unusual trends this year that put us in a position of not being able to leverage the SG&A that we would normally be able to leverage that having to have to put more into volume elsewhere.
John Vandemore: Where that's happened, though, you know, we've made up for it, you know, from a UPT perspective and an AOV perspective. And so, you know, we're making up for it on conversion. Very good. Nice work, guys. Thank you.
It's something we're focused on.
No we want to keep it within kind of the parameters of topline growth.
Also note this quarter, although I'm not going to give a specific amount. We do have a lot of investments underway. We've talked about these categories that have yet to really launch, but obviously, we've been spending time and money on we have several distribution centers that are going online this year and usually theres, both preopening and sometimes when you're transitioning.
Alex Stratton: Our next question is coming from a line of Alex Stratton with Morgan Stanley. Please proceed with your questions. Great, congrats on a nice quarter, guys. Just a quick question on SG&A, it's been going forward and maybe in particular next year. I think it typically grows a couple of points below sales. I'm just trying to understand if that's the right go forward level or just maybe what the puts and takes are around what could impact your SG&A spending next year.
From one center to another there's some duplicative costs that you have to bear those of the case.
We're going to open a meaningful number of stores. This quarter. Those are always a near term drag from a operating margin perspective, just because it takes a while for them to get up and get profitable. So there's also some factors within the G&A that is less reflective of the current state of the business and preparing for the future, which I think we've.
Alex Stratton: Thanks a lot. Yeah, I mean SG&A's always kind of a big basket of a lot of different things. Alex, the number one factor is always volume, where the volume happens. I think in this year what we saw is volume with happening in areas where it wasn't allowing us to leverage as much as we would like. In the future, we would expect those to come more into line. That should enable us to manage the SG&A, again particularly that volume portion distribution, et cetera, more in line with sales growth, but we have some unusual trends this year that put us in the position of not being able to leverage the SG&A that we would normally be able to leverage than having to tip up more into volume elsewhere.
<unk> is something we can do well and ultimately get back to a point of leverage.
And then I just also mentioned when you think about the S side is we've made note. This year in particular, we are over investing on sales and marketing perspective, we've got I think a window to really make sure consumers understand that the skechers hands free technology that we're offering in our shoes is unique to us it's a unique solution that.
Consumers re.
Really seek out and their shopping behavior, it resonates with them and so we want to make sure that gets well branded this year. So so we are making some conscious investments in marketing that think we think will pay off for years to come and that's why we're a little bit above trend on the sales side as well.
Alex Stratton: Something we're focused on, we know we want to keep it within kind of the parameters of top line growth. I would also note this quarter, although I'm not going to give a specific amount, we do have a lot of investments underway. We talked about these categories that have yet to really launch, but obviously, we've been spending time and money on. We have several distribution centers that are going online this year, and usually there's both pre-opening, and sometimes when you're transitioning from one center to another, there's some duplicative costs that you have to bear.
Thanks, Let me just one quick follow up in gross margin in the latest quarter is it still being impacted at all by those higher logistics costs and I think like it was some impact of inventory costs as well that were burdening gross margin and at least upfront path to some extent.
Alex Stratton: Those are the case. We're going to open a meaningful number of stores this quarter. Those are always a near-term drag from an operating margin perspective, just because it takes a while for them to get up and get profitable. There's also some factors within the G&A that is less reflective of the current state of the business than preparing for the future, which I think we've shown is something we can do well and ultimately get back to a point of leverage.
Well those working gross margin those were those were in SG&A.
You are speaking about the cost last year that we mentioned we incurred to to do what we've done now which is move past a lot of that inventory congestion.
There is some of those costs are lingering longer than we would like to be sure.
What really I think a major driver of the overall performance. So we haven't noticed them here, but we're.
We're not completely out of all of those costs, although I would I would note. We are out of the most material components thereof from a gross margin perspective, what we've really continued to see through the balance of this year as benefits from mix and pricing and then as we got into Q2, a little bit but definitely in Q3 favorable cost.
