Q1 2024 Skechers U.S.A. Inc Earnings Call

Unknown Executive: Thank you for joining our Skechers conference call today. I will now read the Safe Harbor Statement. Certain statements contained herein, including, without limitation, statements addressing the beliefs, plans, objectives, estimates, or expectations of the company or future results or events, may constitute forward-looking statements that involve risks and uncertainties. Such forward-looking statements involve known and unknown risks, including but not limited to global, national, and local economic, business, and market conditions, including the impact of inflation, foreign currency fluctuations, challenging consumer retail markets in the United States, wars, acts of war, and other conflicts around the world, and supply chain delays and disruptions in general and specifically as they apply to the retail industry and the company.

Thank you for joining our Skechers conference call today, I will now read the Safe Harbor statement.

Certain statements contained herein, including without limitation statements addressing the beliefs plans objectives estimates or expectations of the company or future results or events may constitute forward looking statements that involve risks and uncertainties.

Such forward looking statements involve known and unknown risks, including but not limited to global national and local economic business and market conditions, including the impact of inflation foreign currency fluctuation changing consumer retail markets in the United States Wars acts of war and other concepts around the world and supply chain delays.

Options in general and specifically as they apply to the retail industry and the company.

Unknown Executive: There can be no assurance that the actual future results, performance, or achievements expressed or implied by any of our forward-looking statements will materialize. Users of forward-looking statements are encouraged to review the company's filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all other reports filed with the SEC as required by federal securities laws for a description of all other significant risk factors that may affect the company's business, financial conditions, 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 Vandermoor. David

There can be no assurance that the actual future results performance or achievements expressed or implied by any of our forward looking statements will occur users of forward looking statements are encouraged to review the company's filings with the U S Securities and Exchange Commission, including the most recent annual report on Form 10-K quarterly reports on Form 10-Q.

<unk> currently reports on form 8-K, and all other reports filed with the SEC required by Federal Securities laws for a description of all other significant risk factors that may affect the company's business financial condition cash flows and results of operation with that I would like to turn the call over to Skechers, Chief operating officer, David <unk>.

Speaker Change: Berg and Chief Financial Officer, John Vandervort, David.

David Weinberg: Good afternoon, and thank you for joining us today for our first quarter 2024 conference call, which marks our 100th as a public company. We started the year with a new quarterly sales record of $2.25 billion, an increase of 12.5 percent, or $250 million compared to last year, and an adjusted diluted earnings per share record of $1.33. Additionally, we achieved gross margins of 52.5 percent and an operating margin of 13.3 percent.

David: Good afternoon, and thank you for joining us today for our first quarter 2024 conference call, which marks our 100 as a public company.

David: We started the year with a new quarterly sales record of $2. Two 5 billion, an increase of 12, 5% or $250 million compared to last year and adjusted diluted earnings per share record of a dollar thirty-three. Additionally, we achieved gross margins of 52 and a half per cent and an operating margin of 13.

David: 3%.

David Weinberg: These impressive results were driven by growth in both our reportable segments, direct-to-consumer and wholesale, as well as across all regions of the world. The strong global demand for our brand was due to fresh innovations in our proven styles, a more robust offering of our many comfort technologies, and the expansion of our performance and lifestyle divisions into new categories and collections. These newer offerings include our partnership with Snoop Dogg and the Skechers football and basketball line.

David: These impressive results were driven by growth in both of our reportable segments direct to consumer and wholesale as well as across all regions of the world.

David: Strong global demand for all brands was due to fresh innovations and our proven styles, a more robust offering of our many comfort technologies and the expansion of our performance and lifestyle divisions into new categories and collections.

David: Newer offerings include our partnership with Snoop dog, and the Skechers football and basketball lines.

David Weinberg: As the comfort technology company, we focus first on delivering the ultimate and innovative comfort and style across our product lines, so that every pair looks and feels exceptional. This includes our machine washable footwear for kids, durable outdoor styles and sports styles, and our Street and Court Fashion Collection. For our Performance Division, great attention and detail is paid to elevating fit and comfort while meeting the needs of elite athletes and enthusiasts of football, basketball, golf, and pickleball, as well as running and walking.

David: As the comfort technology company, we focus first on delivering the ultimate and innovative comfort and style across all product lines. So that every pair it looks and feels exceptional. This includes our machine washable footwear for kids durable outdoor styles and sports styles, and our street and court fashion collections.

David: Our our performance division, great attention and detailed as pay to elevating the fit and comfort while meeting the needs of elite athletes in Louisiana, a football basketball golf and pickle ball as well as running and walking.

David Weinberg: Top professional athletes like Harry Kane, Oleksandr Shynchenko, Julius Randle, Terence Mann, Brooke Henderson, Matt Fitzpatrick, Catherine Parenteau, and many others around the world are competing in Skechers and embracing our comfort that performs. This enthusiasm from those at the top of their game is also resonating with consumers and the media, including Shape Magazine, which just named Skechers ViperCorp the best pickleball shoe in their 2024 report, and Sports Illustrated Germany, which featured Harry Kane on the cover wearing our SKX-01 football boots and Skechers performance apparel.

David: Top professional athletes like Hurricane Alexander shouldn't Genco Julius Randle parents Man Brooke Henderson, Matt Fitzpatrick, Catherine parent child, and many others around the world are competing and Skechers and embracing our comfort that performs.

David: This enthusiasm from those at the top of their game is also resonating with consumers and the media, including shape magazine, which just named Skechers Viper Corp. The best Pickle ball shoe and their 2024 report.

David: Sports illustrated Germany, which featured hurricane on the cover wearing a S. K X O one football boots, and Skechers performance apparel.

David Weinberg: The brand and each of these product initiatives are supported by Impactful Marketing Initiatives, be it this year's commercial for the Super Bowl with Mr. T and Tony Romo to our first basketball campaigns with Julius and Terrence. In the quarter, we launched new spots for kids, bobs, max cushioning, and work, all with Skechers hands-free slip-ins. And just last week, we added a new lineup of commercials that includes Skechers UNO with actress Ashley Park and Go Walk Slip-ins and Apparel with TV host Amanda Kloots.

David: Brand in each of these product initiatives are supported by impactful marketing initiatives.

David: This year's commercial for the Super Bowl with Mr. Qi, Tony Romo to a first basketball campaigns with Julia sent turns and.

David: In the quarter, we launched new spots for kids Bob's Max Cushioning and work all with Skechers hands free slippage and just last week, we added a new lineup of commercials that includes Skechers, who know with actress actually Park and go walk slippage in apparel with TV host Amanda Clued.

David Weinberg: Along with these on-air campaigns, we employ a 360-degree marketing approach, reaching consumers at multiple touch points. To achieve the notable growth that we have achieved this quarter and to continue to meet the needs of consumers around the world, it takes the effort and dedication of the entire global Skechers team, our designers and supply chain partners who ensure our product is of the highest quality, and our third-party retailers, whom we have valuable relationships with. We thank each associate, employee, and colleague for working together for our continued success.

David: Along with these on air campaigns, we employ a 360 degree marketing approach, reaching consumers at multiple touch points.

David: So we achieved a notable growth that we have this quarter and to continue to meet the needs of consumers around the world. It takes the effort and dedication of the entire global Skechers team, our designers and supply chain partners, who ensure all product is of the highest quality and our third party retailers, who we have valuable relationships with we think each of them.

David: So she its employee and colleagues for working together for our continued success.

David Weinberg: Looking at our first quarter results, sales increased 12.5% to $2.25 billion. International sales increased 15%, representing approximately 65% of our total sales in the first quarter. And domestic sales increased 7.8%. By region, EMEA increased 17%, AIPAC by 16%, and the Americas by 7.8%.

David: Looking at our first quarter results.

David: Sales increased 12, 5% to 225 billion international sales increased 15%, representing approximately 65% of our total sales in the first quarter and domestic sales increased seven 8%.

David: The region EMEA increased 17% APAC by 16% and the Americas by seven 8%. Additionally, both wholesale and direct to consumer grew nicely in the quarter.

David Weinberg: Additionally, both wholesale and direct-to-consumer grew nicely in the quarter. Our wholesale sales increased 9.8%, reflecting a return to growth in both international at 11% and domestic at 7.7%. Internationally, the increase was due in part to improved inventory positions at certain partners, the growth of our distributors across geographies, and particularly strong sales in China, Germany, and the UK. For domestically, the return to growth was a result of a significant improvement in the flow of orders with both improved ASPs and volume.

David: Our wholesale sales increased nine 8%, reflecting a return to growth in both international at 11% and domestic at seven 7%.

David: Internationally, the increase was due in part to improved inventory position at certain partners the growth of our distributors across geographies and particularly strong sales in China, Germany, and the U K for.

David: For domestic the return to growth was a result of significant improvement in the flow of orders with both improved asps and volume.

David Weinberg: Skechers is in demand by many of our customers around the world, as evidenced by our strong sales. Direct to consumer, which increased 17%, continues to be an important segment of our business and an indicator of positive consumer appetite for our brand.

David: <unk> is in demand by many of our customers around the world as is evidenced by our strong sales.

David: Direct to consumer which increased 17% continues to be an important segment of our business and an indicator of positive consumer appetite for our brand with.

David Weinberg: With growth in nearly every market for both our brick-and-mortar and e-commerce stores, we saw a 24% increase internationally and an 8% increase domestically. We ended the quarter with 5,203 Skechers-branded stores worldwide, of which 1,671 are company-owned locations, including 565 in the United States. We opened 52 company-owned stores in the quarter, including 22 in China, 10 in the United States, five in Colombia, and two in both India and Korea. We closed 29 stores in the quarter. Also, during that period, 95 third-party stores opened, including 54 in China, 9 in Indonesia, and 3 each in Australia, the Philippines, and Turkey.

David: With growth in nearly every market for both our brick and mortar and E. Commerce stores, we saw a 24% increase internationally and an 8% increase domestically.

David: We ended the quarter with 5203, Skechers branded stores worldwide of which 1600 71, our company owned locations, including 565 in the United States.

David: We opened 52 company owned stores in the quarter, including 22 in China 10 in the United States five in Colombia, and two in both India and Korea, We closed 29 stores in the quarter.

David: Also in the period 95 third party stores opened including 54 in China nine in Indonesia, and three each in Australia, the Philippines and Turkey.

David Weinberg: This brings our third-party store count at quarter end to $3,532. In the second quarter so far, we've opened 15 stores, including three company-owned stores in both China and the United States. We expect to open 155 to 170 company-owned stores worldwide over the remainder of 2024. Our record sales in the quarter, along with our efforts to manage inventory levels, resulted in a 9.4% reduction year over year and an 11% reduction from December 31st, 2023.

David: This brings our third party store count at quarter end <unk> 3532.

David: In the second quarter to date, we've opened 15 stores, including three company owned stores in both China and the United States. We expect to open 155 to 170 company owned stores worldwide over the remainder of 2024.

David: Our record sales in the quarter, along with our efforts to manage inventory levels resulted in a nine 4% reduction year over year.

David: And an 11% reduction from December 31, 2023.

David Weinberg: We believe our inventory levels are healthy and comprised largely of proven sellers, fresh innovations, and new product categories. To efficiently manage our inventory flow, we continue to invest in our logistics capabilities, including our new distribution center in Panama, which is expected to be operational in the second quarter, as well as a new company operator, DC, in Colombia, which we plan to move into later this year. To efficiently grow our business worldwide and meet the needs of consumers seeking the ultimate in comfort technology, we continue to invest in our operations, products, and marketing.

David: We believe our inventory levels are healthy and comprised largely of proven sellers fresh innovations and new product categories.

David: To efficiently manage our inventory flow, we continue to invest in our logistic capabilities, including our new distribution center in Panama, which is expected to be operational in the second quarter as well as a new company operated D. C in Colombia, which we plan to move into later this year.

David: To efficiently grow our business worldwide and meet the needs of consumers seeking the ultimate comfort technology, we continue to invest in our operations product and marketing.

David Weinberg: With our numerous accomplishments over the past quarter, we look forward to strategically growing our business in the coming year, as well as in the years ahead. And now, I'd like to turn the call over to John for more details on our financial results. Thank you, David, and good afternoon.

