Q1 2025 Skechers USA Inc Earnings Call
Greetings and welcome to Skechers first quarter 2025 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded I would now like to turn this conference over to Skechers. Thank you you may.
Speaker Change: Begin good afternoon, everyone. Thank you for joining Skechers first quarter 'twenty 25 earnings Conference call. My name is so long I'm, a senior director of international merchandising at Skechers and I've been with accomplishes 2017.
Speaker Change: My favorite style at Skechers is the cause you fit in white to Navy.
Speaker Change: Joining us on today's call are Skechers, Chief operating officer, David Weinberg, and Chief Financial Officer, John Defendable before.
Speaker Change: Before we begin I would like to remind everyone of the company's safe Harbor statement.
Speaker Change: Such as 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 result, and such any bets.
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 S. E C, including its annual report on Form 10-K, and quarterly reports on Form 10-Q.
Speaker Change: For more information on these risks and uncertainties that may affect the company's business financial condition 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 first quarter 2025 conference call.
David Weinberg: The first quarter marked a new sales record for Skechers with 2.41 billion in revenue or 2.46 billion on a constant currency basis and earnings per share of $1 34.
David Weinberg: Our strong financial performance across both our wholesale and direct to consumer segment was the result of continued global demand for our comfortable and innovative footwear and growth across geographies driving our international 265% of our total business. This growth is of significant importance given the increasing macroeconomic.
David Weinberg: And waning consumer sentiment, both domestic and international sales increased by 7% with growth of 14% in EMEA and eight 3% in the Americas and APAC sales decreased by two 6% primarily due to soft consumer spending in China, However, when excluding China APAC.
David Weinberg: Sales grew 12% we continue to view international as our primary growth engine strategically investing in our retail store network and enhancing our distribution efficiencies.
Skechers enduring success stems from our core design principles of style comfort quality and innovation at an affordable price.
David Weinberg: <unk> is to make convenience and comfort part of consumers' everyday life no matter their age interest or lifestyle.
David Weinberg: Sketches proprietary hands free slipping technology arch fit stretch fit and other features are the center of this comfort movement.
David Weinberg: Our technical performance Division continues to expand its roster of elite athletes with the signing of footballers Easco Alcon, a Spanish national team veteran and rising Star Niccolo, Seeley, who place where Roma and the Italian national chain, Jasper Umrah Indias fast cricket bowler at National teams veteran.
David Weinberg: Baseball player Jake Berger of the Texas Rangers and basketball Pro Norman parallel over loss Angeles Clippers. This quarter, we also announced the signing of Kiki area thin first round draft pick up the WNBA, Washington, Mystics and legendary golfer Bernhard Langer, our athletes should provide valuable feedback on the development of our best.
David Weinberg: <unk> comfort technical footwear, and lend credibility and awareness as we further build our presence on the court pitch green and field and extend our reach into new accounts and countries to meet the needs of sports enthusiasts globally.
David Weinberg: Complementing our athlete driven initiatives, our multi format lifestyle marketing campaigns that feature diverse roster of talent.
David Weinberg: This includes Howie Mandel, Tony Romo, Howie long, Martha Stewart, and Brooke Burke as well as regional ambassadors like former European footballers, Jamie Redknapp, and frankly bus Spanish singer David This ball and German singer Vanessa My among others.
David Weinberg: Looking at our first quarter results in detail.
David Weinberg: Our record first quarter sales of $2 41 billion was a result of 7% increases in both our domestic and international channels due to the continued demands for Skechers, we saw a regional growth in EMEA of 14% driven by strength across nearly all markets in the Americas up eight 3% with.
David Weinberg: Strength in the United States, and Canada, partially offset by a decrease of two 6% and APAC, primarily due to the continued economic pressures in China.
David Weinberg: Again, when excluding China APAC grew 12%, we believe Skechers has significant growth opportunities in this region and we remain committed to investing in our product marketing retail footprint and logistics.
David Weinberg: Wholesale sales increased seven 8% with growth of four 2% domestically and nine 5% internationally. The domestic wholesale growth reflected broad based demand for our comfort technology products across our kids mens and womens categories within international wholesale we experienced solid growth of across many read.
And as your markets driven by the strength of our brand and appealing innovative products.
David Weinberg: Turning to our direct to consumer segment sales increased 6% with domestic growth of 11%, including strong performance in E. Commerce International increased two 9% when excluding China International grew 12% due to the strong DTC sales in nearly every market.
David Weinberg: Skechers branded stores showcase our comfort technology products for the entire family as well as innovative performance footwear and continue to drive awareness and purchase intent.
David Weinberg: We ended the quarter with 5318, Skechers stores worldwide of which 821, our company owned locations, including 618 in the United States. We opened 51 company owned stores in the quarter, including 15 locations in China 13 in the United States and three each in.
David Weinberg: Hong Kong and Mexico, We also relocated five stores, including the new performance focused store in Edmonton, Canada and expanded to others. We closed 17 stores in the quarter.
David Weinberg: Also in the period, 53rd party stores opened including 12 in China six in Indonesia, and the first Skechers store in Argentina, 62, third party Skechers stores closed in the quarter, including 42 in China, bringing our third party store count at quarter end to 3497, we.
David Weinberg: We expect to open an additional 150 to 170 company owned stores worldwide in 2025.
David Weinberg: Included in the estimate is the 13 company owned stores opened to date in the second quarter.
David Weinberg: Our investment priorities remain focused on three key areas expanding our distribution centers in the United States, China, and Europe to more efficiently deliver our product and manage the expected growth in these markets enhancing our product offering with new technologies and categories, while amplifying demand creation and growing our direct to consumer footprint and K.
David Weinberg: Abilities.
David Weinberg: We are encouraged by the positive reception to our very product initiatives during our recent domestic and international customer meetings, reaffirming our commitment to evolving innovating and adapting our footwear to meet the needs of consumers and drive demand across our global footprint.
David Weinberg: While we are fully cognizant of the uncertainty in the current environment. We believe we are well positioned to navigate this leveraging the strength of our brand our distinctive global market position and our healthy balance sheet and now I would like to turn the call over to John for more details on our financial results.
Speaker Change: Thank you David and good afternoon, everyone Skechers first quarter results reflect the continued strength of our business across channels and worldwide geographies, a testament to the power of our global brand and the appeal of the innovative comfort technologies embedded in our product portfolio. We are incredibly pleased with these results, especially.
Speaker Change: Actually in the face of such extreme market dynamics and believe they reflect our focus on managing factors within our control and delivering on our strategic plan.
Speaker Change: Before we get into our financial review, let me comment briefly on the current global trade environment, which presents a similar level of uncertainty to that observed during the initial phase of the Covid pandemic.
Speaker Change: And so far as tariffs are concerned we continue to address these with the same levers we have spoken about previously cost sharing with vendors sourcing optimization and price adjustments we.
Speaker Change: We are in the midst of pulling these levers while simultaneously monitoring the environment for needed adjustments and closely watching consumer behavior to ascertain future demand characteristics.
Speaker Change: Ultimately, we remain confident in our ability to navigate these challenges as we have in the past we know that our proven track record of managing this globally diverse brand with a unique and compelling product portfolio focused on delivering style comfort quality and innovation at a reasonable price we will enable sketch.
Speaker Change: <unk> to endure and likely thrive during this time.
Speaker Change: Now turning to our financial results.
Speaker Change: We achieved first quarter sales of $2 four 1 billion, an increase of seven 1% in line with our expectations.
Speaker Change: On a constant currency basis sales were $2 $4 6 billion up 9%.
