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Founded in 1992, Skechers U.S.A. develops footwear, apparel, and accessories around the world. The company operates in two segments: wholesale and direct-to-consumer. Skechers reaches consumers through a mix of company-owned retail stores, e-commerce, third-party marketplaces, and licensed partners, with a strong global presence in both physical and digital channels.

Q1 2025

Q4 2024

Skechers U.S.A. (SKX): Company Profile, Stock Price, News, Rankings

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Skechers U.S.A.

skechers u.s.a.

Greetings, and welcome to the SKECHERS Fourth Quarter and Full Year twenty twenty four 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. It is now my pleasure to turn the call over to SKECHERS USA Incorporated.

Good afternoon, everyone. Thank you for joining SKECHERS' fourth quarter and full year twenty twenty four earnings conference call. My name is Jason DeEese and I lead the cybersecurity engineering team here at SKECHERS. I've been with the company since 2013 and my favorite style is the SKX float from our SKECHERS basketball line. Joining us on today's call are SKECHERS' Chief Operating Officer, David Weinberg and Chief Financial Officer, John Vandemore.

Before we begin, I would like to remind everyone of the company's Safe Harbor statement. Certain statements made on today's call contain forward looking statements based on current expectations, including without limitation, statements addressing the beliefs, plans, objectives, estimates and expectations of the company and its future results and certain events. These forward looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from such statements. There can be no assurance that the actual future results, performance or achievements expressed or implied by any of our forward looking statements will occur. Please refer to the company's reports filed with the SEC, including its annual report on Form 10 ks and quarterly reports on Form 10 Q for more information on these risks and uncertainties that may affect the company's business, financial conditions, cash flows and results of operations.

With that, I would like to turn the call over to SKECHERS' Chief Operating Officer, David Weinberg.

Good afternoon, and thank you for joining us today on our fourth quarter and full year conference call. Twenty twenty four was another growth year for SKECHERS, marked by strong financial performance and profitability, the launch of innovative products and the expansion into new categories worldwide. It also marked a significant milestone in our history, our twenty fifth year as a publicly traded company. On a constant currency basis, SKECHERS delivered sales of over $9,000,000,000 dollars a 13% increase and diluted earnings per share of $4.4 representing a 26% increase while recording strong gross margin of 53.2% and achieving a double digit operating margin of 10.1%. We also continued to return value to our shareholders through a repurchase of approximately 5,200,000.0 shares during the year, while maintaining a healthy balance sheet.

We ended the year on a strong note, achieving fourth quarter constant currency sales of 2,240,000,000 and earnings per share of $0.86 Our performance in the quarter was broad based with reported sales growth of 17% in wholesale and 8% in direct to consumer, as well as 18% growth domestically and 10% growth internationally. For over three decades, we've upheld our core principles of delivering style, comfort, innovation and quality at an affordable price. We have maintained this commitment while evolving and adapting to meet the needs of our customers and drive global demand. This was again evident over the past year as we broaden the category reach of SKECHERS performance to deliver innovation and comfort for the court, pitch, field, green and trail. Building on the momentum of our Sketchers pickleball debut in 2022, we strategically expanded into soccer and basketball the following year.

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 and apparel to India, which are now available globally. 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 Leagues, Mohammed Kudas and Anthony Yolonga, La Liga's Ikar Lesada, Indian Super League's Sunil Chetri and Turkey's National Star, Baris Alper Ozilmaz as well as NBA player Joel Embiid and WNBA player Rekaya Jackson.