David: With our numerous accomplishments over the past quarter, we look forward to strategically growing our business in the coming year as well as in the years ahead.

David: And now I'd like to turn the call over to John for more details on our financial results.

John M. Vandemore: Thank you, David, and good afternoon, everyone. Skechers delivered another strong quarter of record financial performance, exceeding both our top and bottom line expectations. Our diverse portfolio of high-quality products, combined with our commitment to delivering these products at a reasonable price, clearly resonates with today's consumer. We achieved record sales of $2.25 billion, growing 12.5%, and earnings per share of $1.33, growing 30% year over year. On a constant currency basis, sales were $2.27 billion, and earnings per share were $1.37.

John: Thank you David and good afternoon, everyone Skechers delivered another strong quarter of record financial performance exceeding both our top and bottom line expectation our diverse portfolio of high quality products combined with our commitment to delivering these products at a reasonable price clearly resonates with today's consumer.

John Vandervort: We achieved record sales of 2.25 billion growing 12, 5% and earnings per share of $1 33.

John Vandervort: Growing 30% year over year on.

John: On a constant currency basis sales were 2.2 dollars 7 billion and earnings per share or $1 37.

John M. Vandemore: These results were driven by a healthy recovery in our wholesale segment, particularly in the United States and Europe, and continued momentum in our direct-to-consumer segment. Despite persistent economic headwinds, our performance this quarter underscores the strength of the Skechers brand worldwide and the consumer demand for our innovative products, together driving us towards our goal of achieving $10 billion in sales by 2026. Consumers understand that comfort is no longer a luxury but a requirement that shouldn't come at a cost.

John: These results were driven by a healthy recovery in our wholesale segment, particularly in the United States and Europe and continued momentum in our direct to consumer segment.

John: Despite persistent economic headwinds our performance this quarter underscores the strength of the Skechers brand worldwide and the consumer demand for our innovative products together driving us towards our goal of achieving $10 billion in sales by 2026.

John: Consumers understand that comfort is no longer a luxury but a requirement that shouldn't come at a cost.

John M. Vandemore: Skechers excels where comfort and value intersect, as evidenced by the strength of our global direct-to-consumer business, which grew 17% year-over-year to $829.9 million. These results were driven by double-digit growth in our e-commerce and brick-and-mortar stores and increases of 24% internationally and 8% domestically. Our commitment to prioritizing innovation and supporting this with effective marketing powered these results.

John: Skechers excels, where comfort and value intersect.

John: Evidenced by the strength of our global direct to consumer business, which grew 17% year over year to $829 9 million users.

John: These results were driven by double digit growth in our e-commerce, and brick and mortar stores and increases of 24% internationally and 8% domestically.

John: Our commitment to prioritizing innovation and supporting this with effective marketing powered these results. We remain excited about our omnichannel growth opportunities and we'll continue to deliver on our strategy to expand our direct to consumer presence worldwide.

John M. Vandemore: We remain excited about our omni-channel growth opportunities and will continue to deliver on our strategy to expand our direct consumer presence worldwide. In wholesale, sales increased 9.8% year over year to $1.42 billion, with growth across all regions. As expected, we are seeing a recovery in domestic wholesale, with sales increasing 7.7% versus the prior year. Notably, we experienced a significant improvement in the flow of orders, including customers taking goods earlier within their shipping window.

John: In wholesale sales increased nine 8% year over year to 142 billion with growth across all regions.

John: As expected we are seeing a recovery in domestic wholesale with sales increasing seven 7% versus the prior year, notably we experienced a significant improvement in the flow of orders, including customers taking goods earlier within their shipping windows.

John: International wholesale sales also returned to growth increasing 11% as the inventories congestion impacting certain partners, particularly in Europe abated.

John: We remain encouraged by our wholesale segment, both domestically and internationally and continue to expect year over year growth as we move through the balance of the year.

John M. Vandemore: International wholesale sales also returned to growth, increasing 11% as the inventory congestion impacting certain partners, particularly in Europe, abated. We remain encouraged by our wholesale segments, both domestically and internationally, and continue to expect year-over-year growth as we move through the balance of the year. Now, turning to our regional sales.

John: Now turning to our regional sales.

John: In the Americas sales for the first quarter increased seven 8% year over year to 1.02 billion reflective of the improvements in our domestic wholesale business, which accounted for nearly half of the growth and the continued strength of our direct to consumer segment in.

John: In particular, our domestic direct to consumer business grew at 8%.

John: Although this represents a step down from the robust growth of the prior year on a two year basis. This reflects a remarkable 35% increase in sales.

John M. Vandemore: In the Americas, sales for the first quarter increased 7.8% year over year to $1.02 billion, reflective of the improvements in our domestic wholesale business, which accounted for nearly half of the growth, and the continued strength of our direct consumer segment. In particular, our domestic direct-to-consumer business grew at 8%. Although this represents a step down from the robust growth of the prior year, on a two-year basis, this reflects a remarkable 35% increase in sales.

John: In EMEA sales increased 17% year over year to $627 $7 million driven by double digit growth in both segments with broad strength in nearly every country.

John: Our investments to enhance our distribution infrastructure and direct to consumer experience coupled with our strong wholesale partnerships are producing outstanding results for our EMEA business. We also saw notable performance in our direct to consumer channels with impressive growth across genders and categories ranging from athletic to lifestyle.

John M. Vandemore: In EMEA, sales increased 17% year over year to $627.7 million, driven by double-digit growth in both segments with broad strength in nearly every country. Our investments to enhance our distribution infrastructure and direct-to-consumer experience, coupled with our strong wholesale partnerships, are producing outstanding results for our EMEA business. We also saw notable performance in our direct-to-consumer channels, with impressive growth across genders and categories, ranging from athletic to lifestyle and seasonal products. In Asia-Pacific, sales increased 16% year-over-year to $604.5 million, led by double-digit growth in most markets.

John: And seasonal products.

John: In Asia Pacific sales increased 16% year over year to $604 5 million led by double digit growth in most markets.

John: In China sales grew 13% driven by double digit growth in both our direct to consumer and wholesale segments.

John: In India sales were up slightly as we resolve logistical challenges with our new distribution center, while the regulatory environment and the market is uncertain in the near term we continue to be confident in the growth opportunities for our brand long term.

John: Gross margin was 52, 5% up 360 basis points compared to the prior year.

John: The improvement was driven by lower freight costs and a favorable product mix as consumers sought out our higher margin technology infused products.

John M. Vandemore: In China, sales grew 13%, driven by double-digit growth in both our direct-to-consumer and wholesale sectors. In India, sales were up slightly as we resolved logistical challenges with our new distribution center. While the regulatory environment in the market is uncertain in the near term, we continue to be confident in the growth opportunities for our brand in the long term.

John: Operating expenses increased 150 basis points as a percentage of sales year over year to 39, 2%.

John: Selling expenses increased 50 basis points as a percentage of sales versus last year to 7%, primarily due to increased marketing globally, including investments focused on brand building and driving consumer awareness for our comfort technology products and newly launched categories.

John M. Vandemore: Gross margin was 52.5%, up 360 basis points compared to the prior year. The improvement was driven by lower freight costs and a favorable product mix as consumers sought out our higher margin technology-infused products. Operating expenses increased 150 basis points as a percentage of sales year over year to 39.2%. Selling expenses increased 50 basis points as a percentage of sales versus last year to 7%, primarily due to increased marketing globally, including investments focused on brand building and driving consumer awareness for our comfort technology products and newly launched categories.

John: General and administrative expenses increased 100 basis points as a percentage of sales to 32, 3%, primarily due to higher labor and distribution costs to support growth in our direct to consumer segment and compensation related costs, partially offset by cost efficiencies realized in our U S and Europe.

John: Distribution centers.

John: Earnings from operations were $298 8, million% to 34% increase compared to the prior year and our operating margin for the quarter was 13, 3% compared to 11, 2% last year.

John: Our effective tax rate for the first quarter was 19% compared to 18, 5% in the prior year earned.

John M. Vandemore: General and administrative expenses increased 100 basis points as a percentage of sales to 32.3%, primarily due to higher labor and distribution costs to support growth in our direct-to-consumer segment and compensation-related costs, partially offset by cost efficiencies realized in our U.S. and Europe distribution centers. Earnings from operations were $298.8 million, a 34% increase compared to the prior year, and our operating margin for the quarter was 13.3% Our effective tax rate for the first quarter was 19%, compared to 18.5% in the prior year.

John: Earnings per share were $1 33 per diluted share a 30% increase on 155 1 million weighted average diluted shares outstanding.

John: And now turning to our balance sheet.

John: We ended the quarter with $1 billion to $5 billion in cash cash equivalents and investments an increase of $322 2 million versus the prior year, primarily from improved working capital management and operating efficiency.

John: Inventory was 136 billion, a decrease of nine 4% or $141 6 million compared to the prior year.

John M. Vandemore: Earnings per share were $1.33 per diluted share, a 30% increase on 155.1 million weighted average diluted shares outstanding. Now, turning to our balance sheet. We ended the quarter with $1.25 billion in cash, cash equivalents, and investment, an increase of $322.2 million versus the prior year, primarily from improved working capital management and operating efficiency. Inventory was $1.36 billion, a decrease of 9.4% or $141.6 million compared to the prior year. Notably, we lowered inventory levels in the Americas by 18% and EMEA by 6.9% compared to the prior year.

John: Notably, we lowered inventory levels in the Americas by 18% and EMEA by six 9% compared to the prior year.

John: We believe our current inventory levels are healthy and well positioned to support demand in 2024.

John: Accounts receivable at quarter end were $1 $1 6 billion, an increase of $105 7 million compared to the prior year, reflecting higher wholesale sales.

John: Capital expenditures for the quarter were $57 1 million of which $24 3 million related to investments in new store openings and direct to consumer technologies.

John: $15 6 million related to the expansion of our distribution infrastructure and $7 4 million related to the construction of our new corporate offices.

John: Our capital investments are focused on supporting our strategic priorities, which include growing our direct to consumer segment and expanding our brand presence globally.

John M. Vandemore: We believe our current inventory levels are healthy and well positioned to support demand in 2024. Accounts receivable at quarter end were $1.16 billion, an increase of $105.7 million compared to the prior year, reflecting higher wholesale sales. Capital expenditures for the quarter were $57.1 million, of which $24.3 million related to investments in new store openings and direct-to-consumer technology, $15.6 million related to the expansion of our distribution infrastructure, and $7.4 million related to the construction of our new corporate office.

John: During the first quarter, we repurchased nearly 1 million shares of our class a common stock at a cost of $60 million.

John: We continued to deploy our capital consistent with our stated philosophy, while maintaining a durable balance sheet and ample liquidity.

Speaker Change: Now turning to guidance.

Speaker Change: For the full year of 2024, we expect sales in the range of $8 72, 5 billion to $8 $8 75 billion.

Speaker Change: And net earnings per share in the range of $3 95.

John: Two $4.10, representing annual growth of 10% and 15% respectively at the midpoint.

John M. Vandemore: Our capital investments are focused on supporting our strategic priorities, which include growing our direct consumer segment and expanding our brand presence globally. During the first quarter, we repurchased nearly 1 million shares of our Class A common stock at a cost of $60 million. We continue to deploy our capital consistent with our stated philosophy, while maintaining a durable balance sheet and ample liquidity. Now, turning to guidance.

John: For the second quarter, we expect sales in the range of $2 $1 75 billion to two to two 5 billion and net earnings per share in the range of 85.

John: 90.

John: Earnings per share will be down slightly in the quarter due primarily to the timing of demand creation spending which is typically highest during the second quarter as we amplify consumer awareness for our product portfolio and position our brand for successful summer and back to school periods.

David Weinberg: For the full year 2024, we expect sales in the range of $8.725 billion to $8.875 billion and net earnings per share in the range of $3.95 to $4.10, representing annual growth of 10% and 15%, respectively, at the midpoint. For the second quarter, we expect sales in the range of $2.175 billion to $2.225 billion and net earnings per share in the range of $0.85 to $0.90. Earnings per share will be down slightly in the quarter due primarily to the timing of demand creation spending, which is typically highest during the second quarter, as we amplify consumer awareness for our product portfolio and position our brand for a successful summer and back to school period.

