Q3 2024 Skechers USA Inc Earnings Call
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Speaker Change: Greetings and welcome to sketches start a quarter 2024 earnings conference call.
Speaker Change: Hall. At this time, all participants are now listening only, moving. A question and answer session will follow the former presentation. As reminder, this conference is being recorded, I would now like to turn the conference over to sketches. Thank you, you may begin.
Speaker Change: Good afternoon everyone. Thank you for joining Skechers 3rd Quarter, 2024 earnings conference call. My name is Melissa Tankersley, I'm a manager on our digital marketing team at Skechers, and have been with the company since 2021. My favorite style of Skechers is the email ex from our Quart and Classics Collection.
Speaker Change: Joining us on today's call, our Sketters Chief Operating Officer, David Weinberg, and Chief Financial Officer, John Vandemore.
Speaker Change: Before we begin, I would like to remind everyone of the company's safe harbor statement.
Speaker Change: Certain statements made on today's call contain forward-looking statements based on current expectations, including about imitation statements addressing the beliefs, plans, objectives, estimates, and expectations of the company, and its future results and certain events.
Speaker Change: These four-given statements involve known and unknown risks and certainties 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 on side by any of our forward-looking statements will occur.
Speaker Change: Please refer to the company's reports filed with the SEC, including its annual report on Form 10K and Quarterly Reports on Form 10Q. 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.
David Weinberg: Good afternoon and thank you for joining us today on our third quarter of 2024 Conference Call.
David Weinberg: The third quarter marked a new quarterly sales record as we achieved 2.35 billion in sales and increase a 16% or 323 million. Our earnings per the moon each year will $1.26 to 35% increase.
David Weinberg: We saw a significant growth in both our segments, 21% in wholesale, 9.6% in direct to consumer, and balance growth of 16% internationally and 15% domestically.
David Weinberg: These across the board increases and records sales are attestimate to the widespread acceptance of our diverse product as customers and consumers increasingly look to sketches as their source of innovative, comfortable, footwear.
David Weinberg: Our product line offers a unique value proposition for partners and consumers providing style, comfort, quality, and innovation at a reasonable price.
David Weinberg: These attributes the forensic age sketches are consistent focus on new products and delivering our signature comfort technology across the portfolio from sandals and boots to performance and sports styles is key.
David Weinberg: Consumers now seek sketches, comfort features, knowing these styles offer more values.
David Weinberg: For the sketches performance division, we see a significant opportunity to build on our existing performance business, which includes technical running, golf and pickleball footwear, with the addition of new categories that will attract a broader audience.
David Weinberg: We are in the early stages of team sports with a growing roster of Olympians and elite athletes competing in our basketball, soccer, court and cleatives for where globally.
David Weinberg: Regardless of the sport and skill level, elite or recreational, athletes can trust that with sketches, they will experience and enjoy comfort that performance.
David Weinberg: Raising awareness and creating purchasing tent for a lifestyle and performance technologies has been an integral part of our growth. We achieved this through both feature-focused marketing campaigns and by leveraging our strong team of ambassadors and athletes.
David Weinberg: Earlier this quarter, Snoop Dogg and Philadelphia 76's basketball star, Joel M. Beed, both achieved golden moments at the Paris Games wearing sketches.
David Weinberg: Joe Weld and Team USA earned the gold medal in basketball, while Snoop champion athletes around the world and his sketches by Snoop Dogg Gold Shoes.
David Weinberg: Also, earlier this year, Harry Kane, the celebrated striker and sketches athlete received the Golden Boog Award as the leading scorer in Europe. And just last month, he competed in his limited edition.
David Weinberg: Gold sketches football boots while earning a gold cap for 100th match on English National Team.
David Weinberg: For lifestyle, we recently saw a TV host, Howie Mandel, and launched a campaign featuring him across North America, as well as former Dutch footballer Ruth Goodett, who slipped in campaigns began airing last month in Europe.
David Weinberg: This month, we introduced our first ambassador for the Philippines, Theo Wartsbach, who had attracted crowns of fans at a Minilla Mall event.
David Weinberg: Overall, we experienced healthy consumer sentiment and shopping behavior for sketches across channels. As more of our comfort technology products became widely available.
David Weinberg: As we continue to drive purchase intent, can use more innovation in more of our products and ensure that they are available globally. We remain focused on building efficiencies within our business to scale for profitable growth.
David Weinberg: Looking at our third quarter results in more detail. International sales increased 16% and represented 61% of our total sales.
David Weinberg: By Regent, we saw growth in a mere 30% to the increases across every market.
David Weinberg: and the Americas of 14% led by the United States and Canada.
David Weinberg: Additionally, APAC increased 7.4% led by Japan, Korea and India. We achieve impressive international sales growth while navigating challenges in certain markets, especially in China, where we continue to see pressure on consumer discretionary spend.
David Weinberg: With our established Longstanding Business in China and a strong team on the ground, we are confident in our ability to withstand these short-term impacts.
David Weinberg: In India, we saw an impressive rebound in the quarter with 24% growth.
