Q4 2024 Skechers USA Inc Earnings Call

Greetings and welcome to the Skechers fourth quarter and full year 2024.

Earnings Conference call at this time, all participants are in a listen only mode.

<unk> and answer session will follow the formal presentation.

If you require operator assistance. Please press star zero on your telephone keypad.

A reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to turn the call over to Skechers USA incorporated.

You may begin.

Speaker Change: Good afternoon, everyone. Thank you for joining Skechers fourth quarter and full year 2024 earnings Conference call. My name is Jason to East and I lead the cyber security engineering team here at Skechers.

Speaker Change: With the company since 2013, and my favorite style is U S cash flow from our Skechers basketball line.

Speaker Change: Joining us on today's call are scheduled as Chief operating Officer, David Weinberg, and Chief Financial Officer, John Van Tomorrow.

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 without limitation statements addressing the beliefs plans objectives estimates and expectations of the company and its future results and certain of that.

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.

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 condition cash flow 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 fourth quarter and full year conference call.

David Weinberg: 2024 off with another growth year for Skechers marked by strong financial performance and profitability the launch of innovative products and expansion into new categories worldwide.

David Weinberg: It also marked a significant milestone in our history, our 25th year as a publicly traded company.

David Weinberg: On a constant currency basis, skechers delivered sales of over $9 billion.

David Weinberg: 13% increase in diluted earnings per share of $4 40.

David Weinberg: Representing a 26% increase while recording strong gross margin of 53, 2% and achieving a double digit operating margin of 10, 1%.

David Weinberg: We also continued to return value to our shareholders through our repurchase of approximately $5 2 million shares during the year, while maintaining a healthy balance sheet.

David Weinberg: We ended the year on a strong note.

David Weinberg: Leaving fourth quarter constant currency sales of 2.24 billion and earnings per share of 86 cents or.

David Weinberg: Our performance in the quarter was broad based with reported sales growth of 17% and wholesale and 8% in direct to consumer as well as 18% growth domestically and 10% growth internationally.

David Weinberg: For almost three decades, we have upheld our core principles of delivering style comfort innovation and quality at an affordable price.

David Weinberg: We have maintained this commitment while evolving and adapting to meet the needs of our customers and drive global demand.

David Weinberg: This was again evident over the past year as we broadened the category reach of Skechers performance to deliver innovation and comfort for the court pitch field Green and trail.

David Weinberg: Building on the momentum of our sketches Pickle ball debut in 2022, we strategically expanded into soccer and basketball the following year.

David Weinberg: We focused initially on major markets for these global sports, while partnering with World class athletes to gain recognition and establish legitimacy in 2024, we expanded our soccer and basketball offering with elite Academy and youth styles available worldwide, and we introduced Skechers cricket footwear.

David Weinberg: And apparel to India, which are now available globally.

David Weinberg: Our athletes provide valuable feedback on the development of best in comfort and best in performance technical footwear in 2024, we expanded our roster of elite athletes to include Premier League Mohammed Kudos and Anthony along that La Liga icon Lossada.

David Weinberg: Indian Super League's Sunil century, and turkeys national starch, Barrus Alpha Yilmaz as well as NBA, playing a joelle N b and WNBA play or a K a jackson.

David Weinberg: These athletes join our professional golfers Max it's Patrick and Brooke Henderson Pickle ball pros Tyson Mcguffin, and Catherine parents, Hal and major League baseball players Clayton Kershaw and haven't NOLA among others. Additionally, we announced the signing of <unk> T Shine and yes, stinker RTR two cricket athlete.

David Weinberg: From the Mumbai Indians with more cricket and soccer players joining this year.

Speaker Change: Leveraging our innovative designs and technical expertise and commitment to comfort that performs we see tremendous opportunities to expand beyond our existing performance footwear offering extend our reach into new accounts and countries and meet the evolving needs of our global consumer base.

Speaker Change: Further we are focused on building successful signature technologies, including Skechers hands free use weapons and skechers arch fit as well as pursuing unique partnerships to unlock new market opportunities and enhance our product portfolio.

Speaker Change: These include the co branded footwear offering with John Deere collections, with Martha Stewart, and Snoop dog and a collaboration with the Rolling stones.

Speaker Change: We continue to support our diverse product offering with broad based campaigns to engage new and existing customers. These are featured across traditional mediums, such as linear and digital television newspapers magazines and social media as well as unconventional impressions on stadium parameter boards buses and trains airports secure.

Speaker Change: Any areas and much more.

Speaker Change: Our lifestyle marketing efforts featured our diverse talented roster that includes Howie Mandel Howie long, Martha Stewart, and Brooke Burke as well as regional ambassadors like form of European football or Jamie Redknapp, Fabio Cannavaro and frankly bus.

Speaker Change: Fluence Europe, the La Paz in Mexico, K pop singer enact that chart.

In South East Asia, and Spanish singer David Baseball among others.

Speaker Change: We also partnered with regional Influencers and key opinion leaders to drive awareness across social media platforms.

Speaker Change: Building on our history of airing memorable Super Bowl campaigns. This year, we're planning an impactful moment with a commercial celebrating Kansas City Chiefs coach Andy Reid and his need for hands free comfort.

Speaker Change: Leaving consumer should be able to purchase all footwear and their destination of choice. We are enhancing the sketches shopping experience in an impactful matter as we further grow like direct to consumer business with our first interactive performance store in Canada and in our wholesale business with shop in shops and brand takeovers.

Speaker Change: We are focused on enhancing our distribution network for greater efficiency and reach enabling us to deliver more innovation drive purchase intent and ensure that our products are available globally.

Speaker Change: Looking at our fourth quarter results in more detail.

Speaker Change: Our record fourth quarter sales of 2.21 billion reflected breath across geographies and channels domestic sales rose, 18% and international improved 10%.

Speaker Change: We saw a regional growth in the Americas, a 14% with continued strength in the United States, and Canada, and EMEA with growth of 25% driven by strength across nearly all markets and in APAC, which increased three 3% led by double digit growth in India, Japan, South Korea, and Thailand. This was part.

Speaker Change: Really offset by a decline in China.

Speaker Change: However, our diverse product portfolio and established network of retail stores and online shopping destinations gives us confidence that we will return to growth as the market recovers.

Speaker Change: Wholesale increased 17% due to increases of 31% domestically and 10% internationally or domestic wholesale growth reflects the continued demand for our comfort technology products, resulting in strong double digit increases across our many footwear product lines for men women and kids.

Speaker Change: Within international wholesale we saw continued demand for our innovative products, which resulted in growth across nearly all markets.

Speaker Change: Turning to our direct to consumer segment sales increased eight 4% with international improving nine 3% and domestic six 8%.

Speaker Change: For the important holiday selling period, we saw an increase in in store shopping with growth in nearly every market, including China for E Commerce, the Americas and EMEA, both improved double digits, while APAC was negatively impacted by the challenges in China.

Speaker Change: With the breadth of our product and global reach Skechers branded stores, both concept locations and quality malls and outlets and big box stores in high traffic areas continue to drive awareness and purchase intent we ended the quarter with 5296 Skechers stores worldwide.

Speaker Change: Seven 787 of our company owned locations, including 610 in the United States. We opened 77 company owned stores in the quarter, including 20 Big box locations in the United States 15 stores in China, and five each in Canada, Colombia, and Mexico. We also opened our first company owned stores.

Speaker Change: In the Philippines, three in total and our first company owned store in Prague, We closed 33 stores in the quarter.

Speaker Change: Also in the period 121 third party stores opened including 36 in China 10 in Indonesia, seven in Australia, and six each in India, Malaysia, and South Africa.