John: We believe this investment is critical to driving growth on a full year basis and one of the reasons why we are fully incorporating this quarter's outperformance into our full year guidance our.

John: Our effective tax rate for the year is expected to be between 19, and 20% and minority interest is expected to grow in line with total sales.

John: Capital expenditures are anticipated to be between 325 and $375 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, including <unk>.

John: <unk>, our second distribution center in China, a 2 million square foot facility, which will likely elevate our capital expenditures this year and next.

John: We remain confident in our objective of achieving $10 billion in sales by 2026 and are well positioned to drive long term earnings growth.

David Weinberg: We believe this investment is critical to driving growth on a full year basis and one of the reasons why we are fully incorporating this quarter's outperformance into our full year guidance. Our effective tax rate for the year is expected to be between 19 and 20%, and minority interest is expected to grow in line with total sales. Capital expenditures are anticipated to be between $325 and $375 million as we continue to invest in our strategic priorities, including opening additional stores, expanding our omni-channel capabilities, and adding incremental distribution capacity in key markets, including constructing our second distribution center in China, a 2 million square foot facility, which will likely increase our capital expenditures this year and next.

Speaker Change: We thank you all for your time today and look forward to updating you on our second quarter financial results, which we expect to release on Thursday July 25th.

Speaker Change: With that I will now turn the call over to David for closing remarks.

David: Thank you John we started the year on a high note by setting new quarterly sales and adjusted diluted earnings per share records with strong gross and operating margins, we delivered results above expectations and further expanded globally with a growing presence in the technical performance space and our innovative comfort footwear continuing to be a must.

John: For shoppers around the world.

John: <unk> is delivering on its fundamental design tenants of style comfort innovation and quality at a reasonable price, which is resonating with shoppers from all walks of life. We believe comfort is a top priority and that casual and athletic are in high demand. While E. Commerce continues to exhibit strength people are also look.

David Weinberg: We remain confident in our objective of achieving $10 billion in sales by 2026 and are well positioned to drive long-term earnings growth. We thank you all for your time today and look forward to updating you on our second quarter financial results, which we expect to release on Thursday, July 25th. With that, I will now turn the call over to David for closing remarks.

John: To engage and shop in our physical stores we.

John: We are committed to delivering high performance comfort technical footwear, while broadening our offering of Skechers hands free slip and developing new looks in our sport Street and casual divisions enhancing the sketches shopping experience at all touch points and operating in an increasingly efficient manner, our extensive product offer.

David Weinberg: Thank you, John. We started the year on a high note by setting new quarterly sales and adjusted diluted earnings-per-share records with strong growth and operating margins. We delivered results above expectations and further expanded globally with a growing presence in the technical performance space and our innovative comfort footwear continuing to be a must-have for shoppers around the world. Skechers is delivering on its fundamental design tenets of style, comfort, innovation, and quality at a reasonable price, which is resonating with shoppers from all walks of life.

John: Best in class partnerships with our distribution network and strong global demand gives us confidence that we will have another record breaking year as we continue to evolve and innovate and move toward our goal of $10 billion in annual sales by 2026.

John: We again want to thank our entire supply chain and the skechers team for delivering another successful quarter.

David Weinberg: We believe comfort is a top priority and that casual and athletic wear is in high demand. While e-commerce continues to exhibit strength, people are also looking to engage and shop in our physical stores. We are committed to delivering high-performance comfort technical footwear while broadening our offering of Skechers' hands-free slip-ins, developing new looks in our sport, street, and casual divisions, enhancing the Skechers shopping experience at all touch points, and operating in an increasingly efficient manner.

Speaker Change: I'd like to take a moment to thank all involved for their continued efforts assisting in delivering these results as we mark our 100th call now I would like to turn the call over to the operator for questions.

John: Actually before turning to the operator I want to take a moment to commemorate this our 100th earnings call as a public company.

John: <unk> began trading on June 919, 99.

John: Many of the employees present that day continue to be deeply involved in the company, including our management team.

David Weinberg: Our extensive product offering, best-in-class partnerships with our distribution network, and strong global demand give us confidence that we will have another record-breaking year as we continue to evolve and innovate and move toward our goal of $10 billion in annual sales by 2026. We again want to thank our entire supply chain and the Skechers team for delivering another successful quarter. I'd like to take a moment to thank all involved for their continued efforts in assisting in delivering these results as we mark our 100th call. Now, I would like to turn the call over to the operator for questions. Actually,

John: Over only one person has been on each and everyone of our earnings calls since going public.

John: As we celebrate today's milestone of our 100th earnings call, we want to take a moment to acknowledge and honor the remarkable commitment of David Weinberg, our chief operating officer.

John: For over 30 years, she has been integral to Skechers success. It is.

John: His dedication has been unwavering.

Speaker Change: So on behalf of Skechers Board of Directors Senior management team and employees worldwide I would like to sincerely. Thank Mr. David Weinberg.

David Weinberg: Actually, before turning to the operator, I want to take a moment to commemorate this, our 100th earnings call as a public company. Skechers began trading on June 9th, 1999.

Speaker Change: I also want to extend a heartfelt gratitude to the many other key contributors to the earnings process.

Unknown Executive: Many of the employees present that day continue to be deeply involved in the company, including our management. However, only one person has been on each and every one of our earnings calls since going public. As we celebrate today's milestone of our 100th earnings call, we want to take a moment to acknowledge and honor the remarkable commitment of David Weinberg, our Chief Operating Officer. For over 30 years, he has been integral to Skechers' success, and his dedication has been unwavering.

Speaker Change: Including Jennifer <unk>, our vice President of corporate communications as well as our dedicated finance accounting and Investor Relations and legal departments, all of whom have contributed to our journey of growth and success as a public company.

Speaker Change: With that said I will now turn the call over to the operator.

Operator: Thank you at this time, we will be conducting a question and answer session.

Speaker Change: I'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

John: You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

Unknown Executive: So, on behalf of the Skechers Board of Directors... Senior Management, and employees worldwide, I would like to sincerely thank Mr. David Weinberg. I also want to extend heartfelt gratitude to the many other key contributors to the earnings process, including Jennifer Clay, our Vice President of Corporate Communications, as well as our dedicated Finance, Accounting, Investor Relations, and Legal Department, all of whom have contributed to our journey of growth and success as a public company. With that said, I will now turn the call over to the operator.

John: And our first question comes from the line of Jay sole with UBS.

Jay Daniel Sole: Please proceed with your question.

Jay Daniel Sole: Great. Thank you so much.

Jay Daniel Sole: My question is just so many positives in Q1.

Jay Daniel Sole: You know really strong guidance raise for the full year. If you could boil down you really what was above your expectations and what really drove the strong results in Q1 to one or two things.

Speaker Change: What would you say.

John: Product.

Speaker Change: Don't we always.

Speaker Change: Yeah, Yeah, I think I think it's the success of the product that's manifest in a stronger domestic wholesale rebound than we had originally anticipated for the quarter.

Unknown Executive: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is busy. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. And our first question comes from the line of Jay Sole with UBS. Please proceed with your question.

Speaker Change: Continued strength on the domestic and international direct to consumer front.

Speaker Change: And a lot of ways the quarter came out how we hoped it would when we started the year. We just didn't have all the data yet that would suggest wed get fully there and I think what youre seeing in the results, which are we would argue some of the broadest strongest results.

Speaker Change: We've seen in a while.

Speaker Change: A reflection of the success of the product across the board.

Speaker Change: Okay, and then maybe John if I can follow up on that just theres a lot of talk in the industry about you know a lot of brands getting more focused on the wholesale channel.

Jay Daniel Sole: Great, thank you so much. My question is just, there were so many positives in Q1, really strong guidance for the full year. If you boil down really what was above your expectations and what really drove the strong results in Q1 to one or two things, what would you say?

John Vandervort: And potentially what the impact of that is on schedule can you just give us a sense of what you see in your order book as you look out through.

David Weinberg: Don't we always? Yeah, I think I think it's

John Vandervort: Through Q2 in two weeks at your visibility through the rest of the year and how you see the wholesale business developing obviously after a.

David Weinberg: Yeah, I think I think it's the success of the product that's manifested in, you know, a stronger domestic wholesale rebound than we had originally anticipated for the quarter, and continued strength on the domestic and international direct-to-consumer front. In a lot of ways, the quarter came out how we hoped it would. When we started the year, we just didn't have all the data yet that would suggest we'd get fully there. I think what you're seeing in the results, which are, we would argue, some of the broadest, strongest results we've seen in a while, is a reflection of the success of the product across the board.

John Vandervort: Very strong quarter.

John Vandervort: Well if you remember as we began the year, we expressed optimism in what we're seeing in our early bookings you see in the domestic wholesale rebound in particular and the returns in Europe.

John Vandervort: That came through I think it's only gotten stronger since then so.

Speaker Change: So I would say again kind of echoing David's original comment on the back of the product that we're delivering the innovation that we're bringing to the market as well as entry into some newer categories for us we continue to see really healthy signs on the wholesale front, we expect that to then carry through throughout the year.

David Weinberg: Okay. And maybe, Jen, I can follow up on that. Just there's a lot of talk in the industry about, you know, a lot of brands getting more focused on the wholesale channel, and potentially what the impact of that is on Skechers. Can you just give us a sense of what you see in your order book as you look out through Q2 and, you know, to the extent you have visibility through the rest of the year and how you see the wholesale business developing, obviously, after a very strong quarter.

John Vandervort: And so I think again speaks to the broad strength in the brand right now.

Speaker Change: Okay. Thank you so much.

Speaker Change: Thanks Jay.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Laurent <unk> with BNP Paribas. Please proceed with your question.

Laurent: Good afternoon, and thank you very much for taking my question and congrats.

Laurent: The rays and David for your hundreds call.

Laurent: And to many more calls together.

Speaker Change: Uh huh.

Laurent: I wanted to ask last quarter, I think you kind of called out the whole sales should grow high single digits for the year.

David Weinberg: Well, if you remember, as we began the year, we expressed optimism about what we were seeing in our early bookings. You see, the domestic wholesale rebound, in particular, and the returns in Europe, that came through. I think it's only gotten stronger since then. So I would say, again, kind of echoing David's original comment on the back of the product that we're delivering, the innovation that we're bringing to the market, as well as, you know, entry into some newer categories for us, we continue to see really healthy signs on the wholesale front. We expect that to then carry through throughout the year. And so that, I think, again, speaks to the broad strength of the brand right now.

Laurent: Should we assume that grows low double digits now.

Laurent: Can you maybe parse out how do we think about domestic versus international wholesale for the year.

Laurent: Right now, we're anticipating that the wholesale.

Laurent: Segment will grow kind of mid to high single digits.

Speaker Change: Again, we're seeing really encouraging signs in our wholesale activity our order book as well as just the sell through that we're seeing we're seeing also some really good success with partners who have come to fully embrace.

Speaker Change: Our comfort technology product suite, and so I would suggest to you that we're likely to see something between mid to high single digits. I do think the power for that is going to come from the international side of the business, but we're incredibly pleased with what we saw in domestic coal, but wholesale you said at the beginning of the year.

Jay Daniel Sole: Okay, thank you.

Jay Daniel Sole: Okay, thank you so much.

Laurent Andre Vasilescu: Our next question comes from the line of Laurent Vasilescu with BNP Paribas. Please proceed with your question.

Speaker Change: We are confident we would see some rebound in the first half of the year, we've seen it in the first quarter.

Laurent Andre Vasilescu: Good afternoon. Thank you very much for taking my question, and congratulations on the beat, the raise, and David for your 100th call and many more calls together. John, I wanted to ask you about the last quarter. I think you kind of called out that wholesale should grow high single digits for the year. Should we assume that it grows low double digits now? And if that's the case, can you maybe parse out how we think about domestic versus international wholesale for the year?

Speaker Change: At about 8%.

Speaker Change: I expect that we'll see some in the second quarter as well and then <unk>.

Speaker Change: On the current booking window, we're starting to receive orders and they all continue to suggest that things will continue to grow which is which is a great position for the brand demand.

Speaker Change: But that's good to hear John.

Speaker Change: 10-K calls out that youre going to embark on a multiyear ERP implementation for the audience.