David Weinberg: We continue to work closely with both our India team and regulators to further advance our local solutions strategy.
David Weinberg: We are seeing positive trends and remain optimistic about the progress in this important market. We seem tremendous opportunity, not only in our lifestyle business but also in performance. We have longest-advanced run clubs across 10 cities and are branching into new sports.
David Weinberg: This year, we became the Kids Fonches for the all-India Pickable Association and signed multiple players. For the introduction of cricket footwear, we will also be Kids Fonches for the Mumbai Indians, signing multiple players from the Indian National Team.
David Weinberg: In September, we announced the deal with NBA India to sponsor the youth basketball team. The demand for our product is strong and India has demonstrated in the third quarter, and we will continue to invest in the important market.
David Weinberg: For a wholesale sales group 21% due to increases of 26% domestically and 18% internationally, our domestic wholesale strength reflects a healthier market that is embracing our comfort technologies.
David Weinberg: This resulted in double-digit increases across our men's, women's and kids' fortwear, across our many product lines and significant improvements in volumes. With Image National's wholesale, we saw a meaningful growth, especially in a mirror, due to continued demand for our innovative products and improved timing of shipments.
David Weinberg: Given the breadth of product offering available, the REC to consumer continues to be a key indicator of consumer sentiment.
David Weinberg: Sales Increased 9.6% primarily due to an increase of 14% internationally, with improvements in both our retail and e-commerce challenge.
David Weinberg: Domestic Directed Consumer Sales improved 3.7% on top of last year's 14% increase, primarily due to strong e-commerce growth as more consumers gravitated to shopping online.
David Weinberg: We ended the court up with 5,332 discussions branded source worldwide of which 1743 are company owned locations, including 592 in the United States.
David Weinberg: We opened 68 company-owned stores in the quarter, including 20 in China, 17 in the United States, 8 in Mexico, 5 in Korea, and 3 in Colombia. We close 27 stores in the quarter.
David Weinberg: Also in the period, 121 third body stores open, including 56 in China, 14 in Indonesia, 10 in India, 7 in South Korea and 4 in the Netherlands and Vietnam.
David Weinberg: This brings us third party store count at quarter-end to 3,589.
David Weinberg: In the fourth quarter to date, we've opened 21 company-owned stores, including seven big box stores in the United States and four locations in China. We expect to open a total of 55 to 60 company-owned stores worldwide in the fourth quarter.
David Weinberg: From an investment perspective, our priorities include continuing to strengthen our product offering while amplifying demand creation and enhancing our worldwide operational capabilities.
Speaker Change: Building our sketches retail footprint and ensuring sketches product is available where and when our diverse consumer base wants to shop And now I'd like to turn the call over to John for more details on our financial results
John Vandemore: Thank you, David, and good afternoon, everyone.
John Vandemore: Getters delivered record-third-quarter financial performance, with sales of 2.35 billion and increase of 16% and earnings per share of $1.26 up 35% driven by strong international growth across segments.
John Vandemore: Continued Momentum in Domestic Wholesale and Durable Gross Margins.
John Vandemore: Our diverse portfolio of innovative, comfort technology products combined with our distinctive value proposition, continues to attract and engage consumers, fortifying sketches as they preferred brand within the industry.
John Vandemore: These results are particularly impressive considering the challenges we face during the quarter and demonstrate the resilience of the sketchers brand.
John Vandemore: Let me address the market in China, where macroeconomic pressures and its impact on the consumer are well documented, sales declined by 0.7% year, which was below our initial expectations for the quarter.
John Vandemore: Our talented local team has responded by adjusting our near-term plans to navigate the uncertain situation. And we have modest expectations for the balance of the year, including single-zay.
John Vandemore: Over the years, we have built an incredible brand in China and remained confident and optimistic about the long-term opportunities for sketches in this market.
John Vandemore: In contrast to this challenge, we saw Mark improvement in several of our international businesses, particularly in Europe, where our mitigation strategies to address supply chain delays for fruit.
John Vandemore: We also saw a rebound in India where the continued collaboration between our local team, suppliers and regulators led to a meaningful turnaround from last quarter's results.
John Vandemore: Overall, we believe our double digit sales growth in the quarter is a testament to the strength of our brand, the effectiveness of our global diversification and the nimble execution by our talented teams.
John Vandemore: Turning to Director Consumer, sales grew 9.6% year over year to 931.7 million. International with a key driver growing 14% with increases in both retail and e-commerce channels across most markets.
John Vandemore: Domestic sales increased by 3.7% on top of 14% growth last year.
John Vandemore: We maintain growth in e-commerce, while observing a gradual improvement in store traffic, which yielded stable retail sales. Based on early results, we expect similar direct to consumer trends in the fourth quarter, recognizing that the key holiday period remains ahead.
John Vandemore: In wholesale, sales increased 21% year to 1.42 billion.
John Vandemore: Domestic wholesale sales drew 26% or 107 million versus the prior year, driven by solid consumer demand and the increased capacity of our wholesale customers to embrace our comfort technology products.