Speaker Change: Direct to consumer sales grew 6% year over year to $879 4 million domestic.
Speaker Change: Domestic increased 11% driven by strong performance in our E Commerce channel and growth in our retail stores.
Speaker Change: International grew two 9% year over year.
Speaker Change: Excluding China, our international direct to consumer sales grew 12%, which highlights the broad strength across regions in nearly every country and the continued opportunities to grow our brand across the globe.
Speaker Change: Wholesale sales increased seven 8% year over year to 153 billion international.
Speaker Change: International sales increased nine 5% with robust growth in many markets reflective of our geographic diversity and strength.
Speaker Change: Domestic growth of four 2% aligned with our expectations of the marketplace returning to more stable growth trends.
Speaker Change: Turning to our regional sales.
Speaker Change: EMEA sales for the first quarter increased 14% year over year to $718 2 million driven by robust consumer demand with double digit growth in both our wholesale and direct to consumer businesses.
Speaker Change: In the Americas sales increased eight 3% year over year to $1 1 billion driven by modest growth in our domestic wholesale channel and strength in our direct to consumer channels in nearly every market.
Speaker Change: In Asia Pacific sales declined two 6% year over year to $589 million excluding.
Speaker Change: China Asia Pacific sales grew 12% led by double digit growth in Japan, Thailand, and South Korea.
Speaker Change: We continue to navigate a difficult macroeconomic environment in China, where sales declined 16% following double digit growth in the prior year.
Speaker Change: As challenging market conditions persist our expectations for the year remain modest.
Speaker Change: Leveraging the strength of the Skechers brand, we are focused on opportunities to fuel demand and expand our offering of comfort technologies, which continue to resonate with consumers across the globe and represent an important opportunity in China.
Speaker Change: Gross margin was 52% down 50 basis points compared to the prior year, primarily due to lower average selling prices from higher levels of promotion in certain markets like China and customer mix.
Speaker Change: Operating expenses increased 180 basis points as a percentage of sales year over year to 41%.
Speaker Change: Selling expenses as a percentage of sales increased 70 basis points versus the last year to seven 7% largely focused on brand building investments and expanding awareness for our latest comfort technologies.
Speaker Change: General and administrative expenses increased 110 basis points as a percentage of sales versus last year to 33, 3% due to higher labor and rent to support our growth in our direct to consumer segment as well as increased distribution costs, particularly in Europe to support higher volumes and alleviate processing constraints.
Speaker Change: <unk>.
Speaker Change: Earnings from operations were $265 1 million, a decrease of 11% compared to the prior year, our operating margin for the quarter was 11% compared to 13, 3% last year.
Speaker Change: Significant foreign currency exchange rate fluctuations drove other income to $24 5 million, an increase of $26 6 million compared to the prior year. This is similar to the charge incurred in Q4, primarily reflecting foreign currency exchange rate volatility during the quarter.
Speaker Change: Our effective tax rate for the first quarter was 22, 3% compared to 19% in the prior year, reflecting the impact of the global minimum tax regulations, we discussed last quarter, earning.
Speaker Change: Earnings per share were $1 34 per diluted share essentially flat compared to the prior year on $151 5 million weighted average diluted shares outstanding.
Speaker Change: And now turning to our balance sheet, we ended the quarter with $1 two $4 billion in cash cash equivalents and investments and maintain liquidity of $1 85 billion, when including our revolving credit facility.
Speaker Change: Inventory was $1 77 billion, an increase of 30% or $413 2 million compared to the prior year, primarily related to elongated transit times due to the closing of the Suez Canal, However, when compared to the prior quarter inventories decreased seven 6%, including a <unk>.
Speaker Change: Might decrease in China, where we continue to actively manage inventory levels.
Speaker Change: Capital expenditures for the quarter were $147 1 million of which $68 9 million related to investments in our distribution infrastructure predominantly from the expansion of our distribution centers in North America, and China, $44 $6 million related to new store openings and enhancing our direct to consumer.
Speaker Change: <unk> and $14 8 million related to the expansion of our corporate offices.
Speaker Change: We continued to deploy our capital consistent with our stated philosophy prioritizing the maintenance of a top tier balance sheet and investments required to grow our business in response to the current climate, we are being more conservative about other capital allocation opportunities until we have more foresight into the path ahead.
Speaker Change: And now turning to guidance.
Speaker Change: As we began 2025, we communicated our belief reflected in our annual guidance that this would be another year of growth on the basis of the tremendous demand for Skechers, we observed across the globe, particularly internationally.
Speaker Change: The first quarter confirmed that belief, reflecting the strength of our brand and product assortment.
Speaker Change: Today, we still believe many markets, we'll continue along that trajectory absent unforeseen impacts from the current macroeconomic environment.
Speaker Change: However, we must also acknowledge the world is significantly more uncertain today than three months ago.
Speaker Change: We were in a similar situation five years ago, albeit for different reasons I'm not in the habit of quoting myself, often but the language I use then is equally applicable today.
David Weinberg: We will not be providing revenue or earnings guidance at this time as the current environment is simply too dynamic from which to plan results with a reasonable assurance of success as David stated while the near term is uncertain. We are confident that we are taking the necessary actions to ensure that skechers will successfully navigate this crisis.
And we.
David Weinberg: We not only successfully navigated the situation five years ago, but emerged as a stronger brand and fully expect to do the same this time.
David Weinberg: With that we thank you for your time today and look forward to updating you on our second quarter financial results, which we expect to release on Thursday July 31, 2025, I will now turn the call over to David for closing remarks.
Speaker Change: Thank you John we believe our first quarter performance, including record sales is exceptional we delivered our outstanding comfort products to consumers globally.
David Weinberg: Further grew our direct to consumer business and expanded our presence within our extensive network of retail partners.
David Weinberg: While we are aware of the uncertainty in the macro environment. We believe we are well positioned with our distinct and global market position, we have a proven track record of managing our business in crisis situations, such as we experienced five years ago.
David Weinberg: Like them, we are grounded in a clear strategic plan and remain agile and responsive to this dynamic situation.
David Weinberg: As a truly global brand with international representing 65% of our total business. We remain focused on enhancing our distribution and production network for greater efficiency and reach enabling us to deliver more innovation drive purchase intent and ensure that our products are available when and where consumers want to shop.
David Weinberg: All while operating in this volatile environment.
David Weinberg: Wed like to thank the entire sketches organization as well as our suppliers and our retail partners for their determination and flexibility as we navigate the road ahead together and now I'd 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. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from Mchugh for participants using speaker equipment. It may be an ask.
David Weinberg: This theory to pick up your handset before pressing the star keys.
David Weinberg: So that we may address questions from as many participants as possible. We ask that you limit yourself to one question and one follow up if you have additional questions you may re queue and time permitting those questions will be addressed.
David Weinberg: One moment, please while we poll for questions.
David Weinberg: Thank you.
Speaker Change: First question comes from the line of Jay sole with UBS. Please proceed.
David Weinberg: Great. Thank you so much.
David John: David John.
Speaker Change: And some of the things Youre doing to.
Speaker Change: Deal with the tariff situation could you just talk a little bit more about China, specifically, just give us an idea of how much of the company's production is going to happen in China, This year and what percent of that.
Speaker Change: What can you can you is there something you can do to minimize that and over what timeframe. That's the first part of the question the second part.
Speaker Change: From an industry standpoint, what you and your competitors what are they is there anything you guys are doing collectively to try to.
Speaker Change: Communicate the issues that you have with the administration to try to figure out a way to lower the tariffs or create some kind of work around so.