Speaker Change: Can you maybe talk about the Opex and Capex investments embedded in your guide for this year's ERP I know, it's the first year.

John M. Vandemore: Right now, we're anticipating that the wholesale segment will grow kind of in the mid to high single digits. Again, we're seeing really encouraging signs in our wholesale activity, our order book, as well as just the sell-through that we're seeing. We're also seeing some really good success with partners who have come to fully embrace our comfort technology product suite.

Speaker Change: And then longer term once you complete this ERP, where do you think the opportunity is for the operating margin.

Speaker Change: For the company.

Speaker Change: Yeah.

Speaker Change: We're taking your last bit of a question first I mean, nothing has diminished our enthusiasm for our opportunity to get first into the double digit total double digits that we've spoken about obviously, a 13% operating margin operating margin. This quarter was exceptional we're incredibly pleased with that.

John M. Vandemore: And so I would suggest to you that we're likely to see something between mid and high single digits. I do think the power for that is going to come from the international side of the business, but we're incredibly pleased with what we saw in domestic wholesale. You said at the beginning of the year we were confident we would see some rebound in the first half of the year. We saw it in the first quarter at about 8%.

Speaker Change: Still working for this year to get to get into the double digits I would say the implementation for the ERP as well as a lot of other things we're doing in the company speak to our intent to continue to grow this brand to that $10 billion and beyond.

Speaker Change: It's one of many investments we are making regularly too.

Speaker Change: The opportunity that extends from everything in the system the stores the distribution and wanted to reality. So I would consider at all part of a suite of investments, we're making across the globe.

John M. Vandemore: I expect that we'll see some in the second quarter as well. And then, beyond the current booking window, we're starting to receive orders, and they all continue to suggest that things will continue to grow, which is a great position for the brand to be in.

Speaker Change: To continue to drive this business because we believe again as we've said before 10 billion as a waypoint not the ending point, we will continue to grow this brand beyond that I would say from a capital from an Opex perspective, it's all embedded in what we've given you and what we will give you going forward. So that we don't we don't have to talk about these irregular items.

Laurent Andre Vasilescu: Fantastic. It's good to hear.

Laurent Andre Vasilescu: John, your 10-K calls out that you're going to embark on a multi-year ERP implementation. For the audience, can you maybe talk about the OpEx and CapEx investments embedded in your guide for this year's ERP implementation? I know it's the first year.

Speaker Change: As adjustments, we'd rather just embed them into the into the guidance and Theyre fully encapsulated in what we've given you.

John M. Vandemore: And then, longer term, once you complete this ERP system, where do you think the opportunity is for the operating margin for the company?

Speaker Change: That's great and then just as a final question you talked about.

John M. Vandemore: Well, taking your last bit of the question first, I mean, nothing has diminished our enthusiasm for our opportunity to get, you know, first into those double digits, those little double digits that we've spoken about. Obviously, a 13% operating margin this quarter was exceptional. We're incredibly pleased with that. Still working for this year to get into the double digits.

Speaker Change: Product.

Speaker Change: Today's press release, you talked about.

Speaker Change: Signing up three MLB players you've entered you've entered basketball I'm cured global football should we assume that you're going to enter.

Speaker Change: Hum.

Speaker Change: The baseball category I don't know if you can comment on anything about MBS wearing skechers shoes as of late that would be great. Thank you very much.

John M. Vandemore: I would say, you know, the implementation of the ERP, as well as a lot of other things we're doing in the company, speak to our intent to continue to grow this brand to that $10 billion and beyond. It's one of many investments we are making regularly to improve the opportunity that extends from everything in the system, the stores, and the distribution functionality. So, I would consider it all, you know, part of a suite of investments we're making across the globe to continue to drive this business because we believe, you know, again, as we've said before, $10 billion is a waypoint.

Speaker Change: Yeah, we're going to continue obviously, it's a great starting point for us and it's a.

Speaker Change: Part of what we believe will take us out further in the next couple of years.

Speaker Change: For both the brand and additional category.

Speaker Change: We think it's great that joelle as wearing shoes is trying around is testing them out we've had a great relationship with him.

Speaker Change: We have nothing to announce today, but we will I believe shortly.

Speaker Change: As you work through this but you know that's coming he.

Speaker Change: It's obviously more involved right now in the playoffs and.

Speaker Change: Sure. He is worrying about tonight's game more than he is worried about any announcements or anything like that but right now it seems very comfortable when the shoes, it's great that he's wearing them.

John M. Vandemore: It's not the ending point. You know, we will continue to grow this brand beyond that. I would say, from a capital, from an OPEX perspective, it's all embedded in what we've given you and what we will give you going forward. So, we don't have to talk about these irregular items as adjustments. We'd rather just embed them into the guidance, and they're fully encapsulated in what we've given

Speaker Change: But we've got great great results from Julius Randle, who we're sorry is missing because it would have been great in the playoffs. He was playing great talents is playing great issues. There's other people we're talking to our football business continues to grow we have actually signed a cricket player as we move forward and sponsoring the Mumbai Indians.

Laurent Andre Vasilescu: That's great and then just as a final question you talked about that it's about product you know in today's press release you talked about the signing up three MLB players you've entered you've entered basketball you've entered global football should we assume that you're going to enter the baseball category and I don't know if you can comment of anything about NBA wearing Skechers shoes as of late that would be great thank you very much

Speaker Change: As we go forward is as the teams. So we're moving into a modest sports a lot of categories Baseball. As you mentioned, we think its all positive for the brands, where people's understanding of the quality and intensity, we developed choose with and how comfort comfortable they are even though they are made very very well and compete at the highest level. So we think that's it.

Speaker Change: All positive for the brand, but right now that's just building for the future. The success today comes from what exist today, what we continue to bring forward.

David Weinberg: Yeah, we're going to continue. Obviously, it's a great starting point for us, and it's part of what we believe will take us out further in the next couple of years for both the brand and the additional category. We think it's great that Joel is wearing the shoes. He's trying them out, he's testing them out.

Speaker Change: Our styling, we continue to invest in the product more so than I believe anybody else in our industry. It shows it's part of the answers you'll get about wholesale and direct to consumer it's all about product brand identity and all of those things are fitting together and feels very very good right now.

David Weinberg: We've had a great relationship with him. We have nothing to announce today, but we will, I believe, shortly as he works through this. But, you know, that's coming.

Speaker Change: That's great to hear thank you so much.

Speaker Change: Thank you. Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

James Vincent Duffy: Thank you great job the Skechers team very clear evidence of a share gain and otherwise to co market David.

David Weinberg: He is obviously more involved right now in the playoffs, and I'm sure he's worrying about tonight's game more than he's worried about any announcements or anything like that, but right now, he seems very comfortable in his shoes. It's great that he's wearing them, but we've got great, great results from Julius Randle, who we're sorry is missing, because it would have been great in the playoff He was playing great.

James Vincent Duffy: Phenomenal run 100 earnings calls that's a lot of time dealing with the sell side my sympathies.

Speaker Change: So let me know.

James Vincent Duffy: Let me just start on China I Wonder if you ask a question about distribution center capacity. There, we only began to ramp the prior triangle do you see in 2021.

David Weinberg: Terrence is playing great in his shoes. There are other people we're talking to. Our football business continues to grow. We've actually signed a cricket player as we move forward in sponsoring the Mumbai Indians as we go forward as a team. So we're moving into a lot of sports, a lot of categories, like baseball, as you mentioned.

Speaker Change: Im guessing growth in China.

Speaker Change: Then below what you might've forecast I'm curious where this.

Speaker Change: Additionally, trying to DC takes your capacity and how you've thought about that.

Speaker Change: Well originally.

Speaker Change: The first distribution center was not to take care of all the volume. So we knew we were under utilized when it was finished we use a lot of third parties.

David Weinberg: We think it's all positive for the brand, for people's understanding of the quality and intensity we develop shoes with and how comfortable they are, even though they're made very, very well and compete at the highest level. So we think that's all positive for the brand, but right now, that's just building for the future. The success today comes from what exists today, what we continue to bring forward, our styling. We continue to invest in the product more so than I believe anybody else in our industry.

Speaker Change: Logistics people in China, because it's spread out and done we are now taking a bigger piece of.

Speaker Change: That distribution facility.

Speaker Change: Using our app for our own use so we think when this new facility is done we will have some excess capacity.

Speaker Change: But you know we'll use it throughout the big holidays, because it was never meant to do a complete job on singles day, which is an outside so we will do bigger percentages and gain more efficiencies as we move through and grow into the second building and I think it should set us up very very well to be significantly more efficient.

David Weinberg: It shows. It's part of the answers you'll get about wholesale and direct to consumer. It's all about product brand identity, and all those things are fitting together and feel very, very good right now. That's great to hear.

David Weinberg: With our online and direct to consumer businesses in China.

Laurent Andre Vasilescu: That's great to hear. Thank you so much.

Speaker Change: Great. Thanks, John can you speak to the P&L impact from that investment should we expect.

James Vincent Duffy: Thank you. Our next question comes from the line of Jim Duffy with STIFO. Please proceed with your question.

James Vincent Duffy: Thank you. Great job by the Skechers team, very clear evidence of a share gain in an otherwise difficult market. And David, that's a phenomenal run, 100 earnings calls. That's a lot of time dealing with the sell side. My sympathies are with you for that.

John Vandervort: Delevering contribution as.

Speaker Change: As you begin investments there ahead of <unk>.

John Vandervort: Kelly.

Speaker Change: The capacity.

Kelly: Well that wont really hit until at the earliest 2025 potentially 2026, we're just starting so the current spend is largely capital in nature.

James Vincent Duffy: Let me, let me just start on China. I wanted to ask a question about distribution center capacity there. You only began to ramp up the prior China-DC in 2021. I'm guessing growth in China since then has been below what you might have forecast. I'm curious where this additional China-DC takes your capacity and how you thought about that.

Kelly: Echo Davids comment, though what we've seen in China from the first distribution centers pretty similar to what we see across the globe in that once the capacities installed we get more and more efficient as we utilize the capacity as we learned to utilize it better as we adapt to the market one of the benefits of a a little bit of a slowdown.

David Weinberg: Well, originally, the first distribution center was not meant to take care of all the volumes, so we knew we were underutilized when it was finished. We used a lot of third parties, logistics people in China, because it's spread out and done. We are now taking a bigger piece of that distribution facility, using it for our own use. So we think when this new facility is done, we will have some excess capacity, but we'll use it throughout the big holidays because it was never meant to do a complete job on single-stake, which is an outsize.

Kelly: Host Covid in China was it actually allowed us to absorb more of that third party serviced demand into our own DC. So we actually saw a little bit of an acceleration in the efficiency gain in China than would otherwise have been the case, because we had the ability to absorb more of that capacity internally, but but I would say, it's largely going to be at $25 26 event before we see.

Kelly: Any of those startup costs come into play.

David Weinberg: So we'll do bigger percentages and gain more efficiency as we move through and grow into the second building, and I think it should set us up very, very well to be significantly more efficient with our online and direct-to-consumer businesses in China.

Kelly: But even when we had that with the existing distribution center. If it wasn't really extraordinary you'll recall, we didn't we didn't talk about it a lot because it didn't really factor sizeable into our results and that's that's our current expectation, although as we get closer we'll refine that and provide perspective as needed.

John M. Vandemore: Great, thanks. And John, can you speak to the P&L impact from that investment? Should we expect a de-levering contribution as you begin investing there ahead of scaling into the capacity?

John: Very good and then just a quick modeling detail question you spoke to elevated demand creation in the second quarter.

John: Should that be a give back in.

Speaker Change: This back half of the year or is that simply timing of demand creation relative to the prior year.

John M. Vandemore: Well, that won't really hit until the earliest 2025, potentially 2026. We're just starting, so the current spend is largely capital in nature. I would echo David's comment though.

John: That's it's a little bit of both to be honest as we mentioned I think about the midpoint of last year, we feel that's incredibly important for our message of innovation, particularly around our comfort technologies to be out in the marketplace and one of those we're leading with and as a result supporting with a lot of marketing.