Speaker Change: Also of note 197 third party stores closed in China. This brings our third party store count at quarter end to 3590.

Speaker Change: In the first quarter to date, we've opened 14 company owned stores six of which are in China and three in the United States.

Speaker Change: We also relocated four stores, including our West Edmonton Mall location, which is now our largest concept store and includes indoor courts for both basketball and Pickle ball.

Speaker Change: We expect to open an additional 180 to 200 company owned stores worldwide in 2025.

Speaker Change: From an investment perspective, our priorities include expanding our distribution centers in the United States, Europe, and China to more efficiently deliver a product and manage the expected growth in these markets continuing to strengthen our product offering while amplifying demand creation and building, our skechers direct to consumer footprint and capabilities and new.

Speaker Change: Now I would like to turn the call over to John for more details on our financial results.

John: Thank you David and good afternoon, everyone.

Speaker Change: <unk> delivered another year of outstanding results in 2024, as we continued executing against our long term growth algorithm, which is rooted in our innovative comfort technology products and a compelling value proposition for.

Speaker Change: For the full year Skechers achieved constant currency sales of 9.04 billion, an increase of 13% and earnings per share of $4.40 an increase of 26%.

Gross margins were 53, 2% and we obtained a double digit operating margin of 10, 1%.

Speaker Change: During the fourth quarter, particularly after the U S elections, the strengthening of the U S. Dollar resulted in unfavorable foreign currency exchange headwinds, which significantly impacted reported results where sales grew to $8 97 billion up 12% and earnings per share rose, 19% to $4 six.

Speaker Change: <unk>.

Speaker Change: Our 2024 accomplishments are noteworthy from the rebound in domestic wholesale sales to incredible strength abroad, particularly in the EMEA region.

Speaker Change: In addition, we saw steady growth in our domestic direct to consumer channel following last year's impressive growth of 19%.

Speaker Change: All of this is remarkable considering the challenges we experienced throughout the year, including the difficult macroeconomic environment in China supply chain disruptions, resulting from the Red Sea crisis, and new regulatory standards abroad.

Speaker Change: Our performance is a testament to the effectiveness of our global diversification as well as the investments we have made to increase awareness and accessibility for a comfort technology products.

Speaker Change: Turning to the quarter Skechers delivered as reported fourth quarter sales of $2. Two 1 billion, an increase of 13% driven by growth across segments and geographies.

Speaker Change: Direct to consumer sales grew eight 4% year over year to 1.08 billion international.

Speaker Change: International sales grew nine 3% with strength throughout the quarter in most markets and across both retail and e-commerce channels.

Speaker Change: Domestic sales increased six 8% following 12% growth last year with improvements across channels.

Speaker Change: The key holiday shopping period was characterized by robust online sales and improved sequential sales in our stores.

Speaker Change: These results illustrate the resiliency of the domestic consumer who continues to choose the skechers brand and our compelling array of comfortable and affordable footwear.

Speaker Change: Wholesale sales increased 17% year over year to 1.13 billion domestic.

Speaker Change: Domestic sales grew 31% the result of a healthier wholesale marketplace combined with strong consumer demand for Skechers products.

Speaker Change: International sales increased 10%, reflecting double digit growth in most markets, partially offset by the results in China.

Speaker Change: Now turning to our regional sales in the Americas sales for the fourth quarter increased 14% year over year to 1.09 billion driven by strength in our domestic wholesale channel and steady growth in our direct to consumer business across nearly every market in.

Speaker Change: In EMEA sales increased 25% year over year to $478 6 million driven by double digit growth in both the wholesale and direct to consumer businesses.

Speaker Change: In Asia Pacific sales increased three 3% versus the prior year to $642 4 million. However, excluding China Asia Pacific sales grew 26% led by India, delivering another strong quarter of robust gains as well as strength across channels in nearly every other market.

Speaker Change: China continues to navigate a challenging macroeconomic environment and our fourth quarter sales declined 11%.

Speaker Change: Gross margin was 53, 3% up 20 basis points compared to the prior year, primarily due to a favorable channel mix.

Speaker Change: Operating expenses decreased 70 basis points as a percentage of sales year over year to 45, 8%.

Speaker Change: Selling expenses as a percentage of sales decreased 40 basis points versus last year to eight 9% as we lapped higher spending in the prior year on brand building to increase awareness and to educate consumers about our comfort technologies and new categories.

Speaker Change: General and administrative expenses decreased 30 basis points as a percentage of sales to 36, 9% with the leverage primarily driven by improvements in distribution and outside services expenses.

Speaker Change: Earnings from operations were $165 5 million, an increase of 27% compared to the prior year operating.

Speaker Change: Operating margin for the quarter was seven 5% compared to six 6% last year and for the full year Skechers achieved a double digit operating margin of 10, 1%.

Speaker Change: As mentioned earlier unfavorable foreign currency exchange rates during the quarter the impact of which is reflected in the other expense line item of our P&L totaled $34 7 million and represented an increase of $45 1 million compared to the prior year.

Speaker Change: Our effective tax rate for the fourth quarter was 11, 8% compared to 23% in the prior year, reflecting a favorable mix of earnings in lower tax jurisdictions and impacts from foreign currency losses.

Speaker Change: For the full year, our effective tax rate was 16, 9% compared to 18, 8% in the prior year.

Speaker Change: As we prepare for 2025 and important consideration will be the implementation of global minimum tax regulations, which we will address further in our guidance.

Speaker Change: Earnings per share were <unk> 65 per diluted share a 16% increase compared to the prior year on $152 2 million weighted average diluted shares outstanding.

Speaker Change: On a constant currency basis earnings per share were <unk> 86 cents.

Speaker Change: Representing a 54% increase year over year.

Speaker Change: And now turning to our balance sheet inventory was $1 92 billion, an increase of 26% or $394 million compared to the prior year in transit inventory remains elevated particularly in EMEA due to increased shipping times from the closure of the Suez Canal and we continued to actively manage inventory levels.

Speaker Change: In China, which improved sequentially.

Speaker Change: Accounts receivable at quarter end were $998 6 million, an increase of $130 3 million compared to the prior year, reflecting higher wholesale sales.

Speaker Change: We ended the quarter with 1.38 billion in cash cash equivalents and investments and maintain liquidity of 2.13 billion when including our revolving credit facility.

Speaker Change: Capital expenditures for the quarter were $133 4 million of which $54 5 million related to investments in our distribution infrastructure 51, 3 million related to new store openings and enhancing our direct to consumer technologies and $15 6 million related to the expansion of our corporate offices.

Speaker Change: During the quarter, we repurchased approximately one 9 million shares of our class a common stock at a cost of $120 million and for the year, we repurchased approximately five 2 million shares at a cost of approximately $330 million we.

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

Speaker Change: Now turning to guidance as we begin 2025, we faced several headwinds and uncertainties, including unfavorable foreign currency exchange rates, the emergence of global minimum tax regulations, and the depth and length of the continuing macroeconomic weakness in China.

Speaker Change: In addition, the recently announced incremental U S tariffs on goods from China has impacted our visibility and while we have not yet fully factored their potential impact and our response into the following guidance. It will likely comprise a combination of actions, including the reallocation of certain production vendor concessions and pricing.

Speaker Change: For the full year 2025, we expect sales in the range of $9 seven to $9 8 million based on prevailing foreign currency exchange rates. This reflects a headwind of approximately 200 basis points or roughly $200 million to our organic sales growth rate.

Speaker Change: Earnings per diluted share are expected to be in the range of $4 30 to $4 50.

Speaker Change: Reflecting both foreign currency exchange rate impacts as well as the upcoming application of global minimum tax regulations, which is anticipated to elevate our effective tax rate for the year to be between 22 and 23%, although the precise impact remains to be assessed.