Speaker Change: Some of the tariffs that are out there don't become too onerous. Thank you.
Jay: Thanks, Jay obviously, a key question, although we're not in the habit of giving sourcing percentages by destination market.
What I would reiterate is a couple of things that were in our prepared remarks, namely that we're looking at the same three levers to deal with the higher tariffs from many markets to the U S.
Jay: Same way we did this.
Jay: Before that.
Jay: That's looking at Resourcing is looking at vendor cost sharing and it's looking at pricing and all of those are actively being pursued by the company to one degree or another obviously in the current environment, we will be looking to minimize production going to the United States from high cost locations, including tariffs.
Jay: But we're not ready to say today.
Jay: More specific than that I would also emphasize the note that David made a couple of times. During his prepared remarks, which is two thirds of our business is outside of the United States. So while this issue is incredibly in focus as it relates to our domestic market recognized the two thirds of our business is much less impacted if not minimally to.
Jay: Not impacted at all by the current situation. The other thing I'd note is that we have a substantial base of very valuable highly collaborative partners. We work with to manufacture goods. We are working hand in glove with them in this process. So we can get to the best outcome overall for our business and so far as industry.
Jay: The efforts we've participated in efforts alongside many of our many of our competitors to convey what we think is the best approach towards the global trade parameters that are in discussion today.
Jay: But at the moment I think thats, probably not going to be the most likely outcome for a near term resolution rather it's going to rest on our shoulders to to deal with the issue in front of us.
Jay: The same way as we've dealt with it before.
Speaker Change: Got it okay. Thank you so much.
Speaker Change: Thank you. Our next question comes from the line of Lauren Baffled Wesco with BNP Paribas. Please proceed.
Speaker Change: Good afternoon. Thank you David Thank you John for taking the question.
Speaker Change: We certainly recognize that you can't guide.
Speaker Change: 90 days ago, but I think what's interesting from the prepared comments.
Speaker Change: There was a point that when you said, we still believe many markets will continue along with the trajectory.
Speaker Change: Versus the original guide.
Speaker Change: John David could you guys.
Speaker Change: Essentially unpack that a little bit more for the audience like what markets are you seeing.
Speaker Change: Notable volatility.
Speaker Change: The United States, Europe, China Love to get some more color there as we think about.
Speaker Change: Modeling <unk> and potentially for the back half of the year. Thank you.
Speaker Change: I might I might start first on the markets that we don't see substantially changing in the near future and that's really the vast majority of the markets again harping on the the two thirds of our business occurring outside of the United States.
Speaker Change: The majority of the vast majority of those markets performed very very well this quarter and we expect we will continue to perform well absent.
Speaker Change: Unbeknownst changes from the macroeconomic climate that May result from from the current situation in several of the larger economies, but but I would state most clearly.
Speaker Change: What we see today has nothing to do with consumer demand consumer demand for the Skechers brand for our comfort technology products is extremely robust and quite frankly is almost hard to for us to catch.
Speaker Change: So thats not the issue now obviously the markets that.
Speaker Change: Today, probably present, the most uncertainty or the United States and China for two different reasons in the United States. It's obviously.
Speaker Change: A market, where we're watching consumer behavior pretty closely.
Speaker Change: And we're watching both signals in our own business, but signals and other businesses and those have clearly gotten more uncertain.
Speaker Change: In the recent past I would say in China. That's a market that continues to work its way through some of the macro challenges we've talked about.
Speaker Change: The decline this quarter I think is a bit more outsized, mostly because of last year. If you recall last year, China in the first quarter was a good growth market for us grew double digits. So I would take into context. This quarter's result is more in our view a continuation of the performance we saw over the back half of 2020.
For but it also is illustrating some signals of stability and we are taking the actions that we've previously discussed around demand creation product assortment of focus on comfort that we think will actually yield significant benefit as the market continues to improve so thats more of a status quo than anything else.
Speaker Change: But still a market, where we know long term, there's great prospects for the brand and we believe the actions we're taking today will have a.
Speaker Change: A significant impact to help drive that market toward recovery, but but more than anything I would I would want folks to understand that there is certainly at the outset no concern from a consumer perspective for our brand because what we see there are tremendous signals as evidenced by a lot of the regional growth you saw across.
Speaker Change: Both wholesale and in our direct to consumer business, particularly in EMEA, but also in the Americas.
Speaker Change: And then ex China, and APAC, which all grew quite nicely in the quarter.
John Defendable: Thank you John for all that color and then.
John Defendable: With regards to the tariff concerns I think you laid out three three strategies cost sharing sourcing optimization pricing.
Speaker Change: How should we think about those three levers.
Speaker Change: You've listed a mountain that order should we think about firing with your partners manufacturing partners as the biggest lever.
Speaker Change: And then pricing the last lever left to get.
Speaker Change: The degree of magnitude or are they all equal weight and how how fast can you implement each of those three levers. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah, you're going to get a lot of it.
Speaker Change: Unknowns in that launch.
Speaker Change: No we did not lift the those levers in order of either economic unit or other importance to us they are all being actively managed.
Speaker Change: We're working on all aspects of the strategy and the reason why were inhibited our ability to explain fully as that's an evolving topic I mean, we're right now today only in a pause on potentially drastic increases everywhere outside of China, and so how that unfolds, we will have a dramatic impact on how we plan sourcing.
Speaker Change: Yes, I think it's important to note that we have to remain flexible. So we don't have a target and then keep moving.
Speaker Change: Part of our strength and what we've done in the past as we use all the levers and all of those levers stay flexible and apply them where.
Speaker Change: It's the best for US to go at that particular time and that could change like John said over a short period of time so I.
John Defendable: I think just to reiterate we think we're in a good place we have some levers we don't know what the final list. So we don't know which levers we will do the best.
Speaker Change: What we do know is this the product is.
John Defendable: Being received very well.
John Defendable: Around the world and selling through and we have faith and our way too.
John Defendable: Manoeuvre these things to know that will come out.
John Defendable: As well as is possible.
John Defendable: Understood last question two weeks ago Levi's was asked if there was anti americanism.
John Defendable: Turning to brew with the brand and the answer was no I'd love to get your take there.
Obviously, what's a very dynamic environment, but just love to get your take obviously you guys are seeing as a global brand.
John Defendable: Just to get a little bit more color there would be very helpful for the audience. Thank you.
John Defendable: I would not say in any way, we've seen any evidence of either anti americanism or anti skepticism no isms.
John Defendable: What I would tell you, though is as we've emphasized before skechers is very much an international brand and we're perceived that way in many markets. We don't rely as heavily as others on some U S based assets for marketing the brand globally, we like to be very locally attuned and so.
John Defendable: For that the benefit is being perceived as much more of an international locally applicable brand then quote an American brand per se. So we haven't seen any evidence of that and we wouldn't expect that but obviously we're watching.
John Defendable: Watching the overall performance of the business very very carefully.
John Defendable: At this stage.
John Defendable: Thank you very much.
John Defendable: Best of luck.
John Defendable: Okay.
Speaker Change: Thank you. Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.
Speaker Change: Hi, This is Peter Mcgoldrick on for Jim. Thanks for taking the question I was curious in the context of your play playbook to address the tariff headwinds in the U S.
Speaker Change: Could you discuss your appetite for taking price and ability to do so across regions and not just in the U S could you elaborate there.
Speaker Change: Well as we said I mean pricing at the customer and the consumer level is certainly something we're considering we want to weigh that as David said against.
Speaker Change: What type of impact we feel that would have overall both to customers and consumers.