John M. Vandemore: What we've seen in China from the first distribution center is pretty similar to what we see across the globe in that once the capacity is installed, we get more and more efficient as we utilize the capacity, as we learn to utilize it better, and as we adapt to the market. One of the benefits of a little bit of the slowdown post-COVID in China was that it actually allowed us to absorb more of that third-party service demand into our own data center.

Speaker Change: <unk> is the Skechers hands free slip in technology of which we're seeing a lot of copycat work today. So we want to make sure. We get out ahead of that and firmly brand that technology as skechers. So I would argue a little bit of it is timing as Q2 is always our most intense period at a little bit it is incremental investment to make sure.

John M. Vandemore: So we actually saw a little bit of an acceleration in the efficiency gains in China than would otherwise have been the case because we had the ability to absorb more of that capacity internally. But I would say it's largely going to be a 2025, 2026 event before we see any of those startup costs come into play. But even when we had that with the existing distribution center, it wasn't really extraordinary. If you recall, we didn't talk about it a lot because it didn't really factor sizably into our results. And that's our current expectation, although as we get closer, we'll refine that and provide perspective as we go.

Speaker Change: Sure within the consumers' perception of that technology.

Speaker Change: Solidly understood, it's a skechers comfort technology and not one that can be easily replicated elsewhere.

Speaker Change: Very good. Thank you John Thank you David.

Speaker Change: Thanks, Jim.

Speaker Change: Thank you. Our next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

Speaker Change: Good afternoon. This is krista zuber on for John and Congrats David I'm, just two questions for US. Thanks first on I'm really just asp's and.

Speaker Change: Kind of the expectation for the balance of this year, you know you're lapping some.

John M. Vandemore: Very good. Then just a quick modeling detail question. You spoke to elevated demand creation in the second quarter. Should that be a give-back in the back half of the year? Or is that simply timing of demand creation relative to the prior year?

Krista Kerr Zuber: Easier wholesale asps in Q2, and Q3, but a little bit more challenging on the D. S. The DTC side of things. So just kind of how you're expecting that to play out for the balance of the year and then I just have one and a follow up on the slip and thank you.

John M. Vandemore: It's a little bit of both, to be honest; as we mentioned, I think about the midpoint of last year, we feel it's incredibly important for our message of innovation, particularly around our comfort technology, to be out in the marketplace. And one of those we're leading with, and as a result, supporting with a lot of marketing, is the Skechers hands-free slip-in technology, of which we're seeing a lot of copycat work today.

Speaker Change: Yeah, I would say this year is going to be more about volume than price.

Speaker Change: We will see and expect some elevation in asps, although not nearly what we've seen over the last couple of years that that's largely going to stem from product mix, we continue to see consumers choosing within our portfolio.

Speaker Change: Higher value comfort technology laden products, and that's actually driving asps.

John M. Vandemore: So we want to make sure we get out ahead of that and firmly brand that technology as Skechers. So I would argue a little bit of it is timing, as Q2 is always our most intense period. A little bit of it is an incremental investment to make sure that within the consumer's perception of that technology, you know, it's solidly understood that it's a Skechers comfort technology and not one that can be easily replicated elsewhere.

Speaker Change: From anything were doing from a pricing perspective, so I would expect that that much more of this year's drive in sales is going to come from from units. We will again, we'll see a little bit of asps in there, but not a ton.

Speaker Change: Yeah.

Speaker Change: Okay, Great and then just on the slippage technology, you know you've mentioned in the past that.

Speaker Change: There's a there's an opportunity here to think about category expansion with this technology and just kind of any sort of.

John M. Vandemore: Very good. Thank you, John. Thank you, David.

John David Kernan: Thank you. Our next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

Speaker Change: Framing that you can give around the sort of the margin profile from this innovation that it for I think the kind of 14 from the comfort technology be it slipping as arch fit et cetera, and how that's kind of playing out within the total product line at this point. Thank you.

Krista Kerr Zuber: Good afternoon. This is Krista Zuber on for John, and congrats, David.

John M. Vandemore: Just two questions for us, thanks. First, on really just ASPs and kind of the expectation for the balance of this year. You know, you're lapping some easier wholesale ASPs in Q2 and Q3, but it's a little bit more challenging on the DTC side of things. So just kind of how you're expecting that to play out for the balance of the year. And then I just have one follow-up on the slip-ins. Thank you.

John M. Vandemore: Yeah, I think you are largely seeing that now I mean, it's been coincident with some reductions in landed costs stemming from freight.

Speaker Change: Rates coming back to normal, but also evidenced in the gross margin performance. We've delivered over the last couple of years is that that higher value again technology laden product I expect you'll continue to see a little bit of gravitation up on the gross margin coming from product and business mix of DTC.

John M. Vandemore: Yeah, I would say this year is going to be more about volume than price. We will see and expect some elevation in ASPs, although not nearly as much as we've seen over the last couple of years. That's largely going to stem from product mix. We continue to see consumers choosing within our portfolio the higher-value comfort technology-laden products, and that's actually driving ASPs, apart from anything we're doing from a pricing perspective. So I would expect that much more of this year's drive in sales is going to come from units. We will, again, see a little bit of ASP in there, but not a ton.

Speaker Change: Grows faster than wholesale you see some benefit from that.

Speaker Change: So I think that's largely kind of in both what you've seen recently and what Youll continue to see we will begin to lap that so there won't be as pronounced a lift coming just from from product.

Speaker Change: I would also say I think the the design team continues to certainly exceed everybody's expectations with how widely and deeply they've been able to install that technology and products. You would you would never even dream of.

Speaker Change: Benefiting from some of that technology, it's becoming quite prevalent.

Krista Kerr Zuber: Okay, great. And then just on the slip-ins technology, you know, you've mentioned in the past that, you know, there's an opportunity here to, you know, think about category expansion with this technology, just kind of any sort of Thank you.

Speaker Change: And then kind of a second iteration design manifestation of the technology as it just keeps getting better and so I think it's one of the reasons why we.

Speaker Change: We believe this is a technology really a feature that can be employed broadly across the spectrum of our product portfolio that will endure for a very long time.

John M. Vandemore: Yeah, I think you're largely seeing that now. I mean, it's been coincident with some reductions in landed costs stemming from freight. Rates coming back to normal, but also evidence in the gross margin performance we've delivered over the last couple of years is that higher-value, again, technology-laden product. I expect you'll continue to see a little bit of gravitation up on the gross margin coming from product and business mix as DTC grows faster than wholesale.

Speaker Change: Thank you best of luck.

Speaker Change: Thank you. Our next question comes from the line of Rick Patel with Raymond James. Please proceed with your question.

Speaker Change: Thank you and good afternoon, and congrats on the strong performance in the Super impressive milestone David.

Rakesh Babarbhai Patel: Can you unpack the performance of domestic wholesale being up seven 7% a little bit further.

Rakesh Babarbhai Patel: What are you seeing what you see as being the primary driver of that rebound is it higher volume within the same accounts are you broadening accounts that you can launch new products.

John M. Vandemore: You're seeing some benefit from that, so I think that's largely in both what you've seen recently and what you'll continue to see. We will begin to lap that, so there won't be as pronounced a lift coming just from product. I would also say the design team continues to certainly exceed everybody's expectations with how widely and deeply they've been able to install that technology. You would never even dream of benefiting from some of that technology.

Rakesh Babarbhai Patel: Secondly, you alluded to orders coming in a little bit earlier than you expected does that mean that we should be modeling a slower growth rate in the second quarter. Just some color on the shape of growth for this year would be great. As we think about wholesale growing mid to high single digits for the year.

John M. Vandemore: I think the biggest factor most immediately was we've seen more wholesale customers embraced the technology.

John M. Vandemore: It was this time last year as we really started to proliferate some of our comfort technologies in our own stores you know not everybody in the wholesale world was equipped are poised to be able to take advantage of that and I think what you're really seeing is.

John M. Vandemore: It's becoming quite prevalent, and then kind of the second iteration design manifestation of the technology, it just keeps getting better. And so I think it's one of the reasons why we believe this is a technology, really a feature that can be employed broadly across the spectrum of our product portfolio that will endure for a very long time. Thank you.

Krista Zuber: Post a pretty decent holiday they were open to buy.

John M. Vandemore: Buying in and then that also supporting with with marketing and price.

Krista Kerr Zuber: Thank you. Best of luck to you.

Rakesh Babarbhai Patel: Thank you. Our next question comes from the line of Rakesh Patel with Raymond James.

Rakesh Babarbhai Patel: Those technologies and they've sold through really well so really what I think we saw more than anything else was not new orders as much as an acceleration of existing orders you know customers wanting products sooner to fulfill what what it sold out.

Rakesh Babarbhai Patel: Thank you. Good afternoon, and congrats on the strong performance and the super impressive milestone, David.

Rakesh Babarbhai Patel: Can you unpack the performance of domestic wholesale being up 7.7% a little bit further? What do you see as being the primary driver of that rebound? Is it higher volume within the same accounts? Are you broadening accounts as you launch new products? And secondly, you alluded to orders coming in a little bit earlier than you expected. Does that mean that we should be modeling a slower growth rate in the second quarter? A different color on the shape of growth for this year would be great as we think about wholesale growth in the mid to high single digits for the year.

Rakesh Babarbhai Patel: As we said all of last year, you know, we always saw really good price sustainability, we saw good margins.

Rakesh Babarbhai Patel: Inventories were lean I think we're starting to finally see the benefit of that as well.

Speaker Change: Some of the partners out there.

Speaker Change: Glen's themselves.

Rakesh Babarbhai Patel: The inventory issues. They were they were suffering from last year.

Rakesh Babarbhai Patel: I think that will continue.

Speaker Change: As we said at the beginning of the year you know we knew the first half of the year would grow I think you can probably expect at this point.

Rakesh Babarbhai Patel: A similar level of growth on the second quarter in domestic wholesale well see it always boils down in the second quarter, and particularly to the timing of shipments towards the end.

John M. Vandemore: I think the biggest factor, you know, most immediately was that we've seen more wholesale customers embrace the technology. You know, it was this time last year that we really started to proliferate some of our comfort technologies in our own stores. But not everybody in the wholesale world was equipped or poised to be able to take advantage of that.

Speaker Change: As accounts start to stock up for back to school, but right now I'd say again, we continue to see optimistic signals in that would that would lead us to expect in the second quarter are pretty similar level of growth.

Speaker Change: It is important to remember that.

John M. Vandemore: All of this happens.

Speaker Change: Primarily based on sell through performance of the product that they're seeing now so we'll go back to the original piece as well.

David Weinberg: And I think what you're really seeing is, you know, post a pretty decent holiday, they were open to buying in and also supporting with marketing and prices for those technologies, and they've sold through really well. So really, what I think we saw more than anything else was not new orders as much as an acceleration of existing orders, you know, customers wanting products sooner to fulfill what had sold out. As we said all of last year, you know, we always saw really good price sustainability.

Speaker Change: All the good things happen when the consumer likes the product and it comes in in shops and moves through it. So it starts from sell throughs sell throughs against available inventory sell throughs against what you have purchased already where you're open to buy sits and manipulation of and we're seeing more positive pieces of that around.

David Weinberg: Can you also help us with the puts and takes of gross margins going forward aside from the DTC outperformance, what's the right way to think about freight does that remain a benefit in the second quarter and how do you expect to exit the year on freight just given the volatility we've seen in the freight rates.

David Weinberg: We saw good margins. You know, inventories were lean. And we're starting to finally see the benefit of that as some of the partners out there, you know, cleanse themselves of the inventory issues they were suffering from last year. And so I think that will continue. As we said at the beginning of the year, you know, we knew the first half of the year would grow. I think you can probably expect, at this point, a similar level of growth in the second quarter in domestic wholesale.

Speaker Change: Yes, we don't expect a lot further from this we I think we'd always said that Q1 was the last quarter, where you'd see a significant contribution from freight.

Speaker Change: If anything right now as you look forward, although freight rates are stable generally certainly there is some impact observed in a European routes because of the Red Sea situation. We don't think that'll be a big impact, but I think it speaks to the fact that rates have kind of returned to normal now we don't expect that to be a significant driver either.

David Weinberg: We'll see. It always boils down in the second quarter, in particular the timing of shipments toward the end as accounts start to stock up for, you know, back to school. But right now, I'd say again, we continue to see optimistic signals, and that would lead us to expect a pretty similar level of growth in the second quarter.