These athletes join our professional golfers, Mac Fitzpatrick and Brooke Henderson pickleball pros, Tyson McGuffin and Catherine Parenteau and Major League Baseball players, Clayton Kershaw and Aaron Nola, among others. Additionally, we announced the signing of Ishan Kishan and Yastika Bhatia, two cricket athletes from the Mumbai Indians with more cricket and soccer players joining this year. Leveraging our innovative designs, technical expertise and commitment to comfort that performs, we see tremendous opportunities to expand beyond our existing performance footwear offering, extend our region to new accounts and countries and meet the evolving needs of our global consumer base. Further, we are focused on building successful signature technologies, including SKECHERS hand free slip ins and SKECHERS arch fit, as well as pursuing unique partnerships to unlock new market opportunities and enhance our product portfolio. These include the co branded footwear offering with John Deere, collections with Martha Stewart and Snoop Dogg and a collaboration with the Rolling Stones.

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 presence on stadium perimeter boards, buses and trains, airport security areas and much more. 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 former European footballers, Jamie Rednap, Fabio Cannavaro and Frank LaBeouf influencer, Lele Pons in Mexico K pop singer and actor Cha Eun Woo in Southeast Asia and Spanish singer, David Bizball, among others. We also partnered with regional influencers and key opinion leaders to drive awareness across social media platforms. 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.

Believing consumers should be able to purchase our footwear in their destination of choice, we are enhancing the SKECHERS shopping experience in an impactful manner as we further grow our direct to consumer business with our first interactive performance store in Canada and in our wholesale business with Shop in Shops and Brand Takeovers. 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. Looking at our fourth quarter results in more detail. Our record fourth quarter sales of $2,210,000,000 reflected breadth across geographies and channels. Domestic sales rose 18 and international improved 10%.

We saw regional growth in The Americas of 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 3.3% led by double digit growth in India, Japan, South Korea and Thailand. This was partially offset by a decline in China. 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. Wholesale increased 17% due to increases of 31% domestically and 10% internationally.

Our 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. Within international wholesale, we saw continued demand for our innovative products, which resulted in growth across nearly all markets. Turning to our Direct to Consumer segment, sales increased 8.4% with international improving 9.3% and domestic 6.8%. For the important holiday selling period, we saw an increase in in store shopping with growth in nearly every market, including China. For our e commerce, The Americas and EMEA both improved double digits, while APAC was negatively impacted by the challenges in China.

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 5,296 SKECHERS stores worldwide, of which seventeen eighty seven are company owned locations, including six ten in The United States. We opened 77 company owned stores in the quarter, including 20 big box locations in The United States, Fifteen stores in China and five each in Canada, Colombia and Mexico. We also opened our first company owned stores in The Philippines, Three in total, and our first company owned store in Prague. We closed 33 stores in the quarter.

Also in the period, one hundred and twenty one third party stores opened, including 36 in China, Ten in Indonesia, Seven in Australia and six each in India, Malaysia and South Africa. Also of note, 197 party stores closed in China. This brings our third party store count at quarter end to 3,509. 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. 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 pickleball.

We expect to open an additional 180 to 200 company owned stores worldwide in 2025. From an investment perspective, our priorities include expanding our distribution centers in The United States, Europe and China to more efficiently deliver our 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 now, I would like to turn the call over to John for more details on our financial results.

Thank you, David, and good afternoon, everyone. SKECHERS 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 the full year, SKECHERS achieved constant currency sales of $9,040,000,000 an increase of 13% and earnings per share of $4.4 an increase of 26%. Gross margins were 53.2 and we obtained a double digit operating margin of 10.1%. 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 $8,970,000,000 up 12% and earnings per share rose 19% to $4.16 Our 2024 accomplishments are noteworthy from the rebound in domestic wholesale sales to incredible strength abroad, particularly in the EMEA region. In addition, we saw steady growth in our domestic direct to consumer channel following last year's impressive growth of 19%.

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. 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 our comfort technology products. Turning to the quarter, SKECHERS delivered as reported fourth quarter sales of $2,210,000,000 an increase of 13% driven by growth across segments and geographies. Direct to consumer sales grew 8.4% year over year to $1,080,000,000 International sales grew 9.3% with strength throughout the quarter in most markets and across both retail and e commerce channels. Domestic sales increased 6.8% following 12% growth last year with improvements across channels.