Speaker Change: The minority interest is expected to decline mid teens and capital expenditures are anticipated to be between $600 million and 700 million for the year as we continued to invest in our strategic priorities. This includes ongoing distribution center expansions to support continued growth, including China, which is expected to be operational at the <unk>.

Speaker Change: End of 2026, and the further expansion of our North American distribution center with an adjacent 1 million square feet, which is expected to be operational in early 2026.

Speaker Change: For the first quarter, we expect sales in the range of $2 4 billion to 242 5 billion and net earnings per share in the range of $1 10 to $1 15.

Speaker Change: Reflecting a roughly pro rata share of the aforementioned impacts from foreign currency and taxes as well as some elevated demand creation spending.

While the year ahead presents many unknowns, we remain confident in our long term strategies and committed to reinvesting in our business for sustainable and profitable growth, while consistently delivering consumers the style comfort and quality they desire at a reasonable price.

Speaker Change: We thank you all for your time today and look forward to updating you on our first quarter financial results, which we expect to release on Thursday April 24th 2025.

David Weinberg: I'll now turn the call over to David for closing remarks.

David Weinberg: Thank you John.

David Weinberg: Robust global demand for our diverse product led to a new annual sales record of 9 billion on a constant currency rate.

David Weinberg: The strength in our business is attributable to our differentiated market position that combines comfort innovation style and quality at an attainable price.

We continue to advance our product innovation with comfort technologies across our collections from extensions and Skechers hands free slip ins to our existing performance footwear offering as well as expanding our portfolio, including our latest addition of sketches cricket in India.

While we remain focused on our core business, we believe our performance division with basketball soccer and golf running and Pickle ball footwear will become an increasingly important part of our growth story globally.

David Weinberg: To meet the evolving needs of consumers worldwide, both now and in the future. We are investing in our operations. This includes improved operational capabilities with the expansion of our distribution centers in the U S, China and Europe, delivering an exceptional customer experience through our direct to consumer channel and increasing our points of sales through our valuable.

David Weinberg: Retail partnerships.

David Weinberg: We believe our strategic product marketing and operational plans executed by our dedicated team will result in notable achievements and continued profitable growth in the years to come.

David Weinberg: As always we are grateful for the contribution of the entire Skechers organization.

David Weinberg: Now I would like to turn the call over to the operator for questions.

Speaker Change: Thank you we will now be conducting a question and answer session.

I'd like to ask a question. Please press star one on your itself from Keybanc a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys, one moment, while we poll for questions.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: And our first question comes from Jay sole with UBS. Please proceed with your question.

Jay Sole: Great. Thank you so much Dave.

Speaker Change: Hey, John Thanks, so much for giving the guidance on a 25% first quarter I guess, just looking for a little detail if you're thinking about gross margin for fiscal 'twenty five.

Speaker Change: What kind of outlook should we think about when it comes to modeling gross margin. Thank you.

Speaker Change: Yes.

Speaker Change: <unk> of all I realize there's a lot going on in the guidance.

Speaker Change: Which is why we try to elaborate a bit the tax rate is definitely something.

Speaker Change: I would encourage everyone to take a look at.

Speaker Change: The emphasis on global minimum tax regulations.

Speaker Change: Pretty significant in the year.

Speaker Change: Certainly something to be cognizant of and I think as we look at the gross margin I mean, one of the things we're most proud of over.

Speaker Change: Over the last three years is the accretion we've delivered through gross margins starting at a product level and then carrying through the rest of our business channels, but in wholesale.

Speaker Change: And in direct to consumer I would say, we're not anticipating a material change in the gross margin overall.

Speaker Change: Right now as we look the business looks fairly balanced in growth. So we might not see as much of that incremental accretion from the emphasis on international and DTC that we've talked about historically, but.

Speaker Change: That's a good thing because we're seeing strong growth across the channels before us.

Speaker Change: Now I will say in the quarters, we may see some fluctuations certainly we need to understand more fully how the recently announced tariffs are going to unfurl throughout the year.

Speaker Change: But we do believe we have the ability and have shown in the past to compensate for that and defend these margins so more than anything else I would say you know looking for stability overall, there may be some small variability on a quarter to quarter basis, but overall, we think the year should should offer us a continued opportunity to.

Speaker Change: Appreciate the gross margin improvement we've made over the last three years.

Speaker Change: Alright that sounds great. So there was a lot of information in that answer Youre, saying basically the mix impact that you've been seeing to DTC and also the international this year, maybe you can see balanced growth across channels and also across geographies so that.

Speaker Change: One reason, we should think about gross margin.

Speaker Change: And it sounds like similar sort of the last years is basically yes.

Speaker Change: Saying, if I'm correct, yes.

Speaker Change: Yeah, that's absolutely right.

Speaker Change: Got it alright Super Thank you so much.

Speaker Change: Uh huh.

Speaker Change: Thank you.

Speaker Change: Next question comes from Laura <unk> with BNP Paribas. Please proceed with your question.

Speaker Change: Good afternoon, David John Thank you very much for taking my question I wanted to follow up on Joe's question about margins.

Speaker Change: Might be modeling this wrong, but it looks like I know that.

Speaker Change: We don't guide to EBIT margin.

Speaker Change: John but it looks like it implies operating margins for the year to be down about 150 basis points. So I'm trying to square this away with with the the answer to Jay if gross margins are going to be somewhat flattish is there something and and the SG&A that that is a source of pressure to the <unk>.

Speaker Change: Operating margin.

I think that sounds a bit much to us our objective is obviously to sustain this you know recently.

Speaker Change: <unk> double digit operating margin.

Speaker Change: There's going to be some push and pull on factors in the business that we don't quite control, particularly around foreign exchange.

Speaker Change: We're also obviously monitoring China in a material way and we do know that we want to be aggressive in managing that inventory as we were this quarter and it was down sequentially, reflecting that so.

Speaker Change: What which you mentioned sounds a bit rough I would probably suggest that you know our objective is to guide to flat you know if we get there I think that'll be an indication that we saw some cooperation in situations like FX in China.

Speaker Change: If we're going to be off from that I don't expect at this point in time that it would be a materially different rate than what we delivered this year and again our goal is to kind of sustain that and move that forward but.

Speaker Change: There are some factors that are beyond our control we need to consider.

Speaker Change: Okay very helpful. John and then U S wholesale another great quarter, I know, you've given a long term target to grow that channel mix mid singles is that the breakage assumption for this fiscal year.

Speaker Change: Do you kind of lap those those growth rates from 2024, so it could be actually lower than that and then just a housekeeping question on FX I was a little bit surprised that FX was at 21 son head to the fourth quarter.

Speaker Change: Just to understand what's the implications what is your FY 'twenty five in first quarter guide.

Speaker Change: Yeah, and bad in terms of Capex on EPS with current spot. Thank you so much.

Speaker Change: I'm pretty sure that was more than one question Lauren.

Speaker Change: I would say first and foremost you mentioned the tremendous rebound we saw on the domestic wholesale side. This year and I think that's worth mentioning again, because the wholesale team here did a great job backed by a fantastic product and excellent marketing and to deliver on the back of a very challenging year, a rebound like we've seen as.

Speaker Change: It's pretty phenomenal and.

Speaker Change: Certainly our thanks go out to the entire team for delivering that I think as you look to this year.

Speaker Change: I do believe we're going to start gravitating back down toward that longer term horizon of kind of a mid single digit growth number for wholesale so I'd say, that's a that's a good number to consider but obviously, we're also pushing to do better than that theres certainly opportunities out there. So I wouldn't be shocked if it was a little bit above that this year.