John Vandemore: International wholesale sales increased 18% or 134.4 million reflecting the robust consumer appetite for our brand across the globe leading to double digit growth in every region when excluding results in China.
John Vandemore: Based upon booking trends and early results, we anticipate wholesale will continue to deliver strong results through the fourth quarter.
John Vandemore: Now turning to our regional sales, in the Americas sales for the third quarter increased 14% year to 1.16 billion, driven by continued momentum and domestic wholesale.
John Vandemore: The America's direct to consumer business also grew impressively across nearly all markets demonstrating continued consumer demand for our product
John Vandemore: In a month, sales increased 30% year over year to 625.6 million. Driven by double digit growth in both our wholesale and direct to consumer businesses.
John Vandemore: All channels exhibited outstanding growth in nearly every market, driven by strong consumer demand and wholesale benefiting from improved product availability.
John Vandemore: In Asia Pacific sales increased 7.4% versus the prior year.
John Vandemore: 266 million.
John Vandemore: With results impacted by the aforementioned challenges in China. Excluding China, sales grew an impressive 21% reflecting a remarkable turnaround in India, as well as broad strength across channels in most markets.
John Vandemore: Gross margin was 52.1% down 80 basis points compared to the prior year, primarily due to a lower average selling price from slightly higher levels of promotional activity in certain markets.
John Vandemore: Operating expenses decrease 30 basis points at the percentage of sales you're over year, to 42.2%.
John Vandemore: Selling expenses as a percentage of sales increase 20 basis points versus last year to 9%. As mentioned in prior quarters, the higher spend was largely focused on brand building investments and increasing awareness for our latest comfort technologies and new categories.
John Vandemore: General and Administrative expenses decreased 40 basis points as a percentage of sales to 33.2% with the leverage primarily driven by efficiencies realized in our distribution network.
John Vandemore: Mornings from Operations were 233.4 million in increase of 9.5% compared to the prior year and operating margin for the quarter was 9.9%. Compared to 10.5% last year.
John Vandemore: Other income with 11.9 million, an increase of 18.9 million compared to the prior year, driven by favorable foreign currency exchange rates, and increased interest income.
John Vandemore: Our effective tax rate for the third quarter was 14.7% compared to 19.5% in the prior year, reflecting the release of certain allowances and other provision adjustments.
John Vandemore: earnings per share will $1.26 per student share, a 35% increase compared to the prior year, on 153.7 million weighted average diluted shares outstanding.
John Vandemore: and now for an E2R balance sheet.
John Vandemore: Inventory was 1.71 billion and increase of 24% or 324.8 million compared to the per year. The increase resulted from higher inventory levels in China and elevated intransit inventory, particularly in Amia.
John Vandemore: which we believe will be remitted as market conditions stabilize and supply chain constraints continue to improve.
John Vandemore: A counter-seable of quarter-in, we're 1.19 billion in increase of 257.7 million compared to the prior year, reflecting higher wholesale sales.
John Vandemore: We ended the quarter with 1.6 billion in cash, cash equivalents and investments in maintaining liquidity of 2.42 billion when including a revolving credit facility.
John Vandemore: Capital expenditures for the quarter were 113.9 million of which 56.3 million related to new store openings and enhancing our direct to consumer technologies.
John Vandemore: 22.6 million for the expansion of our corporate offices, and 17.1 million for investments in our distribution infrastructure.
John Vandemore: Our capital investments are focused on supporting our strategic priorities, which include maintaining our best-in-class distribution capabilities, growing our direct-to-consumer segment, and expanding our brand presence globally.
John Vandemore: During the quarter, we repurchased approximately 1.4 million shares of our class A common stock at a cost of $90 million. We continued to deploy our capital, consistent with our state and philosophy, while maintaining a durable balance sheet and ample liquidity.
John Vandemore: Now turning to guidance.
John Vandemore: For the full year 2024, we expect sales in the range of 8.925 billion to 8.97 billion.
John Vandemore: and earnings for the looted share in the range of $4.20 to $4.25. Representing annual growth of 12% and 21% respectively at the midpoint.
John Vandemore: This implies fourth quarter sales in the range of 2.165 billion to 2.215 billion, and earnings for the year in the range of 70 cents to 75 cents.
John Vandemore: Our effective tax rate for the year is expected to be between 18 and 19 percent. And minority interest is expected to grow in line with total sales.
John Vandemore: Capital expenditures are anticipated to be between 375 million and 400 million for the year.
John Vandemore: We remain committed to achieving 10 billion in sales by 2026 and delivering sustainable, long-term and profitable growth.
Speaker Change: We thank you all for your time today and look forward to updating you on our fourth quarter results, which we expect to release on Thursday, February 6th, 2025. With that, I will now turn the call over to David for closing remarks.
David Weinberg: Thank you John.
David Weinberg: As the comfort technology company, with innovations that include sketches, hands-free slip-ins, sketches, archfit, sketches, air-cooled memory foam, hyperburst, fit-knit, and many more technologies. We are focused on designing product that consumers both want and need at a reasonable price, and delivering it through their preferred distribution channels.
