Q2 2024 Skechers U.S.A. Inc Earnings Call
Greetings and welcome to Skechers second quarter 2024 earnings conference call. At this time all participants are on a listen-only mode.
Speaker Change: A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Skechers. Thank you. You may begin.
Operator: At this time, all participants are on a listen-only basis. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Skechers. Thank you. You may begin. Howdy, everyone. Thanks for joining Skechers' second quarter 2024 earnings conference call. My name is Jared Dollarbrook.
Jared Dollarbrook: I'm a senior product manager on the product development team here at Skechers, and I've been with the company since starting as an intern in 2017. My favorite style is the Snoop One OG sneaker from our Snoop Dogg collab. Also joining us on the call are Skechers' Chief Operating Officer, David Weinberg, and Chief Financial Officer, John Vandemore. Before we begin, I would like to remind everyone of the company's Safe Harbor Statement. Certain statements made on today's call contain forward-looking statements based on current expectations, including, without limitation, statements addressing the beliefs, plans, objectives, estimates, and expectations of the company and its future results in certain events.
Jared Dollarbrook: Howdy, everyone. Thanks for joining Skechers' second quarter 2024 earnings conference call. My name is Jared Dollarbrook. I'm a senior product manager on the product development team here at Skechers, and I've been with the company since starting as an intern in 2017. My favorite style is the Snoop One OG sneaker from our Snoop Dogg collab.
Speaker Change: Also joining us on the call are Skechers' Chief Operating Officer, David Weinberg, and Chief Financial Officer, John Vandemore. Before we begin, I would like to remind everyone of the company's Safe Harbor Statement.
Jared Dollarbrook: These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially from those expressed in such statements. 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.
Speaker Change: Certain statements made on today's call contain forward-looking statements based on current expectations, including, without limitation, statements addressing the beliefs, plans, objectives, estimates, and expectations of the company and its future results in certain events.
Speaker Change: These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially from such statements.
Speaker Change: 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.
Jared Dollarbrook: Please refer to the company's reports filed with the SEC, including its annual report on Form 10-K and quarterly reports on Form 10-Q, for more information on these risks and uncertainties 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. Good afternoon, and thank you for joining us today in our second quarter, 2024.
Speaker Change: Please refer to the company's reports filed with the SEC, including its annual report on Form 10-K and quarterly reports on Form 10-Q , for more information on these risks and uncertainties that may affect the company's business, financial conditions, cash flows, and results of operations.
Speaker Change: With that, I would like to turn the call over to Skechers Chief Operating Officer, David Weinberg.
Jared Dollarbrook: The second quarter marked another sales record for the period. Sales were $2.16 billion, an increase of 7.2%, or $145 million compared to last year. On a constant currency basis, sales were $2.19 billion, an increase of $8.7 billion. Gross margins were 54.9%.
David Weinberg: Good afternoon and thank you for joining us today on our second quarter 2024 conference call.
David Weinberg: The second quarter marked another sales record for the period.
David Weinberg: Sales were $2.16 billion, an increase of 7.2%, or $145 million compared to last year. On a constant currency basis, sales were $2.19 billion, an increase of 8.7%.
David Weinberg: 220 basis point. We're also pleased to announce a new $1 billion share repurchase plan, which replaces and significantly enhances our assistance program. The record second quarter sales are particularly noteworthy given supply chain disruptions impacting shipments to Europe. Difficult and Price-Driven 618 Shopping Event in China and Foreign Currency Headlines. However, strong global demand for our comfort and innovative products drove our record sales, resulting in growth across all regions and segments. The infusion of comfort technologies such as Skechers hands-free slip-ins within our diverse product offering from the Snoop Dogg collection and Skechers Go Golf to Skechers Go Walk and Kids resonated with consumers of Skechers hands-free slip-ins are just one of our many comfort innovations, which also includes Skechers ArchFit, Skechers Air-Cooled Memory Foam, Hyperburst, and many more.
David Weinberg: Gross margins were 54.9%, a 220 basis point increase.
David Weinberg: We're also pleased to announce a new $1 billion share repurchase plan which replaces and significantly enhances our existing program.
David Weinberg: The record second quarter sales are particularly noteworthy given supply chain disruptions impacting shipments to Europe , a difficult and price-driven 6-18 shopping event in China, and foreign currency headwinds.
David Weinberg: Strong global demand for our comfort and innovative products drove our record sales, resulting in growth across all regions and segments.
David Weinberg: The infusion of comfort technologies such as Skechers hands-free slip-ins within our diverse product offering from the Snoop Dogg collection and Skechers Go Golf to Skechers Go Walk and Kids resonated with consumers of all ages and interests.
David Weinberg: We have recently expanded this comfort and convenience feature to additional product categories.
David Weinberg: Skechers hands-free slip-ins is just one of our many comfort innovations, which also includes Skechers ArchFit, Skechers air-cooled memory foam, Hyperburst, and many more. All of which are part of our being, the Comfort Technology Company.
David Weinberg: All of which are part of our being, the Comfort Technology Company. We have successfully partnered with industry technology leaders like Goodyear to further enhance our product offer. We also announced a new partnership with John Deere. The footwear incorporates the iconic John Deere branding with Skechers comfort technology. The perfect blend of innovation and rugged style. In our performance category, we collaborated with our elite athletes and product testers to elevate the fit and technologies across the division.
David Weinberg: We have successfully partnered with industry technology leaders like Goodyear to further enhance our product offering. We also announced a new partnership with John Deere. The footwear incorporates the iconic John Deere branding with Skechers comfort technologies.
David Weinberg: The perfect blend of innovation and rugged style.
David Weinberg: In our performance category, we collaborated with our elite athletes and product testers to elevate the fit and technologies across the division.
David Weinberg: No matter where you train or compete, and regardless of your skill level, you can trust that you are equipped with comfort that performs. Recently, athletes have competed on global stages wearing Skechers football boots, including Golden Boot winner Harry Kane for England and Oleksandr Synchenko for Ukraine, both at the Euros, and Bobby Reed for Jamaica at Copa America.
David Weinberg: No matter where you train or compete, and regardless of your skill level, you can trust that you are equipped with comfort that performs.
Speaker Change: Recently, athletes competed on global stages wearing Skechers football boots, including Golden Boot winner Harry Kane for England and Oleksandr Synchenko for Ukraine, both at the Euros, and Bobby Reed for Jamaica at Copa America.
David Weinberg: This weekend, we will continue to see athletes competing. They include Skechers ambassador and Philadelphia 76ers star Joelle Embiid, as well as Canadian golfer Brooke Henderson, British golfer Matt Fitzpatrick, and Spanish race walker Diego Garcia. American Beach Volleyball Duel, Andy Benesch and Miles Partain will be playing in Skechers branded footwear. The Malaysian Olympic team will also be wearing Skechers footwear during the opening ceremony and for daily use during the Games. With football rolling out globally this month, our roster of athletes continues to grow, including recently signed Westham Rising Star, Mohamed Kouddou. Bundesliga striker Ragnar Aka and Chilean defender Emiliano Amor.
Speaker Change: This weekend we will continue to see athletes competing.
Speaker Change: They include Skechers ambassador and Philadelphia 76ers star Joel Embiid, as well as Canadian golfer Brooke Henderson, British golfer Matt Fitzpatrick, and Spanish race walker Diego Garcia.
Speaker Change: American Beach Volleyball duo Andy Benesch and Myles Partain will be playing in Skechers branded uniforms. The Malaysian Olympic team will also be wearing Skechers footwear during the opening ceremony and for daily use during the games.
Speaker Change: With football rolling out globally this month, our roster of athletes continues to grow, including recently signed West Ham rising star Mohamed Koudis, Bundesliga striker Ragnar Aka and Chilean defender Emiliano Amor.
David Weinberg: And with basketball rolling out globally next month, we are announcing the signing of WNBA and Los Angeles Sparks rising star forward Rekia Jackson. We see many more opportunities ahead as we bring Skechers basketball around the world. As the comfort technology company, we prioritize delivering the ultimate in innovation, comfort, and style so that every pair looks and feels exceptional. Whether you're working in an office, restaurant, hospital, or playing golf, basketball, or pickleball, Skechers will be your unwavering companion in comfort.
Speaker Change: And with basketball rolling out globally next month, we are announcing the signing of WNBA and Los Angeles Sparks rising star forward, Rekia Jackson. We see many more opportunities ahead as we bring Skechers basketball around the world.
Speaker Change: As the comfort technology company, we prioritize delivering the ultimate in innovation, comfort, and style so that every pair looks and feels exceptional.
Speaker Change: Whether you're working in an office, restaurant, hospital, or playing golf, basketball, or pickleball, Skechers will be your unwavering companion and comfort.
David Weinberg: We engage with diverse consumers through a comprehensive, multi-platform, 360-degree marketing approach. In the second quarter, this included the first Skechers football commercial starring Harry Kane. Skechers UNO campaigns with actress Ashley Park and German singer Vanessa Meyer; apparel campaigns for men and women, and Skechers hands-free slip-ins with global as well as regional talent. This quarter, we introduced a new Skechers football campaign with our team of elite athletes, as well as spots featuring Harry with guest star Snoop Dogg and retired English footballer Jamie Redmond.
Speaker Change: We engage with diverse consumers through a comprehensive, multi-platform, 360-degree marketing approach. In the second quarter, this included the first Skechers football commercial starring Harry Kane, Skechers UNO campaigns with actress Ashley Park, and German singer Vanessa Mai.
Speaker Change: Skechers apparel campaigns for men and women, and Skechers hands-free slip-ins with global as well as regional talent.
Speaker Change: This quarter we introduced a new Skechers football campaign with our team of elite athletes, as well as spots featuring Harry with guest star Snoop Dogg and retired English footballer Jamie Redknapp.
David Weinberg: As we did for football, we created dedicated social channels for Skechers basketball in preparation for the global launch in August, and we are in the process of creating fresh campaigns with Joelle and Rikeya, as well as new campaigns with New York Knicks Julius Randle and L.A. Clippers Terrence Miller. As we continue to drive brand awareness and purchase intent and increase our product offering globally, we remain focused on building efficiencies within our business to scale for profitable growth. Looking at our second quarter results, Sales increased 7.2% to a new second quarter record of $2.16 billion. On a constant currency basis, sales increased 8.7% to 2.19%.
Speaker Change: As we did for football, we have created dedicated social channels for Skechers basketball in preparation for the global launch in August , and we are in the process of creating fresh campaigns with Joel and Rikeya, as well as new campaigns with New York Knicks Julius Randle and LA Clippers Terrence Mann.
Speaker Change: As we continue to drive brand awareness and purchase intent, and increase our product offering globally, we remain focused on building efficiencies within our business to scale for profitable growth.
David Weinberg: Domestic sales increased 7.7%, and international sales increased 6.9% and represented 60% of our total sales. By region, America's increased 7.2%, EMEA 14%, and APAC 2.2%. The quarterly growth came despite several macro headwinds. In the United States, traffic was down, and in China, economic challenges weakened consumer demand across multiple industries, especially over the 6-18 holiday period. In India, we navigated ongoing import regulations, which led to constrained
Speaker Change: Looking at our second quarter results.
Speaker Change: Sales increased 7.2% to a new second quarter record of $2.16 billion. On a constant currency basis, sales increased 8.7% to $2.19 billion.
Speaker Change: Domestic sales increased 7.7%. International sales increased 6.9% and represented 60% of our total sales.
Speaker Change: By region, Americas increased 7.2%, EMEA 14%, and APAC 2.2%.
Speaker Change: The quarterly growth came despite several macro headwinds. In the United States, traffic was down. And in China, economic challenges weakened consumer demand across multiple industries, especially over the 6-18 holiday period.
Speaker Change: In India, we navigated ongoing import regulations, which led to constrained inventory.
David Weinberg: We believe India is an extremely important market, and we are actively addressing the regulatory hurdles by producing more product locally and leveraging our new 660,000 square foot distribution center, NIMBAI. In addition, despite extremely strong demand in Europe, sales were shifted to the second half of the year by increased transmission. This created a short-term imbalance between on-hand inventory, which was down about 40%, and in-transit inventory, which was up over 150%
Speaker Change: We believe India is an extremely important market, and we are actively addressing the regulatory hurdles by producing more product locally and leveraging our new 660,000 square foot distribution center, NIMBAI.