Speaker Change: But it's not going to be like it is this last year, where we had such a fantastic nearly 20% growth.

That's that's pretty that's pretty amazing and that would be hard to duplicate in the current environment of any wholesale market at this point.

Speaker Change: As you as you look to next year, it's difficult to project out an FX impact.

Speaker Change: With perfect accuracy, because I would presume we know exactly where all the currencies are going to be and quite frankly, where all the revenue is going to come from I would tell you. It's a sizable impact it's probably going to be on the order of between 15 and 20 right now as we look forward and again that's from the fairly pronounced move we saw <unk>.

Speaker Change: After the U S elections, the strengthening of the U S dollar abroad.

It hit us very very much so in the fourth quarter beyond our expectations as well and Thats simply comes from the transactional impact of having a lot of balance sheet items that are denominated in foreign currencies and how those get re measured.

Speaker Change: And I'll note as this is a pretty extraordinary environment I don't I don't think there was a currency that didn't weaken relative to the U S. Dollar.

Speaker Change: And in some instances at high single digit levels over a very short period of time and that's why that's why we were hit.

Speaker Change: Now we will benefit from that one when things turn around but in the short term impacted US which is also why I think you need to look to the headline EPS. We mentioned certainly the as reported results were below what we had previously guided but if you adjust for the extraordinary impacts of FX you can see we were well above that.

Speaker Change: Both on the sales side and on the on the earnings per share side. So I think you know recognizing that that was a fairly material sizable and on short notice impact for us to deal with is important yeah. I should also note that the balance sheets items don't replicate even if the currency doesn't get any better. So we're really talking about the.

Speaker Change: <unk> to our volumes and some of the profitability the balance sheet items go away. So you know it takes a little bit of the issue away and gives you some upside as they come back.

Speaker Change: Okay very helpful. Thank you very much probably calling best of luck.

Speaker Change: Thank you our.

Speaker Change: Next question comes from Alex Stratton.

Speaker Change: Stanley. Please proceed.

Alex Stratton: Perfect. Thanks, so much I just wanted to focus quickly on the international part of the business. It looks like revenue decelerated a bit quarter over quarter. So just trying to understand if it's something teams there as well as what you're assuming for 2025 and then just secondly on this this tax change is that something that we should assume going forward.

Speaker Change: Or word or does something change next year. Thanks, so much.

Speaker Change: Yeah on the on the international side of things, particularly in.

Speaker Change: In this quarter.

Speaker Change: Quite frankly, China was the drag we mentioned it was down a bit.

Speaker Change: About 11%.

You know really absent, China, and maybe one or two other markets. What we saw and I think David gave comments you won on our prepared remarks was very broad strength across the world across geographies across channels within the geography. So if anything I would tell you the international market felt very very robust for us.

Speaker Change: And I would even say that we left a little bit on the table the table due to some delivery timeframes that werent achieved so we feel really good about where international was this quarter and where it's going China continues to be the challenge that and its size and scale gives it a disproportionate impact, particularly in the Asia Pacific region.

Speaker Change: As we look forward to the year I think that's going to be the swing factor, we still expect.

Speaker Change: Our mid to high single digits, maybe teens level.

Speaker Change: Some of that's going to be FX impacted though so when you think about the FX impact overall, we mentioned it was probably around $200 million headwind going into the year.

Speaker Change: Obviously that only applies to the international market. So it's a heavy impact as it stands right now and we'll update that view as we go along throughout the year because to the extent rates change back or.

Speaker Change: Move materially from here, you know that would be a tailwind if they if the if the dollar gets a little bit weaker.

Speaker Change: The global minimum tax that that's a new tax regime, that's going in.

Speaker Change: Across the Globe I think.

Speaker Change: Were probably earlier on the curve just talk about that with you all because we have been very tax efficient historically and are very much matters, which jurisdictions, you've leveraged and how they apply.

Speaker Change: The OECD global minimum tax, but this is going to be a global event.

Speaker Change: You've heard some chatter about it in the recent administrations and dissatisfaction about it but as it stands the way Regulus state regulations are.

Speaker Change: Established.

Speaker Change: There's going to be you know almost no haven below that 15% and that's just going to naturally push up our rate.

Speaker Change: We're going to do some we're going to take some some measures to mitigate that in the near term, but it definitely will likely become a forthcoming kind of base rate and I think youre going to see that from a lot of other companies as well and the one caveat would be is subject to regulatory and administration.

Speaker Change: Pushes and pulls so we'll see if there's any change on that but the prior administration was a big supporter of our global minimum tax regimes in and now they're coming into effect.

Speaker Change: Thanks, so much good luck.

Speaker Change: Thank you.

Speaker Change: Next question comes from Adrian.

Speaker Change: With Barclays. Please proceed.

Speaker Change: Well. Thank you very much John can you talk about.

Speaker Change: You had mentioned the demand creation youre going to have a little bit of a higher demand creation.

Speaker Change: I thought last year, you had ask the anniversary quite a big Brian. So just sit in direct that's where that's going and then where do you where and when would you see it.

Speaker Change: And sort of any signs of China stabilization and what are you doing there to mitigate so we didn't like the inventory supply demand phenomenon. There and then my final one is just to remind us what are the mitigation strategies on the tariffs I know you gave quite a bit.

Speaker Change: Sales in that Asia really Ken.

Speaker Change: So probably half of what you make there can probably be redirected into the APAC region not to the U S. But just remind us. Please thank you.

Speaker Change: Okay, I'm pretty sure everyone.

Speaker Change: One of those questions. Let me talk about tariffs first because I assumed this was coming we've talked long for a long time about the strategies. We employ last time, we talked about tariffs, which ironically enough with about four years ago.

And we're going to apply the same tactics and then involved in some situations redirecting origin and manufacturing relationships to avoid to optimize for tariff structures. We're certainly going to go have conversations with our vendors.

Speaker Change: In some respects are foreign exchange and the strengthening dollar helps with that and then we will look at price.

Speaker Change: I think all of those have to be tools available to us. If these rates stay in effect or if the worst case happens.

Speaker Change: And.

Speaker Change: And things go forward more severely so we're prepared to deal with those we will deal with those we have a little bit of time, because the inventory. We have on hand today is cleared and it won't be subject to those higher rates and as we've seen it seems like these policies can change relatively quickly, but if they endure that's the approach we're going to apply.

Speaker Change: On the marketing I would say, it's a little bit of a timing within the year and the desire to be a bit more focused early on what we saw last year ultimately quite frankly was very good success.

Speaker Change: On the incremental marketing spend I would say on the year, you probably won't see a material difference overall, but we're a little heavier weighted in the first quarter.

Speaker Change: We do have a spot coming up this weekend, which you know unfortunately isn't free but but other aspects of our strategy are certainly.

Speaker Change: And reinforcing the messaging around our new categories, and our comfort technology products.

Speaker Change: Thank you your last question was about China.

Speaker Change: Look I think the team is working very diligently there to address what they can in the market, but stepping back we should all recognize this is a macro economic event. This is not particular to one brand or one category of brands in one category or shoes or styles and so some of this is going to be beholden to the overall improvement over the course of time in that market.

Speaker Change: We've already started the process of looking at how we make sure that our inventory stays fresh that necessarily requires us to move inventory a little bit quicker than we might and we've got plans for that we did allude to that in the fourth quarter will do more in the first quarter with an eye towards getting back in a position, where we can make the free flow of new and exciting.

Speaker Change: Good into the market easily and we also have some of the strategies, we talked about from a marketing perspective will be will be in the China market as well to attempt to spur demand for awareness around some of our our comfort technologies that probably still have a lot of room. There to go from an awareness perspective, and we think ultimately will be a very good fit with that market.