David Weinberg: Our Consumer Centric Philosophy and Innovative and Comfort-driven Mindset across our diverse product portfolio is what differentiates us and is what drives us to excel and results in record-breaking sales. With fresh products to introduce campaign support and opportunities to explore around the world, we will continue to invest in the brand, our infrastructure and our people.
David Weinberg: We remain committed to design best in class and best in value products for consumers and to profitably grow the company as we bring comfort to people from all walks of life.
David Weinberg: As always, we are grateful for the contributions of the entire sketchy organization and our valuable partners as we deliver profitable growth this year and into the future. Now, I'd like to turn the call over to the operator for questions.
Speaker Change: Thank you. We will not be conducting a question and answer session. If you would like to ask a question, please first start one on your telephone keypad. A confirmation told will indicate your line is in the question queue.
Speaker Change: You may press start to remove yourself from the queue, but participate using speaker equipment and maybe necessary to pick up the hands that before pressing the start
Speaker Change: One moment please as we pull for questions.
Speaker Change: Our first question comes from the line of day-to-day Seoul with UBS. Please receive with your question.
Speaker Change: Great, thank you so much.
Speaker Change: David John, my question is about domestic wholesale growth 26% or really big number. You mentioned it.
Speaker Change: Some of the drivers were increased capacity of their customers to, I think, add skews and just adoption of new technologies, can you just elaborate a little bit more on where the growth is coming from, what categories, like how you're able to achieve such high growth in domestic wholesale. Thank you.
Speaker Change: Good day, I mean we need to keep in mind where we were last year with the domestic wholesale marketplace and we spoke.
Speaker Change: Quite a bit about the inability of certain customers either because they add too much inventory. They didn't have an open to buy.
Speaker Change: Deploy and brace our comfort technology products, and what you're seeing is after a year of maturation market and what frankly the success of those products.
Speaker Change: Those customers are coming back and they're able to fully embrace the line. It is our comfort technology products.
Speaker Change: that's succeeding in the market both in our own stores or own retail online as well as with our wholesale partners, so the primary driver is
Speaker Change: and ability that was not there last year to really fully embrace the comfort technology message and product that the sketchers is putting forward and obviously that's supported by the marketing that we're doing to really drive consumer awareness.
Speaker Change: of the product that incorporates the technology.
Speaker Change: and maybe if we can also talk about India, it sounds like that market seems to grow progress in the last 90 days. It tells a little bit more about what you're seeing there, it just gives us an idea of how important is India to future growth. How big is the market today for Studges and where do you think you can go over time?
Speaker Change: Well, you know, we're not going to say how big the market is, but I appreciate you asking.
Speaker Change: But it's an incredibly important strategic priority for the company. Keep in mind that we've been growing exceptionally well in India really for the last, you know, eight, ten years.
Speaker Change: What you saw last quarter as we mentioned was a bit of anomaly in our view, in part because of some of the regulatory changes that had been made that we had not yet had an ability to fully
Speaker Change: Respond to, you saw some alleviation of that that allowed us to get inventory into the market in a concentrated way and that really bore a lot of fruit.
Speaker Change: This quarter, in addition, as we mentioned in our prepared remarks, we are seeing tremendous progress.
Speaker Change: in collaboration between our teams, our suppliers and the regulators.
Speaker Change: that we believe will set the table for, you know, longer term success similar to what we've seen up to this point in time. So we remain optimistic, you know, there may be challenges ahead associated with incorporating, you know, a stronger supplier of a locally, but it's something we're working on diligently.
Speaker Change: and again, you know, this quarter I think is the right example of when we can bring inventory to market in the right way with the right balance across our product line. It succeeds and succeeds wildly in that market and it's one where we're very excited about for the future.
Speaker Change: Okay, that sounds great, very helpful. John, thank you so much.
John Vandemore: Thanks, Jeff.
Speaker Change: Thank you. Our next question comes from the line of Lawrence Vasosko with the N.P. Parabas. Please see with your question.
Speaker Change: Oh, good afternoon. Thank you very much for taking my question, David John. I want to ask about the guys for top one. I know you raised the bottom end of the range.
Speaker Change: A little bit. You know, recent conferences you talked about, your expectations for China to be more muted for the backcast. So I'm just curious to know what's the offset there that goes a little bit more in the upside for the top line for the year.
David John: Well, I say you hit on the most sizable unknown at the moment, which is the market in China. We talked about that in our prepared remarks.
Speaker Change: Again, I would stress that long-term, we remain fully confident in our opportunity there as a brand.
Speaker Change: are talented team members, they're working to...
Speaker Change: Adapt to the environment, you know, we're in and so that's been the biggest
Speaker Change: Net Detox from ArbGU, but obviously the strength of what we delivered this quarter gave us.
Speaker Change: The confidence to raise that guidance
Speaker Change: which I recollect is the second corner row we've done that.
Speaker Change: and that's on the back of the strength you saw, you know, domestically, you saw an international market outside of China, really everywhere, as we noted, you know, the wholesale growth.