David Weinberg: A positive or a negative influence on gross margin I think what youre going to continue to see us benefit from us that channel mix as well as product mix.

Speaker Change: Very helpful. Thanks, very much.

John M. Vandemore: You know, I think it's important to remember that all of this happens primarily based on the sell-through performance of the product that they're seeing now. So you go back to the original piece, all the good things happen when the consumer likes the product and comes in and shops and moves through it. So it starts from sell-throughs, sell-throughs against available inventory, sell-throughs against what you have purchased already, where you're open to buy, and manipulation of, and we're seeing all positive pieces of that around.

Speaker Change: Thanks, Rick.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Adrienne <unk> with Barclays. Please proceed with your question.

Speaker Change: Great. Thank you very much and let me add my congratulations fabulous start to the year.

Speaker Change: My first question is similar on the input costs. So they're afraid sort of starts to expire, but I'm wondering if you have visibility on your non freight input costs and through the year end and then my second question is on the demand creation spend how should we think about dollar growth in tier two realm.

Rakesh Babarbhai Patel: Can you also help us with the puts and takes of gross margins going forward? Aside from the DTC outperformance, what's the right way to think about freight? You know, does that remain a benefit in the second quarter? And how do you expect to exit the year on freight just given the volatility we've seen in the freight rates? Yeah, we don't expect a lot.

Rakesh Babarbhai Patel: Q3, Q4, Q, but more importantly.

Speaker Change: It sounds like its a brand awareness and owning the technology have you baked in within that midpoint of 10% sounds great have you baked in more sales growth from the incremental AD spend or is this more sort of moving that technology brand awareness and if there is any upside it's on top of that thank you. So much.

John M. Vandemore: Yeah, we don't expect a lot further from this. I think we've always said that Q1 was the last quarter where you'd see a significant contribution from freight. If anything, right now, as you look forward, although freight rates are stable, generally, certainly there's some impact observed on, you know, kind of European routes because of the Red Sea situation. We don't think that'll be a big impact, but I think it speaks to the fact that, you know, rates have kind of returned to normal now.

John M. Vandemore: In terms of input costs, we don't see anything thats quite frankly worth commenting on.

John M. Vandemore: With regards to our our projections. So the honest answer is nothing really worth discussing there's always moving here and there.

Speaker Change: With input costs, FX et cetera, but at this juncture, we don't see any of that having a material impact on our either product level margins, our overall gross margins.

John M. Vandemore: I would say on the marketing.

John M. Vandemore: We don't expect that to be a significant driver either of, you know, a positive or a negative influence on gross margin. I think what you're going to continue to see us benefit from is that channel mix as well as product mix.

John M. Vandemore: It is the quarter in which we lean in it typically is.

John M. Vandemore: A couple of hundred basis points higher than average and I think that's kind of the quantum you can expect.

John M. Vandemore: In terms of sales I would say it certainly factors into our projection, but it really is spend that benefits the entirety of the year. So it's not really just about aligning Q2 sales with the marketing as we said on the call one of the reasons we flow through the upside that we did to the full year guide is the marketing is out there it's worth.

Rakesh Babarbhai Patel: Very helpful. Thanks very much.

Adrienne Yee: Thank you. Our next question comes from the line of Adrienne Yee with Barclays. Please proceed with your question.

Adrienne Yee: Great, thank you very much, and let me add my congratulations on a fabulous start to the year. My first question is similar on the input costs, so freight sort of starts to expire, but I'm wondering if you have visibility on your non-freight input costs through the year end. And then my second question is on the demand creation spend; how should we think about dollar growth in 2Q relative to 3Q and 4Q? But more importantly, it sounds like it's about brand awareness and owning the technology.

Adrienne Yee: We continue to excel in this category of comfort technology in general and our hands free slip ins in particular and so the spend in the quarter will benefit the entirety of the balance of the year. So there's not really a one to one correlation that being said, we always try to construct.

Adrienne Yee: Guidance, such that there's a more likely than not chance, we can we can meet or exceed that.

Adrienne Yee: Have you baked in within that midpoint of 10% sales growth, have you baked in more sales growth from the incremental ad spend, or is this more sort of owning that technology, brand awareness, and if there is any upside, it's on top of that?

Adrienne Yee: Q2 does depend highly on the timing of shipments out of the backend as accounts take stock of where they need to be for back to school.

Adrienne Yee: So I would say if anything I'm, probably slightly more optimistic about about what we can do in the quarter, but we want to see a little bit more of the quarter materialize before we before we make any decided calls on that yeah I should point out from my perspective.

John M. Vandemore: Thank you so much.

John M. Vandemore: In terms of input costs, we don't see anything that's, quite frankly, you know, worth commenting on with regard to our projections. So the honest answer is nothing really worth discussing.

John M. Vandemore: It's the.

John M. Vandemore: The advertising spend is definitely anticipatory, we try to anticipate where we have potential significant growth in those territories that are growing to try to field them. We usually try to take it from those places that are flattening out or showing some deterioration for whatever reason, but we have no deteriorating marketplace. This now.

John M. Vandemore: There's always, you know, movement, you know, here and there, you know, with input costs, FX, etc. But at this juncture, we don't see any of that having a material impact on either product-level margins or overall gross margins. I would say on marketing, you know, it is the quarter in which we lean in. It typically is, you know, a couple hundred basis points higher than average. I think that's kind of the quantum you can expect.

John M. Vandemore: That we need to go go into so when we anticipate around the world for our growth and we have a lot of white space, we're investing upfront and we do anticipate that it comes back at a later time it may be third quarter fourth quarter and beyond.

David Weinberg: In terms of sales, I would say, you know, it certainly factors into our projection, but it really is spend that benefits the entirety of the year. So, it's not really just about aligning Q2 sales with marketing. As we said on the call, one of the reasons we flowed through the upside that we did to the full-year guide is because the marketing is out there, and it's working. We continue to excel in this category of comfort technology in general, and our hands-free slip-ins in particular.

David Weinberg: But that's what drives our international business. So it is a reflection of what we see out there the demand the white space in what space, We think we can.

David Weinberg: Continue to absorb so.

David Weinberg: It does reflect our thought process on going forward on what it'll do for sales.

Speaker Change: It's great to see a company playing offense. These days so congrats.

David Weinberg: Yeah.

David Weinberg: Thank you. Our next question comes from the line of Tom <unk>.

David Weinberg: Nick.

Speaker Change: What was your Securities. Please proceed with your question.

John M. Vandemore: And so, the spend, you know, in the quarter will benefit the entirety of the balance of the year. So, there's not really a one-to-one correlation. That being said, you know, we always try to construct our guidance such that there is a more likely than not chance we can meet or exceed that. Q2 does depend highly on the timing of shipments out of the back end as accounts take stock of where they need to be for back to school.

Speaker Change: Hey, guys. Thanks for taking my question.

John M. Vandemore: Congratulations.

John M. Vandemore: Yeah.

John M. Vandemore: 100 earnings calls.

John M. Vandemore: Hopefully we hear you on the good work.

Speaker Change: Okay.

Speaker Change: I'll, let my Doctor and you said that [laughter].

John M. Vandemore: [laughter].

Speaker Change: I wanted to ask about China.

John M. Vandemore: You know China has been.

John M. Vandemore: Pretty solid quarter for St.

John M. Vandemore: Quarters of double digit growth.

John M. Vandemore: The compelling.

John M. Vandemore: You don't get more difficult in China and.

Speaker Change: Yes, some of them macro headlines coming out of China seem a bit mixed.

Speaker Change: How should we think about.

John M. Vandemore: So I would say, if anything, I'm probably slightly more optimistic about what we can do in the quarter, but we want to see a little bit more of the quarter materialize before we make any definitive calls on that.

John M. Vandemore: The growth opportunities in China for.

John M. Vandemore: For the rest of the year.

Speaker Change: Well first I'd start off by reiterating what you implied which as you know.

John M. Vandemore: The story for US continues to be one of a pretty strong recovery all things considered.

John M. Vandemore: Incredibly pleased with what we saw in China This quarter and it reflects a lot of work by our team there to succeed despite some of the challenges that persist as we look at the balance of the year. We remain cautiously optimistic that we'll continue to see more of that recovery.

David Weinberg: Yeah, I should point out from my perspective, the advertising spend is definitely anticipatory. We try to anticipate where we have potential significant growth in those territories that are growing to try to feel them. We usually try to take it from those places that are flattening out or showing some deterioration for whatever reason, but we have no deteriorating marketplaces now that we need to go into. So when we anticipate growth around the world, and we have a lot of white space, we're investing upfront, and we do anticipate that it comes back at a later time.

David Weinberg: Keep in mind, China as a growth market. We think it has a lot of opportunity long term for the brand and so when you look at compare as it's not as much of the story as it would be in a more mature market because the brand has a lot of runway some of the product. That's just getting introduced into China has a long runway. So we remain cautiously optimistic we do acknowledge the fee.

David Weinberg: Fact that it's a market in recovery and still have some work to do to kind of fully flush out some of the issues, but I would also over market despite that over the last year year and a half.

David Weinberg: It may be the third quarter, the fourth quarter, or beyond, but that's what drives our international business. So it is a reflection of what we see out there, the demand, the white space, and what space we think we can continue to absorb. It does reflect our thought process going forward on what it will do for sales. It's great to see a

David Weinberg: We've continued to see really good growth and so we.

David Weinberg: We remain optimistic, albeit cautiously about the future.

Speaker Change: Understood if I could.

Adrienne Yee: It's great to see a company playing offense these days, so congrats.

David Weinberg: Just kind of got a little bit of a.

Tom Nikic: Thank you. Our next question comes from the line of Tom Nikic with Weather Bush Securities. Please proceed with your question.

Adrienne Yee: Modeling my new shop.

Tom Nikic: John I think you gave the store opening plan earlier can you give us how many stores you plan to close this year. So we can get that sort of thing.

Tom Nikic: Hey guys, thanks for taking my question, and David, congratulations on hitting 100 Earnings Calls. Hopefully, we'll hear you on 101.

Tom Nikic: Our store openings for the year.

Tom Nikic: Okay.

Tom Nikic: Yeah, we don't we don't give that out specifically I mean, my my objective would be to not close any stores because we like them all to be continuing to contribute I would say when we when we put together that guidance. We do incorporate some expectation. So the number we give is attempting to get to a net number again keep in mind when we're talking about stores, it's much more.

David Weinberg: I'll let my doctor know you said that.

Tom Nikic: I wanted to ask about China. So, you know, obviously, China's been pretty solid the last couple quarters. I think we've had four straight quarters of double-digit growth.

Tom Nikic: Important for us.

John M. Vandemore: The comparisons, you know, get more difficult in China. And, you know, some of the macro headlines coming out of China seem a bit mixed. What should we think about, you know, the growth opportunities in China for the rest of the year?

Tom Nikic: To open the right store and not just a store. So we will always want to continue to exercise the discipline about making sure. We're opening the right store for us.

John M. Vandemore: And that's something we will continue to continue to do.

Speaker Change: Understood Alright, thanks, very much and best of luck the rest of the year.

John M. Vandemore: Well, first, I'd start off by reiterating what you implied, which is that the China story for us continues to be one of a pretty strong recovery, all things considered. We're incredibly pleased with what we saw in China this quarter, and it reflects a lot of work by our team there to succeed, despite some of the challenges that persist. As we look at the balance of the year, we remain cautiously optimistic that we'll continue to see more of that recovery.

Speaker Change: Thanks, Tom.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of just laying along with Evercore. Please proceed with your question.

John M. Vandemore: Okay.

John M. Vandemore: Hi, David Hi, John Congrats on a good set of quota.

John M. Vandemore: Just wanted to dig a little bit in mind to Rick's question Leah domestic wholesale orders.

John M. Vandemore: This quarter it seems to be a positive surprise there.