Speaker Change: But just given the last year, it's been a little bit tough to be able to put that messaging forward in the right way.

Speaker Change: I'd also just like to add on the tariff situation, we've been dealing with tariff situations in other parts of the world as we are one of the larger.

Businesses outside the United States and our international business. There has been changes both in India Places like Mexico, South America, Europe, where we've had a change in midstream and we've always.

Speaker Change: Come out better than we went in so I would tell you that while you never know what the situation is going to and it is one of our core competencies and we have moved production and we have taken price where necessary.

Speaker Change: We continue to develop product on a regular basis that have more features that can carry that increase in product. So we think this is not one of the worst once we've seen and we'll come through it quite well.

Speaker Change: And as far as demand creation is concerned we've.

Speaker Change: Decided to step it up in the first and second quarter, just because of the uneasiness in the world to keep our product in the forefront.

Speaker Change: Especially in China, while it would be an easy place to cut costs cut volumes are coming down we think it's important to go and <unk>.

Speaker Change: Reinforce our position there as we develop new product for China, specifically and new advertising and look to move it on and continue to support around the world, where we're growing and we have to consider that.

Speaker Change: We grew 12% without China growing a lurking in the past year and if we would've told anybody that a year ago and I know we.

Speaker Change: <unk> taken a hit throughout the year that is being overly Chinese ori.

Morientes.

Speaker Change: But and our growth projections for this year. It doesn't include any significant growth if any in China. So it just shows you the strength of the brand and how its <unk>.

Speaker Change: Moving there so I think all of that puts us in a very good comfortable place as we go into this year, even though there was a lot of uncertainty.

Speaker Change: Thank you very much that's the black.

Speaker Change: Thank you.

Thank you and our next question comes from John Kernan with TD Cowen. Please proceed with your question.

John Kernan: Good afternoon, guys. Thanks for taking my question.

Hey, John.

John Kernan: Just curious on that.

John Kernan: The capex spend at $700 million on the high end.

John Kernan: Can you frame, what where that's going to Austin.

John Kernan: Talk about what the normalized run rate is I think this is closer to 7%.

Out of your peers are closer to 2%. So just curious where this is going and how long. This is going to remain at this level.

Speaker Change: Yes, I thought someone might ask.

Speaker Change: I would really think about it as kind of two big buckets. If you will one is kind of more normal run rate investments that we make in stores. This technology. Obviously, we continue to build out our corporate campus here and we always have some element of distribution center investment ongoing.

Speaker Change: Every now and again, we have to bite off some of the bigger investments because they are investments you have to make for 10 to 20 years not not one year and really there are two of those underway at the moment. One is a continuation of the China distribution center expansion that we had talked about the other we mentioned in in New York in the.

Speaker Change: Early part of the winter, we need to build additional storage capacity in the U S. We have a prime opportunity to do that adjacent to our existing facility, which ultimately will drive a much more efficient relationship between kind of bulk storage and processing and unfortunately, we don't get to choose the timing of that the timing of that is now it's now.

Speaker Change: In part because of our needs, but it's also the ability to take advantage of that location is unique and so that's the big swing factor in the number I think if you if you strip that out because it is it's probably a once in a 10 year investment at least.

Speaker Change: You would see the run rate is much more normalized the reason for the width and the range, though is a little bit of timing considerations for that project and the project in China.

Speaker Change: Is there going to be big determinants of how far we get against the plan this year.

So we gave a bit of a wider range to illustrate in particular those projects carry a lot of weight from a timing perspective, but but if you set those aside I think you'd see a much more normalized level.

Speaker Change: Because of the material portion of kind of the above trend spend is associated with China and the U S. Yeah I'd like to understand also clarify some of the U S spend right there.

Speaker Change: Yeah, we have now two buildings, we operate off site data.

Speaker Change: Quite expensive and cause us to move a lot of product around because of the growth. We experienced after the pandemic are needed. It couldnt get the space close enough. So you can imagine the inefficiencies and this time. The reason that is so expensive in the U S portion of this will become part of a joint venture.

Speaker Change: One half of it so we pick up the whole cost and obviously, we have a joint venture partner, but we will own it it will be part of that facility. When we will get rid of two outside buildings. So we will have our own.

Speaker Change: This building will be phenomenal and will not require us to truck anything around to process and we will sort of conclude our move into direct to consumer and E. Comm is such a big way as to be able to process. It hold it all in one facility. So the fact that we own it or own half of it makes it a little more expensive, but we'll make it that much more.

Speaker Change: Fishing as we go forward.

Speaker Change: I would point out in Europe, we.

Speaker Change: We ended up a little bit behind the curve simply because we grew so significantly that John said, 25% and a.

Speaker Change: Reporting time, and we've converted there also to a significant piece of direct to consumer E. Com, So what processing significantly more.

Speaker Change: We've had a lot of pressure put on that facility simply because of the closing the Suez Canal and everything taken three more weeks that has to happen to process more efficiently and get product in earlier. So we're trying to catch up there, which means we have to build a new facility that we're building and then enhance our existing facility with things that we'll be able to move or automation wise.

Speaker Change: The new facility to process. All this additional direct to consumer E com and wholesale business, though I personally think.

Speaker Change: We'll continue on this exaggerated growth pace for quite some time, because we're doing quite well there. So it's a confluence of those two things that's a big investment that will come back to us I believe rather quickly and more efficiently in the next year or two.

Speaker Change: Alright, that's helpful. One follow up for you maybe.

Speaker Change: Not related to.

Speaker Change: The near term.

Speaker Change: We're essentially at the $10 billion in total revenue.

Speaker Change: The 10% EBIT margin you generated 24, what where do you see the long term opportunities on the margin profile of the business is it in gross margin is in selling and G&A leverage how should we think about.

Speaker Change: The $10 billion in top line and now the incremental <unk>.

Speaker Change: Margin opportunity long term.

Speaker Change: Hmm.

Speaker Change: Well I'll, let John take most of that but I will tell you a lot will depend on how fast we grow.

Speaker Change: If you settle down to you with all the investments we've made it would likely grow at a significantly faster rate. We don't think the growth curve is done yet. So we may have to invest and go especially on a worldwide basis, but.

Speaker Change: That's just my opinion.

Speaker Change: Yeah, I would also say that we're not we're not going to count our $10 billion before they hatch. So we're going to refrain from declaring declaring success until we get there, but certainly it's insight and.

Speaker Change: And ultimately I would echo David's comment I think it can come from a lot of different elements on the P&L, but the key question is how much growth is ahead of the business. We say this every year, we're constantly investing to grow the business, we're opening new stores each.

Speaker Change: Each store is it opens represents a significant point of.

Speaker Change: Near term deleverage before it gets up to the.

Speaker Change: The point, where it leverages and it contributes to the business as a whole and that's just one illustration of the investments we make win win our growth trajectory subsides, we'll be able to harvest a lot of that investment because theres certainly won't be the need for as much.

Speaker Change: But that being said, we're still looking to push the operating margin, where we can against the backdrop of the business, where we're operating well.

We will look to sustain for 2025, what we achieved in 'twenty four and look for opportunities to grow from there.

Speaker Change: While concurrently investing to grow the business because as you probably guessed, we're not planning to stop at $10 billion.

Speaker Change: This business has the opportunity to continue to grow.

Speaker Change: Certainly above trend in the market.

Speaker Change: And with our product with our technology, we think that's absolutely worth investing in.

Speaker Change: Got it probably Eagles fly this weekend I think next year, you're going to need a Nick ceriani collaboration, but we'll see [laughter] well, let you tell that the country.

Speaker Change: Thanks, guys.

Speaker Change: Take care.

Speaker Change: Thank you.