Alex Stratton: Then I also mentioned what do you think about the S side as we've made note this year in particular. We are over investing on sales and marketing perspective. We've got, I think, a window to really make sure consumers understand that the skaters' hands-free technology that we're offering in our shoes is unique to us. It's a unique solution that something consumers really seek out in their shopping behavior. It resonates with them. We want to make sure that gets well-branded this year.
Fitz from lapping that excessively high shipping that we had in the prior year. So we're getting to a point, where what what youre seeing is a cleaner margin more of a merch margin than we've ever been able to show without any sort of abnormalities impacting results, which is why.
Alex Stratton: We are making some conscious investments in marketing that we think will pay off for years to come. That's why we're a little bit above trend on the failed side as well. Thanks. Let me just one quick follow-up. It grows margin in the latest quarter. Is it still being impacted at all by those higher logistics costs and I think it was some impacted inventory costs as well that were burdening growth margin in at least the current past to some extent?
It's significantly higher than it was last year.
Thanks, a lot and good luck.
Thanks.
Thank you. Our next question is coming from Tom Nick <unk> with Wedbush Securities. Please proceed with your question.
Hey, guys. Thanks, Thanks for taking my question.
John when we think about the guidance for the year, So I think.
Alex Stratton: Well, those weren't in growth margin. Those were in SG&A. I think you're speaking about the cost last year that we mentioned. We incurred to do what we've done now, which has moved past a lot of that inventory congestion. Some of those costs are lingering longer than we would like to be sure. They're not really a major driver of the overall performance. We haven't noticed them here, but we're not completely out of all of those costs, although I would know we're out of the most material components thereof.
Revenues.
I think you beat the high end by 25 million and you lowered the high end of our full year guidance by $50 million I know that.
U S dollar strengthen the liner I would imagine that there is headroom there.
Can you contextualize for us how much.
FX.
Changes essentially since the last time you reported.
Have impacted your guidance.
Yes, I mean, thats a little bit of it.
Alex Stratton: From a growth margin perspective, what we've really continued to see through the balance of this year is benefits from mix and pricing and then as we got into Q2 a little bit, but definitely in Q3 favorable cost benefits from lapping that excessively high shipping that we had in the prior year. We're getting to a point where what you're seeing is a cleaner margin, more of a merge margin than we've ever been able to show without any abnormalities impacting results, which is why it's significantly higher than it was last year. Thank you. Thanks a lot. Good luck. Thanks. Thank you.
We think about a midpoint to midpoint point, we change things by about $25 million, which is not a big amount in the Grand scheme of things I would tell you that has everything to do with our conservatism around what we're actually going to see materialize in China during Singles' day domestically on the wholesale front.
And then the caution around trying to get a good handle on where holiday is going to be.
It really doesn't have a ton to do with FX. It really is more about those three factors, which I would also tell you.
On the flip side, if three months from now we're talking about beating the guide that's where it's going to come from one or more of those three factors because those are the ones that have been hardest for us to get clean line of line of sight into on a quarterly basis for for this year because of all the factors that we've talked about.
Tom Nikic: Our next question is coming from Tom Nicky with Wedbush Securities. Please proceed with your question. Hey guys, thanks for taking my question. John, when we think about the guidance for the year, so I think revenues, I think you beat the high end by 25 million and you lower the high end of the full year guy by 50 million. I know that US dollar strength in the line, I would imagine that there's an end in there.
Understood.
If I could follow up on the wholesale business.
All year long you've been talking about how the sell through trends have been better than sell in.
Okay.
Eventually.
The sell in has to normalize with the sell through trends.
Now that you're.
Tom Nikic: Can you contextualize for us how much effects changes essentially since the last time you reported have impacted your guidance? Yeah, I mean, that's a little bit of it. You know, so we think about a midpoint to midpoint, we changed things by about 25 million, which is not a big amount in the grand scheme of things. I would tell you that has everything to do with our conservatism around what we're actually going to see materialized in China during single day, domestically on the wholesale front, and then the caution around trying to get a good handle on where holiday is going to be.
Having visibility into spring 2024 orders.
Are you seeing that recovery starting to happen like you know should we think about it all so orders being up again in spring 2024.