Speaker Change: across region to the future, China was all double digits. So what you're seeing is the product coming through the brand coming through. I think the macroeconomic environment in China will resolve itself. I think it's just a question of how quickly and in what manner.
Speaker Change: Right now I'm going to tell you what we're eagerly watching is the early returns of single day, which has started out nicely
Speaker Change: The long way to go obviously much like I would probably caution about the holidays season in the direct consumer business as a whole But so far, you know what we've seen has been encouraging, we'll just want to wait it out and see how
Speaker Change: The entire, you know, holiday plays out, but that's kind of the net effect of what we changed in our guidance to bring it up But by what I would consider to be not so small amount
Speaker Change: and maybe just a two-part question here. John, I think you mentioned the higher level of in-transit inventory, particularly around the West Sea, maybe time.
Speaker Change: Fremus, how much do you think leakage will go into fortune on reviews for top-line as we kind of try to model off the Maya And then second part of the question is really on the gross margin, I think that's a little bit of surprise for me
Speaker Change: for many that the GM would down.
Speaker Change: 80 best, I can see your bridge for the whole sound, DTC, cross-mardies.
David Weinberg: and David Weinberg.
David Weinberg: of the time. I'll be back with a little bit more color. I think you talked about a little bit more discounting. Maybe you can kind of frame how we should think about the fourth quarter gross margin for the audience. Thank you very much.
Speaker Change: Let me touch on the gross margin first. I would also just know we've set an incredibly attractive gross margins, these are historical norms.
Speaker Change: You know even though we're seeing a little bit of volatility in between quarters
Speaker Change: Hello.
Speaker Change: We think the gross margin that we've established, certainly reflects an intense and successful effort over the years to bring the gross margin up pretty significantly So I don't want to lose sight of that. I would say, you know, we had cautioned a lot all along that with the factors that play
Speaker Change: in particular on phrase, but also the environment in China. Also, the natural cadence of when you offer product on this count, we were going to see a little bit of movement. We didn't project it this...
Speaker Change: Gross Martyr was going to see a lead like you saw last quarter. So it's pretty much in line with what we expected, probably with the caveat that some of the international markets that we've mentioned.
Speaker Change: came under a little bit of pressure, most notably China. As we look forward, I would probably guide you to be flat to up a little down a little for the fourth quarter as compared to.
Speaker Change: Last year, you know, we are seeing and certainly we've talked about this, the impacts of the increased freight, particularly to Europe, but also to other markets.
Speaker Change: that we incurred over the course of the early summer. We want to see that roll through that, that'll come through and that was also a bit of the offset.
Speaker Change: at play in the current quarter. So I would say we get to kind of a flat gross margin, which would be an attractive gross margin, 53.1% of anonymous taken. That's a good outcome in our view given all this going on.
Speaker Change: Relative to inventory, you know, two main factors there, obviously the failed performance in China was as we mentioned unanticipated.
Speaker Change: That almost always has an icon effect on the short-term to inventory. It's one we're actively addressing. It doesn't give us any pause for concern. Long-term, but it is a situation we'll have to remedy in the future simply because our expectations there were not met.
Speaker Change: The other is just a continuation of the entrance that issue we saw last quarter. I would say it definitely got better.
Speaker Change: This quarter, but we're still dealing with some elevated in transit numbers, particularly in a meh but also a little bit in a few other markets. But again, we expect that to remedy itself. And that's all, you know, that's all included in the guidance that we provided.
Speaker Change: Super helpful John. Thank you very much and best of luck for the holiday season.
Speaker Change: Thank you. Our next question comes from the line of Jim Duffy with Beful. Please proceed with your question.
Jim Duffy: Oh, thank you, good afternoon. John, just start a couple of clarification questions and your prepared remarks you talked about wholesale continuing to deliver strong growth in the fourth quarter and you spoke to remedy of the inventory situation. Well, those global comments are more specific to Amia, which I think you were discussing just prior to each of those comments.
Speaker Change: Unknown Speaker
Speaker Change: Unknown Speaker, Unknown Speaker,
Speaker Change: Great. And then I want to ask on China, your comments at a conference mid-September preceded the announcement of stimulus. Since then we've had Golden Week. Have you seen any uptick in consumer activity in the China marketplace?
Speaker Change: Unknown Speaker
Speaker Change: Well, one thing we have to keep in mind is that there's been an adjustment. You're seeing the double 11 holiday has started earlier than in the past, so I'm not entirely confident that we're seeing a very...
Speaker Change: Unknown Speaker comparable experience as compared to last year. I will say, as I mentioned previously, kind of the early reads so far are good. And we've been pleased with those.
Speaker Change: We believe we've de-risked China going forward, and that's what we alluded to.
Speaker Change: In, you know, some of the conference events that we spoke at earlier in the year. I think that's the risk.
Speaker Change: Unknown Speaker pretty well in the forward guidance. What I think is remarkable in that, and I'd ask everybody to take note, is even with that this quarter, you know, we've shown pretty robust top line growth and, you know, obviously the guide is for, you know, additional top line growth that I think is fairly remarkable. So if you, if you.