Speaker Change: And our next question comes from Rich <unk> with Raymond James. Please proceed with your question.

Speaker Change: Thank you good afternoon.

When you talk about the shape of growth this year guidance seem to apply a modest acceleration as we move beyond Q1.

Speaker Change: Curious what you attribute that to and if there's anything we should be keeping in mind from a modeling perspective in terms of lumpiness that may be caused by the wholesale channel.

Speaker Change: I think probably the biggest single factor there is going to be China.

Speaker Change: If you look at China last year first quarter with the last quarter of <unk>.

Speaker Change: A meaningful growth and obviously the business since that point in time had deteriorated and so we're simply lapping that last quarter in China against a bit of a difficult comparison.

Speaker Change: We're also as David mentioned timing can always shift on some of the the early spring shipments. So we're watching that carefully.

Speaker Change: But I would say China is probably the number one factor in there.

Speaker Change: Okay and then can you also talk about your foray into basketball and running.

Speaker Change: 2025 is the year, where you hit the accelerator in terms of going after these opportunities and if so how do we think about.

Speaker Change: The go to market strategy by channel.

Speaker Change: Well, we try to be receptive from the marketplace. What we're doing now is sort of seeding around the world, we're getting our players and were introducing the product.

Speaker Change: We'll go as fast as necessary in the market will allow us to be very rarely tried to push against the marketplace as we get more acceptance of our athletes get more known and we continue to move out as we get more critical mass we will move through.

Speaker Change: All different kinds of expansion.

Speaker Change: Round the world. So it depends how fast that you received how well it does right now it seems to be doing very well, it's doing very well outside the United States as far as our football soccer is doing and we're getting a lot more requests about basketball I'm talking to basketball players.

Speaker Change: On a professional level. So we're just at the beginning stage and what you see here, it's not a major push in.

Speaker Change: In 2025, although we do think it might have some upside as we go through the year.

Speaker Change: I would also add Rick and I think you'll you'll see some other sports come into play.

Speaker Change: You know looking at some of the sports we've operated and traditionally we've re imagined in a way that I think will match more.

Speaker Change: More tightly with the recent performance sports we've launched.

Speaker Change: I guess just to say, we're not done yet we will also continue to invest in awareness I mean, one of the things. We started obviously in 'twenty four was to build awareness around the newer categories will continue to do that in a measured way. So that we can as David as David mentioned to take advantage of what the market starts to lessen.

Speaker Change: Yeah.

Speaker Change: Look forward to seeing the innovation thanks, guys.

Speaker Change: Thank you and our.

Speaker Change: Next question comes from Jessalynn Huang with Evercore. Please proceed with your question.

Jessalynn Huang: Thanks, guys for taking my questions.

Speaker Change: Just following up on <unk> growth had really about getting the quota.

Jessalynn Huang: That specific category.

Speaker Change: Now and also falling on Rick's question Glenn.

Speaker Change: The performance category, how big is it.

Right now I think over the medium term thank.

Speaker Change: As you grow this category kind of what.

Speaker Change: How big of a contribution do you expect this to be thanks.

Speaker Change: Yeah on the latter.

Speaker Change: We don't give kind of what I'll call category, a division level details I would say today performance is not an overweight percentage of our business. It does somewhat depend upon what you what you call performance in the market relative to what others measured as what I would say, it's the most exciting about the opportunity as we build it out as not only are we tapping into new categories.

Speaker Change: Aries with tremendous addressable market characteristics, we're reenergizing existing categories that we're in.

Speaker Change: And then also have sizeable addressable market and then the ancillary benefit of that as they also provide a halo effect to the rest of the brand and build awareness they tap into new consumers, who can then become more aware of what we offer broadly so I would say that that's the most that's one of the most attractive long term opportunities we have.

EMEA performed fantastic on the back of quite frankly, performing fantastic through most of the year.

Speaker Change: It really was across the board I think their embrace of the Skechers hands free slip in technology as well as other product and comfort focused technologies has been enormous.

Speaker Change: <unk> seen it in wholesale we have seen in retail.

Speaker Change: That market just has continued to perform exceptionally well and the brand and the technologies comfort technologies continue to resonate the consumer level.

Speaker Change: Thank you.

Just one follow up on China.

Speaker Change: I would imagine is and data to progressive may improve throughout the year.

Speaker Change: Are we expecting second half to kind of have positive growth in China like how are we thinking on China.

Speaker Change: Okay.

Speaker Change: Yeah, it's somewhat linked to Rick's question. If you go back to last year Q1 was more robust than any of the other quarters.

Speaker Change: So we face a more difficult comparison in the first quarter than we do the balance of the year as a result, what we believe for the year that we'll see improvement after the first quarter.

Speaker Change: Not to the point, where we expect there to be a tremendous turnaround in the year, but the.

Speaker Change: Year should get better as time goes on.

Speaker Change: And that just means you know the first quarter impacted the most acute.

Speaker Change: Great. Thanks, guys.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Next question comes from Cristina <unk> with Deutsche Bank. Please proceed with your question.

Speaker Change: Hi, Good afternoon. Thank you for taking the question I just wanted to ask on inventory and then the inventory composition. Overall, you said you made some progress in China quarter over quarter, but just how do you see the overall inventory levels, which are up 26% ending the year relative to your 13% sales growth and then can you elaborate on your comments.

Speaker Change: Inventory, a little bit quicker, we'd just love to get some color there. Thank you.

Speaker Change: Yes, I mean, the inventory is incredibly healthy I mean, the biggest contributor to increased inventory year on year is merchandising transit obviously the biggest culprit. There is Europe, where we're seeing elongated transit times, if you compare that to where we were last year, we're still.

Speaker Change: Still dealing with elevated transit times and that just requires more inventory. So that gives you a flavor of the nature of the inventory is not older inventory sitting around and stuff that's on the water thats bound for markets.

Speaker Change: And we feel really good about that the comment relative to China was.

Speaker Change: At the end of last quarter, we said, we were going to observe what happened on singles day use that as an indicator of how quickly we need to act to move the inventory.

Speaker Change: Singles Day was at the end of the day are probably a bit more disappointing than we had anticipated as a result, we took some actions to move units, we'll do that again in the first and second quarter, but the objective there is to get to make room for the new product to make room for our comfort technologies to get those to the consumer ultimately we think that's the.

Speaker Change: First and most important thing for us to do for the business and for the consumer so well.

Speaker Change: We will take action to to expedite some of the inventory out of the channel to make room for new.

Speaker Change: And that's again to David's comment earlier about care, that's something we do all the time.

Speaker Change: We're managing inventory actively all the time, what we were pleased with the progress we've made in in the fourth quarter, but theres more and we'll get after it and it should be noted that this is a very specific decision on our part.

Speaker Change: To try to get as much into Europe as early as we could for our first quarter first quarter is the largest quarter for us in EMEA and because of the closing of the Suez Canal. It's an additional four weeks in transit so rather than trying to play close to divest we try to move up everything to get all seven weeks of what used to be three weeks in transit in.

Speaker Change: I think early part of the quarter. So it was either received or honest way in or will be received in the early part of the quarter, which is the big buildup. So it is all new maybe in times past.

Speaker Change: Received it a little later in the year closer to the end of the year and some after the new year and someone who got on the water after Chinese new year, which also was a little early this year. So everything had to be done. So all of that together. It just means some inventory that we think is going to power our growth and is not excess at all.

Speaker Change: For EMEA.

Speaker Change: Great. Thank you for all that color best of luck.

Speaker Change: And our next question comes from Chris Martino with Bank of America. Please proceed with your question.

Chris Martino: Thanks, guys.

Speaker Change: John can you just elaborate a little bit more on the drivers.