Speaker Change: I would surmise that much like when we've dealt with tariff situations are extreme cost impacts before some amount of that will evidence itself ultimately in price, but if we're weighing that as we go along.
Speaker Change: In this case the issue is so specific to the United States given the trade environment that we're probably unlikely to look across the globe for offsets simply because one of the things you have to be very careful about and explaining any price action to the customer and the consumer is the rationale behind it.
Speaker Change: And what we've generally seen is when that's a logical explanation when it's contextualized in the consumer's mind the customer's mind.
Speaker Change: As to why and that it makes sense.
Speaker Change: We find they're much more receptive to absorbing that but the honest answer is at the moment, that's still something we're deciding upon we will need to assess the.
Speaker Change: The impacts of an ultimately as David also mentioned, we'll be flexible about it.
Speaker Change: We try one approach and it's ineffective will very quickly moved to another we're not afraid to change tactics, if that's what conditions dictate.
Speaker Change: Okay, and then on the <unk>.
Expense side as you manage what youre able to control amidst an uncertain backdrop could you size that.
Speaker Change: Discretion over spending growth as we progress through 2025.
Speaker Change: There's a certain amount.
Speaker Change: Certainly discretion that we have I think what we want away again, though is let me step back we have tremendous brand strength, we have great product. We've got a strong balance sheet and we have ambitions to continue to grow. This brand, we don't want to be Penny wise pound foolish in the near term obviously, we will keep in mind the totality.
Speaker Change: <unk> of what's going on in the world, how that impacts our business and make adjustments from there, but but we also don't want to take.
Speaker Change: Take foolish action today that would jeopardize our opportunity long term, we referenced five years ago. Because there are we think some instructive outcomes, where we continued to invest through that cycle and emerged as a stronger brand and we feel many of the same opportunities will exist in the future ahead. So we'll exercise discretion will monitor things carefully but.
Speaker Change: We want to be thoughtful and we want to bet on the long term and the long term health of our brand first because thats, what we will ultimately enable the most success later on.
Very helpful. Thank you.
Peter Mcgoldrick: Thanks Peter.
Speaker Change: Thank you. Our next question comes from the line of Adrienne.
Speaker Change: With Barclays. Please proceed.
Speaker Change: Excuse me. Thank you very much for all the color.
Speaker Change: I guess my first question is the comment on 65% outside of the U S roughly 40% ish sourcing in China is there any.
Speaker Change: Under any circumstance is it possible to be so aggressive that that re directing all the China sourcing to non U S locations.
Speaker Change: How quickly could you shift any sourcing that you need to.
Speaker Change: And then my second question is on inventory as we go kind of through this pricing cost dynamic we saw this.
Speaker Change: You probably didn't but in the cotton inflation era in 2011, and 12, and then kind of a push pull between units.
Speaker Change: If you want them down and conservative versus the dollars that they're going to be up necessarily.
Speaker Change: How do you think about that in the back half and are you seeing any movement on marketplace orders right now thank you very much.
Speaker Change: In so far as the production is concerned I would say.
Speaker Change: All cards are on the table, we're looking at how we optimize the global cost of tariffs and all markets. When we look to move production around obviously with an effective tariff rate at about 159% products from China to the U S are prohibitively expensive so that will be an anchor behind.
Speaker Change: Some of our thinking again, we're going to stay away from absolute because what we believe will affect.
Speaker Change: The outcome, most is being thoughtful and flexible as time goes on but certainly.
Speaker Change: We'll look to optimizing for the lowest overall landed cost in total and by market. When we make those decisions and shifting around production by destination market will be a feature of that.
Speaker Change: In terms of inventory I think I think probably what I would note. Most is we're still dealing with some of the impacts of the Suez Canal closure and that is that is the most significant impact to our inventories and as we had said last year that.
Speaker Change: That will continue until we lap that situation because that's that's a logistics challenge not a not a business challenge per se.
Speaker Change: From there I would say quite frankly is the more inventory we have under the prior tariff regime in the United States. The better off we would have been but mostly we're continuing to manage inventory as closely and thoughtfully as we have in the past and that means.
Speaker Change: Very low amounts of at risk inventory the substantial majority of our inventories either a.
Speaker Change: Booked order in the future or dedicated to our own DTC business both of which.
Speaker Change: We have a pretty high fidelity to delivery.
Speaker Change: In terms of orders, it's a little early to say too far into the future other than next quarter, but I would say, we're watching orders carefully we're watching customers carefully.
Speaker Change: Some some are certainly nervous because of the environment, but.
Speaker Change: I would say is when we've shown them our product assortment, which we just got done doing here in Manhattan Beach and are in the process of doing across the globe. We see we get tremendous and positive response to what we're bringing forward. Both in terms of the comfort technology products that we've had in the past, but also some newer products that are doing very very well for us.
Speaker Change: So.
Speaker Change: Although they may be nervous overall, when we talk to them. They are excited about what we're bringing forward about what we're offering and ultimately will have to find a way to manage through some of this uncertainty together and that's that's what we're poised to do.
Speaker Change: Fantastic I appreciate the color best of luck.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Alex Scranton with Morgan Stanley. Please proceed.
Alex Scranton: So much for taking the questions just a couple of follow ups from me just on your China sourcing exposure being relatively high I'm. Just curious if historically something has kept you from moving out of that country compared to peers.
Speaker Change: Whether that's more flexible now and for whatever reason.
Speaker Change: Then just another follow up on inventory Im just curious how much do you have on hand, right now thats not Carrington and how do you think about the flow of how long you have this window of non tariff inventory before it starts becoming tariff trying to think about how this flows through the income statement throughout the year. Thanks a lot.
Speaker Change: Yes, I mean, I think when you look at production right, it's partly about where your destination market is it's partly about the capabilities of your partners.
Speaker Change: We've always maintained a fairly flexible view on where we want to get our product from it has historically M&A is largely from Asia, but thats also quite frankly, where we have some of the best quality some of the lowest cost opportunities and some of the most quite frankly deeply rooted relationships with manufacturing partners.
Speaker Change: It is it is flexible we are in the process of flexing that right now, but again, we can't think about this just from a U S perspective, because that two thirds of our business that's not in United States.
Speaker Change: Pretty robust and is not currently impacted by.
Speaker Change: A similar environment to what you see unfolding in the United States. So we'll be flexible on it but I think it's important to keep the broader aperture of our business in mind. When you think about that because it is not.
Speaker Change: Principally domestic business.
Speaker Change: Insofar as inventories are concerned we did take action to get more inventory on land as much as we could.
Speaker Change: Right before the most recent announcement announcements we did take efforts to pre clear through our free trade zone DC, what we could I would say to answer your question in a slightly different way, we will begin to feel the impacts of the current tariff regime in.
Speaker Change: The tail end of the second quarter and fairly acutely in the third quarter those are probably going be the two most sizeable impacts based on what we know today some of that Waldo also be contingent upon what which of those levers we pull in how quickly we're able to pull them in and to what degree. So there is still more more unknown than known in that which is again why.
Speaker Change: While we are at the moment paused our guidance, but all of those are being actively pursued and we're doing everything we can to bring in goods, obviously at the lowest possible landed cost yes.
Speaker Change: I think it's important to note also that at least from my perspective, we haven't really been slow to move and take multiple sourcing for our product like John said, because with two thirds outside the United States that is still a very viable factory base for us on a worldwide business that we continue to support and work with the <unk>.