The key holiday shopping period was characterized by robust online sales and improved sequential sales in our stores. 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. Wholesale sales increased 17% year over year to $1,130,000,000 Domestic sales grew 31%, the result of a healthier wholesale marketplace combined with strong consumer demand for SKECHERS products. International sales increased 10%, reflecting double digit growth in most markets, partially offset by the results in China. Now turning to our regional sales.

In The Americas, sales for the fourth quarter increased 14% year over year to $1,090,000,000 driven by strength in our domestic wholesale channel and steady growth in our direct to consumer business across nearly every market. In EMEA sales increased 25% year over year to $478,600,000 driven by double digit growth in both the wholesale and direct to consumer businesses. In Asia Pacific sales increased 3.3% versus the prior year to $642,400,000 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. China continues to navigate a challenging macroeconomic environment and our fourth quarter sales declined 11%. Gross margin was 53.3%, up 20 basis points compared to the prior year, primarily due to a favorable channel mix.

Operating expenses decreased 70 basis points as a percentage of sales year over year to 45.8%. Selling expenses as a percentage of sales decreased 40 basis points versus last year to 8.9% as we left higher spending in the prior year on brand building to increase awareness and to educate consumers about our comfort technologies in new categories. 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. Earnings from operations were 165,500,000 an increase of 27% compared to the prior year. Operating margin for the quarter was 7.5% compared to 6.6% last year and for the full year, Skechers achieved a double digit operating margin of 10.1%.

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 and L totaled $34,700,000 and represented an increase of $45,100,000 compared to the prior year. Our effective tax rate for the fourth quarter was 11.8% compared to 20.3% in the prior year, reflecting a favorable mix of earnings in lower tax jurisdictions and impacts from foreign currency losses. For the full year, our effective tax rate was 16.9 compared to 18.8% in the prior year. As we prepare for 2025, an important consideration will be the implementation of global minimum tax regulations, which we will address further in our guidance. Earnings per share were $0.65 per diluted share, a 16% increase compared to the prior year on 152,200,000.0 weighted average diluted shares outstanding.

However, on a constant currency basis, earnings per share were $0.86 representing a 54% increase year over year. And now turning to our balance sheet. Inventory was $1,920,000,000 an increase of 26% or $394,000,000 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 continue to actively manage inventory levels in China, which improved sequentially. Accounts receivable at quarter end were $990,600,000 an increase of $130,300,000 compared to the prior year reflecting higher wholesale sales.

We ended the quarter with $1,380,000,000 in cash, cash equivalents and investments and maintain liquidity of $2,130,000,000 when including a revolving credit facility. Capital expenditures for the quarter were $133,400,000 of which $54,500,000 related to investments in our distribution infrastructure, $51,300,000 related to new store openings and enhancing our direct to consumer technologies and $15,600,000 related to the expansion of our corporate offices. During the quarter, we repurchased approximately 1,900,000.0 shares of our Class A common stock at a cost of $120,000,000 And for the year, we repurchased approximately 5,200,000.0 shares at a cost of approximately $330,000,000 We continue to deploy our capital consistent with our stated philosophy, while maintaining a durable balance sheet and ample liquidity. Now turning to guidance. As we begin 2025, we face 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.

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. For the full year 2025, we expect sales in the range of $9,700,000,000 to $9,800,000,000 Based on prevailing foreign currency exchange rates, this reflects a headwind of approximately 200 basis points or roughly 200,000,000 to our organic sales growth rate.

Earnings per diluted share are expected to be in the range of $4.3 to $4.5 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 2223%, although the precise impact remains to be assessed. The minority interest is expected to decline mid teens and capital expenditures are anticipated to be between $600,000,000 and $700,000,000 for the year as we continue 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 end of twenty twenty six and the further expansion of our North America distribution center with an adjacent 1,000,000 square feet, which is expected to be operational in early twenty twenty six. For the first quarter, we expect sales in the range of $2,400,000,000 to $2,425,000,000 and net earnings per share in the range of $1.1 to $1.15 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.