Speaker Change: In addition, despite extremely strong demand in Europe , sales were shifted to the second half of the year by increased transit time. This created a short-term imbalance between on-hand inventory, which was down about 40%, and in-transit inventory, which was up over 150%.
David Weinberg: Our wholesale sales increased 5.5% driven by domestic growth of 14%, which was the result of double-digit increases in our men's and kids' footwear, as well as growth in women's and improvements in volume and ASQ. International wholesale was flat compared to last year, primarily due to the aforementioned challenges in China and the U.S. Direct-to-consumer increased 9.2%, resulting in sales of more than a billion dollars for the quarter, a first for the company.
Speaker Change: Our wholesale sales increased 5.5%, driven by domestic growth of 14%, which was the result of double-digit increases in our men's and kids' footwear, as well as growth in women's and improvements in volume and ASPs.
Speaker Change: International wholesale was flat compared to last year, primarily due to the aforementioned challenges in China and India.
Speaker Change: Director Consumer increased 9.2% resulting in sales of more than a billion dollars for the quarter, a first for the company.
David Weinberg: This growth was primarily due to an increase of 15% internationally, with improvements in most markets for both our brick-and-mortar and e-commerce stores. Domestic direct-to-consumer sales improved 1.4% as we faced a particularly strong comp with growth of 29% in the second quarter of 2023 and the reported softer retail store traffic across the country. Direct-to-consumer continues to be a key segment of our business and an indicator of positive consumer appetite for our brand.
Speaker Change: This growth was primarily due to an increase of 15% internationally with improvements in most markets for both our brick-and-mortar and e-commerce stores.
Speaker Change: Domestic direct-to-consumer sales improved 1.4% as we faced a particularly strong comp with growth of 29% in the second quarter of 2023 and the reported softer retail store traffic across the country.
Speaker Change: Direct-to-consumer continues to be a key segment of our business and an indicator of positive consumer appetite for our brand.
Speaker Change: We ended the quarter with 5,267 Skechers-branded stores worldwide, of which 1,702 are company-owned locations, including 576 in the United States.
David Weinberg: We ended the quarter with 5,267 Skechers-branded stores worldwide, of which 1,702 are company-owned locations, including 576 in the United States. We opened 71 company-owned stores in the quarter, including 27 in China, 15 big box locations in the United States, 6 in Vietnam, and 5 in Germany. We closed 40 stores in the quarter. Also, during the period, 104 third-party stores opened, including 56 in China. 8 in Indonesia, 7 in the Philippines, and 3 in India.
Speaker Change: We opened 71 company-owned stores in the quarter, including 27 in China, 15 big-box locations in the United States, 6 in Vietnam, and 5 in Germany. We closed 40 stores in the quarter.
Speaker Change: Also in the period, 104 third-party stores opened, including 56 in China, 8 in Indonesia, 7 in the Philippines, and 3 in India. This brings our third-party store count at quarter end to 3,565.
David Weinberg: This brings our third-party store count at quarter end to $3,565. In the third quarter to date, we have opened 13 company-owned stores, including three big box stores in the United States and three in Mexico. We expect to open an additional 140 to 150 company-owned stores worldwide over the remainder of 2020. Investments across our direct-to-consumer business, product offering, demand creation, and infrastructure remain priorities, including the expansion of our distribution center in Panama, which serves multiple countries in Latin America and is now operational, and our new company-owned DC in Colombia, which opened this month.
Speaker Change: In the third quarter to date, we have opened 13 company-owned stores, including three big-box stores in the United States and three in Mexico. We expect to open an additional 140 to 150 company-owned stores worldwide over the remainder of 2024.
Speaker Change: Investments across our direct-to-consumer business, product offering, demand creation, and infrastructure remain priorities, including the expansion of our distribution center in Panama, which serves multiple countries in Latin America and is now operational.
David Weinberg: We continue to focus on making our products available where consumers want to shop, be it at our retail and e-commerce stores or at one of our many wholesale and franchise partner locations around the world. We're looking forward to the second half of 2024 as we continue to scale our business worldwide and reach our goal of $10 billion in annual sales in 2026. And now, I would like to turn the call over to John for more details on our financial results. Thank you, David, and good afternoon, everyone.
Speaker Change: and our new company-owned DC in Columbia, which opened this month.
Speaker Change: We continue to focus on making our products available where consumers want to shop, be it at our retail and e-commerce stores, or at one of our many wholesale and franchise partner locations around the world.
Speaker Change: We're looking forward to the second half of 2024 as we continue to scale our business worldwide and reach our goal of $10 billion in annual sales in 2026. And now I'd like to turn the call over to John for more details on our financial results.
John M. Vandemore: Skechers delivered record second quarter sales of $2.16 billion, growing 7.2% year over, driven by continued strength in our international direct-to-consumer business and Significant improvement in our Domestic Wholesale. While strong, these results were below expectations. Due in part to severe foreign currency exchange headwinds in the quarter, on a constant currency basis. Sales were more in line with our expectations, growing 8.7% to $2.19 billion, and earnings per share in the quarter
John: Thank you, David, and good afternoon, everyone.
John: Skechers delivered record second-quarter sales of $2.16 billion, growing 7.2% year-over-year, driven by continued strength in our international direct-to-consumer business and significant improvement in our domestic wholesale business.
Speaker Change: While strong, these results were below expectations.
Speaker Change: [inaudible]
John M. Vandemore: $0.97 on a constant currency basis exceeded our expectations, reflecting continued strong gross margin. Despite navigating these and other headwinds from the supply chain, regulatory obstacles in India, and a lackluster 6-18 holiday in China, we are encouraged by the continued positive response to our comfort technologies from consumers.
John: Earnings per share in the quarter of $0.91, $0.97 on a constant currency basis, exceeded our expectations, reflecting continued strong gross margins.
John: Despite navigating these and other headwinds from the supply chain, regulatory obstacles in India, and a lackluster 6-18 holiday in China, we are encouraged by the continued positive response to our comfort technologies from consumers.
John M. Vandemore: As we will discuss later, we have improved visibility into the second half of the year and are adjusting our full year guidance as a result. Turning to direct-to-consumer, sales grew 9.2% year-over-year and exceeded $1 billion for the quarter, a first in our company's history. Growth was driven by continued strength internationally, which rose 15%, including double-digit growth in both our physical retail and e-commerce channels, and this followed impressive prior-year growth of 30%.
John: As we will discuss later, we have improved visibility into the second half of the year and are adjusting up our full year guidance as a result.
John: Turning to direct-to-consumer, sales grew 9.2% year-over-year and exceeded $1 billion for the quarter, a first in our company's history.
John: Growth was driven by continued strength internationally, which rose 15%, including double-digit growth in both our physical retail and e-commerce channels, and followed impressive prior year growth of 30%.
John M. Vandemore: Domestic direct-to-consumer sales grew 1.4% as we faced a difficult comparison to last year's 29%. Consistent with broader market trends, we observed lighter foot traffic in our brick-and-mortar locations in the quarter, but marked improvements in our e-commerce. Global demand for Skechers products remains strong, and consumers are purchasing across a broad range of prices, which speaks to the enduring appeal of our focus on delivering style, comfort, and quality at a reasonable price. The Skechers brand continues to build momentum in the market, and the expansion of our global direct-to-consumer footprint remains a key priority for driving long-term growth. In wholesale, sales increased 5.5% year-over-year to $1.13 billion.
John: Domestic direct-to-consumer sales grew 1.4% as we faced a difficult comparison to last year's 29% increase.
John: Consistent with broader market trends, we observed lighter foot traffic in our brick-and-mortar locations in the quarter, but marked improvements in our e-commerce channel.
John: Global demand for Skechers products remains strong, and consumers are purchasing across a broad range of price points, which speaks to the enduring appeal of our focus on delivering style, comfort, and quality at a reasonable price.
John: The Skechers brand continues to build momentum in the market, and the expansion of our global direct-to-consumer footprint remains a key priority for driving long-term growth.
John: In wholesale, sales increased 5.5% year-over-year to $1.13 billion.
John M. Vandemore: Domestic wholesale sales grew 14%, or 56 million versus the prior year, reflecting strong consumer demand for our product and robust order flow, a trend we see continuing in the second half of the year. However, our international wholesale sales were essentially flat, as pockets of strength in many markets were weighed down by softer results in select markets like India and China. In addition, supply chain disruptions from the Red Sea crisis negatively impacted our business in Europe, with deliveries shifting into the second half of 2024.
John: Domestic wholesale sales grew 14%, or 56 million versus the prior year, reflecting strong consumer demand for our product and robust order flow, a trend we see continuing in the second half of the year.
John: Our international wholesale sales were essentially flat, as pockets of strength in many markets were weighed down by softer results in select markets like India and China.
John: In addition, supply chain disruptions from the Red Sea crisis negatively impacted our business in Europe , with deliveries shifting into the second half of 2024.
John M. Vandemore: Now turning to our regional sales, in the Americas, sales for the second quarter increased 7.2% year-over-year. 1.1 billion, driven by domestic wholesale, which accounted for over half the growth. The Americas direct-to-consumer business grew across all markets, including double-digit growth outside of the United States. While the macro environment remains challenging with pressures on discretionary spending,
John: Now turning to our regional sales. In the Americas, sales for the second quarter increased 7.2% year-over-year to $1.1 billion, driven by domestic wholesale, which accounted for over half the growth.
John: The America's direct-to-consumer business grew across all markets, including double-digit growth outside of the United States.
John: While the macro environment remains challenging, with pressures on discretionary spending, Skechers' commitment to delivering high-quality products at reasonable prices is resonating with consumers.
John M. Vandemore: Skechers commitment to delivering high quality products at reasonable prices, responding to consumers In EMEA, sales increased 14% year-over-year to 492 million, driven by strong performance in our direct-to-consumer business. Double-Digit Growth Across Channels. Wholesale sales were softer than anticipated due to the aforementioned supply chain disruption.
John: In EMEA, sales increased 14% year-over-year to $492.5 million, driven by strong performance in our direct-to-consumer business, with double-digit growth across channels.
John: Wholesale sales were softer than anticipated due to the aforementioned supply chain disruptions.
John M. Vandemore: We anticipate improvements in these delays over the course of the year, but we are continuing to closely monitor the situation and will provide further updates as Warren. In Asia Pacific, sales increased 2.2% versus the prior year to $564.2 million. In China, sales grew 3.4% year-over-year. 7% on a constant current.
John: We anticipate improvements in these delays over the course of the year, but we are continuing to closely monitor the situation and will provide further updates as warranted.
John: In Asia Pacific, sales increased 2.2% versus the prior year to $564.2 million. In China, sales grew 3.4% year-over-year, 7% on a constant currency basis.
John M. Vandemore: We believe that China's economic recovery will remain challenged in the near term, but we are confident in the long-term opportunity for Skechers, given the strong consumer perception and demand for our brand in the market. In India, sales were negatively impacted by the implementation of new regulatory standards and other unfavorable market conditions. However, more recently, we have seen positive developments in the regulatory environment, and our efforts are focused on prudently navigating the near term while continuing to prepare for the long-term opportunity we believe this market possesses.
John: We believe that China's economic recovery will remain challenged in the near term, but we are confident in the long-term opportunity for Skechers, given the strong consumer perception and demand for our brand in the market.
John: In India, sales were negatively impacted by the implementation of new regulatory standards and other unfavorable market conditions.
John: More recently, we have seen positive developments around the regulatory environment and our efforts are focused on prudently navigating the near term while continuing to prepare for the long-term opportunity we believe this market possesses.
John M. Vandemore: Gross margin was 54.9, up 220 basis points compared to the prior year. The improvement was primarily driven by lower freight costs and a favorable mix of direct-to-consumer volume. Operating expenses increased 340 basis points as a percentage of sales year over, 45.3% Selling expenses as a percentage of sales increased 160 basis points versus last year to 10.9%. As mentioned last quarter, this spending was largely focused on brand building investments and the Increasing Awareness of our Innovative Comfort Technologies in New Categories.