Speaker Change: Unknown Speaker 0
Speaker Change: Think about that in the context of our overall strategy, I think it speaks to the strength of the diversification geographically that we have in our portfolio that I think
Speaker Change: is relatively unique, and I think probably one of the great strengths of the business, people don't fully grasp. So again, we think we've de-risked it. Early reads are generally positive, but still very early.
Speaker Change: Great, thank you.
Jim Duffy: Thanks, Jim.
Speaker Change: Thank you. Our next question comes from the line of Alex Stratton.
Speaker Change: with Morgan Stanley. Please proceed with your questions.
Alex Stratton: Perfect. Thanks so much. Congrats on a great quarter. I just wanted to focus in just on SG&A here. It sounds like.
Alex Stratton: There might be an opportunity for you guys to curtail some of the selling expenses.
Speaker Change: I'm just trying to understand kind of where should that go as a percentage of sales over time. It's definitely elevated versus history. And then really the same thing on G&A, just how you're thinking about that in the near term and long term and where that can go from these elevated levels. Thanks a lot. Unknown Speaker
Speaker Change: Yeah, so Alex, as we started the year, I think we were pretty clear about overinvesting early on a marketing basis in large part to really drive awareness for
Speaker Change: Our comfort technologies and some of the newer categories we're launching.
Speaker Change: We had started that last year in the fourth quarter. So, you know, as you look at it from a comparable basis in the fourth quarter, there's much, much less of a differential, you know, from a, from a leverage the leverage perspective. So.
Speaker Change: I would say that, you know, we generally expect to see a little bit of leverage out of marketing. It's also obviously a testimony to the strength of the top line.
Speaker Change: that we're envisioning. I would also want to call out our distribution team did a great job. We saw leverage there and that that definitely flowed through. And that's why you saw some GNA leverage. There also is, to be fair, a bit of incomparability because, as we noted in Q2,
Speaker Change: Unknown Speaker due to delays from the supply chain, you know, some of the sales that we would have expected to occur, you know, naturally in Q2.
Speaker Change: Came through in Q3
Speaker Change: That's certainly something we had to work to achieve. It didn't come free. So again, I wouldn't want to take anything away from the leverage achieved. But there is, with the sales, the record sales we posted this quarter, there's some leverage in that naturally.
Speaker Change: So I'd say, you know, in general, you know, we're looking forward, I don't think there'll be significant, you know, leverage or de-leverage in, you know, the OpEx base, you know, as it stands at the moment. But that is obviously predicated on a lot to come, in particular the holiday season.
Speaker Change: Great. Thanks, John. Maybe just one more quick bigger picture question. And you guys are kind of getting it sounds like more traction with this comfort technology or it's being more appreciated.
Speaker Change: Maybe there's some restocking happening and you guys are expanding into new categories. Is this like opening up what types of wholesale partners that you guys can work with beyond what you've historically done? Or how is your kind of wholesale partner network changing, if at all?
Speaker Change: Unknown Speaker 0 0 0 0 0
Speaker Change: I don't think it's kind of early to see a major change in that, but we're getting tests, we're doing little pieces around the world, our movement into technical athletics.
Speaker Change: It's positive for the brand in general, wherever it is.
Speaker Change: and we do a lot of our own sales online, direct-to-consumer.
Speaker Change: So there's plenty of outlets for it. This is just the very, very early stages. And I think we still have a ways to go before we become a major player in that field.
Speaker Change: and some places certainly more than others. So I think it's the early stages.
Speaker Change: Unknown Speaker
Speaker Change: Thanks a lot. Good luck.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question comes from the line of Chris Nardone with Bank of America. Please proceed with your question.
Chris Nardone: Thanks guys. Good afternoon. John, just to follow up on U.S. wholesale, can you elaborate on how your spring order book is faring and just want to gauge your confidence in growing a domestic wholesale business next year given the strength so far this year? Then also within the channel, just your assessment on the state of inventory would be very helpful.
Speaker Change: Unknown Speaker
Speaker Change: It's a little early to be talking about 25. I mean, what I can say at this point in time, we've generally been pleased both with the early stage bookings that we've seen and the conversations we're having.
Speaker Change: with our customers. We just had an opportunity to have them in for a review of the product that's forthcoming next year. And I would characterize most of the conversations as
Speaker Change: very healthy and encouraging but a little too early to be specific Chris so I probably I'd probably leave it there
Speaker Change: Okay, and just on just the overall state of inventory in the channel, like how are you feeling about that heading into the holidays?
Speaker Change: Good, good. We don't, you know, again we talked about this last year, you know, we haven't seen any...
Speaker Change: significant imbalances. I mean, you definitely need to look at it at almost the customer level, if not the regional level. But when we do that, you know, we don't see any significant imbalances in the aggregate. You know, there's some spots here or there where you see some either, you know, sell-through outpacing,
Speaker Change: about where inventories sit. Obviously, you know, the key holiday selling period is ahead of us. So, you know, we're going to watch that carefully. But at the moment, I would characterize it as fairly balanced. And even though we do have, you know, a slightly higher than planned inventory level in certain locations, it's all new inventory, you know, very little static inventory, even in China. So we feel pretty good about the composition of the inventory we have, as well as that which is in the market.