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, 04/24/2025. With that, I will now turn the call over to David for closing remarks.

Thank you, John. The robust global demand for our diverse product led to a new annual sales record of $9,000,000,000 on a constant currency rate. 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 in SKECHERS hands free slip ins to our existing performance footwear offering, as well as expanding the portfolio, including our latest addition of SKECHERS Cricket in India. While we remain focused on our core business, we believe our performance division with basketball, soccer, golf, running and pickleball footwear will become an increasingly important part of our growth story globally.

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 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 sale through our valuable retail partnerships. 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. As always, we are grateful for the contribution of the entire Skechers organization.

Now, I would like to turn the call over to the operator for questions.

Thank you. We will now be conducting a question and answer session. And our first question comes from Jay Sole with UBS. Please proceed with your question.

Great. Thank you so much. David, John, thanks so much for giving the guidance on 2025 in first quarter. Just looking for a little detail, if you're thinking about gross margin for fiscal twenty twenty five, what kind of outlook should we think about when it comes to modeling gross margin? Thank you.

Yes. First of all, I realize there's a lot going on in the guidance, which is why we try to elaborate a bit. The tax rate is definitely something I would encourage everyone to take a look at. The emphasis on global minimum tax regulations is pretty significant in the year. So that's certainly something to be cognizant of.

I think if we look at the gross margin, I mean, one of the things we're most proud of over the last three years is the accretion we've delivered through gross margin starting at a product level and then carrying through the rest of our business channels, both in wholesale and in direct to consumer. I would say we're not anticipating a material change in the gross margin overall. 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 DTC that we've talked about historically, but that's a good thing because we're seeing strong growth across the channels before us. 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.

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, looking for stability overall, there may be some small variability on a quarter to quarter basis, but overall, we think the year should offer us a continued opportunity to appreciate the gross margin improvement we've made over the last three years.

All right. That sounds great. So there was a lot of information in that answer. You're saying basically the mix impact that you've been seeing to DTC and also international. This year maybe you're going to see balanced growth across channels and also across geographies.

So that's one reason we should think about gross margin kind of it sounds like similar sort of the last year is basically I think John is what you're saying if I'm correct.

Thank you. And our next question comes from Laurent Vasilescu with BNP Paribas. Please proceed with your question.

Good afternoon, David, John. Thank you very much for taking my question. I wanted to follow-up on Jay's question about margins. I might be modeling this wrong, but it looks like I know you don't guide the EBIT margins, 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 the answer to Jay.

If gross margins are going to be somewhat flattish, is there something in the SG and A that is a source of pressure to the operating margin?

I think that sounds a bit much to us. Our objective is obviously to sustain this recently achieved double digit operating margin. There's going to be some push and pull on factors in the business that we don't quite control, particularly around foreign exchange. We're also obviously monitoring China in a mature 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 what you mentioned sounds a bit rough.

I would probably suggest that our objective is to guide to flat. If we get there, I think that will be an indication that we saw some cooperation in situations like FX in China. 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 there are some factors that are beyond our control we need to consider.

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 mid singles. Is that the right assumption for this fiscal year? Do you kind of lap those growth rates in 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 a $0.21 hit to the fourth quarter.

Just to understand, what's the implication? What is your FY 2025 and first quarter guide embed in terms of FX on EPS with current spot? Thank you so much.

I'm pretty sure that was more than one question, Laurent. 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 fantastic product and excellent marketing. And to deliver on the back of a very challenging year, a rebound like we've seen is pretty phenomenal. And certainly, our thanks go out to the entire team for delivering that.

I think as you look to this year, 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 good number to consider. But obviously, we're also pushing to do better than that. There's certainly opportunities out there. So I wouldn't be shocked if it's a little bit above that this year.