Speaker Change: 31% in U S wholesale growth during the quarter and are you concerned at all about footwear inventory levels within the U S. Wholesale channel how are you expecting to navigate the potential pricing environment, if the tariff situation worsens from here.

Speaker Change: Yeah.

Speaker Change: Domestic wholesale continues to perform on the backup quite frankly, everything that have driven it up to this point in time in the year Chris.

Speaker Change: I've got a handful of accounts that are doing extraordinarily well.

Speaker Change: We certainly got some lift.

Speaker Change: From accounts in the prior year I guess two years prior now who hadn't really embraced our comfort technology. So what we saw same source of growth on the domestic wholesale side.

Speaker Change: And actually even recently seen some.

Speaker Change: Extraordinary wholesale events from a marketing perspective that we think are very conducive to continuing to drive that channel for the brand the brand takeovers and a couple a.

Speaker Change: A couple of partners and that's performed really really well in terms of overall inventory in the wholesale channel no no concerns there.

Speaker Change: We're watching it carefully we're continuing to see really strong sell throughs, particularly with those accounts that are again embracing the comfort technologies.

Speaker Change: Yeah like I said done a couple of brand takeovers recently that performed really well saw great sell through there. So nothing that gives us pause on the on the domestic inventory.

Speaker Change: Landscape, that's that continues to do.

Really well, yeah, I think from a shipping perspective, we've seen no slowdown in people.

Customers wanting to come on the wholesale level to pick up.

Speaker Change: Wait till later in January is that fiscal years close but through the end of January into early February we havent had any indication from a shipping perspective that anybody's Claude to looking to slow down any.

Yes.

Speaker Change: And our next question comes from Tom Nicky.

Speaker Change: With Needham. Please proceed.

Tom Nicky: Hey, guys. Thanks for taking my question.

Speaker Change: Hi, John I believe you said on the minority interest line would be down mid teens this year.

Tom Nicky: Predominantly due to.

Tom Nicky: The expectation that sales are down in China.

Tom Nicky: Or anything else.

Tom Nicky: What's driving that.

Tom Nicky: Well, we're not going to we're not going to guide by line item by country, but I will say.

Tom Nicky: That is the most significant factor influencing the trend in our minority interest it's not.

Tom Nicky: A pure number or a pure reflection of what's going on in China, because there are other markets with minority interest impacting the business, but that's the main driver to the downside yes.

Tom Nicky: Understood Okay.

Speaker Change: It would be inventory growth.

Speaker Change: You know optically you tie in I know some of that due to a transit.

Speaker Change: Excluding the increase.

Speaker Change: The increase in in transit inventory I mean is it safe to say that you know you kind of feel that your inventories are in.

Speaker Change: Uh huh.

Speaker Change: Preet shape relative to the growth that you're expecting for 'twenty five.

Speaker Change: Yeah, absolutely on hand levels were I think they were up.

Speaker Change: 12%. So the vast majority of the growth came out of as we said the in transit.

Speaker Change: And I was just looking China as we said improve it.

Speaker Change: It improved on hands are pretty pretty nicely. So yes, I mean again, we make mention of the in transit inventory now because we enjoyed talking about in transit inventory, but it has been for a couple of quarters now the most significant factor influencing inventory increases and again.

Speaker Change: <unk> can now prices of heavy heavy contributor there because a lot of the in transit probably.

Speaker Change: Say, 60% to 70% of the in transit increase we saw year on year was precisely in Europe.

Speaker Change: So you know.

Speaker Change: It's a reflection of the dynamics of the shipping market at the moment and I guess in a way geopolitical events.

Speaker Change: But again to David's point it. It's good inventory is healthy inventory its order backed inventory. So we will absorb that and get it into our system and process. It out as quickly as we can.

Speaker Change: I understand.

Speaker Change: Thank you very much basketball cause here.

Speaker Change: Thanks, Tom.

Speaker Change: Okay.

Speaker Change: And our next question comes from Anna <unk> with Piper Sandler. Please proceed.

Anna: Great. Thanks, so much good afternoon, and thanks for taking my question.

Speaker Change: We had a question on comfort technologies, you've seen some nice traction there.

Speaker Change: For some time, how do you view the pipeline of innovation either for <unk> or as we go through the year and are there any additional categories that technology could be applied to and just as a follow up ASB had been under slight pressure I think for both channels.

Speaker Change: Mike are you guys rolling out the new technologies in 'twenty four I think should we expect the price that's a reverse in 'twenty five or what's been driving some of that decline. Thanks. So much.

Speaker Change: Sure, let me touch on the price dynamics I would separate the U S and international price dynamics, which I know you guys can't see as well, but obviously FX plays a role on the international side.

Speaker Change: In the U S. What we're seeing is as we spread the comfort technologies across more categories that includes a broader range and in that what youre seeing is well you know individuals are taking advantage of the technology theyre doing so across a broader range of price points than existed previously so you did see a little bit of.

Speaker Change: ASP.

Speaker Change: Decline is a result of that also as we've mentioned throughout the year.

As a technology as a style becomes.

Speaker Change: More familiar with the consumer the anticipation is that it will be included in certain promotional events and that was the case over the course of the year. We started to include some of the technologies and more promotional events.

Speaker Change: Because you walk a fine line between protecting the price and irritating consumers, who are visiting and appreciating.

Speaker Change: Promotions.

Speaker Change: I would say going into next year I don't I don't think at this juncture, we're going to see as much price erosion, I think you'll probably see stability and maybe even a little bit of a price.

Speaker Change: Improvement.

Speaker Change: For a variety of for a variety of reasons.

Speaker Change: The comfort technologies I would think about them very much as features that can be embedded across a wide array of products.

Speaker Change: And I think that's what makes them. So special it's not they're not particular to a style or a category that can be used broadly.

Speaker Change: There's a tremendous amount of continuing run rate with our skechers hands free slipped in technology.

Particularly around the more integrated versions of that which I think we've shown to some of you guys in in early winter.

But also the other technologies continued to perform really well our arch fit technology continues to drive growth.

Speaker Change: Have some newer technologies coming out new products.

Speaker Change: There is still early but theyre going to be hitting the market and they're all focused on the same thing driving and delivering comfort to our consumers I would add the last thing is as we've.

Speaker Change: As we've grown new categories performance categories that we haven't traditionally operated in we've taken elements of those features and put them into that product and that's we were using the line comfort that performs but that's because we're putting some of our comfort features into our performance footwear.

Speaker Change: While it's not always the primary focus.

Speaker Change: That continues to reinforce at the consumer level, our particular offering around comfort and how unique that is and so we think it has.

Speaker Change: <unk> impact across the business across the globe.

Speaker Change: And opportunities for us to chase, but what we've already delivered to the market and some new features as well.

Speaker Change: That's super helpful. I. Appreciate it may ask just one follow up on gross margins I believe you had expected freight to be a headwind in <unk> did you see that as a headwind and as should we expect any freight kind of instability as we go through the year or in <unk> and thank you for that.

Speaker Change: Yeah.

Speaker Change: Yeah, I mean, there's a little bit there was a little bit in Q4, it wasn't material enough for us to really call out.

Speaker Change: There will be a little bit more in Qs, one and two the impact always depends upon the size and scale of the business.

Speaker Change: We think that then gets us past what was the you know the summer rate pressure.

Speaker Change: Pressures coming from the initial elements of the Suez Canal crisis, So theres a little bit in there we don't expect it to be a driving factor.

Speaker Change: But it's certainly something we're watching carefully yeah. It will also depend on alternate sourcing and where stuff has.

Speaker Change: Come from as we move things around in the coming year.

Speaker Change: Also.