Speaker Change: Yeah, I will tell you in those meetings, the feedback has all been very positive. And I will tell you from an operational perspective, we don't have any backup at our distribution centers. It's not like anybody's looking to hold back, even though October historically for us has been a very,
Speaker Change: This year because we have been running late no one's not taking it and it will hold up significantly better for October so there's nothing really that we see that anybody's backing away or has enough or too much inventory at the present time and anecdotally the comments we have on what we've shown
Speaker Change: Our wholesale partners and even our own retail people. It's been very very positively received So as we get new stuff into the marketplace, we'll have a better idea of how well that'll fare next year
Speaker Change: Great, thank you.
Speaker Change: Unknown Speaker
Speaker Change: Thank you. As a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the queue.
Speaker Change: Our next question comes from the line of Christina Katai with Deutsche Bank. Please proceed with your question.
Speaker Change: Unknown Speaker Hi, good afternoon, and thank you for taking the question. I wanted to ask on ASPs just to get
Speaker Change: I would characterize promotionality as pretty stable.
Speaker Change: When we're using promotions, they are proving effective. So it's a pretty small envelope of promotions we're using but those are the ones that have
Speaker Change: Over the course of the last year and a half or so.
Speaker Change: proven to yield results. So I would characterize that as stable.
Speaker Change: I think, you know, in some of the comparability on ASPs is going to adjust in the fourth quarter given where we were last year. And again, in that instance, we're talking about, you know, product that would have been on exclusion in the prior year, but because it's a year older.
Speaker Change: it starts to fold into some of our discounts. So that
Speaker Change: Unknown Speaker incomparability of which I think this is largely the last quarter that fades that all being said, I would look at.
Speaker Change: The growth we have established, you know, in our guidance as.
Speaker Change: Unknown Speaker ...largely volume-related. There'll be some price.
Speaker Change: opportunity we think but largely volume related. And then just looking back on Q3, I want to stress that obviously China being a sizable market to us, that had an impact on ASPs that can't be ignored and that was obviously a reflection of the current conditions. To the extent those improve, you know, obviously there will be a pickup back through ASPs for us.
Speaker Change: Got it. That's helpful. And then just to follow up, I wanted to ask on India, can you just update us where you are on your local sourcing strategy? Just what does capacity look like now? Anything you can share in terms of how much you can produce now within India to supply domestically? And then how should we think about that from a margin perspective as well? Thank you.
Speaker Change: We've opened a number of factories. We're testing them. Our quantities grow. It's one of those things that that's very much a moving target I Wouldn't anticipate any significant change in margins right this minute
Speaker Change: as we move through and certainly it'll be should be some benefit to margin as you go for the long term so I think to John's point previously it's a moving target it we're working on it diligently I think we're ahead of the game as far as most of
Speaker Change: It won't be a straight line, so there may be some distortions along the way, but we feel extremely confident that we're early, that we're making positive progress, that we will be able to deliver, and in a relatively short period of time, it'll be an advantage to us rather than a disadvantage because of the early opportunities we took to get going and start moving this production along.
Speaker Change: I would only add that we have a meaningful production base in-country today. The reality is, you know, we produce a very wide array of product and what we're able to produce locally isn't a complete match to
Speaker Change: and Unknown Speaker, Unknown Speaker, Unknown Speaker,
Speaker Change: The full array of product we want to bring to the Indian people, we still need to mix in some imports until we, you know, build the market up to be able to produce.
Speaker Change: Most of what we need. So it's not that we don't have production capacity that we actually have the statement noted I'd say probably a leading amount of production capacity. It's just not the breadth of the product yet that we want to offer
Speaker Change: Thank you. Our next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.
Speaker Change: Good afternoon. This is Chris Dizzy. We're on for John. First question. Could you talk to what you're seeing in terms of same store sales growth and e-commerce growth and sort of new store productivity? It looks like there's been a fair amount of door growth, both domestically and internationally in the past 12 months. And then I have one follow up. Thank you.
Speaker Change: So I would say, not getting into too much detail, but as we noted in our prepared remarks, we saw continued strength across the world on e-commerce, that's domestic and all that.
Speaker Change: that we've opened over the last couple of years internationally. International comp store growth was very solid, continued to be very
Speaker Change: give back, but I would characterize it as pretty minimal. And in the end of the day, we're pretty happy to be holding on to the rather substantial increases of the government.
Speaker Change: We saw last year, you're right, there have certainly been a significant number of new doors and, you know, more doors to come. Recognize, though, that it takes time for those doors to get up to productivity. So, sometimes there's, there's always a catch up adjustment and that's obviously a number that wouldn't be in the comp numbers, but would be in the total only.
Speaker Change: Great, thank you. And just circling back on the DNA, could you just talk to some of the efficiencies you're seeing within the supply chain that's driving, you know, the leverage that you saw in Q3 and the expectation going forward? Thank you.