Not as quickly as we think it should in all honesty, but.
A decoupling that we've seen for most of the year.
We would like it to cure faster than it has.
I think ultimately we take comfort in the fact that that's certainly those two have to match at some point.
And what we've seen thus far is that mismatch.
The sell through has definitely been stronger than sell in.
Tom Nikic: It really doesn't have a ton to do with that fact that it really is more about those three factors, which which I would also tell you on the flip side, you know, three months from now, we're talking about, you know, beating the guy, that's where it's going to come from, you know, one or more of those three factors because those are the ones that have been hardest for us to get clean light of line of sight into, you know, on a quarterly basis for for this year because of all the factors that we've we've talked about. Understood, and now if I could follow up on the wholesale business, you know, all year long, you've been talking about how these sell through trends have been better than sell in that, you know, eventually the sell in has to normalize with the sell through trends.
And as we've said the prices are strong the margin contribution of retailers is good.
The inventories are lean at some point they've got to catch up I think the flip the script a little bit, though when I look at our performance domestically.
Including both our stores and the wholesale the customers coming to the brand.
And those are growing we mentioned the the international growth was up.
Domestic growth was up overall I mean, if you look at it within regions.
The vast majority of our markets are up so the commerce the customers getting to the brand we'd like them to have more avenues to the brand than what there theyre taking advantage of right now, but because we can't control the sell in to some of those wholesale partners. We have to rely on the composite of our business, which includes our own direct to consumer.
Tom Nikic: Now, you know, now that you're, you know, having visibility into spring 2024 orders. Are you seeing that recovery started to happen like, you know, or should we think about also orders being up again in spring 2024? You know, not as quickly as we think it should in all honesty, but that's a decoupling that we've seen for most of the year. You know, we would like it to cure faster than it has.
I think you also have to take a look at the order of magnitude of how big inventory was for different parts of our businesses.
You take into account.
Our statement on inventory, which is predominantly.
As for our own use.
If you look at our business no one can say that our business hasnt grown year over year as far as sell out is concerned.
Tom Nikic: I think ultimately, you know, we take comfort of the fact that that's certainly those two have to match at some point. And what we've seen thus far is that mismatch, you know, the sell through has definitely been stronger than the sell in. And as we've said, you know, the prices are strong, the margin contribution of retailers is good, the inventories are lean at some point they've got to catch up. I think, you know, to put the script a little bit though, you know, when I look at our performance domestically, you know, including both our stores and the wholesale, you know, the customers coming to the brand.
We're finishing a third $2 billion a quarter, where we're at 6 billion plus.
We're growing very nicely, yes, we see inventory by 400 million at cost, which means if you were looking at our suppliers on the other side, we'd be telling that were selling great don't worry we're going to catch up soon but in the Meanwhile, we look we bought $400 million less.
Then we sold.
And obviously that has to catch up our inventories are in line and Lee So as our direct to consumer growth, we will increase the <unk>.
Same I believe in order of magnitude as to when you evaluate our distributors they had inventory on a significant percentage as we did they had been selling out well inventories online they're coming in for a much stronger Q1 at.
Tom Nikic: And those are growing, you know, we mentioned the, you know, the international growth was up the, the domestic growth was up overall. I mean, if you look at it within regions, you know, the vast majority of our markets are up. So the customers getting to the brand, you know, we'd like them to have more avenues to the brand than what they're, you know, they're taking advantage of right now. But because we can't control the selling to some of those wholesale partners, we have to rely on the composite of our business, which includes our own direct to consumer.
It seems so far and are growing so that perspective that will increase as well for our purchasing.
And while we don't have as much insight into our third parties predominantly in the U S. We do see more people chasing product outside the U S and in some marketplaces certainly in Europe at this particular point.
Tom Nikic: You know, I think you also have to take a look at the order of magnitude of how big inventory was for different parts of our businesses. You know, you take into account our statement on inventory, which predominantly is for our own use. If you look at our business, no one can say that our business hasn't grown year over year as far as sell-out is concerned. We're finishing our $32 billion quarter, we're at $6 billion plus, we're growing very nicely.