John: Gross margin was 54.9%, up 220 basis points compared to the prior year. The improvement was primarily driven by lower freight costs and a favorable mix of direct-to-consumer volumes.
John: Operating expenses increased 340 basis points as a percentage of sales year-over-year to 45.3%.
John: Selling expenses as a percentage of sales increased 160 basis points versus last year to 10.9%.
John: As mentioned last quarter, this spending was largely focused on brand building investments and heightening awareness of our innovative comfort technologies in new categories.
John M. Vandemore: General and administrative expenses increased 180 basis points as a percentage of sales to 34.4%, primarily due to higher rent, depreciation, and labor to support growth and our direct-to-consumer and compensation-related costs, partially offset by cost efficiencies realized in our district. News from operations was 206.5 million, a decrease of 5.1% compared to the prior year, and Operating Margin for the quarter was 9.6% compared to 10.8% last year, primarily due to investments in brand building and global.
John: General and administrative expenses increased 180 basis points as a percentage of sales to 34.4%.
John: Primarily due to higher rent, depreciation, and labor to support growth in our direct-to-consumer segment and compensation-related costs, partially offset by cost efficiencies realized in our distribution centers.
John: Earnings from operations were $206.5 million, a decrease of 5.1% compared to the prior year, and operating margin for the quarter was 9.6% compared to 10.8% last year, primarily due to investments in brand building and global expansion.
John M. Vandemore: Our effective tax rate for the second quarter was 19.7% compared to 17.7% in the prior year. Earnings per share were $0.91 per diluted share, a 7.1% decrease compared to the prior year on 154.2 million weighted average diluted shares. However, on a constant currency basis, earnings per share were essentially flat at 97 cents per diluted share.
John: Our effective tax rate for the second quarter was 19.7% compared to 17.7% in the prior year.
John: Earnings per share were $0.91 per diluted share, a 7.1% decrease compared to the prior year, on 154.2 million weighted average diluted shares outstanding.
John: On a constant currency basis, earnings per share were essentially flat at 97 cents per diluted share.
John M. Vandemore: And now, turning to our balance sheet. Inventory was $1.51 billion, an increase of 1.9% or $28.5 million compared to the prior year. However, as David mentioned, supply chain delays created a short-term imbalance between on-hand inventory, down $8.5 billion, and In Transit Inventory, which was up nearly 100. Overall, the composition of our inventories is healthy, and we believe this imbalance will be remedied over the course of the next quarter. Accounts receivable at quarter end were $1.03 billion, an increase of $87 million compared to the prior year, reflecting higher wholesale sales.
John: And now turning to our balance sheet items.
John: Inventory was $1.51 billion, an increase of 1.9% or $28.5 million compared to the prior year.
John: However, as David mentioned, supply chain delays created a short-term imbalance between on-hand inventory, down 18%, and in-transit inventory, which was up nearly 100%.
David Weinberg: Overall, the composition of our inventories are healthy, and we believe this imbalance will be remedied over the course of the next quarter.
Speaker Change: Accounts receivable at quarter end were $1.03 billion, an increase of $87 million compared to the prior year, reflecting higher wholesale sales.
John M. Vandemore: We ended the quarter with $1.55 billion in cash, cash equivalents, and investments, and we maintain liquidity of over $2.3 billion when including our undrawn revolving credit facility. Capital expenditures for the quarter were $112.5 million, of which $47.9 million related to investments in new store openings and direct-to-consumer technology.
Speaker Change: We ended the quarter with $1.55 billion in cash, cash equivalents, and investments, and maintained liquidity of over $2.3 billion when including our undrawn revolving credit facility.
Speaker Change: Capital expenditures for the quarter were $112.5 million, of which $47.9 million related to investments in new store openings and direct-to-consumer technologies,
John M. Vandemore: $37.4 million related to the expansion of our distribution infrastructure and $12.4 million related to the construction of our new corporate office. Our capital investments are focused on supporting our strategic priorities, which will include growing our direct-to-consumer segment and expanding our brand presence globally. During the second quarter, we repurchased approximately 879,000 shares of our Class A common stock at a cost of $60 million.
Speaker Change: 37.4 million related to the expansion of our distribution infrastructure, and 12.4 million related to the construction of our new corporate offices.
Speaker Change: Our capital investments are focused on supporting our strategic priorities, which include growing our direct-to-consumer segment and expanding our brand presence globally.
Speaker Change: During the second quarter, we repurchased approximately 879,000 shares of our Class A common stock at a cost of $60 million. And today, we are announcing a new $1 billion, 3-year share repurchase authorization, which replaces our existing program.
John M. Vandemore: And today, we are announcing a new $1 billion, 3-year share repurchase authorization, which replaces our existing program. We continue to deploy our capital consistent with our stated philosophy while maintaining a durable balance sheet and ample leverage. Now turning to guidance. For the full year 2024, we expect sales in the range of $8.875 billion to $8.975 billion. Earnings per diluted share in the range of $4.08 to $4.00, representing annual growth of 12% and, respectively, at the mid. For the third quarter, we expect sales in the range of $2.3 billion to $2.35 billion and earnings per diluted share in the range of $1.10 to $1.50.
Speaker Change: We continue to deploy our capital consistent with our stated philosophy while maintaining a durable balance sheet and ample liquidity.
John M. Vandemore: Our effective tax rate for the year is expected to be between 19 and 20 percent, and minority interest is expected to grow in line with total sales. Capital expenditures are anticipated to be between $325 million and $375 million.
Speaker Change: Now turning to guidance. For the full year 2024, we expect sales in the range of $8.875 billion to $8.975 billion and earnings per diluted share in the range of $4.08 to $4.18.
Speaker Change: representing annual growth of 12% and 18% respectively at the midpoint.
Speaker Change: For the third quarter, we expect sales in the range of $2.3 billion to $2.35 billion and earnings per diluted share in the range of $1.10 to $1.15.
Speaker Change: Our effective tax rate for the year is expected to be between 19 and 20 percent, and minority interest is expected to grow in line with total sales. Capital expenditures are anticipated to be between $325 million and $375 million for the year.
John M. Vandemore: We remain committed to achieving $10 billion in sales by 2020 and delivering long-term sustainable and profitable growth. We thank you all for your time today, and look forward to updating you on our third quarter financials, which we expect to release on Thursday, October 4. With that, I will now turn the call over to David for closing. Thank you, John.
Speaker Change: We remain committed to achieving $10 billion in sales by 2026 and delivering long-term, sustainable, and profitable growth.
Speaker Change: We thank you all for your time today and look forward to updating you on our third quarter financial results, which we expect to release on Thursday, October 24th. With that, I will now turn the call over to David for closing remarks.
David Weinberg: Despite these recent challenges, we achieved a new second quarter sales record with growth in both our wholesale and direct-to-consumer business across the globe. This reflects the strong and broad-based acceptance of our products and our commitment to delivering the best in comfort, innovation, style, and quality at a reasonable price. As we navigate the challenges ahead, including the transit delays due to the Suez Canal closures and the regulatory changes in India, we see numerous opportunities to expand our business and are extremely encouraged by the demand for our brand. We are excited about the ongoing launch of Skechers football and the global launch of Skechers basketball.
David Weinberg: Thank you, John .
David Weinberg: Despite the recent challenges, we achieved a new second quarter sales record with growth in both our wholesale and direct-to-consumer business across the globe.
David Weinberg: This reflects the strong and broad-based acceptance of our products and our commitment to delivering the best in comfort, innovation, style, and quality at a reasonable price.
David Weinberg: As we navigate the challenges ahead, including the transit delays due to the Suez Canal closures and the regulatory changes in India, we see numerous opportunities to expand our business and are extremely encouraged by the demand for our brand.
David Weinberg: We are excited about the ongoing launch of Skechers football and the global launch of Skechers basketball.
David Weinberg: Recognizing that consumers want to shop for Skechers how, where, and when they want, we remain committed to growing our direct-to-consumer channel while also focusing on increasing our important relationships with our third-party customers. Going into the third quarter, we are tracking stronger than last year and believe the second half will be above our initial expectations. As always, we are grateful for the contributions of the entire Skechers organization and our valuable partners as we deliver profitable growth this year and into the future.
David Weinberg: Recognizing that consumers want to shop for Skechers, how, where, and when they want, we remain committed to growing our direct-to-consumer channel, while also focusing on increasing our important relationships with our third-party customers.
David Weinberg: Going into the third quarter, we are tracking stronger than last year and believe the second half will be above our initial expectations.
David Weinberg: As always, we are grateful for the contributions of the entire Skechers organization and our valuable partners as we deliver profitable growth this year and into the future. Now I would like to turn the call over to the operator for questions.
David Weinberg: Now, I would like to turn the call over to the operator for questions. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad.
Speaker Change: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad.
Operator: As a reminder, please limit to one question and one follow-up. Any confirmation tone will indicate your line is in the question. You may press star 2 if you'd like to remove your question from the... For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.
Speaker Change: As a reminder, please limit to one question and one follow-up.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Operator: One moment, please, while we poll for questions. Our first question comes from Jay Sole with UBS. Please proceed with your question. I want to ask about the guidance.
Jay Daniel Sole: It sounds like FX and supply chain were the headwinds in the quarter that impacted sales and earnings, maybe relative to what you thought, but yet you're raising the sales guidance and the EPS guidance. Can you just explain and dive into a little bit the sources of the raise in the guidance, what's causing you to raise the sales guidance, and specifically what's causing you to raise the EPS guidance given it sounds like these headwinds are still continuing? Well, hello Jay.
Speaker Change: Our first question comes from Jay Sole with UBS. Please proceed with your question.
Jay Daniel Sole: I want to ask about the guidance. It sounds like FX and supply chain were a little bit headwinds in the quarter, impacted sales and earnings.
Speaker Change: Unknown Executive, Unknown Attendee, David Weinberg
John M. Vandemore: I would say, you know, the number one thing is the better visibility we have into the back half of the order book, particularly on the wholesale side of the business, and drilling down a bit from there on the domestic wholesale side, where we see really strong order flow. I'd couple that with, you know, the ramifications of what we've seen on the supply chain side, delaying deliveries to our distribution function in Europe, but still represent very good orders that are flowing into the back half of the year, so that's augmenting the strength we've already had.
Speaker Change: Well, hello, Jay. I would say, you know, the number one thing is the better visibility we have into the back half order book, particularly on the wholesale side of the business.
Speaker Change: And drilling down a bit from there on the domestic wholesale side where we see really strong order flow.
Speaker Change: I'd couple that with, you know, the ramifications of what we've seen on a supply chain side, delaying deliveries to our distribution function in Europe still represent very good orders that are flowing into the back half of the year, so that's augmenting.
John M. Vandemore: We continue to see very good DTC performance internationally. However, like a lot of others, we did see some traffic declines domestically, although our e-commerce platform performed nicely in the quarter. So taken all together, quite frankly, we simply have better visibility now. We've got a very nice order book built for domestic and international wholesale. We're mindful of the challenges that are out there, some of which may persist to one degree or another in the back half, but we believe we've adequately weighted that in the range of outcomes we could expect.
Speaker Change: The strength we've already had. We continue to see very good DTC performance internationally. You know, like a lot of others, we did see some traffic declines domestically, although our e-commerce platform performed nicely in the quarter.
Speaker Change: Take it all together, quite frankly, we simply have better visibility now. We've got a very nice order book built for domestic and international wholesale. We're mindful of the challenges that are out there, some of which may persist.
Speaker Change: [inaudible]
John M. Vandemore: So, I mean, I guess just to follow up on that, John, you're saying that, you know, whether headwinds coming from FX or supply chains, sort of, that's not really, you're not really assuming those things alleviate in the back half. I mean, you're kind of assuming that there are some macro issues that are out there that persist, but yet, you still feel confident raising the guidance given the visibility of the order book and given the acceptance you're seeing from the consumer for the product assortment, broadly speaking. We wouldn't have raised the guidance unless we were confident in our ability to achieve it.