Speaker Change: Unknown Speaker
Speaker Change: It was really in this quarter about labor management, which is always a significant component of, you know, how we deal with the volatility.
Speaker Change: in product flows that inevitably occurs over the course of a year. In addition to that, there were some other pinpoint practices that we went after, that we were able to achieve some
Speaker Change: some I would characterize as, you know, meaningful cost reductions on but, but I would think generally considering them part of the distribution network is the right way to think about them. You know, we're optimistic we can harvest some more of those.
Speaker Change: Over the remainder of the year, but in part it is.
Speaker Change: Contingent upon, you know, how goods arrive and how quickly we have to process them.
Speaker Change: to David's point, I think we did an incredibly good job of meeting.
Speaker Change: you know, many of the delivery times, even though we were experiencing some
Speaker Change: Thank you. Our next question comes from the line of Paul Kearney with Barclays. Please proceed with your question.
Paul Kearney: Hi everyone, thanks for taking my question. Ana Mia, can you speak to the drivers behind that 30% growth given given some of the the challenges in the region and then how do you think about that growth for Q4 given what appears to be an easier comparison and I have a quick follow-up.
Speaker Change: It's largely the same thing that we've seen really over the last couple of years, consumer demand.
Speaker Change: I think, you know, as we bring more of our own stores in the markets where the brand, you know, either hadn't been participating yet, or, you know, was in a suboptimal situation, we've tended to see acceleration on the DTC side, but.
Speaker Change: It's a reflection of the strength of the product. I think the comfort technology message resonating in markets supported by active advertising, that's really been the case. And for the last couple of years,
Speaker Change: We've all been wringing our hands about the conditions in that market, which are certainly
Speaker Change: there, but it hasn't yet shown itself to in any way diminish, at least for the Skechers brand, you know, consumer interest in what we're offering. So quite frankly, I don't mean to be glib, but it's the product, it's the advertising that supports it.
Speaker Change: Unknown Speaker Yeah.
Speaker Change: Thanks. And the follow-up is on inventory and wondering if you can help frame how much of the increase in the quarter was driven from higher levels in China versus higher in transit in EMEA. And then on the China piece, what are your expectations for how long until inventory levels can normalize in the region? Thank you.
Speaker Change: Yeah, I would just, without getting into too much specific detail, I'd say China was the single largest driver and then in transits were the second. In many markets, on-hand inventory levels actually decreased. So it gives you a flavor. Those are really the
Speaker Change: but in that order, China and then in transit. I would say, you know, how long it takes to remedy, particularly the
Speaker Change: that China.
Speaker Change: Yeah, I think it's a good idea to remind everybody that we have the capacity to move that inventory around the world. It's not like it's stuck in China, stays in China. We've shown in the past and we're very adept at moving that inventory around depending on where demand is. And since we have
Speaker Change: and how we've done.
Speaker Change: with liquidating that inventory, then we'll take the best efforts to move it around the world to those places where it's necessary and just fill in. So it's a matter of timing. There's nothing that we think is old or debilitating in that inventory per se that can't be moved around the world in a relatively short period of time. Unknown Speaker
Speaker Change: Thank you so much. Best of luck.
Speaker Change: Unknown Speaker . .
Speaker Change: Thank you. Our next question comes from the line of Jessalyn Wong with Epicor. Please proceed with your question.
Speaker Change: Hi, thanks for taking our questions here. I would like to ask a little bit more on China weakness. Could you just give us a little bit more details?
Speaker Change: on where was below expectations. Do you think the weakness was driven more by overall macro or do we think that we missed on some opportunities and sales in the region?
Speaker Change: It was, it was a macro condition. I don't think there's anything that would suggest it wasn't. Given the monopoly of data we've seen from other brands, but also just if you look at where the, where the business underperformed what we had originally thought it's pretty universal. So I think we're pretty confident saying it's a macro condition. It's not a condition specific to the brand.
Speaker Change: And when I look at guidance, it seems to imply that the second half operating margins versus prior guidance is guided down. So I was wondering if there's any change to expectations to the fourth quarter operating margins there.
Speaker Change: Unknown Speaker
Speaker Change: Well, we hadn't previously given anything specific on fourth quarter operating margin. You know, obviously, as we have adjusted our forecast, we have to take into consideration the flow through effect and what that means. I would say, most notably, our expectation remains that we will be delivering double digit operating margins this year. And that's
Speaker Change: I think something to be celebrated. We've talked about that for a while, being an objective. It's not the end point, but it's a waypoint, and we'd be pretty excited to get there this year, which is our full expectation at this time.
Speaker Change: Thanks, everyone.
Speaker Change: Thank you. And we have reached the end of the question and answer session, and therefore we have reached the conclusion of this call. We do thank you for your participation. You may disconnect your lines at this time.
Speaker Change: Unknown Speaker
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Speaker Change: Unknown Interpreter. Background music playing. Music playing.
Speaker Change: Church in Waco Letters recorded on July 23, 2020