John M. Vandemore: Keep in mind, China's a growth market. We think it has a lot of opportunity long-term for the brand, and so when you look at the comparisons, it's not as much of a story as it would be in a more mature market because the brand has a lot of runway. Some of the product is You know, just getting introduced into China has a long runway. So, you know, we remain cautiously optimistic. We do acknowledge the fact that it's a market in recovery and still has some work to do to kind of fully flush out some of the issues. But I would also remark that, you know, despite that, over the last year, year and a half, we've continued to see really good growth. And so. We remain optimistic, albeit cautiously, about the...

John M. Vandemore: But when we got into mid single digits high single digits.

John M. Vandemore: <unk> in terms of our estimates.

John M. Vandemore: And the other part it's on operating.

Speaker Change: Operating margins last quarter, you called out operating margin for this year.

John M. Vandemore: Well, it's up 25 basis points away from long term target, but given such a strong first quarter, how should we be thinking about operating margin.

John M. Vandemore: Yes.

John M. Vandemore: Okay.

Speaker Change: Yeah on the on the wholesale front you know again, the timing comes into play pretty significantly in the second quarter. So I think that's part of why you will see that that range and are incorporated in guidance.

Tom Nikic: If I could just ask a little bit of modeling minutiae, John, I think you gave the store opening plans earlier. Can you give us how many stores you plan to close this year so we can get to sort of a net store openings for the year?

John M. Vandemore: Again, I would also acknowledge the first quarter came in stronger than we originally thought so that was a good surprise if that trend continues we will definitely be towards the higher end of that range, but again, we're getting cognizant effect it.

John M. Vandemore: We don't we don't give that out specifically. I mean, my objective would be to not close any stores, because we'd like them all to continue to contribute. I would say when we put together that number, guys, we do incorporate some expectations. So the number we give is, you know, attempting to get to a net number. Again, keep in mind, you know, when we're talking about stores, it's much more important for us to open the right store and not just a store. So we'll always want to continue to exercise the discipline of making sure we're opening the right store for us. And that's something we'll continue to continue to do.

Tom Nikic: When you get into kind of the end of June.

John M. Vandemore: It's it can be it's just a timing difference between Q2 and Q3, so we like to put a range on it to keep.

John M. Vandemore: Things realistic given what we've seen but but we are seeing really good trends and you know again beyond Q2, we are seeing good trends for the balance of the year as well in terms of the operating margin again look our goal has been to get.

John M. Vandemore: Back into the double digits.

John M. Vandemore: We've said that's our goal I would say certainly this quarter gives us more optimism about our ability to achieve that for the year. It is still our objective we still have a lot of levers to pull and actions to take to help drive that.

John M. Vandemore: There really isn't anything.

John M. Vandemore: Out there that gives us pause for concern, but I don't want to I don't want to declare victory until we're closer to the year, but we're certainly optimistic about that that progression.

Tom Nikic: Okay. All right. Thanks very much and best of luck the rest of the year. Thanks, Tom.

Jessalyn Wong: Thank you. Our next question comes from the line of Jessalyn Wong with Evercore. Please proceed with your question.

Jessalyn Wong: Alright, maybe just a last question on EMEA seems to be holding up very well any additional color on exit trends that.

Jessalyn Wong: Hi David, hi John, congrats on a good set of quarters. I'm just wanting to dig a little bit more into Rick's question earlier.

Jessalyn Wong: With the strength that we have seen even throughout the quarter and how should we think about second quarter and second half.

Jessalyn Wong: Domestic wholesale orders, you know, up 8% this quarter seems to be a positive surprise there, but yet we're only guiding to mid-single digits to high single digits. How conservative are they in terms of our estimates? And the other part is on... Operating Margins. Last quarter, you called out operating margins for this year to be guideposts of 200 basis points away from the long-term target, but given such a strong first quarter, how should we be thinking about operating margins for this year?

Speaker Change: Yes, I mean, it was great probably.

Jessalyn Wong: Probably the most significant surprise for US was the continued strength on the direct to consumer side in Europe. So.

Jessalyn Wong: The side of our business that's closest to the consumer in that market, which certainly has had its share of challenges over the course of last two years.

Jessalyn Wong: Performed exceptionally well for us.

Jessalyn Wong: Strong demand for the products strong demand for our copper technologies.

Jessalyn Wong: We recognize it's a dynamic environment, we're watching the consumer just as carefully as everybody else, but but what we saw in the quarter was highly encouraging relative to our business in that market.

John M. Vandemore: Yeah, on the wholesale front, you know, again, the timing comes into play pretty significantly in the second quarter. So I think that's part of why you'll see that range in our incorporated guidance. Again, I would also acknowledge that the first quarter came in stronger than we originally thought. So that was a good surprise.

John M. Vandemore: We're certainly expecting continued growth there I think if we're going to see kind of an outsized growth element to the remainder of the year, it's probably going to come from the international DTC side of things and we expect Europe to be a contributor to that.

Speaker Change: Alright, thank you.

John M. Vandemore: If that trend continues, we'll definitely be toward the higher end of that range. But again, we've got to be cognizant of the fact that when you get into kind of the end of June, it's... It can be just a timing difference between Q2 and Q3.

Speaker Change: Thank you.

John M. Vandemore: Our next question comes from the line of Christopher <unk> with Bank of America. Please proceed with your question.

Speaker Change: Thanks, guys. Good afternoon I was wondering if you could provide an update on the trends youre seeing in your India business given some of the recent regulation uncertainty in the market you can comment maybe how larger businesses today and what your manufacturing capacity looks like relative to the demand youre seeing.

Jessalyn Wong: So we like to put a range on it to keep things realistic, given what we've seen, but we are seeing really good trends. And again, beyond Q2, we're seeing good trends for the balance of the year as well. In terms of the operating margin, you know, again, look, our goal has been to get back into the double digits. We've said that's our goal. I would certainly say this quarter gives us more optimism about our ability to achieve our targets for the year.

Speaker Change: Yeah, we don't we don't size markets, but I would say India is certainly one of our bigger international markets, it's kind of a standalone country.

Jessalyn Wong: And more importantly, we think one of the bigger opportunities long term the regulatory environment. It is what it is in the marketplace. We did see a short term relaxation of some of the recently enacted regulatory limitations on importation.

Jessalyn Wong: It's still our objective. We still have a lot of levers to pull and actions to take to help drive that. And there really isn't anything out there that gives us pause for concern, but I don't want to declare victory until we're closer to the year, but we're certainly optimistic about that progression.

Jessalyn Wong: Not long term dose. So it continues to be an issue we deal with.

Jessalyn Wong: We have objectives to continue to manufacture more and more product in India. The issue in the short term is simply the capacity of that market to bear it and that's not a skechers issue in all honesty.

John M. Vandemore: Alright, maybe just the last question on email. Email seems to be holding up very well. Any additional color on exit trends there, with the strength that we have seen even throughout the quarter, and how should we think about the second quarter and second half of the year? Yeah, I mean, I mean, it was great, um, probably the most significant.

John M. Vandemore: That's an industry wide issue and Thats something we continue to work on with our manufacturing partners.

John M. Vandemore: So it's something we'll continue to watch I was pleased that India came up a little bit in the quarter.

John M. Vandemore: Because it has also had some influences from macro concerns and now they are involved with the world's largest election, which which takes an awful long time to get done.

John M. Vandemore: Yeah, I mean, it was great. Probably the most significant surprise for us was the continued strength on the direct-to-consumer side in Europe. So, you know, the side of our business that's closest to the consumer in that market, which certainly has had its share of challenges over the course of the last two years, has performed exceptionally well for us. You know, strong demand for the products, strong demand for our comfort technologies. You know, we recognize that it's a dynamic environment.

John M. Vandemore: No.

John M. Vandemore: We're cautiously optimistic about what we'll see over the balance of the year, but the regulatory scheme is ultimately going to need to be resolved for the benefit of Skechers <unk> and the broader community of footwear and apparel providers before we have full clarity and kind of the near term runway, but again long term.

John M. Vandemore: Market, we continue to be enthusiastic about and we'll be visiting.

John M. Vandemore: In a month.

Speaker Change: Thanks, John that's very helpful. And then just quick follow up on your international business more broadly can you help frame what inning. We're in in terms of rolling out your slipped in technology across markets.

John M. Vandemore: We're watching the consumer just as carefully as everybody else, but what we saw in the quarter was highly encouraging, you know, relative to our business in that market. And, you know, we're certainly expecting continued growth there. I think if we're going to see kind of an outsized growth element for the remainder of the year, it's probably going to come from the international DTC side of things. And we expect Europe to be a contributor to that.

John M. Vandemore: Oh, we tuck in baseball or cricket or we're talking about.

John M. Vandemore: I'm joking.

John M. Vandemore: Look I think it's early but I would argue it may even be early for the United States. We don't you know this is a fantastic technology, that's resonating with consumers.

John M. Vandemore: Has a lot of runway, we're incorporating it into more and more products I think in a unique way that will appeal to consumers.

John M. Vandemore: And so I would say whichever measure you choose to use it. It's early stages I would also though mentioned Chris that you know, it's not just about skechers hands free slip into this isn't.

Jessalyn Wong: All right, thank you. Thank you. All right.

John M. Vandemore: Yeah, we don't we don't size markets. But I would say, you know, in India, certainly, one of our bigger international markets is kind of a standalone country. And more importantly, you know, we think one of the bigger opportunities long term, the regulatory environment, you know, it is what it is in the marketplace. We did see a short-term relaxation of some of the recently enacted regulatory limitations on importation. It's not long term, though.

John M. Vandemore: In isolation, it's the portfolio of technologies, we're bringing forward.

John M. Vandemore: Our Max Cushioning, our arch fit you know, it's our concentration on on wide width for individuals who have that need our hyper burst technology I mean, there's a lot to it and I would say, we're continuing to press those advantages and develop more for both domestic as well as the international market is definitely more room to.

John M. Vandemore: To go on the international side.

John M. Vandemore: Due to the timing of the Rollouts, but it's hard to call a specific percentage complete at this juncture because.

John M. Vandemore: So it continues to be an issue we deal with. We have objectives to continue to manufacture more and more products in India; the issue in the short term is simply the capacity of that market to bear it. And that's not a Skechers issue.

John M. Vandemore: We're continuing to surprise ourselves, sometimes on how that technology can be deployed in different products in different ways.

John M. Vandemore: And it's important to remember that its only a feature.

John M. Vandemore: In all honesty, that's an industry-wide issue, and that's something we continue to work on with our manufacturing partners. So you know, it's something we'll continue to watch. I was pleased that, you know, India came up a little bit in the quarter because it's also had some influences from, you know, macro concerns, and now they're involved with, you know, the world's largest election, which takes an awful long time to get done.

John M. Vandemore: And more as importantly, or more importantly is the whole brand identity. All the categories. We compete in and all the product we bring forward that we continue to.

John M. Vandemore: Showcase and move into new categories with it as you know we're going into technical athletics that may or may not have a piece that you'll use some of the features and not others, but all of our comfort features going into a myriad of <unk>.

John M. Vandemore: And it's important to keep expanding the brand expanding the categories expanding our design capacities to be available for everyone and use all not a specific but all of this technology is available to us and all of the technologies we continue to.

John M. Vandemore: And so we're cautiously optimistic about what we'll see over the balance of the year, but the regulatory scheme is ultimately gonna need to be resolved for the benefit of Skechers and the broader community of footwear and apparel providers before we have, I think, full clarity on kind of the near-term runway. But again, long-term, a great market we continue to be enthusiastic about, and we'll be visiting in a month. Thanks, Sean. That's very helpful.

John M. Vandemore: To invent for lack of a better word will bring to the marketplace to enhance our comfort in something that's stylish and that everybody wants to wear.

Speaker Change: Thank you.

John M. Vandemore: Our next question comes from the line of Alex strained with Morgan Stanley. Please proceed with your question.

Sean: Great. Thanks, so much and congrats again on a nice quarter.

John M. Vandemore: And just a quick follow-up on your international business more broadly. Can you help frame what inning we're in in terms of rolling out your slip-in technology across markets? Are we talking baseball or cricket or... I'm joking. Look, I think it's early, but I would argue, in my opinion,

Sean: I wanted to zoom in on the first quarter gross margin looks like a lot of that expansion came from wholesale up over 500 basis points. So can you just talk through why that part of the business is hitting highs and how to think about the right kind of gross margin level for <unk> going forward.