What it's not going to be like is this last year where we had such fantastic nearly 20% growth. That's pretty amazing and that would be hard to duplicate in the current environment of any wholesale market at this point. As you look to the next year, it's difficult to project out an FX impact 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 $0.15 and $0.2 right now as we look forward.

And again, that's from the fairly pronounced move we saw after the U. S. Elections, the strengthening of the U. S. Dollar abroad.

It hit us very much so in the fourth quarter beyond our expectation as well. And that simply comes from the transactional impact of having a lot of balance sheet items that are denominated in foreign currencies and how those get remeasured. And I'll note, this is a pretty extraordinary environment. I don't think there was a currency that didn't weaken relative to the U. S.

Dollar and in some instances at high single digit levels over a very short period of time. That's why we were hit. Now we'll benefit from that when things turn around, but in the short term it 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, both on the sales side and on the earnings per share side.

So I think recognizing that that was a fairly material, sizable and on short notice impact for us to deal with is important.

Yes. I should also note that the balance sheet items don't replicate even if the currency doesn't get any better. So we're really talking about the impact to volumes and some of the profitability. The balance sheet items go away. So it takes a little bit of the issue away and gives you some upside as they come back.

Okay. Very helpful. Thank you very much for the color and best of luck.

Thank you. Our next question comes from Alex Stratton with Morgan Stanley. Please proceed.

Perfect. Thanks so much. I just wanted to focus quickly on the international part of the business. This looks like revenue decelerated a bit quarter over quarter. So just trying to understand if something changed there as well as what you're assuming for 2025.

And then just secondly on this tax change, is that something that we should assume going forward or does something change next year? Thanks so much.

Yes. On the international side of things, particularly in this quarter, quite frankly, China was the drag. We mentioned it was down about 11%. Really absent China, maybe one or two other markets, what we saw, and I think David gave comments to you 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.

And I would even say that we left a little bit on the table due to some delivery time frames that weren't achieved. So we feel really good about where the international was this quarter, where it's going. China continues to be the challenge that in its size and scale gives it a disproportionate impact, particularly in the Asia Pacific region. As we look forward to the year, I think that's going to be the swing factor. We still expect a mid to high single digits, maybe teens level.

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 a $200,000,000 headwind going into the year. Obviously, that only applies to the international market. So it's like it's a heavy impact as it stands right now. And we'll update that view as we go along throughout the year because the extent rates change back or move materially from here, that would be a tailwind if the dollar gets a little bit weaker.

On the global minimum tax, that's a new tax regime that's going in across the globe. I think we're probably earlier on the curve to talk about that with you all because we have been very tax efficient historically. And it very much matters which jurisdictions you've leveraged and how they apply the OECD's global minimum tax. But this is going to be a global event. You've heard some chatter about it in the recent administration, some dissatisfaction about it.

But as it stands, the way regulations are established, there's going to be almost no haven below that 15% and that's just going to naturally push up our rate. We're going to do some we're going to take some measures to mitigate that in the near term, but it definitely will likely become a forthcoming kind of base rate. And I think you're going to see that from a lot of other companies as well. The one caveat would be it is subject to regulatory and administration pushes and pulls. So we'll see if there's any change on that.

But the prior administration was a big supporter of global minimum tax regimes and now they're coming into effect.

Thank you. And our next question comes from Adrienne Yee with Barclays. Please proceed.

had mentioned the demand creation, you're going to have a little bit of a higher demand creation. I thought last year you had actually anniversary quite a big rise. So just if you can direct us where that's going. And then where do you where and when would you see, if you can sort of any signs of China stabilization? What are you doing there to mitigate sort of like the inventory supply demand phenomenon there?

And then my final one is just remind us what are the mitigation strategies on the tariff? I know you do quite a bit of sales in that Asia region, 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.

Okay. I'm pretty sure I'm going to have to have you repeat one of those questions. Let me talk about tariffs first because I assumed this was coming. We've talked for a long time about the strategies we employed last time we talked about tariffs, which ironically enough was about four years ago. And we're going to apply the same tactics.