But here because it's not only skechers product and there's only so many hot products in the world and everybody had to clean out at a different level and because they are nervous about their inventory and their businesses in general I don't know that anybody feels about their business in general.
As well as we do barring a couple that obviously are well known.
So.
They are holding back some but they gotta be closer.
And we know that sells and there'll be clean and we know our stuff will sell so one would assume sometime in the next year.
Tom Nikic: Yet we've de-inventored by 400 million in cost, which means if you were looking at our suppliers on the other side, we'd be telling that we're selling, great, don't worry, we're going to catch up soon. But in the meanwhile, we bought 400 million less than we sold. And obviously that has to catch up. Our inventories are in line and linked. So as our direct-to-consumer grows, we will increase them. The same, I believe, in order of magnitude is true when you evaluate our distributors.
We will get to a more normal flows all over the place we'd like to believe it's first quarter, but it's coming in first or second quarter I got to believe because.
By the time, we get to next back to school that will be way too much time, and I don't know anybody anybody that says inventory issues.
Going through that part of the year will have bigger issues than just inventory.
Got it if I if I could sneak in just one more about the basketball lunch.
Tom Nikic: They had inventory on a significant percentage as we did. They've been selling out well, they're inventory on stores online, they're coming in for a much stronger Q1, it seems so far and are growing. So that perspective, that will increase as well for our purchasing. And while we don't have as much insight into our third parties, predominantly in the U.S., we do see more people chasing product outside the U.S, in some marketplaces, certainly in Europe at this particular point.
We can always talk about.
[laughter] do you view this as an opportunity to maybe get into some doors that you are not in today like I mean, I guess like foot locker it'd be obvious.
One that comes to mind given.
They're big basketball business.
Yeah, I do think it's possible, but that's certainly not our control. We think we can find those consumers and those consumers will come to us through our direct to consumer or other places they buy it. Obviously there is some of this product that doesn't sell everywhere and it's fairly exclusive.
Tom Nikic: But here, because it's not only Skechers' product, and there's only so many hot products in the world, and everybody had a clean out at a different level. And because they are nervous about their inventory and their businesses in general, I don't know that anybody feels about their business in general as well as we do a couple that obviously are well known. So they're holding back some, but they got to be closer, and we know that itself, and they'll be clean, and we know our stuff will sell.
And as we get going we will certainly expand our distribution, but we think around the world.
We have great opportunity.
To capture those consumers and we do think on a worldwide basis, we will get into a lot more levels of distribution.
That we certainly haven't penetrated yet.
Tom Nikic: So one would assume, sometime in the next year, we will get to a more normal flows all over the place. We'd like to believe it's first quarter, but it's coming in first or second quarter, I got to believe because an account we get to next back to schools that will be way too much time, and I don't know anybody, anybody that has inventory issues going through that part of the year will have bigger issues than just inventory.
But we're it's not a today think that as we grow we're not planning on powering it through to make the biggest impact we can make at the earliest time, we wanted to build it carefully through a grassroots following in on the product on the.
Technology on the comfort that people will wear and we will continue to grow for us and we will grow into that as we move forward both in.
David Weinberg: Sorry, if I could sneak in just one more about the basketball launch, we can always talk about that. The youth units as an opportunity to maybe get into some doors that you're not in today, like I mean, I guess footlockers, the obvious one that comes to mind given their big basketball business. Yeah, I do think it's possible, but that's certainly not our control. We think we can find those consumers, and those consumers will come to us through our direct to consumer or other places they buy it.
Soccer football and basketball.
Sounds good well I'm, hoping that issues can help Julia Oh.
He came into play off from here.
Fingers crossed.
No problem and we're working on it.
[laughter].
Thank you. Our final question is coming from the line of <unk> <unk> with Piper Sandler. Please proceed with your question.
Great. Thanks, so much for squeezing me in here just is there any.
Color you can give on how direct to consumer has trended domestically quarter to date.