John M. Vandemore: Yes, I think Alex we've talked about the disparity between this year and last year relative to the the impact of a lot of our comfort technologies.

David Weinberg: And it's important to remember that it's only a feature, and more, as importantly, or more importantly, is the whole brand identity. All the categories we compete in, and all the product we bring forward that we continue to showcase and move into new categories with, it's, you know, we're going into technical athletics that may or may not have a piece that we use some of the features and not others, but all of our comfort features go into a myriad of product, and it's important to keep expanding the brand, expanding the categories, expanding our design capacities to be available for everyone and use all, not a specific, but all of the technologies available to us, and all the technologies we continue to to invent, for lack of a better word, or bring to the marketplace to enhance our comfort in something that's stylish and that everybody wants to wear. Thank you. Our next question.

Speaker Change: Just earlier and so there werent as many and Thats why we disproportionately benefited in the wholesale side of things on the domestic and international DTC side of things, we're able to put that product into play earlier and obviously it it did quite well.

David Weinberg: On the.

David Weinberg: The other way to think about it is the DTC because it's under our total control is almost always the leading edge for us and so we're able to impact that business much more quickly.

Speaker Change: And our wholesale side of things be it pricing be it.

Speaker Change: Any other aspect of the business seating and so we saw that benefit DTC and a more pronounced way last year, and we're seeing kind of wholesale catch up particularly this quarter.

Speaker Change: Great and then maybe just bigger picture on gross margin stepped up so much from from pre Covid levels, maybe where you think that kind of settles over time is this the new kind of right level or is it come down from here.

John M. Vandemore: Yeah, I think, Alex, we talked about the disparity between this year and last year relative to the impact of a lot of our comfort technologies. It was just earlier, and so there weren't as many, and that's why we disproportionately benefited on the wholesale side of things. On the domestic and international DTC side of things, we were able to put that product into play earlier, and obviously, it did quite well. The other way to think about it is that DTC, because it's under our total control, is almost always the leading edge for us.

John M. Vandemore: We'll continue to look for opportunities to drive gross margin I think on a year over year basis, clearly there'll be some uplift because we had.

John M. Vandemore: More of the freight in play in the first quarter last year.

John M. Vandemore: So that was just naturally accrete, but also as we grow our direct to consumer business at an outsized pace.

John M. Vandemore: Relative to our wholesale that allows for continued accretion and so I think over the near term we would expect it continue to go up, albeit not at the leaps and bounds we've seen over the last couple of years at a more modest pace as it's about the mix of business mix of product rather than influences from freight or other major input costs are less.

John M. Vandemore: We're able to impact that business much more quickly than our wholesale side of things, be it pricing, be it any other aspect of the business, or seating. We saw that benefit DTC in a more pronounced way last year, and we're seeing wholesale catch up, particularly this quarter.

John M. Vandemore: And then maybe just the bigger picture on gross margins since they've stepped up so much from pre-COVID levels, maybe where you think that kind of settles over time? Is this the new kind of right level? Or is it coming down from here? Well, we'll continue to look for opportunities to drive gross margin. I think on a year over year basis, there'll be some uplift because, you know, we had more freight in play in the first quarter last year. So that was naturally a creep. But also, as we grow our direct to consumer business.

John M. Vandemore: Unless something changes.

John M. Vandemore: Yeah.

Speaker Change: Thanks, So much good luck guys.

Speaker Change: Thanks, Doug.

John M. Vandemore: Yeah.

Speaker Change: Thank you.

John M. Vandemore: Our next question comes from the line of Sam Poser with Williams trading. Please proceed with your question.

Speaker Change: Hey, guys. Thank you very much.

Speaker Change: David we've known each other a long time.

John M. Vandemore: The.

Speaker Change: So so so just let me just follow up on the gross margin I mean, how should we think I mean.

Speaker Change: Can you give us like.

John M. Vandemore: Our neighborhood of how Youre thinking about gross margin for this year and I'm not going to be up 360 bps, but I mean, what can you give us a range of what we're looking for for the year.

John M. Vandemore: Thank you. And our next question comes from the line of Sam Poser with Williams Trading. Please proceed with your question.

Samuel Marc Poser: Again, I'd say, if we're going to continue to drive at North This year this quarter was.

Samuel Marc Poser: Hey guys, thank you very much. David, we've known each other a long time.

Samuel Marc Poser: With higher definitely then we expect over the balance of the year.

Samuel Marc Poser: So, just let me just follow up on the gross margin. I mean, how should we think? Can you give us, like, a neighborhood of how you're thinking about gross margin for this year and not just up 360 bps. But I mean, what, you know, can you give us a range of what we're looking for for the year?

Samuel Marc Poser: We'd love to see it up 100, 150 basis points, but theres a lot of mix that can come into play there. So it's kind of the range of the neighborhood I'd start out with but keep in mind as we see the business unfold as we see.

Samuel Marc Poser: The business balance out over the rest of the year.

John M. Vandemore: You know, again, I'd say if we're going to continue to drive it north, this year, this quarter was, you know, higher definitely than we expect over the balance of the year. You know, I think we'd love to see it up 100, 150 basis points, but there's a lot of mix that can come into play there. So it's kind of the range of the neighborhood I'd start out with.

Samuel Marc Poser: Any change I mean, one of the one of the things that I'm always cautious of as you.

John M. Vandemore: No. Sam is we have tremendous success in our distributor business, which is a great operating margin business. It could have an effect of dragging down gross margins a bit but again thats an incredibly lucrative operating margin business. So we're not really intent on playing the gross margin game per se overall.

John M. Vandemore: We really focus on what kind of constructed margins are we getting out of the product and out of the accounts and then let the business kind of blend into the into the increased margin, but but if I had to give a number it would be at 100 150 basis point range at this point.

John M. Vandemore: But keep in mind, you know, as we see the business unfold, as we see, you know, the And then, you know, if we can get this business balanced out over the rest of the year, you know, that may change. I mean, one of the things that I'm always cautious of, as you know, Sam, is that we have tremendous success in our distributor business, which is a great operating margin business. It could have the effect of dragging down gross margins a bit.

Speaker Change: Thank you and then.

John M. Vandemore: You talked about the timing of the year and this is Paul.

John M. Vandemore: Truly a year because many of your your big wholesale accounts had their 50 <unk> week last year, which means that the one of the biggest weeks of back to school actually falls into the second quarter, where it fell into the third quarter of last year.

John M. Vandemore: But again, that's an incredibly lucrative operating margin business. So we're not really intent on playing the gross margin game, you know, per se at all. We really focus on, you know, what kind of constructed margins are we getting out of the product and out of the accounts and then let the business kind of blend into the increased margin. But if I had to give a number, it would be that 100-150 basis point range at this point.

John M. Vandemore: Which makes them a little more.

John M. Vandemore: Like we need goods earlier than later kind of situation to make sure that they get set up properly for back to school.

John M. Vandemore: Is that included in your number I know June June 30th versus July for switches everything.

Samuel Marc Poser: Thank you, and then you talked about the timing of the year, and this is a peculiar year because many of your big wholesale accounts had their 53rd week last year, which means that one of the biggest weeks of back-to-school actually falls into their second quarter, where it fell into the third quarter last year, which makes them a little more Like, we need goods earlier than later kind of situation to make sure that they get set up properly for back-to- Is that included in your number?

John M. Vandemore: I mean as far as I'm concerned it looks a little less likely this year that legacy is more likely the one goods earlier than later for back to school.

Speaker Change: Yes, that's just a really tough decision to call for someone so what we've given as our current expectation based on the the way the shipping Windows are set up and the order flow again I would comment we saw improvements this quarter from earlier deliveries certainly feasible that we'd see that in the second quarter, but not.

Samuel Marc Poser: I know, you know, June 20 and June 30 versus July 1, which is everything. But, as far as I'm concerned, it looks a little less likely this year that, like, it seems more likely they'll want goods earlier than later for back.

Samuel Marc Poser: Certain and until we start to see some action on actually adjusting shipping windows.

Speaker Change: We're not going to incorporate that fully into the end of the guidance, but Q2 Q3 is always a I know I know you all care about it a lot we really don't care too much as long as the shipment goes out at one point or another and we get it in the hands of our customers, who can get it to our consumers and it can sell through because thats.

John M. Vandemore: Yeah, that's just a really tough decision to call for someone. So, you know, what we've given is our current expectation based on the way the shipping windows are set up and the order flow. Again, I would comment that we saw improvements this quarter from earlier deliveries. It is certainly feasible that we'd see that in the second quarter, but not certain. And until we start to see some action on actually adjusting shipping windows, we're not going to incorporate that fully into the guidance.

John M. Vandemore: To David's point earlier that that's the ultimate arbiter of how much business will be able to do and we continue to see really strong sell throughs.

Speaker Change: Thanks, and then one last thing.

John M. Vandemore: The gross margin that you've been running.

John M. Vandemore: Especially on the wholesale side, but in general it to me it looks like can you talk a little bit about how over the years I think you've improved in sort of measuring demand your inventories in good shape and you know.

John M. Vandemore: But, you know, Q2, Q3 is always a, I know, I know you all care about it a lot. But we really don't care too much as long as the shipment goes out at one point or another. And we get it in the hands of our customers, who can get it to our consumers, and it can sell through because, to David's point earlier, that's the ultimate arbiter of how much business we'll be able to do. And we continue to see really strong sales.

John M. Vandemore: I mean, how much of that has played a part but outside of <unk>.

John M. Vandemore: Mix in currency and various other things.

John M. Vandemore: How much is sort of sort of.

Samuel Marc Poser: And then one last thing, you know, the gross margin that you've been running, especially on the wholesale side, but, in general, it looks like, can you talk a little bit about how, over the years, I think you've improved in sort of measuring demand and keeping your inventories in good shape. And, you know, it. I mean, how much of that has played a part outside of, you know, mix and currency and various other things. And where does that go?

John M. Vandemore: Sort of a turtle processes be evolution of internal processes.

Samuel Marc Poser: Change them.

Samuel Marc Poser: And where is that going.

Samuel Marc Poser: Yes, I think youre seeing the results of a lot of work on margin not just at the product level. All the product team has been integral to that as well.

Samuel Marc Poser: Making sure you are.

Samuel Marc Poser: Our promotional strategy as you know properly applied that your discount structures are properly arranged.

Samuel Marc Poser: And for US because we are operating on our direct to consumer business alongside with many of the similar styles and products that remaining maintaining price integrity in that channel. So it's not just one thing it's a lot of concerted effort to make sure that we're getting the right merchandise.

John M. Vandemore: Yeah, I think you're seeing the results of a lot of work on margin, not just at the product level, although the product team has been integral to that as well. You know, it's about making sure your promotional strategy is properly applied, and your discount structures are properly arranged. And for us, because we're operating our direct-to-consumer business alongside many of the similar styles and products, we're maintaining price integrity in that channel.

John M. Vandemore: Margin for our product, but it's also the innovation. The innovation is certainly something we've seen pay off at the consumer level consumers willing to contribute more to get the value of that comfort technology. So it's a combination of a lot of factors you're right to point out it's not just one thing.

John M. Vandemore: So, you know, it's not just one thing. It's a lot of concerted effort to make sure that we're getting the right merchandise margin for our product. But it's also, you know, innovation. Innovation is certainly something we've seen pay off at the consumer level. I mean, the consumer is willing to contribute more to get the value of that comfort technology. So it's a combination of a lot of factors. You're right to point out it's not just one thing. But it takes a lot of effort internally to align every aspect of our business around driving increasingly better profitability.

John M. Vandemore: But it's a lot of effort internally to align every aspect of our business around driving increasingly better profitability.

Speaker Change: Thanks, very much continued success.

Speaker Change: Thanks Sam.

Speaker Change: Thank you and we have reached the end of the question and answer session. Therefore. This also does conclude today's conference and you may disconnect. Your lines at this time thank.

Speaker Change: Thank you for your participation.

John M. Vandemore: [music].

Samuel Marc Poser: Thanks very much. Continued success. Thanks, everyone.

Unknown Executive: Thank you. And we have reached the end of the question and answer session, and therefore, this also concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Title Microsoft Office Word Document MSWordDoc Word Document.8

Unknown Executive: Okay.

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