And that involves 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. In some respects, foreign exchange and the strength in dollar helps with that. And then we'll look at price. I think all of those have to be tools available to us if these rates stay in effect or if the worst case happens 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.

On the marketing, I would say, it's a little bit of a timing within the year and a desire to be a bit more focused early on. What we saw last year ultimately, quite frankly, was very good success 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. We do have a spot coming up this weekend, which unfortunately isn't free. But other aspects of our strategy are certainly reinforcing the messaging around our new categories and our comfort technology products.

I think your last question is about China. 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 macroeconomic event. This is not particular to one brand or one category of brands or one category of 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.

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 a little bit of that in the fourth quarter. We'll 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 goods into the market easily. And we also have some of the strategies we talked about from a marketing perspective will be in the China market as well to attempt to spur demands for awareness around some of 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. 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.

I'd also just like to add on the tariff situation. We've been dealing with tariff situations in other parts of the world, right, 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 come out better than we went in. So I would tell you that while you never know what the situation is going to end, it is one of our core competencies and we have moved production and we have taken price where necessary. 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 ones we've seen and will come through it quite well. And as far as demand creation is concerned, we've 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, especially in China. While it would be an easy place to cut because volumes are coming down, we think it's important to go and 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 we grew 12% without China growing a lick in the past year. And if we would have told anybody that a year ago, and I know we've taken a hit throughout the year, but it's being overly Chinese oriented, but and our growth projection for this year doesn't include any significant growth, if any, in China.

So it just shows you the strength of the brand and how it's 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 is a lot of uncertainty.

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

Good afternoon, guys. Thanks for taking my question.

Just curious on the CapEx spend at $700,000,000 on the high end. Can you frame what where that's going to us and talk about what the normalized run rate is? I think this is closer to 7% of sales. I think a lot 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?

Yes, I thought someone might ask. I would really think about it in kind of two big buckets, if you will. One is kind of more normal run rate investments that we make in stores, it's technology. Obviously, we continue to build out our corporate campus here. And we always have some element of distribution center investment ongoing.

Every now and again, we have to bite off some of the bigger investments because there are investments you have to make for ten, twenty years, 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've talked about. The other we mentioned in New York in the 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 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 strip that out because it is it's probably a once in a ten year investment at least, you'd see the run rate as much more normalized. The reason for the width in the range though is a little bit of timing considerations for that project and the project in China. Those are 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 if you set those aside, I think you'd see a much more normalized level because the material portion of kind of the above trend spend is associated with China and The U.

I'd like to just also clarify some of The U. S. Spend. Yes, we have now two buildings we operate off-site that are quite expensive and causes to move a lot of product around because of the growth we experienced after the pandemic and needed it and couldn't get the space close enough. So you can imagine the inefficiencies in this time.

The reason that it's so expensive in The U. S. Portion is this will become part of our joint venture. So we own 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. We will get rid of two outside buildings. So we will have our own. This building will be phenomenal and will not require us to truck anything around to process. And we'll sort of conclude our move into direct to consumer at e comm in such a big way as to be able to process and hold it all in one facility.

So So the fact that we own it or own half of it makes it a little more expensive, but will make it that much more efficient as we go forward. And I will point out in Europe, we ended up a little bit behind the curve simply because we grew so significantly that, as John said, 25% in the last reporting time and we've converted there also to a significant piece of directtoconsumerecom. So we're processing significantly more and we've had a lot of pressure put on that facility simply because we're closing the Suez Canal and everything taking three more weeks and us having 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 things that we'll be able to move automation wise to the new facility to process all this additional direct to consumer e comm and the wholesale business that I personally think will continue on this exaggerated growth piece 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.

All right. That's helpful. One follow-up for you, maybe not related to the near term. We're essentially at the $10,000,000,000 in total revenue. The 10% EBIT margin you generated in '24,

Skechers U.S.A. (SKX) Q4 2024 Earnings Call Transcript

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