Speaker Change: Got it. So I mean, I guess just to follow up on that, John , you're saying that, you know, whether it's headwinds coming from FX or supply chains, sort of, that's not really, you're not really assuming those things alleviate in the back half. I mean, you're kind of assuming that there's some macro
John: issues that are out there that persist, but yet you still feel confident raising the guidance given the visibility of the order book and given the acceptance you're seeing from the consumer for the product assortment, broadly speaking.
John M. Vandemore: I do think some of the macroeconomic headwinds we've seen will persist to one degree or another, and we have those adequately captured, we believe, in our budget. I'd say the one outlier is foreign currency. It was particularly acute during the second quarter and has already turned around. But that did not save us in the quarter.
John: Well, we wouldn't raise the guidance unless we were confident in our ability to achieve it. I do think some of the macroeconomic headwinds we've seen...
Speaker Change: Unknown Speaker, Unknown Speaker, Unknown Speaker,
John M. Vandemore: If you strip that out, as we mentioned, we would have been within our guidance range. That was kind of the straw that broke the camel's back on achieving our prior guidance, but the underlying consumer demand is still there. And that's what's evidenced in the order book for the back half of the year, and again, the continuation of what we've seen on the strength of DTC International. Fantastic. Okay. Thank you so much.
Speaker Change: turned around, but that that did not save us in the quarter. If you strip that out, as we as we mentioned, you know, we would have been within our guidance range.
Speaker Change: That was kind of the straw that broke the camel's back on achieving our prior guidance, but the underlying consumer demand is still there, and that's what's evidenced in the order book in the back half of the year, and again, the continuation of what we've seen on the strength of DTC internationally.
Speaker Change: Fantastic. Okay. Thank you so much.
Laurent Andre Vasilescu: Our next question comes from Laurent Vasilescu with BNP. Please proceed with your question. Good afternoon.
Speaker Change: Sure.
Speaker Change: Our next question comes from Laurent Vasilescu with BNP. Please proceed with your question.
David Weinberg: Thank you very much for taking my question. Um, I wanted to ask about, um, the comments around USDTC, around foot traffic, but then e-commerce being strong. There's a lot of concerns out there around just the overall environment over the summer and the footwear retail landscape. Maybe, David, um, John, if you can, guys, you can comment about what you're seeing with the consumer. Is it weakening, or is it just kind of a blip, and then we can kind of see re-acceleration, um, for the third quarter for back to school? Well, I admit it was a bit of an odd quarter. We did see some of the traffic slow down in our brick and mortar stores, and that definitely had an effect.
Laurent Andre Vasilescu: Oh, good afternoon. Thank you very much for taking my question. I wanted to ask about the comments around USDTC, around foot traffic, but then e-commerce being strong.
Speaker Change: There's a lot of concerns out there around just the overall environment over the summer and the footwear retail landscape. Maybe
Speaker Change: David, John , if you guys can comment about what you're thinking and seeing with the consumer. Is it weakening or is it just kind of a blip and then we can kind of see re-acceleration for the third quarter for back-to-school?
David Weinberg: At the same time, though, our e-commerce platform did, you know, really well in the quarter. I think it's also important to recognize that we're getting back into a position vis-a-vis our wholesale customers where they are, you know, better equipped with the right type of inventory. So I think when you think about the broader U.S. market, clearly, there's abundant strength at the consumer. The last thing I'd note, which we mentioned in our comments, is we had an incredibly strong prior year, nearly 30% up on DTC.
Speaker Change: Well, I'd admit it was a bit of an odd quarter. We did see some of the traffic slow down in our brick-and-mortar stores.
Speaker Change: That definitely had an effect. At the same time, though...
Speaker Change: Our e-commerce platform did really well in the quarter.
Speaker Change: I think it's also important to recognize, you know, we're getting back into a position
Speaker Change: vis-a-vis our wholesale customers where they are, you know, better equipped with the right type of inventory. So I think
Speaker Change: When you think about the broader U.S. market, clearly there's abundant strength at the consumer. The last thing I'd note, which we mentioned in our comments, is we had an incredibly strong prior year, nearly 30% up on DTC.
Speaker Change: And so, you know, just maintaining that growth, if you look at it on, you know, some of your favorite two-year stack basis.
David Weinberg: And so, you know, just maintaining that growth, if you look at it on, you know, some of your favorite two-year growth rates, it is still an incredible two-year growth rate. So where we go from here, I think, is going to be largely determined by what we see in the back-to-school window and then the holiday. You know, I would characterize our expectations as modest at this juncture. We're not, you know, over-weighting an expectation of domestic re-acceleration. But we also think there's plenty of consumer demand out there, as evidenced by what we're seeing on e-com and in the wholesale order book. Okay, very helpful.
Speaker Change: It is still an incredible...
Speaker Change: to your growth rate. So where we go from here, I think, is going to be largely determined by what we see in the back-to-school window and then holiday. You know, I would characterize our expectations as modest at this juncture. We're not...
Speaker Change: Overweighting an expectation of domestic re-acceleration, but we also think there's plenty of consumer demand out there, as is evidenced by what we're seeing in e-comm and in the wholesale order book.
Laurent Andre Vasilescu: And then can you talk about the shift? Like, is it fair to assume a $50 million shift between 2Q and 3Q? Thank you very much.
Speaker Change: Okay, very helpful. And then, can you talk about the shift? Like, is it fair to assume a $50 million shift?
John M. Vandemore: Well, it's a fair question. I will say it's a little bit challenging to answer, only because, I mean, this has been an effect felt over the course of time. So it wasn't like, you know, one ship missed a window, right? It's tough for us to quantify, but I think you can assume vis-a-vis our guidance for Q3 in particular. And just the known aspect of what's been impacting the supply chain, particularly that Asia-to-European route, is that a material amount of orders moved into the second half of the year simply because they couldn't get the distribution in time to make the quarter.
Speaker Change: Between 2Q and 3Q, thank you very much.
Speaker Change: Well, it's a fair question. I will say it's a little bit challenging to answer only because, I mean, this has been an effect felt over the course of time. So, it wasn't like
Speaker Change: You know one ship missed a window, right? It's tough for us to quantify, but I think you can assume Vis-a-vis our guidance for Q3 in particular
Speaker Change: And just the known aspect of what's been impacting supply chain, particularly that Asia to European route, is that a material amount of orders moved into the second half of the year simply because they couldn't get the distribution in time to make the quarter.
John M. Vandemore: And keep in mind, there's always a little bit of that as we straddle Q2 and Q3, depending upon when shipments go out. But what I would say is absolutely concrete is the demand. The demand we're feeling for the product, as I said, is evidenced in the order books globally. And so, you know, we feel very good about finalizing those orders and the normalization of the supply chain that we expect is going to occur over the next quarter or two.
Speaker Change: And keep in mind, there's always a little bit of that as we straddle Q2 and Q3, depending upon when shipments go. What I would say is absolutely concrete is the demand, the demand we're feeling for the product.
Speaker Change: As I said, it's evidenced in the order books globally and so, you know, we feel very good about finalizing out those orders and the normalization of the supply chain that we expect is going to occur over the next quarter or two.
John M. Vandemore: Very helpful, John. And I think last quarter, in response to my good friend Poser's question, you mentioned, you know, gross margins could be, I know you don't guide gross margins, but they could be up to 100 to 150. Is that still the right way to think about it?
Speaker Change: Push.
Don: Very helpful, John , and I think last quarter.
Don: I think to my good friend Poser's question, you mentioned, you know, gross margins could be, I know you don't guide gross margins, but they can be up 100 to 150, but is that still the right way to think about it? And if so, how do we think about three key gross margins?
Laurent Andre Vasilescu: And if so, how do we think about the three key gross margins? Well, I would say this quarter was a little bit more than we anticipated. We picked up more of a benefit from freight and mix than we had anticipated. As we had said previously, we expected the benefit to get smaller over the course of the year, it did a little bit, but this was even a bit higher. I would say, you know, we don't expect a lot more out of the balance of the year, but for mix related reasons.
Speaker Change: Well, I would say, I mean, this quarter was a little bit more than we anticipated. We picked up more of a benefit from freight and mix.
Speaker Change: Than we had anticipated. Um, as we had said previously, we expect the benefit...
Speaker Change: to get smaller over the course of the year did a little bit, but this is even a bit higher. I would say, you know, we don't expect a lot more out of the balance of the year, but for mix related.
John M. Vandemore: Although, you know, we are watching freight rates. We'll have to keep in mind that, as we progress throughout the year, there's been some rate impact, obviously, from the Red Sea crisis. You know, we have to balance that with the contractual rates that we're achieving, and so we'll monitor that, but when you put all that into the model, ultimately, it would tell you that we don't expect as much lift over the back half of the year as we saw over the front half of the year, though that is consistent, I think, with what we had previously mentioned. Very helpful. Best of luck. Thank you.
Speaker Change: Although, you know, we are watching freight rates, we'll have to keep in mind that as we progress throughout the year, some
Speaker Change: There's been some rate impact obviously from the Red Sea crisis, you know, we have to balance that with the contractual rates that we're achieving and
Speaker Change: And so we'll monitor that, but when you put all that into the model, ultimately it would tell you that we don't expect as much lift over the back half of the year as we saw over the front half of the year, though that is consistent, I think, with what we had previously mentioned.
Speaker Change: Unknown Speaker, Unknown Attendee, David Weinberg
Speaker Change: Very helpful. Best of luck.
James Vincent Duffy: Our next question is from Jim Duffy with Stiefel. Please proceed with your question. Hi, this is Peter McGoldrick on behalf of Jim.
Speaker Change: Thank you.
Speaker Change: Our next question is from Jim Duffy with Stiefel. Please proceed with your question.
Peter Clement McGoldrick: Thanks for taking our question. First, I wanted to ask about the BIS regulations in India; you mentioned some local production and distribution. What's the magnitude of the local supply capacity relative to demand? And how are you planning for the progression of the regulatory environment, sort of bridging the gap, the timing to bridge the gap between near-term impacts and the long-term opportunity in that market? The first thing I'd say is there was a noticeable impact from the regulatory environment in India this quarter. That had a significant effect on our, in particular, our Asia-Pacific sales. So we definitely felt that and the attendant uncertainty in the quarter.
Speaker Change: Hi, this is Peter McGoldrick on for Jim. Thanks for taking our question.
Peter Clement McGoldrick: First, I wanted to ask about the BIS regulations in India. You mentioned some local production and distribution.
Peter Clement McGoldrick: What's the magnitude of the local supply capacity relative to demand and how...
Speaker Change: Are you planning for the progression of the regulatory environment, sort of bridging the gap, the timing to bridge the gap between near-term impacts and the long-term opportunity in that market?
Speaker Change: The first thing I'd say is there was a noticeable impact from the regulatory environment in India this quarter. That had a significant effect on our, in particular, our Asia-Pac sales.
Speaker Change: We definitely felt that and the attendant uncertainty in the quarter. The good news is, you know, we continue to build local production. I won't give a percentage, but suffice it to say it's one of our primary areas of focus.
John M. Vandemore: The good news is, you know, we continue to build local production. I won't give a percentage, but suffice it to say it's one of our primary areas of focus. From a supply chain perspective, and it's getting better and better, it's simply insufficient to accommodate our total demand.
Peter Clement McGoldrick: From a supply chain perspective and it's it's getting better and better. It's simply today Insufficient to accommodate our our total demand
John M. Vandemore: We have seen some positive trends in the market with regard to certification processes, both of domestic and international manufacturing. I would expect, over the course of the year, things to continue to get better, but it's, you know, that's a market that's a little bit tough to call from a timing perspective on when things are going to change. But overall, we continue to be optimistic, both about the back half of the year and, ultimately, that we will be able to, as a company, significantly develop what's needed locally but then complement that with international manufacturing and maybe even someday look towards India as an export production market for us.
Peter Clement McGoldrick: We have seen some positive trends in the market with regards to certification processes, both of
Peter Clement McGoldrick: Domestic and International Manufacturing
Peter Clement McGoldrick: I would expect over the course of the year, things continue to get better, but...