Speaker Change: There has been somewhat of a slowdown since.

Speaker Change: A lot of people before Chinese new year have brought a significant amount even into the United States in anticipation of the new.

Speaker Change: Regime at its tariffs.

Speaker Change: So unless business holds up significantly you would anticipate that there'll be some relief on the.

Speaker Change: The ships as they come through you certainly have seen spot rates returned to a more normalized level that not perfectly where we'd like them to be but they've they've abated significantly since that summer pressure.

Speaker Change: Alright. Thank you so much best of luck.

Speaker Change: Thank you.

Speaker Change: And our final question comes from Sam Poser with William trading. Please proceed.

Speaker Change: But you forgot about me.

Speaker Change: Alright. Thank.

Speaker Change: Good morning, Dan.

Speaker Change: I have I have a couple here one.

Speaker Change:

Speaker Change: What can you give us some idea because of this.

Speaker Change: Tax impacts and all of that so we can back into it can you help us with what you think what what's your plan in the EBIT margin to be in the first quarter are a range of EBIT margin and that'll help us a lot because we have this big chunk as we did in the previous quarter of Oh.

Speaker Change: How about facts, so could you help us or help us with the other income line and then we could back into it that way.

Yeah, we're not we don't normally project other income impacts that that's why they are so painful when they.

Speaker Change: When they arrived like they did in the fourth quarter. That's why we don't mind them as much when they go the other direction, but to know those we'd have to have the impact of the FX impact. We've cited really comes from the loss of top line value.

Speaker Change: And then the flow through effect of better I would say you know.

Speaker Change: As we've looked at it.

Speaker Change: This this year, if you kind of projected out it would be.

Speaker Change: About a 2015 to 20 cents impact.

Speaker Change: There's a little bit more acute in the first half of the year and then in the back half but not.

Speaker Change: Not terribly so.

Speaker Change: And then the other impacted the tax rate that we talked about.

Speaker Change: Which could be a sizable as you know.

Speaker Change: $25 30, depending upon where you established a normal baseline rate I think if you actually look at those relative to where.

Speaker Change: The Street is and you make adjustments for that Youll see that what we're guiding to is really a fairly comparable number not a perfectly so but you know fairly comparable to the expectations. We've talked about historically and what I think you all were baking in.

Speaker Change: Admittedly there are big changes, but neither of which we have the ability to unilaterally control.

Speaker Change: Understood I understood. It for the full year, what I'd, probably just trying to Q1 seems to have the most acute.

Speaker Change: Movement in it.

Speaker Change: And so the question is is it so I'm just asking for Q1 I'm not asking for the full year explanation I'm just trying to get an idea of where you were thinking of this operating margin calls when we come back into the rest of it that way because you've given us.

Speaker Change: Pizza around it, but we don't want a situation where you.

Speaker Change: Make or missed the number because.

Speaker Change: But you hit the growth we just wanted to have an idea.

Speaker Change: But where youre thinking of a range of EBIT and then we can see.

Speaker Change: The rest of it in the first quarter I'm not I don't know the rest of the year, we could back into because there are less acute.

Speaker Change: Yes look I would say I don't I don't want to get into specifics on each individual item I would say, we certainly at this point expect to see.

Speaker Change: SG&A deleverage in the in the first and second quarter and those get made up for in the back end of the year.

Speaker Change: I'll be talking about plus or minus 150 to 250 basis point impact in the first quarter, but again, there's more to it than that so that's a very broad range and quite frankly is subject to a lot of other factors that we don't have great line of sight into I would also know theres opportunity to outperform that.

Speaker Change: Based upon the pace of shipping that we observe so it could be that we end up much better than that as a reflection of some more encouraging shipping trends should those should those develop.

Okay, and then lastly.

Speaker Change: China.

Speaker Change: Again that seems like more and more of a headwind than what you may have anticipated.

Speaker Change: A few months ago for the year again in the first quarter given that I mean, how much of it is China really the.

Speaker Change: The big.

Speaker Change: Yeah.

Speaker Change: Uh huh.

Speaker Change: The change in the revenue and everything else seems okay or is there something else there.

Speaker Change: Well I'd say.

Speaker Change: FX is the biggest overall change from where we would've been at the end of the last quarter. So the most significant impact we've seen globally is about FX.

Speaker Change: I would say, it's fair to say China came in in the fourth quarter worse than we had anticipated when we last spoke about singles day, we had yet to see the effects of kind of the end of the period and then the return window.

Speaker Change: Definitely came off worse than we expected so I would say Q4 and the early part of Q.

Speaker Change: 2025, it's definitely less.

Speaker Change: That's encouraging than we had thought it would be.

Speaker Change: I would be very clear, though I look around the rest of the world and things look very good not just okay. Very good continued strength in EMEA and continued strength in the Americas Asia Pac, excluding China looks fantastic. So.

Speaker Change: I think the read on the business should be China remains challenged.

Speaker Change: A macro event, we're going to work on what we can but in a way we need the market to get a little healthier absent that business performing very very well performed exceptionally well in Q4 <unk>.

Speaker Change: Because China performed the worst thing, we still you know on a constant currency basis.

Speaker Change: Blew through our guidance so.

Speaker Change: We're pretty encouraged quite frankly by what we see certainly there was some noise associated with China, and FX and tax rates, but absent that if youre looking at the organic nature of the business continues to be very very encouraging and we're we're encouraged by that yeah. You have to remember, we real almost 900 million with no growth in China.

Speaker Change: And if that continues through this year, we will have made up about.

Speaker Change: About what China's volume is.

Speaker Change: Less than a two year period end growth continues through that.

Speaker Change: So on whatever metrics you know as we keep pointing out we're not.

Speaker Change:

Speaker Change: Dependent on any one geography or any one category and I think this proves it.

Speaker Change: It very much so we continue to grow with China, not growing and we do believe China will come back.

Speaker Change: And actually the growth as we go through the next year Ergo, we talked about increasingly creation demand within China, and continuing to develop and put into our new developments front and center into China, and we think that that will change.

Speaker Change: The scorecard as we get through the back half of this year. So we have a lot of positives going into a very difficult marketplace.

Speaker Change: I'm, sorry, one more thing.

Speaker Change: Europe is there.

Speaker Change: Is there any inland given so much as in transit is there any.

Speaker Change: Anything constraining sales given all the in transit inventory.

Speaker Change: And in Europe, given the strength of the business.

Speaker Change: First of all is in transit at December 31, and we did have some increases in inventory. So right now it's just a lot of processing to do and we're very busy in those places, but we anticipate all the inventory that was anticipated for Q1 will be here.

Speaker Change: And was there any issue in the fourth quarter.

Speaker Change: The sales because of in transits.

Speaker Change: Okay.

Speaker Change:

Speaker Change: I don't know what the exact reason.

It was we felt we were a little short in December I think.

Speaker Change: Business day are like anything else, we had a slight shift from December into January.

Speaker Change: Rather than the other way so we could have to pick up some early in January but on an overall basis for the season I think we're gonna come out quite well, we think grow in I think it was the Congress in the fourth quarter. We had a very strong October simply because things were delayed and we were trying to catch all the inventory.

Speaker Change: I think because we delivered so much in October on a relative basis. It move things out through December and into January and now we have a significant demand pick up again and all the inventories there.

Speaker Change: Okay. Thank you very much.

Speaker Change: That does conclude today's.

Speaker Change: A question and answer session pass it back to management for any closing comments.

Speaker Change: No closing commentary thank everybody for your time and look forward to speaking with you at the end of Q1.

Speaker Change: Thank you. This does conclude today's teleconference. Thank you for your participation you may disconnect your lines at this time.

Speaker Change: Yeah.

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