Speaker Change: <unk> that go to each country can change much more quickly than changing the entire production facility. So our business continues to grow in southeast Asia and APAC outside of China, We do foresee China, continuing a growth curve somewhere in the near future and we continue to make product and we can move it and try to maximize what we can like you said.
Speaker Change: We have significant flexibility and we try to use it that's why it's very difficult to be tied down to percentages and how quickly.
Speaker Change: I think it's fair to say the smallest piece of what we make and what brings comes to the United States will now come from China at least in the short term until some new things all brought out we really have no intention of bringing any 150%. Good having said all that I don't know that we won't bring in enough goods as we get to the back half of the year as things change.
Speaker Change: Move forward, there's just too many moving parts and we don't see that as a big possibility now so we're still moving forward, we still have great faith in.
Speaker Change: Those places that like we said outside the United States and China that continue to grow and that can take production from multiple sources.
Can I ask a quick follow up just when do you have to have holiday orders and buy like how long do you have until you have to the shoe drops on that.
Speaker Change: That's a that's.
Alex Scranton: That's a question of upon Alex.
Alex Scranton: I would say for the most part about now it will depend upon the nature of the product if it's an entirely new construction it's earlier.
Alex Scranton: It's something that we've had before the current environment will exacerbate that a bit as we move things around and Thats. One of the things you have to keep in mind, it's not just.
Alex Scranton: What capacity do you have but what's the logistical the logistical support behind that and that's another element of the calculus you have to consider particularly when you are facing down something like the holiday.
Alex Scranton: Okay.
Alex Scranton: Thanks, a lot good luck.
Alex Scranton: Okay.
Speaker Change: Thank you. Our next question comes from the line of John Kim Ann.
Speaker Change: With TD Cowen. Please proceed.
Speaker Change: Alright, Thanks for taking my question guys.
Speaker Change: Thanks.
Speaker Change: Beautiful day to day.
Speaker Change: It usually is.
Speaker Change: So we're all obviously trying to become experts in how to model cost of goods sold and a new tariff regime.
Speaker Change: You talked about some of the key inputs and offsets like pricing supply chain optimization cost sharing.
Speaker Change: Can we think about your landed cost as a percent of your overall cogs, whether it's <unk> or the other term maybe it might just be landed cost, but how much of that when we look at are much more simple cell models and trying to forecast the gross margin and EBIT margin impact how should we think about that critical input.
Speaker Change: Well I first compliment.
All of you really.
Speaker Change: The work Thats been done up to this point in time, we found to be surprisingly close to the market in terms of overall dynamics with regards to factors like <unk>.
Op costs et cetera, I mean, obviously it is the most significant component of the cost of goods.
Speaker Change: When you take into account the product lifecycle.
Speaker Change: I think you do point out something that is important to keep in mind, though right the primary impact.
Speaker Change: For something like duties and tariffs.
Speaker Change: As to the Fob price of the goods, but there are other elements that get impacted particularly when youre moving production around both geographies into different production facilities.
Speaker Change: <unk> factors are different labor costs are different.
Speaker Change: <unk> and logistics both availability.
Speaker Change: And timing are different and so.
Speaker Change: That's why this is not an incredibly easy answer to give especially with the amount of volatility in the situation because all of those factors have to be weighed.
Speaker Change: Bluntly speaking it doesn't help when the policies change as quickly as they have over the last three weeks some stability as necessary to be able to run the analysis, we need to be able to make informed decisions on on sourcing what to do with product what to do with pricing what to do with cost all of that and that's all that's all in the works.
Speaker Change: Got it that's helpful. Just one follow up question on DTC has gradually become a bigger portion of the business I think it's mid forties percent.
Globally I think at the beginning of the year. When you issued guidance you talked to a 180 to 200.
Speaker Change: The new stores that puts you I.
Speaker Change: I think at low teen square footage growth or store growth I should say, if there arent any store closures on top of that but how do we think about the level of growth you want to you want to put forth in DTC and how do we think about the omnichannel comps both domestically and internationally.
Speaker Change: Well, we're still excited to open stores, we still find opportunities to open stores profitably and ultimately it is a microeconomic decision. It's can we open a proposed location with the right level of profitability the right scale to make sense and we continue to see ample opportunity for that I would say, we'll continue to look at all of those very carefully.
Speaker Change: Especially in the current environment, we do have a bias towards international International is where we see the largest opportunities as David said and we have said traditionally.
Speaker Change: And because the results there have been and continue to be very robust, we think theres a lot of ground to tread in that area in the U S. We still see exciting opportunities and we will watch those carefully as the macroeconomic environment unfolds, but right now we still see interesting.
Speaker Change: In attractive opportunities to open stores that final number may become something we look at as we as we deal with the repercussions of the current environment, but no decisions have been made on that as of yet I would also note that even over the last three months, we've seen some fairly interesting dynamics within the DTC space and we spoke about these.
Speaker Change: Previously in a couple of venues.
Speaker Change: Saw some months, where traffic was a bit more robust than others consumers were out and then you saw a pretty decent shift to online and so overall I would say, we're very pleased with the DTC results for the quarter domestically and especially internationally, but there was a bit more volatility in that than we've seen of late.
Speaker Change: I think what's great about having the Omnichannel solution, we have as a company is it allows us to flex quickly to meet the change in consumer behavior dynamics that we saw and so this quarter in particular, we saw fairly robust E com growth stores did well, but they werent the major source of the growth.
Speaker Change: And that was because consumers display to pension, particularly in February to move online and we were there. We are there with the right product right assortment and availabilities and Thats why we were able to capture those dollars and so we expect to continue to leverage that omnichannel capability going forward to meet consumers, where they are and make sure that they have access to.
Speaker Change: <unk>.
Speaker Change: Their favorite comfort technology products.
Speaker Change: Yeah.
Speaker Change: Very helpful details John Thank you.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from the line of gasoline Huang with Evercore ISI. Please proceed.
Speaker Change: Hi, guys. Thank you for taking our questions.
Speaker Change: Manufacturing right.
Speaker Change: That being made in China, which is kind of a heat not being produced in Vietnam.
Speaker Change: So maybe just.
Speaker Change: Hello boss franchises.
Speaker Change: What's the percentage of total productivity backup and then the other question is you guys highlighted zing concept that is about capital allocation for this year.
Speaker Change: Great.
Speaker Change: Tony Stoss, whether we're meeting.
Speaker Change: Cynthia Hi that we're keeping our store expansion plan beginning with <unk>.
Speaker Change: The high volatility.
Speaker Change: And then just help me understand why does the thought process of keeping the start opening.
Speaker Change: And how fast can we change up thanks.
Speaker Change: Right.
Speaker Change: In this environment.
Speaker Change: So on your manufacturing question I mean, we're not going to give detail at.
Speaker Change: Franchise level I would say in broad brush strokes, probably the most noticeable discrepancy we see in terms of manufacturing capabilities is that kids footwear tends to the vast majority of it tends to M&A from China.
Speaker Change: It's very high quality. It follows all the regulatory requirements for consumer product safety in the United States.
Speaker Change: And meets the right price points for a notoriously lower gross margin business and so that'll be a challenge. That's one we're going to have to look at carefully because of that that.
Speaker Change: Is that unique differential and manufacturing capabilities.
Speaker Change: Out of that there may be products here or there that we need to think about.
Speaker Change: Generally speaking I would say we have the ability to backup most production in multiple locations.
David Weinberg: In terms of the store I would go back to my last answer to John we're making microeconomic decisions on the stores based on the pro forma characteristics of that location. If they don't make sense, we won't do them. If they do for the most part will continue we are evaluating whether or not it makes sense.