Peter Clement McGoldrick: If
Peter Clement McGoldrick: You know, that's a market that's a little bit
Peter Clement McGoldrick: It's tough to call from a timing perspective on when things are going to change, but overall, we continue to be optimistic, both about the back half of the year, but ultimately that we will be able to, as a company,
Peter Clement McGoldrick: [inaudible]
Peter Clement McGoldrick: What's needed locally, but then complement that with international manufacturing and maybe even someday look look towards
Speaker Change: India as an export production market for us. So it had an impact, a big impact in Q2. We believe that will get significantly better over the back half of the year. And again, I can't stress enough, we have definitely seen some positive trends of late. And that is that has been encouraging as well.
John M. Vandemore: We believe that we'll get significantly better over the back half of the year. And again, I can't stress enough, we have definitely seen some positive trends of late, and that has been encouraging as well. All right, thanks.
Peter Clement McGoldrick: Then I'd like to follow up on China revenue increasing 3% despite the challenges noted in the 6-18 period. Can you talk about the trends outside of the key holiday periods and any consumer insights that might influence plans for the rest of the year and your plans for 11-11? And should we be looking for growth in the second half out of China? We're definitely expecting growth in the second half. And I would argue that the first half of this quarter was actually pretty encouraging.
Speaker Change: All right, thanks. Then I'd like to follow up on China. Revenue increased 3% with, despite the challenges noted on the 6-18 period.
Speaker Change: Can you talk about the trends outside of the key holiday periods and any consumer insights that might influence plans for the rest of the year and your plans for 11-11, and should we be looking for growth in the second half out of China?
Speaker Change: We're definitely expecting growth in the second half, and I would argue that the first half of this quarter actually was pretty encouraging. It's also important to note they faced a really significant foreign currency headwind in this quarter with, you know, I think constant currency sales were double, you know, the growth rate of what we saw on a realized currency basis.
Peter Clement McGoldrick: It's also important to note they faced a really significant foreign currency headwind in this quarter, with, you know, I think constant currency sales were double the growth rate of what we saw on a realized currency basis. 618 was definitely not nearly as strong as we've come to expect over time.
Speaker Change: 6-18 was definitely not nearly as strong as we've come to expect over time. It's hard to read that through to the balance of the year because 6-18 is such a unique event and it's very promotional. As David mentioned,
John M. Vandemore: It's hard to read that through to the balance of the year because 618 is such a unique event and it's very promotional. We saw a lot more price-driven activity on 618 this year, and so... That simply compelled a lot less growth overall than we would have liked to have seen.
David Weinberg: We saw a lot more price-driven activity on 6-18 this year, and so that simply compelled a lot less growth overall than we would have liked to have seen.
John M. Vandemore: As we also said, we continue to think China is on the road to recovery. We expect a better second half of the year than what we've seen thus far, but we are watching things carefully. Double 11 will certainly be a big event in the context of how that market is recovering. Again, I think the most encouraging aspect of what we've seen there is continued brand resonance and, I think, outperformance relative to some other international brands, which I think speaks to the appeal of Skechers in the market, which we expect to continue to ride for the long term. Very helpful. Thank you. Our next question comes from John Kernan with T.D. Cowan.
David Weinberg: As we also said, you know, we continue to think China is on the road to recovery. We expect a better second half of the year than what we've seen thus far, but we are watching things carefully.
David Weinberg: Double 11 will certainly be a big event in the context of how that market is recovering.
David Weinberg: Again, I think the most encouraging aspect of what we've seen there is continued brand resonance and, I think, outperformance relative to some other international brands, which I think speaks to the appeal of Skechers in the market, which we expect to continue to ride for the long term.
Speaker Change: Very helpful, thank you.
Speaker Change: Our next question comes from John Kernan with T.D. Cowan. Please proceed with your question.
John David Kernan: Please proceed with your question. Excellent. Thanks. Good afternoon, John and David.
John David Kernan: Excellent, thanks. Good afternoon, John and David. Hope all is well out in Manhattan Beach.
John M. Vandemore: Hope all is well out in Manhattan. Unpack the guidance increase for the back half of the year a little bit more. Is there anything specifically from a channel or geographical perspective that you have clearly on a site that's going to accelerate from where we were in Q2? It sounds like international DTC you've got good reads on and globally on wholesale, but just a little more color there would be helpful.
John David Kernan: Maybe unpack the guidance increase for the back half of the year a little bit more. Is there anything specifically from a channel or geographical perspective that you have clearly on a site that's going to accelerate from where we were in Q2? It sounds like international DTC. You've got
Speaker Change: Good reads on and globally on Wholesale, but just a little more color there would be helpful.
John M. Vandemore: I think that the best characterization we can give is, you know, continued strength from DTC. We're going to pick up the benefit of the timing issue from the Suez Canal crisis in Europe on the wholesale side as well. And then, you know, the domestic wholesale order book is very strong. I'd say those are probably going to be the lead factors for the back half of the year growth.
Speaker Change: I think that I think the best characterization we can give is, you know, continued strength from DTC, we're going to pick up the benefit of the timing issue from the Suez Canal crisis in Europe on the wholesale side as well. And then, you know, the
Speaker Change: The domestic wholesale order book is very strong. I'd say those are probably going to be the lead factors for the back half of the year growth. I think also just the absence of some of the headwinds that we saw.
John M. Vandemore: I think also just the absence of some of the headwinds that we've seen. We saw this quarter, particularly around some of the regulatory issues in India and foreign currency. I think that that probably makes up for most of the growth.
Speaker Change: This quarter, particularly around some of the regulatory issues in India, the foreign currency, I think that that probably makes up for most of the growth. But I would also say, you know, we've contemplated some of the other issues. We feel like we weighted them appropriately.
John M. Vandemore: But I would also say, you know, we've contemplated some of the other issues, and we feel like we have weighted them appropriately. We don't expect it to be purely smooth sailing from here, but I do think the unique combination of events this quarter made it a bit more challenging than anyone had anticipated going in. And that's part of the reason why, you know, our initial kind of, you know, non-constant currency sales were below where we thought they would be.
Unknown Speaker: We don't expect it to be purely smooth sailing from here, but I do think the unique combination of events this quarter made it a bit more challenging than anyone had anticipated going in, and that's part of the reason why, you know, our initial kind of, you know, non-constant currency sales were below where we thought they would be.
John M. Vandemore: You know, I think it's fair to point out that this, The shifts from June and July and the shifts from December and January that we talk about every year are just more extreme in this particular case, simply because the biggest part of our shipments, for the most part, for domestic and domestic wholesale and European wholesale, are the end of June and the beginning of July. And while Johnson's very difficult to see, you know, what went early and what went late, we're getting a better flow, even though it takes a longer time to get there from Asia into Europe. So you can pick it up.
Unknown Speaker: You know, I think it's fair to point out at this point that...
Unknown Speaker: are just more extreme in this particular case simply because the biggest part of our shipments, for the most part,
Unknown Speaker: for Domestic and Domestic Wholesale and European Wholesale is the end of June and the beginning of July . And while, John , it's very difficult to see what went early, what went late, we're getting a better flow, even though it takes a longer time to get there from Asia into Europe . So you can pick up.
David Weinberg: You know, June to July, as in December to January, we commented this year, while it doesn't guarantee the whole quarter, it's a great place to start. And we see demand picking up in a number of those places. And also, on the U.S. side, just to reiterate what John said, because I think it's very important.
Jonathan: June to July , as in December to January , we commented this year. While that doesn't guarantee the whole quarter, it's a great place to start, and we see demand picking up in a number of those places.
Speaker Change: Also, on the U.S. side, just to reiterate what John said because I think it's very important.
David Weinberg: We saw a 29-30% increase in our direct-to-consumer business last year. To hold that while we have a 14% increase in domestic wholesale and have increasing demand in a difficult time shows the strength of the consumer has shifted from just one to the other and picked up some new consumers. Some go direct-to-consumer; some go to their favorite wholesale partners that we have.
John David Kernan: 29 30% increase
John David Kernan: In our direct-to-consumer business last year, to hold that while we have a 14% increase.
Speaker Change: and Domestic Wholesale and have increasing demand and in a difficult time just shows the strength of the consumer has shifted from just one to the other and picked up some new consumers. Some go direct to consumers, some go to their favorite wholesale partners that we have.
David Weinberg: So the overall business continues, and when you think about it, we pick up wholesale sales and direct-to-consumer wholesale in the U.S., so there is more unit growth with the 14% in direct-to-consumer. [inaudible] That's really helpful. Thanks.
Speaker Change: So the overall business continues, and when you think about it, we pick up a wholesale sale in the U.S., so there's more unit growth with the 14% in the U.S.
Speaker Change: wholesale than it would have been in direct-to-consumer. So that shows more demand just going to a different place. I think both things line up very well for us, which is a significant piece of the increase in the guidance into the third quarter.
Speaker Change: That's really helpful. Thanks. Maybe a quick follow-up on the supply chain costs and some of the timing issues. It looks like spot freight rates from an ocean perspective have skyrocketed the last couple months.
John M. Vandemore: Maybe a quick follow-up on the supply chain and some of the timing issues. It looks like spot freight rates from an ocean perspective have skyrocketed in the last couple months. I know you don't buy on, you know, do your contracts on spot, but how do we think about a different freight cost environment as we get into maybe Q4 and 2025? Do you see this as a headwind?
Speaker Change: I know you don't do your contracts on the spot, but how do we think about a different freight cost environment as we get into maybe Q4 and 2025? Do you see this as a headwind?
John M. Vandemore: Well, John, I think you first point out a very important factor, which is we don't expect to be feeling the effects of some of the higher spot rates until Q3, and probably more acutely in Q4, simply because of the time it takes to turn inventory. Also, we're not buying, as you noted, everything at spot. There certainly are opportunities and needs that we have to go into the spot market. However, our weighted average container rate is well below where the spot sits.
Speaker Change: Well, John , I think you first point out a very important factor, which is we don't expect to be feeling the effects of some of the higher spot rates.
Speaker Change: Until Q3 and probably more acutely in Q4 simply because of
Speaker Change: [inaudible]
John M. Vandemore: There are some other factors at play that we think will help offset some of that, but at the end of the day, until we see a culmination of that increase and, quite frankly, an improvement overall in both the flow of goods, as David mentioned, but also in the rates, which we expect is forthcoming, it's tough to call the final outcome other than, You know, right now, we do believe we've incorporated that into our guidance. It's one of the reasons why, you know, in response to Laurent's question, we were cautious about gross margin improvement from here. We believe it'll be a relatively consistent improvement or similar to last year. And that's why because some of that freight will come into play. understood. Thanks.
Speaker Change: There's some other factors at play that we think will help offset some of that, but at the end of the day, until we see a culmination of that increase and, quite frankly, an improvement overall in both the flow of goods, as David mentioned, but also in the rates, which we expect is forthcoming,
David Weinberg: It's tough to call the final outcome other than
David Weinberg: You know right now we do believe we've incorporated that into our guidance. It's one of the reasons why you know in response to Laurent's question we were
Speaker Change: We are cautious about gross margin improvement from here. We believe it will be relatively consistent improvement, or consistent to last year, and that's why, because some of that freight will come into play.
John M. Vandemore: And maybe David, just one follow-up on the customer acquisition. Can you talk to the cohorts you are acquiring, some of the growth in the newer categories you've launched recently and how they're performing? Sorry, say that again. I missed it.
David Weinberg: Understood, thanks. And maybe David, just one follow-up on the customer acquisition. Can you talk to the cohorts you are acquiring, some of the growth in the newer categories you've launched recently and how they're performing?
David Weinberg: Can you talk about customer acquisition and some of the cohorts requiring some of the newer product launches? It's hard to tell, you know, our biggest push right now is not really moving out to the consumer. And that's on our performance athletic. And we're just going to launch our first football slash soccer in Europe and are moving to a more commercial brand of basketball.
David Weinberg: Say that again, I missed it.
David Weinberg: Can you talk to customer acquisition and some of the cohorts requiring with some of the newer product launches?
David Weinberg: I think what's happening is that our features and our comfort are expanding the base of our existing customers, and we're acquiring from other brands just along with our normal mix. We're still looking forward to achieving significantly higher acquisition as we get into more performance athletics, but we're at the very beginning of that.