David Weinberg: Obviously there's some of this product that doesn't sell everywhere, and it's fairly exclusive. And as we get going, we'll certainly expand our distribution, but we think around the world, we have great opportunity to capture those consumers. And we do think on a worldwide basis, we'll get into a lot more levels of distribution that we certainly haven't penetrated yet. But it's not a today thing. That's as we grow. We're not planning on powering it through to make the biggest impact we can make at the earliest time.
And then just as a follow up can you I know you can't.
Wholesale international wholesale for EMEA are without the deal.
Double digits in Europe, excluding those distributors can you give that same metric for APAC at basketball.
So I think probably as far as we're comfortable saying about direct to consumer so far this quarter things have been good.
Continue to be strong I would note kind of similar to Davids comment early October isn't a great read through to holiday often but we've seen continued strength in the direct to consumer business, we are getting into a period, where compared to last year. It's a much more similar situation, whereas we noted the disparity in inventory levels.
David Weinberg: We want to build it carefully through a grassroots following and on the product, on the technology, on the comfort that people will wear and will continue to grow for us and will grow into that as we move forward, both in soccer, football and basketball. That's good. Well, I'm hoping that your shoes can help Julius Elevator's game in the playoffs this year. So, fingers crossed. No problem. We're working on it. Thank you.
<unk>, particularly in store in Q2, and Q3, so it's going to be a more normal comparison, there is not going to be as much of a lift this year, but within that context.
Continued to go well and we're encouraged by some of the some of the turnaround we've seen on the domestic e-commerce side of things.
We don't we won't really give out in APAC ex distributor number because there really isn't as much of a distributor business in APAC I would say there wasn't also as much of a disparity between what we saw in APAC growth.
Abigail Zvejnieks: Our final question is coming from the line of Abby Zvejnieks with Piper Sandler. Yes, to see with your question. Great.
Abigail Zvejnieks: Thanks much for squeezing me in here. Just, is there a specific color you can give on how direct a consumer has trended domestically quarter to date? And then this is a follow up. Can you, I know you gave the, you know, wholesale international wholesale for a maya with up to double digits in Europe, excluding those distributors. Can you give that same metric for eight pack, if possible? So, I think probably as far as we're comfortable saying about direct consumers so far this quarter, things have been good.
With or without distributors.
Distributors are concentrated geographically so the Asia distributors weren't seeing as much of a timing differential year over year.
Just to put it into context by the way when we look at the distributor compared to last quarter.
If I recollect correctly last quarter or last year. This quarter distributors were up like 80%. So it's also very unfavorable a simple comparison to prior year that were that were dealing within that number and that was a contributing factor as well.
Abigail Zvejnieks: You know, continue to be strong. I would know kind of similar to David's comment. You know, early October isn't a great read through to holiday often, but we've seen continued strength in the direct consumer business. We are getting into a period where compared to last year, it's a much more similar situation, whereas we noted the disparity in inventory levels, particularly in store in, you know, Q2 and Q3. So, it's going to be a more normal comparison.
That makes sense. Thank you.
Thank you ladies and gentlemen, we have reached the end of our question and answer session and this does conclude today's conference. We thank you for your participation and you may disconnect. Your lines at this time have a wonderful day.
Abigail Zvejnieks: There's not going to be as much of a lift this year, but within that context, it's continued to go well. And we're encouraged by some of the, some of the turnaround we've seen on the domestic e-commerce side of things. We don't, we won't really give an APEC X distributor number because there really isn't as much of a distributor business in APEC. I would say there wasn't also as much of a disparity between, you know, what we saw in APEC growth and with or without distributors.
Abigail Zvejnieks: You know, distributors are concentrated geographically, so the Asia distributors weren't seeing as much of a timing differential year over year. Just to put it into context, by the way, when we look at the distributor compared to last quarter, if I recollect correctly, you know, last quarter or last year, this quarter, distributors were up like 80%. So, it's also very unfavorable, simple comparison of prior year that we're dealing with in that number, and that with a contributing factor as well. That makes sense. Thank you.
Operator: Ladies and gentlemen, we have reached the end of our question and answer session, and this does conclude today's conference. We thank you for your participation, and you may disconnect your life this time. Have a wonderful day.