David Weinberg: To continue with every store on a regular basis, because the dynamics can change.
I'd go back, though we're just we're close to a quarter, where our DTC business grew.
6% and that includes a drag coming from China, and so there's a lot of opportunity.
David Weinberg: That we still see in the business and from a Q1 perspective I would tell you the consumer was pretty healthy now where it goes from here is something we'll have to watch but.
David Weinberg: As we got through Q1, one of the most I think noticeable aspects of the.
David Weinberg: The behavior of the business was that ex China. It was it was up double digits on a DTC basis and Thats that.
David Weinberg: It's pretty healthy so we will continue to weigh those factors I would say we're monitoring the situation but.
David Weinberg: It's really going to be dependent upon consumer demand and our analysis of that at the time, we make decisions about opening stores.
David Weinberg: Got it.
David Weinberg: Quick follow up how much.
David Weinberg: Thank you.
David Weinberg: Sure.
David Weinberg: Got it.
David Weinberg: I don't know if we've given by Jim I'd say, it's the smallest of the three gender breakdowns and it is not an extraordinary amount of the business, especially because kids just as a general rule of thumb.
David Weinberg: A lower ASP.
David Weinberg: But we like having the kids business, we think it's good for the consumers as a complement to other purchases, it's often quite frankly, the plus one purchase.
David Weinberg: From a units.
David Weinberg: On a per transaction basis, so it tends to be additive.
David Weinberg: We think it is important to our franchise and we have some franchise shoes in that.
David Weinberg: In that agenda that work really well.
David Weinberg: The near term manufacturing is an issue we're going to have to overcome but eventually we believe we can and will get back to a market where there is there is not a challenge around the kids manufacturing.
Got it thanks guys.
David Weinberg: Okay.
Speaker Change: Thank you. Our next question comes from the line of Rick Patel with Raymond James. Please proceed.
Speaker Change: Hi, This is Josh <unk> on for Rick Patel, Thanks for taking our questions.
Speaker Change: I was hoping that you could kind of go through as the company is evaluating where tariffs are going to land can you talk about the opportunity to delay decision, making by leaning more into airfreight. If that's a possibility that makes logical like logistical sense.
Speaker Change: Well I don't know if anybody on this call has perspective into where tariffs are going to go we would we would greatly appreciate they're sharing.
Speaker Change: And I do think it's that that.
Speaker Change: And that lack of visibility.
Speaker Change: One of the bigger challenges we face.
Speaker Change: Airframe really wouldn't be a solution in mass to us the amount of benefit you would get would amount to maybe a couple of weeks and while that may be the case that in this instance that proves to be critical.
Speaker Change: Costs to load and Carrie.
Speaker Change: Our product.
Speaker Change: In air is not wouldn't make that worthwhile, but I think again you touch on probably the most critical element of the situation is.
Speaker Change: The volatility with which <unk>.
Speaker Change: Policies in rates have changed just wondering one of the more challenging elements of it.
Speaker Change: We face a set of challenges and conditions, we can navigate around those its windows challenges and those conditions changed dramatically very quickly that makes it very hard to plan and thats probably been the most troublesome aspect of the current environment.
Speaker Change: Sure.
Speaker Change: Yeah I appreciate the color.
Speaker Change: And just a follow up on that.
Speaker Change: Though you mentioned that the wholesale accounts are excited for our new product.
Speaker Change: But I was curious if you can give us a sense of how much confidence they have in taking on inventory given all the uncertainty going on and then if orders ended up softer than your plan, what's your confidence that the <unk>.
Speaker Change: D to C channel can do the heavy lifting and move more units.
Speaker Change: Well, there's a lot of assumptions built into any answer I would give you there I'd say look it's clearly there is more nervousness today than there was three months ago, that's evidenced at the customer level for us our wholesale partners in the U S is evidenced in the consumer data that's coming out more broad.
Speaker Change: Lee.
Speaker Change: In the financial markets.
Speaker Change: I think what's probably most appropriate for us to comment on is the fact that we can be flexible and we will be flexible we've shown that in the past if theres challenges in wholesale we can lean on DTC, what's important to US is that we get the skechers product in front of the consumer in an environment, where it's conducive for them to make the choice to buy a product that is.
Speaker Change: Also incredibly contingent upon their spending power and power intent so.
Speaker Change: We'll have to watch all of that I would say, we feel good about our opportunities to to get product through our own DTC channel irrespective of the tariff situation, we will make changes.
Speaker Change: To ensure that our DTC business is in a position to add the product necessary to meet consumer needs now the wholesale partners I think we're all going to have to watch and see.
Speaker Change: Because but because it's a dynamic environment and certainly.
Speaker Change: The competence of everybody has taken a bit of a hit over the last couple of months.
Speaker Change: Yes, I think it's important that we.
Speaker Change: Keep our eyes focused on demand if there is demand for the product will pick it up whichever way the consumer wants to shop and if it means we have to we will have more of the product then we will and we're always willing to share.
Speaker Change: So we plan to be ready, we do see demand for the product and demand for our product on a relative basis holding up very well. So we will be ready whichever way, we need to get to our consumer.
Speaker Change: Thanks, so much and best of luck.
Thanks, Josh.
Speaker Change: Thank you. Our next question comes from the line of Cristina <unk> with Deutsche Bank. Please proceed.
Speaker Change: Hi, good afternoon, and thanks for taking the questions John just on the tariff mitigation strategies, how do you think about having clean potentially more heavily on price adjustments either earlier than anticipated.
Speaker Change: Maybe thinking about it in the context of unit electricity, but how are you guys thinking about taking our price is versus what could happen with units and then to the extent that you can talk about it just how should we think about any potential margin offset for the higher inventory cost into the U S. Such as maybe domestic transportation that could be a tailwind here anything you can share in terms of I think.
Speaker Change: We are locking in your ocean freight contracts here.
Speaker Change: Anything that you can share from that perspective, it is Bob Thank you.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: Look I think we don't want to raise prices because of increased duties that's not our.
Speaker Change: Our objective if we have to do that because circumstances require it then we will.
Speaker Change: But we won't take that decision lightly it'll be done with as much dexterity as we can manage and in many instances.
Speaker Change: We will put ourselves in a position to potentially absorb some short term pain to minimize the impact of those two both customers and consumers were willing to make that investment.
Speaker Change: We believe it's in the long term interest of the brand. So we will look at all factors, but I would state. Our objective is not to raise prices for the sake of raising prices, but rather it will be in response to extraordinary costs, if we see them.
Speaker Change: In so far as a margin is concerned I think at the moment, our bias would be to look at protecting over the medium term as best we can the gross profit dollars.
Speaker Change: Driving to maintain overall margins in an environment where you.
Speaker Change: Your landed duties of 159% is a big challenge and that would probably present, we think.
Speaker Change: Even bigger challenge at the consumer level, but but it's something we'll have to look at over the long term again, assuming some sort of normalization, we feel like our ability to reconstruct these quite.
Speaker Change: Quite impressive sustainable margins, we've been out over the last two years.
Speaker Change: It's pretty good because it's based on our appeal of the product. It's based on the technology embedded in the product and I think it's supported by by.
Speaker Change: By the marketing in terms of non landed costs.
Speaker Change: I'll, let David comment on the carrier negotiations I think.
Speaker Change: Our recently concluded so.
Speaker Change: Yes, we can.
Speaker Change: These include a denim and we're still waiting to finalize exactly which routes will need for which country says all this settles out and we get our points of.
Speaker Change: Duction, but as of the time, we were there a few weeks ago prices were still very steady and didn't look to upset.