Speaker Change: It's hard to tell, you know, our biggest push right now really is not moving out to the consumer and that's on our
Speaker Change: Performance Athletic
Speaker Change: We're just going to launch our first football-slash-soccer in Europe and are moving to a more commercial sign of basketball.
Speaker Change: I think what's happening is that our features and our comfort are expanding the base of our existing customers, and we're acquiring from...
Speaker Change: Other brands, just along our normal mix. We're still looking forward to achieving significantly higher acquisition as we get into more performance athletics, but we're just at the very beginning of that.
Alexandra Ann Straton: Our next question comes from Alex Stratton with Morgan Stanley. Please proceed with your question.
Speaker Change: Understood, thanks.
Speaker Change: Our next question comes from Alex Straton with Morgan Stanley . Please proceed with your question.
John M. Vandemore: Thanks a lot for taking the question. I just wanted to focus on international wholesale. Obviously, it slowed a little bit quarter over quarter, but it seems like from your commentary, some of that's just temporary from issues like the Suez Canal. But then you're also not as positive on China as you were maybe three months ago on a near term basis. So can you just talk a little bit about how we should think about the shape of the back half?
Alexandra Ann Straton: Perfect. Thanks a lot for taking the question. I just wanted to focus on international wholesale.
Alexandra Ann Straton: Obviously slowed a little bit quarter of a quarter, but seems like from your commentary, some of that's just temporary from issues like the Suez Canal. But then you're also not as positive on China sounds like as you were maybe three months ago on a near term basis.
John M. Vandemore: What type of growth are you expecting there? So yeah, I would say I think Q2 was a bit distinct in some of the impacts we felt, particularly on the international wholesale side of things. We mentioned Europe, we mentioned India, and those had an outsized impact on our results versus our original expectation. I would still characterize our view on China as a net positive.
Speaker Change: So can you just talk a little bit about how we should think about the shape of the back half, what type of growth you're expecting there?
Speaker Change: So, yeah, I would say, I think Q2 was a bit distinct in some of the impacts we felt, particularly on the international wholesale side of things. We mentioned Europe , we mentioned India, and those were, they had an outsized impact on our results versus our original expectations.
John M. Vandemore: Certainly, we expect growth this year. And as we've said about China over the last couple of years, you know, we've been somewhat surprised at the rather consistent improvement we have seen. We know it's a market in recovery, and we know there are some macro challenges. So again, I don't know that this outcome this quarter is particularly unanticipated in the grand view. But obviously, we didn't pick the timing right. And that's why you saw that.
Speaker Change: I would still characterize our view on China as a net positive. Certainly we expect growth in the year.
Speaker Change: And as we've said about China over the last couple of years, you know, we've been somewhat surprised at the rather consistent improvement on abated we had seen.
Speaker Change: We know it's a market in recovery. We know there are some macro challenges. So, again, I don't know that this outcome this quarter is particularly unanticipated in the grand view, but obviously we didn't pick the timing right, and that's why you saw that.
John M. Vandemore: But I would also note, again, there's a big foreign currency adjustment on Chinese sales. They would have been double, you know, the growth, which was more in line with where we had seen recent quarter over quarter kind of improvement. So again, I would characterize China certainly as a market we have continued optimism for. We do expect there will be bumps in the road. This was one of them.
Speaker Change: But I would also note again, there's a big foreign currency adjustment on the Chinese sales. They would have been double, you know, the growth, which was more in line with where we had seen recent quarter-over-quarter kind of improvement. So...
Speaker Change: Again, I would characterize China certainly as a market we have continued optimism for. We do expect there will be bumps in the road. This was one of them, but it doesn't diminish in any way our appetite to continue to invest in the market and the opportunity we think that market presents.
John M. Vandemore: Great, maybe one quick follow-up just on selling expenses. I knew they grew quite a bit this quarter, I think about 25%. How should we think about that in the back half? I know you had a lot of demand creation expense in the quarter. Should that start falling off? Or what are the puts and takes there?
Speaker Change: Great, maybe one quick follow up just on selling expenses. I knew they grew quite a bit this quarter, I think about 25%. How should we think about that into the back half? I know you had a lot of demand creation expense in the quarter. Should that start falling off or what are the puts and takes there?
John M. Vandemore: We'll continue to invest over the balance of the year, but the level of increases we do not expect will be similar. And that will continue to be the case in the next quarter and in the next quarter. And then, coupled with some of the...
Speaker Change: We'll continue to invest over the balance of the year, but the level of increases
Speaker Change: We do not expect will be similar and that will, you know, continue to be the case kind of in the next quarter and in the next quarter. And then, you know, coupled with some of the.
John M. Vandemore: Some of the timing-related issues we just talked about certainly were a more severe point of deleverage on the quarter than we had originally expected. We believe some of that will get made up over the back half of the year now that we've seen some of those sales move around and more strength and visibility into that back half growth that we've talked about. Great. Good luck, guys. Thank you.
Speaker Change: Some of the timing-related issues we just talked about, you know, it certainly was a more severe point of de-leverage on the quarter than we had originally.
Speaker Change: expected.
Speaker Change: We believe some of that will get made up over the back half of the year now that we've seen.
Speaker Change: Some of those sales move around and, you know, more strength and visibility to that back half growth that we've talked about.
John M. Vandemore: Our next question comes from Rick Patel with Raymond James. Please proceed with your question. Thank you. Good afternoon.
Speaker Change: Great. Good luck, guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Rick Patel with Raymond James. Please proceed with your question.
Rakesh Babarbhai Patel: I was hoping you could dig further into your expectations for wholesale for the year. So, in the past, you've alluded to global wholesale being able to grow in the high single-digit range. Do you still see this as a reasonable outcome?
Rakesh Babarbhai Patel: Thank you. Good afternoon. I was hoping you can dig further into your expectations for wholesale for the year. So I believe in the past you've alluded to global wholesale being able to grow in the high single digit range. Do you still see this as a reasonable outcome?
John M. Vandemore: Just given the strength you have on the domestic side, and then just as a follow-up, how far out is your line of sight for the wholesale order book as you think about domestic versus international? So I definitely think that the expectation for the full year results for global wholesale is accurate and probably, in all honesty, based on what we see at the moment, probably more likely to be at the low end of the range.
Speaker Change: Just given the strength you have on a domestic side. And then just as a follow up, how far out is your line of sight for the wholesale order book as you think about domestic versus international?
John M. Vandemore: But definitely continue to see good opportunity on the global wholesale side of things. From an order book perspective, we feel really good about what we see. I think the only factor we need to keep our eye on is timing, as kind of, [inaudible] We would not have raised the guidance. We would not be speaking particularly about the strength we see if we hadn't had the benefit of some very strong order book activity, and that's certainly the case. And can you also talk about sourcing?
Speaker Change: So I definitely think that expectation for the full year results for global wholesale is accurate and probably, in all honesty, based on what we see at the moment, probably more likely to be at the low end of the range, but definitely continue to see good opportunity on the global wholesale side of things.
Speaker Change: From an order book perspective, we feel really good about what we see. I think the only factors we need to keep our eye on is timing.
Speaker Change: Unknown Speaker, Unknown Speaker, Unknown Speaker,
Speaker Change: We would not have raised the guidance, we would not be speaking particularly about the strength we see if we hadn't the benefit of some very strong order book activity, and that's that's certainly the case.
John M. Vandemore: You know, maybe remind us how much exposure you have to China and just given the headlines about potential tariffs and whether they may or may not increase down the road, just how we should think about mitigation strategies that you may be working on right now to deal with that in the future. There's not really been a fundamental change to our overall sourcing footprint, which we've commonly described as kind of being, depending on the time period, somewhere in the 40-ish percent range for China, 40% range for Vietnam, and then the balance kind of spread across a lot of other countries, but that can ebb and flow depending upon what we're making when. I would also point out within that, you know, obviously, we have a So there's an element of what gets manufactured in China that serves the local market quite well.
Speaker Change: Can you also talk about sourcing? You know, maybe remind us how much exposure you have to China. And just given the headlines, everyone's saying about potential tariffs and whether they may or may not increase down the road, just how we should think about mitigation strategies that you may be working on right now to deal with that in the future.
Speaker Change: There's not really been a fundamental change to our overall sourcing footprint, which we've commonly described as kind of being, depending on the time period, you know, somewhere in the 40-ish percent range for China, 40 percent range.
Speaker Change: in Vietnam, and then the balance kind of spread across a lot of other countries, but that that can ebb and flow depending upon what we're making, when.
Speaker Change: I would also point out within that, you know, obviously we have a pretty significant business, you know, in China, so there's an element of what gets manufactured in China that serves the local market quite well. I would also note that we continue to look for opportunities to diversify our production.
John M. Vandemore: I would also note that we continue to look for opportunities to diversify our production. The biggest challenge there is, quite frankly, the rate of growth we're seeing in, you know, our unit volumes. So we have to run just to keep things static.
Speaker Change: The biggest challenge there is, quite frankly, the rate of growth we're seeing in our unit volumes.
John M. Vandemore: But as a result, we're seeing, you know, a really good trajectory, as we mentioned, in India, Indonesia, some other markets, Turkey, you know, Mexico. So again, it's something we'll continue to work on. I think in response to broad hypotheticals about tariffs. What may come? It's really difficult to react.
Speaker Change: So we have to run just to keep things static, but as a result, we're seeing really good trajectory, as we mentioned, in India.
Speaker Change: Indonesia, some other markets, Turkey, you know, Mexico. So again, it's something we'll continue to work on. I think in response to broad hypotheticals about tariffs
John M. Vandemore: I think the one thing that we've learned is, you know, you can't really react to hypotheticals, but you need to be very quick to react to, you know, actual results. And so we'll be poised to react should we need to, although I would note again that it's going to be limited by that footprint. And I would say, you know, the footprint of the footwear industry and the apparel industry as a whole.
Speaker Change: to ask them what may come...it's really to react. I think the one thing that...
Speaker Change: that we've learned is, you know, you can't really react to hypotheticals, but you need to be very quick to react to, you know, actual results.
Speaker Change: We'll be poised to react should we need to, although I would note again, you know, it's going to be limited by that footprint. And I'd say, you know, the footprint of the footwear industry and apparel industry as a whole. I also would note that even if there is such a thing as a tariff impact somewhere down the road from, you know, whomever,
John M. Vandemore: I also would note that, I mean, if there is such a thing as a tariff impact somewhere down the road from, you know, whomever ascends to leadership in the United States, that's going to be a market-wide issue. That's not going to, particularly, impact just one company. And so, you know, our anticipation is you're going to have to see quite a bit of adjustment across the industry, not just with, you know, one brand or another. Thanks very much.
Speaker Change: [inaudible]
John M. Vandemore: Our next question comes from Gisela Wong with Evercore. Please proceed with your question. Hi, thanks for taking the question. Just a bit digging into the supply chain disruption to Europe, how is the flow of products already kind of coming in through in the third quarter? And if so, do we expect international wholesale to see a big pickup in growth there? And are we, is there any risk of congestion leading to additional cost in the third quarter and fourth quarter from that?
Speaker Change: Thanks very much.
Speaker Change: Our next question comes from Gisela Wong with Evercore. Please proceed with your question.
Gisela Wong: Hi, thanks for taking the question. I'm just a bit digging into the supply chain disruption to Europe .
Gisela Wong: How is the flow of products already kind of coming in through in the third quarter, and if so, do we expect international wholesalers to see a big pickup on the growth there, and are we, is there any risk of
John M. Vandemore: And then just on China, I think you mentioned ex-China, it was up 7% in the quarter. Any early reads on the trend for July and, you know, the back half? Do we think this, you know, high single-digit number holds XFX into the second half? Thank you.
Gisela Wong: congestion leading to additional cost in the third quarter fourth quarter from that
Speaker Change: And then just on China, I think you mentioned ex-China, it was up 7% in the quarter, any early reads into trend for July ? And you know, back half, do we think this, you know, high single-digit number holds XFX into the second half? Thank you.
John M. Vandemore: On the supply chain, I think the best answer I can give you is an illustrative data point on inventories. And we mentioned this in our script. Our on-hand inventory levels in Europe at the end of June were down 40%.
Speaker Change: On the supply chain, I think the best answer I can give you is an illustrative data point on inventories, and we mentioned this in our script. Our on-hand inventory levels in Europe at the end of June were down 40%.