Speaker Change: Any of our caustic.
Speaker Change: In the near term so it's something we're constantly monitoring and looking at as we change points of production for different countries.
Speaker Change: So far we think its looking fairly stable.
Speaker Change: Okay. Thank you so much best of luck.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question comes from the line of Chris <unk> with Bank of America. Please proceed.
Speaker Change: Thanks, guys I just wanted to go back to China and wanted to see if you're expecting the business to improve as we move through the year and then if there's anything you can speak to that provides any color on whether youre, taking share or the health of inventory in the channel is getting cleaner versus the last couple of quarters.
Speaker Change: Our expectations for the back end of the year last three quarters are pretty modest, but again I would point out that the decline this quarter with significantly exacerbated by the fact that last year. The first quarter was Alaska last sizeable quarter of growth.
Speaker Change: So I think the I think the decline looks a little bit outsized relative to where that business has been over the previous couple of quarters.
Speaker Change: I would say the encouraging signal is that it feels like that market has it reached a level of stability at least.
What that means from our point of view is that it should be pretty modestly performing as you get into more comparable quarters in.
Speaker Change: Two three and four but also we are putting a lot of energy into how we think about reinvigorating the consumer in that market, how we play off the strength of our comfort technology products.
Speaker Change: What we can do different in demand creation that might instigate some resurgence.
Speaker Change: I don't think.
Speaker Change: We are quite frankly, many brands are in a position of gaining share or trading share in that market, but I also don't think we're losing anything substantially either it's still an incredibly important market for us we're committed to that market by the long term, we continue to invest in our distribution infrastructure. There we continue to invest in our capabilities in that market. So.
Speaker Change: We still believe it has.
Speaker Change: Significant opportunity for growth and we will continue to invest behind that because we think that the brand has that size of opportunity.
Speaker Change: It.
Speaker Change: Got it and then just a quick follow up on pricing. So how quickly are you looking to make a decision on whether youre going to raise prices to protect your earnings power, especially if the assumption holds at the current tariff structure for now remains in place for the next couple of months.
Speaker Change: Okay.
Speaker Change: Well, that's a critical assumption and I think having.
Speaker Change: Having some clarity on that would be very informative I would say, it's an in process motion.
Speaker Change: It's not any it's not like a given day all of a sudden you decide you're going to.
Speaker Change: Raised all the prices, we're making adjustments as we go.
Speaker Change: So it's I would say it's actively in process.
Speaker Change: I think based on what we see today that would that would lead one to conclude that the most acute impacts from a stable tariff structure.
Speaker Change: It would be in Q2, and Q3 with some ability to resolve that starting in Q4.
Speaker Change: Understood. Thank you good luck.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Anna.
Speaker Change: Ray.
Speaker Change: Piper Sandler. Please proceed.
Speaker Change: Great. Thanks, so much and thank you guys for all the color.
Speaker Change: Wanted to follow up on the U S. I think in the prepared remarks, you mentioned demand signals are more uncertain.
Speaker Change: Sales moderate in April or is this a concern about what can transpire in the business going forward and then we had a follow up.
Speaker Change: Yes, I mean, I would say so far in April we've seen a fairly consistent trend.
Speaker Change: From the back half of Q1, nothing that I would call out as a.
Speaker Change: A notable change other than there are some there've been some calendar shifts with regard to Easter.
Speaker Change: So you have to you really have to look at that period in totality you can't you can't pick one week or one day and look at and draw too much of a conclusion.
Speaker Change: Our commentary was more about what we're watching than what we've seen we're watching the consumer carefully because theres been a lot of indicators from third parties.
Speaker Change: Traditionally published survey as consumer confidence indicators that would show that the consumer is growing more concerned about their spending power that that's really the genesis of motivating our watchfulness on the DTC side of the business.
Speaker Change: <unk> than anything we've seen.
Speaker Change: Okay that makes a lot of sense.
Speaker Change: Okay.
Speaker Change: And on the Capex it sounded like Youre looking at Youre right in that $600 million to $700 million range that you guided to previously just given the environment and you already mentioned pulling back on some of the new store opening.
Speaker Change: Slightly can you talk about what other projects.
Speaker Change: Considering can you pull back on.
Speaker Change: Well just to be clear, we haven't pulled back on anything yet what I would emphasize is that we're evaluating all alternatives similar to evaluating all of our all our turn it is to managing the business in response to the trade environment. So.
Speaker Change: We haven't made any decisions yet to pull back we have made decisions to continue on and the China and U S distribution et center expansions that we mentioned are good examples there and I would I would gather that the vast majority of what we have planned if it makes business sense and can't be deferred easily without.
Speaker Change: Note without an impact to the business.
We'll probably continue forward, but we'll watch it carefully and we'll continue to evaluate opportunities should the dynamics of the market justify that but but again.
Speaker Change: Going back to where our strong brand with a good balance sheet with great growth prospects, we do not want to fail to take advantage of this opportunity to continue to invest in the brand for the long term.
Speaker Change: Alright, thanks, so much best of luck.
Speaker Change: Thank you our next.
Question comes from the line of Tom <unk> with Needham <unk> Company. Please proceed.
Speaker Change: Okay.
Speaker Change: Thanks for taking my question.
Speaker Change: Yes.
Tom we arent able to hear you.
Speaker Change: You may have it yourself.
Speaker Change: Okay.
Speaker Change: Can you can you hear me now.
Speaker Change: Yes Hello.
Speaker Change: Okay.
Speaker Change: Sorry, sorry about that.
Speaker Change: I wanted to follow up on.
Speaker Change: Some of the discussion around pricing.
Speaker Change: How.
Speaker Change: Do you feel about the consumers.
Speaker Change: Ability to.
Speaker Change: Absorb.
Speaker Change: Price increases and presumably there's going to be a lot of goods that are going to become more expensive.
Speaker Change: Inflation generally broadly in the economy may become.
Speaker Change: A pretty meaningful headwind to consumer confidence so.
Speaker Change: Right.
Speaker Change: How are you thinking about the elasticity.
Speaker Change: And your ability to push price and not hazard.
Speaker Change: Negatively impact the volume of payments that you are selling.
Well as we said before we're not eager to raise prices, we would not be doing so were it not for a change in the duty structures of inbound product.
Speaker Change: On the one hand, obviously, you don't want to be taking price in the face of a dip.
Speaker Change: Distressed consumer on the other hand, I would say certainly in that type of a situation, while we do not wish for it.
Speaker Change: We are focused as we always say on delivering style comfort quality innovation at a reasonable price and I think being a reasonable price solution for footwear needs for consumers in that type of environment is a much better footing to beyond then to be at the extreme.
Speaker Change: Premium end of the market so.
Speaker Change: Again, we're not eager to raise prices, we wouldn't be doing so were not for the amplified duty structures that are prevalent today on the flip side, we feel very good about being a brand that offers consumers a choice for reasonably priced highly comfortable stylish innovative footwear and so.
Speaker Change: I think in that environment, we will begin to press that message to make sure consumers understand that skechers is as a great alternative in that type of environment, but again, it's not something we went out and thought we wouldn't be changing price were it not for the <unk> disease of the situation.
Speaker Change: Understood.
Speaker Change: Quick follow up.
Speaker Change: In terms of your inventory planning.
Speaker Change: Is there any thought to potentially.
Speaker Change: Taking the more.
Speaker Change: Conservative stance towards.
Speaker Change: Ordering new inventory for the back half of the year.
Speaker Change: With hopes that perhaps there will be a.