John M. Vandemore: Our in-transit inventories were up over 150%, so it gives you a flavor of just how much got delayed into the quarter. We are seeing that flow improve. A lot of that in-transit is, quite frankly, already landed or is in the process of landing and will get processed through.
Speaker Change: Our in-transit inventories were up over 150%, so it gives you a flavor of just how much
Speaker Change: got delayed into the quarter. We do, you know, we are seeing that flow improve.
John M. Vandemore: And it is, again, one of the reasons why we're confident enough in the bookings to be able to raise the guidance. That will clearly manifest on the international wholesale side, particularly in Europe. Insofar as China is concerned, I don't want to get down to kind of country-level guidance, but I would say from the get-go this year, we expected growth.
Speaker Change: [inaudible]
Speaker Change: on the international wholesale side, particularly in Europe .
John M. Vandemore: We continue to see growth. However, we do know that there will be hiccups given the recovering nature of that market. On a constant currency basis, the growth was, while not what we had come to expect or hope for, it was a solid, high single-digit number.
Speaker Change: Insofar as China is concerned, I don't want to get down to country-level guidance, but I would say, from the get-go this year, we expected growth.
Speaker Change: We continue to see growth. We do know that there will be hiccups given the recovering nature of that market.
Speaker Change: On a constant currency basis, the growth was, while not what we had come to expect or hope for, it was a solid high single-digit number. Whether or not that continues over the balance of the year,
John M. Vandemore: Whether or not that continues over the balance of the year is what we have to see. Nothing from a reading perspective we can give you so far in July, given how early it is, plus just the nature of that market and how it tends to recover after these big selling events. But again, our expectation continues to be for growth in the year. We are positive about the long-term opportunity of the market, and I think we're going to continue to work both the product that is obviously responding across the globe in that market, as well as tactics specific to the market, which have been paying off, and we would expect will in the future as well. Goddard, thank you.
Speaker Change: is what we have to see. Nothing from a read perspective we can give you in July thus far given how early it is.
Speaker Change: Plus just the nature of that market and how it tends to recover after these big selling events. But again, our expectation continues to be for growth in the year.
Speaker Change: We are positive on the long-term opportunity in the market, and I think, you know, we're going to continue to work both the product that is
Speaker Change: Unknown Speaker, Unknown Presenter, Unknown Speaker, David Weinberg
John M. Vandemore: Our next question comes from Will Gaertner with Wells Fargo. Please proceed with your question. Hey, guys, thanks for taking my question here. Just curious about digging into China a little bit more. Can you just talk a little bit about how much?
Speaker Change: Unknown Speaker, Unknown Attendee, David Weinberg
Speaker Change: Our next question comes from Will Gaertner with Wells Fargo. Please proceed with your question.
Frederick William Gaertner: Hey guys, thanks for taking my question here. Just curious, digging into China a little bit more, can you just talk a little bit about how much of the China inventory is China for China versus
Frederick William Gaertner: of the Chinese inventories, China for China versus versus imported to the US. Can you give us a sense of that? Well, it's not a static number is probably the biggest challenge to do that.
Frederick William Gaertner: versus imported to the U.S. Can you give us a sense of that?
John M. Vandemore: But I mean, obviously, with about 40-45% of our production coming from that market and a mid-teens percent of our overall sales coming from that market, you can see it's no small quantum of goods. It's never that precise, though, because, you know, for production efficiency purposes, we're not always going to run a product in the market that's made for the market. Sometimes that's not the most efficient thing to do.
Speaker Change: Well, it's not a static number, it's probably the biggest challenge to do that, but, I mean,
Speaker Change: Obviously, with about 40-45% of our production coming from that market, and a mid-teens percent of our overall sales coming from that market, you can see it's no small quantum of goods.
Speaker Change: It's never that precise, though, because, you know, for production efficiency purposes, we're not always going to run, you know,
Speaker Change: A product in the market that's made for the market, sometimes that's not the most efficient thing to do, but I would consider it to be a meaningful component of the overall production in China, is for China.
John M. Vandemore: But, I would consider it to be a meaningful component of the overall production, you know, in China for China. And on ASPs, it looked like... We saw some deceleration; they turned negative this quarter. Just curious if you have any color there, both on the wholesale side and the DTC side. Yeah, I mean, nothing really outlandish.
Speaker Change: Got it. And on ASPs, it looked like we saw some deceleration, they turned negative this quarter. Just curious if you have any color there, both on the wholesale side and the DTC side.
John M. Vandemore: I think it was, you know, we saw small movements. I think, more than anything, quite frankly, that's probably product mix associated, certainly on the domestic side of things. On the international side of things, there's definitely some of the FX impact gets bled through on the ASPs. We don't adjust those for constant currency.
Speaker Change: Yeah, I mean, nothing really outlandish. I think it was, you know, we saw small movements, I think more than anything, quite frankly, that's probably product mix.
Speaker Change: Associated Certainly on the domestic side of things on the international side of things There's definitely some some of the FX impact gets bled through on the ASP
Speaker Change: We don't adjust those for constant currency.
Speaker Change: on the, you know.
Speaker Change: On the direct-to-consumer side of things, you know, there's small effects from mix.
John M. Vandemore: On the, you know, on the direct to consumer side of things, there are small effects from mix. Plus, you know, we continue to roll out more and more products with our Skechers hands-free slip-in technology, as well as other comfort technologies. And so as those become more prevalent, just because of the life cycle of the product, they get included in, you know, certain promotions a little bit more than they would have been in the past.
Speaker Change: Plus, you know, we continue to roll out more and more products with our Skechers hands-free slip-in technology, as well as other.
Speaker Change: comfort technologies. And so as those become more prevalent, just the lifecycle of the product, they get included on, you know, certain promotions, a little bit more than they would have been in the past. So that gives, you know, a little bit of
David Weinberg: It has a little bit of an effect on ASPs, but overall I would say, generally speaking, you know, they were, they were pretty, pretty...
John M. Vandemore: So that gives, you know, a little bit of, has a little bit of an effect on ASPs. But overall, I would say, generally speaking, they were pretty, pretty consistent. Got it. And just maybe one last one for me on the DTC.
David Weinberg: Consistent.
John M. Vandemore: So you said that, Unknown Speaker. You saw some traffic slow down in Brick and Mortar. Better pick up any company. Well, I don't know that I have the answer to that in all honesty. I would say it was pretty consistent with a broader Industry 10 trend that we saw reported beginning in really late May and continuing on into June.
Speaker Change: Got it. And just maybe one last one for me on the DTC. So you said that
Speaker Change: You saw some traffic slow down in Brick-and-Mortar, but I'll pick up any comms for you.
Speaker Change: Just frame out why you think that happened, what the delta was between the two, and why you think there was, you know, slow down traffic versus, in brick and mortar versus commerce.
Speaker Change #100: Well, I don't know that I have the answer to that in all honesty. I would say it was pretty consistent with a broader Industry 10 trend.
Speaker Change #100: that we saw reported beginning in really late May and continuing on into June . I would say...
John M. Vandemore: I would say what we saw was pretty consistent with what the industry saw. On the e-com side, I think that's probably mostly a testament to having the product people want available and our ability to fulfill orders quickly. And, you know, clearly, a consumer can get that in a store as well, but if they're not in the practice or, you know, not going to stores, the e-commerce solution is a great fallback, and having the right product, right inventory, and right marketing available to drive that, I think, was the difference.
Speaker Change #100: What we saw was pretty consistent with what the industry saw. On the e-com side, I mean, I think that's probably mostly a testament to having the product people want available and our ability to fulfill quickly.
Speaker Change #100: And, you know, clearly a consumer can get that in a store as well, but if they're not in the practice or, you know, not going to stores, the e-comm solution is a great fallback, and having the right product, right inventory, right marketing available to drive that, I think, was the difference. I would also just note, again,
John M. Vandemore: I would also just note, again, last year our comps on the domestic direct consumer side of things were fantastic, and our e-commerce comps were actually trailing a bit because of a prior year issue, so there's some of it also that is just the comparison point is a bit different for each at this juncture. You know, it's also fair to say that where people decide to shop. Skechers' popularity is not only determined by our own stores and where we sell Skechers. People may go to different department stores or different malls or different parts of town to buy other things or other things that are being promoted and buy footwear on the side for their family, always searching for Skechers.
Speaker Change #100: Last year, our comps on the domestic, direct-to-consumer side of things were fantastic.
Speaker Change #100: and our e-commerce comps were actually trailing a bit because of a prior year issue. So there's some of it also that is just the comparison point is a bit different for each at this juncture.
Speaker Change #101: You know, it's also fair to say that where people decide to shop
Speaker Change #102: It is not.
Speaker Change #102: by our own stores and where we sell Skechers.
Speaker Change #102: Unknown Speaker, Unknown Attendee, David Weinberg
John M. Vandemore: So it depends on whether more people shop online through Inclement, whether where it is and regionally and what's on promotion, what they're shopping for, or what they're doing for entertainment. So, they'll go and shop in different places at different times for various different reasons, not all pertaining to the way we promote or where our shoes are offered specifically. So, that's why we're constantly saying that we want to be where our consumer prefers to shop, whether it's for Skechers or not. And we promote all three, knowing we capture that consumer somewhere along the line. Thank you.
Speaker Change #103: for entertainment.
Speaker Change #104: So they'll go and shop in different places at different times for various different reasons not all pertaining to the way we promote or Where our shoes are offered
Speaker Change #104: specifically. So that's why we're constantly saying that we want to be where our consumer prefers to shop whether it's for Skechers or not and we promote all three knowing we capture that consumer somewhere along the line.
John M. Vandemore: Our next question comes from Christina Katai with Deutsche Bank. Please proceed with your question. Hi, good afternoon.
Speaker Change #105: Thank you.
Christina Katai: Thanks for taking the question. I wanted to ask about EMEA at up 14%. It continues to do really well. Can you maybe unpack what you're seeing in the market for underlying demand? Have you seen any changes in consumer buying patterns at all? Just maybe comment on the exit trends that you saw in the region and if there's anything that we should expect in terms of performance between the third quarter and the fourth quarter? You know, the strength came out of DTC.
Speaker Change #106: Our next question comes from Christina Katai with Deutsche Bank. Please proceed with your question.
Christina Katai: Hi, good afternoon. Thanks for taking the question. I wanted to ask about EMEA. Up 14%, it continues to do really well. Can you maybe unpack what you're seeing in the market for underlying demand? Have you seen any changes in consumer buying patterns at all? Just maybe comment on the exit trends that you saw in the region, and if there's anything that we should expect
John M. Vandemore: I mean, the DTC numbers out of EMEA, in particular, quite frankly, continue to surprise us to the upside. The products responding, you know, we continue to build strength on our retail presence there. E-commerce also was an advantage in that marketplace, which, as you recall, is really something we only began last year. It has, I think, gotten better and better at it. So that really came down to consumer demand.
Speaker Change #108: But sort of performance between the third quarter and the fourth quarter.
Speaker Change #109: You know, the strength came out of DTC. I mean, the DTC numbers out of me in particular.
Speaker Change #110: and quite frankly continue to surprise us to the upside.
Speaker Change #111: The products resonating, you know, we continue to build into strength on our
Speaker Change #111: Our retail presence there, e-commerce also.
David Weinberg: was an advantage in that marketplace, which, as you recall, is really something we only began
David Weinberg: Last year, it has, I think, gotten better and better at it.
David Weinberg: And I think that's why we also saw really good sell-through trends. We do expect that to continue. That is a consistent trend we've seen from the beginning of the year through today. And so we're pretty confident that that will continue, despite all the challenges that people face. Two or three years from now, you know, the EMEA direct to consumer businesses will continue to thrive. You got it, that's really helpful. Sometimes it's a matter of timing as well, you know, when things slow down in Europe and they pass through our distribution center. You have to realize at wholesale, it passes through basically two distribution centers. It goes from ours to theirs, and there's a lag. So sometimes, as it happens when the opening happens after the pandemic, it takes longer.
David Weinberg: So that really came down to consumer demand, and I think that's why we also saw really good sell-through trends.