Speaker Change: Deal on the table you know 1990 days from now on June eight days from now who knows but that that maybe you don't want to get stuck with too much inventory at a time when this might be.
Speaker Change: The worst time to be buying it.
Speaker Change: We always act that way.
Speaker Change: Not very big.
Speaker Change: On speculative inventory, we're not bind to a plant that's not backed up by our consumers our power on direct to consumer business on a worldwide basis.
Speaker Change: So.
Speaker Change: And I think you have to.
Speaker Change: Do you have to realize that nothing about what you. Just said is instantaneous you cannot wait for demand and make a shoe and deliberate in the next week.
Speaker Change: To get it done so it's not quite as easy to planning so we plan.
Speaker Change: Two the requests of our consumers and customers around the world, both direct to consumer and our third parties and our franchise stores, we build a model around them, we evaluate that on a weekly basis to see how it's coming to plan and see if we have to change anything we're very meticulous about delivering on time and moving production cycles, whether theres more of.
Speaker Change: Less demand to fit the structure, it's all part of our core competency and Thats, what we do on a regular basis, we are not in.
Speaker Change: The habit business or.
Speaker Change: Given the desire to build inventory potentially and leave it someplace offshore in case it might be needed here, it's not part of our business model, nor do we ever think that way.
Speaker Change: Understood Alright, Thanks, John Thanks, David Best of luck, the rest of the year and navigating.
Speaker Change: Situations.
Speaker Change: Thanks, Tom.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Sam Poser with Williams trading. Please proceed.
Speaker Change: Good afternoon, I saw you completely forgot about being but I do appreciate it.
Speaker Change: Sam how could we forget about that would be impossible.
Speaker Change: Goodness gracious.
Speaker Change: Anyway, let me just do one thing given the 90 day hiatus or whatever's going on the July nine state when we expect given sort of the combination of what's going on with.
Speaker Change: The Suez Canal and shipping goods around and trying to get ahead of any.
Speaker Change: Reverting to higher tariffs that inventory at the end of the second quarter is going to be pretty high as you attempt to get goods in.
Speaker Change: To avoid course within the order.
Speaker Change: But do you have orders in from September could we see those showing up in June at the end of June theoretically.
Speaker Change: Okay. I think you got to take one step backwards. The Suez Canal has nothing to do with tariffs and the amount of time to look Brian Thats on top of the tariff that is already a problem.
Speaker Change: Different problem so.
Speaker Change: Yes, but the Suez canal wouldn't tend to exacerbate because now we're going to.
Speaker Change: Move to the following year and we will have the same amount in transit and we've got a better handle on it anyway.
Speaker Change: The hiatus for 90 days like I said, we're not we we've got a handle on what it is we need for June July August.
Speaker Change: Sure.
Speaker Change: If we thought for some reason that tariffs were going to go up dramatically from that point and had the capacity to pick up inventory.
<unk>, we conceivably could but it has to be on the water.
Speaker Change: By the tariff that you don't usually get that much time, so we're making everything to our delivery dates and we're trying to move them up as quickly as we can.
Speaker Change: But right now.
Speaker Change: It's very steady flow like I said, not a lot of speculative inventory. So we try to react as we get the information.
Speaker Change: But I mean, as you said youre trying to move orders up that you have I am not talking about building spec inventory Im talking about for instance, you have an order for September if you could get that made and delivered in June right. Now you would do it that spec order.
Speaker Change: Well, depending on who you are from but yes, we would move some but in today's environment with all this movement around the world everybody is going to be short production space in different parts of the world.
Speaker Change: That can be picked up I don't know that you could pick up a couple of months of production that quickly in this transition is right here.
Speaker Change: And then you brought up you brought up.
Speaker Change: That the kids business.
Speaker Change: As a China sourced issue does that mean that theoretically we could expect I mean, given that the law.
Speaker Change: Kids businesses very quite sensitive would we expect a shortage in kids shoes.
Speaker Change: Half of the year.
Speaker Change: Because you can't move a lot of that production and.
Speaker Change: Secondly.
Speaker Change: You talked about demand you talked about is on demand I mean, how is your demand planning evolved over the last few years.
Speaker Change: Howard how do you expect that will serve you.
Speaker Change: Now, let's say compared to Covid times.
Speaker Change: Well.
Speaker Change: I don't know that demand and Covid times, and a great teacher or anything that was of great demand and no supply. So I don't know that debt.
Speaker Change: That really counts.
Speaker Change: Usually from the marketplace back we learn and we modify it.
Speaker Change: Weekly and biweekly basis to plan to make sure that the flows are being calculated correctly and that we don't have to make changes to our production line. So.
Speaker Change: We've learned this as best we can remember this is a worldwide thing for us.
We don't make very many unique products with different parts of the world. So we can mix and match production certainly if we have raw materials before their cut because the biggest differential between marketplaces as more of a size runs and the amount of sizes you need in each on each end of it.
Speaker Change: Rather than the style or style specific so we can move things back and forth I think most people know that's part of our core competency. We're very flexible we're very flexible within our regions, where our production base.
Speaker Change: We keep using them and try to get them as close.
Speaker Change: To market need as possible.
Speaker Change: Okay.
Speaker Change: As a kid.
Speaker Change: Werent, saying there is an issue we're just saying that there is a notable differential between manufacturing capacity in China and other markets, So probably too early to make any.
Speaker Change: Concrete decision because as we mentioned we're still in the process of.
Speaker Change: Evaluating our options to begin with.
Speaker Change: Certainly there is a known differential and the capacity to produce kids shoes that biases towards.
Speaker Change: A market like China, So that's something to be considered.
Speaker Change: And then thank you and then lastly, you said.
Speaker Change: You might.
Speaker Change: And shifting to sort of be more geared to protect gross margin dollars.
Speaker Change: But my question to you is given that you don't want to take price I guess under.
Speaker Change: Because of tariffs.
Speaker Change: Could we expect that.
Speaker Change: In order to sort of keep product, where you are that you will you could take a hit that we should expect the haircut on the gross margins.
Speaker Change: If things don't change.
Speaker Change: But.
Speaker Change: And that also could be a good way for unit gains of market share because everybody else will have to raise price.
Speaker Change: And again that also helps with 65% of your business outside the U S. I would assume im surprised youre not thinking.
Speaker Change: Globally on prices, because you could price the average it and minimize the increases but.
Speaker Change: I don't know.
Speaker Change: So I mean.
Speaker Change: Just to do the math right. If we're prepared if it were protecting gross profit dollars, we would be sacrifice gross margin percentage.
Speaker Change: Because obviously to keep the percentage you'd have to amplify the price increase beyond what the increase in landed cost is that youre trying to offset so that would result, mathematically and some erosion in ulta.
Speaker Change: Ultimately the amount of that is something we'd have to assess over a longer horizon then.
Speaker Change: We've been able to do over the short term, but again, our priority would be to replace the dollars and the short term long term, we would address the margin percentages.
<unk>.
Speaker Change: I think so far as the pricing we gave our explanation for that I mean, this is a localized issue I know as much as we're all focused on this discussion again two thirds of our business. This is not applicable to and to impact pricing there what I think run the risk of being somewhat discordant with what consumers expect and what customers.
Speaker Change: In those markets and Thats, something we have to be attentive to that all being said, we will remain flexible in this environment.
Speaker Change: Handled situations similar to this before flexibility long term view confidence and continuing to make great product are what got us through the last time, and we think thats what delivers through this time.
Speaker Change: Alright. Thank you guys very much good luck with all of this.
Ed: Thanks, Ed.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Yeah.
Speaker Change: [music].