David Weinberg: We do expect that to continue, that that is, you know, a consistent trend we've seen from the beginning of the year through today. And so, you know, we're pretty confident that that will continue, despite all the challenges that people have talked about the last...
David Weinberg: You know, two or three years, you know, the EMEA direct-to-consumer business has continued to thrive.
David Weinberg: Unknown Speaker, Unknown Presenter, David Weinberg
David Weinberg: Our direct-to-consumer outlets, both online and in stores, will have more current inventory slightly faster. So you see the pickup in direct-to-consumer, and as it goes faster through, just like we're seeing here now, there's a leveling out at direct-to-consumer as the inventory and our newer product catches up with the wholesale side as well. So we feel confident about demand in both areas, but there's timing of availability of new inventory changes, especially as you get into a new season when there are so many supply chain disruptions along the way. Thank you for that.
David Weinberg: Our direct-to-consumer outlets, both online and stores, will have more current inventory.
Speaker Change #112: Slightly faster. So you see the pickup in direct-to-consumer, and as it goes faster through, just like we're seeing here now, there's a leveling out at direct-to-consumer as the inventory and our newer product catches up with the wholesale side as well.
Speaker Change #113: So we feel confident in demand in both areas, but there's timing of availability of new inventory changes, especially as you get into a new season when there's so many supply chain disruptions along the way.
John M. Vandemore: I wanted to follow up on domestic trends, just maybe if you have any sense of how back-to-school is performing and just how you would characterize the domestic promotional environment. Thank you. I would characterize the promotional environment as largely the same as what we've seen the last couple of quarters. Nothing jumps out to us as...
Speaker Change #114: That's great, thank you for that. I wanted to follow up also on domestic trends, just maybe if you have any sense on how back-to-school is performing and just how would you characterize the domestic promotional environment. Thank you.
Speaker Change #115: I would characterize the promotional environment as largely the same as what we've seen the last couple of quarters. Nothing jumps out to us as...
John M. Vandemore: Indicating a significant change, you know, now or in the near future. You know, I think it's pretty early to tell on back to school; we're only seeing the initial, you know, glances at it. So I don't, I don't know that there's really a reading we can give that's meaningful at this juncture. Our next question comes from Chris Nardone with Bank of America. Please proceed with your question. Thanks, guys. Good afternoon,
Speaker Change #116: indicating a significant change, you know, now or in the near future. You know, I think it's pretty early to tell on back to school. We're only seeing the initial, you know, glances at it. So I don't, I don't know that there's really a read we can give that's meaningful at this juncture.
Speaker Change #116: . . .
Speaker Change #116: Unknown Speaker, Unknown Attendee, David Weinberg
Speaker Change #118: Our next question comes from Chris Nardone with Bank of America. Please proceed with your question.
John M. Vandemore: So regarding your US direct to consumer business, can you clarify whether you've changed your expectations for the back half of the year relative to your thoughts last quarter? I'm just trying to gauge whether your improved sales guidance is solely due to the better than expected order book trends. And then regarding products, if you can just elaborate a little bit more on what categories are outperforming and whether you're still seeing a broader trade up within your portfolio? For your comfort technology products.
Christopher Michael Nardone: Thanks, guys. Good afternoon.
Christopher Michael Nardone: So regarding your U.S. direct-to-consumer business, can you clarify whether you've changed your expectations for the back half of the year relative to your thoughts last quarter? I'm just trying to gauge whether your improved sales guidance is solely due to the better-than-expected order book trends.
Speaker Change #121: And then regarding product, if you can just elaborate a little bit more on what categories are outperforming and whether you're still seeing a broader trade-up within your portfolio to your comfort technology products.
John M. Vandemore: Yeah, relative to domestic DTC. We had held back our view on the back half of the year in our earlier guidance. So I would say from this point, we really haven't changed it markedly, but we had always, I think, been conservative about our view on the domestic DTC front, knowing in particular what significant comps there are. We were up against, but to more precisely answer your question, you should construe that the vast majority of the, you know, the elevation in our expectations for the years has come from the wholesale side domestically and the order book there.
Speaker Change #119: Relative to domestic DTC,
Speaker Change #120: We had held back our view on the back half of the year in our earlier guidance, so I would say from this point, we really haven't changed it markedly, but we had always, I think, been conservative about our view on the domestic DT.
Speaker Change #119: [inaudible]
Speaker Change #119: We were up against, but to more precisely answer your question, you should construe that the vast majority of the, you know, the elevation
John M. Vandemore: Relative to product, it's really not a division or a gender only because we're seeing growth across a lot of those. I would say it is, as we've spoken about for the last really year and a half, two years, maybe even longer, the benefit of the comfort technologies, and they are continuing to lead consumers to trade up within our portfolio, but that's clearly continuing to resonate. Both Skechers' hands-free slip-in, which is our newest, but also many of the others, ArchFit, Max Cushioning, our Hyperburst technology, the traditional WideFit that we offer, all of those are combining to translate at the consumer level to increased conversion because they know with those technologies they're going to get more comfortable shoes than they can otherwise obtain in the market. So we are continuing to see that trend hold true, Thank you.
Speaker Change #119: In our expectations for the years coming from the wholesale side domestically.
Speaker Change #119: and the order book there.
Speaker Change #119: Relative to product, it's really not a division or a gender, only because we're seeing growth across a lot of those. I would say it is, as we've spoken about the last, really, year and a half, two years, maybe even longer, it's the benefit of the comfort technologies, and they are continuing to lead consumers.
Speaker Change #119: to trade up within our portfolio, but that's...
Speaker Change #119: clearly continuing to resonate. Both Skechers Hands-Free Slip-In, which is our newest, but also many of the others, ArchFit, Max Cushioning, our Hyperburst technology, the traditional WideFit that we offer, all of those are combining to
Speaker Change #122: Transcribed by https://otter.ai
Unknown Executive: Warrer and continue to be, I would say fairly modest on domestic DTC for the back half of the year.
Speaker Change #122: were and continue to be, I would say, fairly modest on domestic DTC for the back half of the year.
Tom Nikic: Our next question is from Tom Nikic with Web Bush Security. Please proceed with your question.
John M. Vandemore: Our next question is from Tom Nikic with Woodbush Securities. Please proceed with your question. Hey, thanks for taking my question. I want to ask about SG&A.
Speaker Change #122: Thank you.
Speaker Change #123: Our next question is from Tom Nikic with Woodbush Securities. Please proceed with your question.
John M. Vandemore: Is there anything from a timing perspective that we should think about, you know, Q3 versus Q4? Is there any lumpiness in marketing or anything like that as we work with our models? Um, I knew I couldn't get off a call without somebody asking about G&A.
Unknown Attendee: Okay, take my question. I want to ask about SG&A. Is there anything from a finding perspective that we should think about, you know, Q3 vs Q4? Is there any lumpiness in marketing or anything like that, as we work with our models?
Tom Nikic: Hey, thanks for taking my question. I want to ask about...
Tom Nikic: and S.G. and A. Is there anything from a timing perspective that we should think about, you know, Q3 versus Q4? Is there any lumpiness in marketing or anything like that as we work with our models?
Unknown Executive: I knew I couldn't get off a call without somebody asking about G&A. I don't think I'm going to add a bit of pressure to talk. We had mentioned previously that we were consciously over-investing into, I think you can take it, you know, as that doesn't mean we're not investing, but I think the investment relative to the growth and sales we expect will be much more in line. I would say absent that, no, nothing really stands out, but that should mean to you that we'll continue to invest in new stores. We have new distribution coming online, and you know we're going to continue to put money into marketing.
John M. Vandemore: The only thing I'd point out is that I appreciate that, Tom. We had mentioned previously that we were consciously overinvesting in Q2. I think you can take it, you know, as that.
Speaker Change #125: I knew I couldn't get off a call without somebody asking about G&A. The only thing I can point out is, I appreciate the time.
Speaker Change #128: We had mentioned previously that we were consciously over-investing.
John M. Vandemore: It doesn't mean we're not investing, but I think the investment relative to the growth and sales we expect will be much more in line. I would say, absent that, nothing really stands out, but that should mean to you that we'll continue to invest in new stores. We have new distribution coming online, and we're going to continue to put money into marketing. I will note, though, the line in our prepared remarks that we did see improved efficiency on the distribution side of things, which was good to see, because that's been a reflection of a lot of work over the last years, given some of the challenges that we've had with the supply chain. So that was actually a nice bright spot as well.
Speaker Change #130: In Q2, I think you can take it.
Speaker Change #129: as that doesn't mean we're.
Speaker Change #126: We're not investing.
Unknown Speaker: But I think the investment relative to the growth in sales we expect will be much more in line.
Speaker Change #127: I would say absent that, no, nothing really stands out, but that should mean to you that, you know, we'll continue to invest in new stores. We have new distribution coming online.
Unknown Executive: I will note, though, you did give the line in our prepared remarks that we did see improved efficiency on the distribution side of things, which was good to see, because that's been a reflection of a lot of work over the last years, given some of the challenges that we've had with supply chain. So that was actually a nice bright spot as well.
Speaker Change #127: And, you know, we're going to continue to put money money into marketing. I will note, though, we did the line in our in our prepared remarks that we did see improved efficiency on the distribution side of things, which was good to see, because that's.
Speaker Change #127: That's been a reflection of a lot of work over the last years, given some of the challenges that we've had with supply chain. So that was actually a nice bright spot as well. But I would generally say you can expect continued
John M. Vandemore: But I would generally say you can expect continued investment on the marketing side, but not at the year-over-year increase that we did this quarter. This quarter was a focal point for us, and we do believe that it will pay off going forward. If I can follow up with one more, on U.S. wholesale, have you found that at the consumer level, the acceptance of and excitement around the uh the slip-in products and and the new technologies are as robust as you had seen in DTC previously?
Unknown Executive: But I would generally say you can expect continued investment on the marketing side, but not at the year or year increase that we did this quarter. Was was a focal point for us, and we do believe that will pay off kind of going forward.
Speaker Change #127: We've made a lot of investment on the marketing side, but not at the year-over-year increase that we did this quarter. This quarter was a focal point for us, and we do believe that will pay off going forward.
Unknown Attendee: If I follow up with one more on U.S. wholesale, have you found that at the consumer level that, you know, the acceptance of, you know, any segment around the slip in products and the new technologies are as robust as, you know, what you would see in DTC previously.
Speaker Change #131: Understood. If I can follow up with one more. On U.S. Wholesale, have you found...
Speaker Change #132: that the, at the consumer level, that, you know, the acceptance of, you know, and the excitement around the slip-in products and the new technologies are as robust as, you know, what you had seen in DTC previously.
Unknown Executive: Yes, yes.
John M. Vandemore: Yes, yes. I think some of that, though, to be clear, is somewhat reflective of the timing through which wholesale accounts have taken up the technology. You know, what we see is when they order the technology, when they order what we're bringing to market new, they see incredible response for those technologies. And I'd say it is very commensurate with what we've seen in our...
Unknown Executive: I think some of that, though, to be clear, is still reflective of the timing through which, you know, wholesale accounts have taken up the technology. You know, what we see is when they order the technology, when they order what we're bringing to market new, they see incredible response for those technologies. And I'd very, very commend you with what we've seen in our DTC.
Speaker Change #133: Yes, yes. I think some of that, though, to be clear, is...
Speaker Change #133: Somewhat reflective of the timing through which, you know, wholesale accounts have taken up the technology. You know, what we see is when they order the technology, when they order what we're bringing to market new, they see incredible response for those technologies. And I'd say very commensurate with what we've seen in our DTC.
Unknown Attendee: Great. Thanks so much, John and David, and that's what the rest of the year.
John M. Vandemore: Thanks very much, John and David, and best of luck for the rest of the year. We have reached the end of the question and answer session. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Speaker Change #133: Thanks very much, John and David, and best of luck the rest of the year.
Unknown Executive: We've reached the end of the question and answer session. This includes today's conference. You may just lecture lines at this time. And we thank you for your.
Speaker Change #134: Thanks all.
Speaker Change #135: We have reached the end of the question and answer session. This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.
Speaker Change #136: www.thevenusproject.com www.thevenusproject.com