Thursday, Apr 24, 2025 CALL PARTICIPANTS David Weinberg: Chief Operating Officer John Vandemore: Chief Financial Officer Need a quote from one of our analysts? Email [email protected] Q1 Revenue: $2.41 billion, a 7.1% increase year-over-year Earnings Per Share: $1.34 International Sales: 65% of total business EMEA Growth: 14% year-over-year The Americas Growth: 8.3% year-over-year APAC Performance: -2.6% year-over-year, with 12% growth excluding China Wholesale Sales: Increased 7.8%, with 4.2% domestic growth and 9.5% international growth Direct-to-Consumer Sales: Increased 6%, with 11% domestic growth and 2.9% international growth Store Count: 5,318 Skechers stores worldwide, including 1,821 company-owned locations Gross Margin: 52%, down 50 basis points year-over-year Operating Margin: 11%, compared to 13.3% in the prior year Skechers reported record sales of $2.41 billion in Q1 2025 despite macroeconomic uncertainties. The growth was driven by strong international performance and continued demand for comfort technology products. The company faces challenges from potential tariff increases, particularly impacting U.S.-bound production from China, and is evaluating strategies including cost-sharing, sourcing optimization, and pricing adjustments. Management expressed caution about consumer sentiment and spending power, particularly in the U.S. and China markets. The company plans to continue its global expansion, with a focus on international markets and omnichannel capabilities. Skechers is actively managing inventory levels and production flexibility to navigate the uncertain trade environment. "we are grounded in a clear strategic plan and remain agile and responsive to this dynamic situation." stated David Weinberg. INDUSTRY GLOSSARY FOB: Free On Board, the price of goods excluding shipping and insurance costs ASP: Average Selling Price Full Conference Call Transcript Operator: 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 begin. Soo Hong: Good afternoon, everyone. Thank you for joining Skechers First Quarter 2025 Earnings Conference Call. My name is Soo Hong. I'm a Senior Director of Internet Merchandising at Skechers U.S.A., Inc., and I've been with the company since 2017. My favorite style at Skechers is the cozy fit, in white navy. 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 report filed with the SEC, including its annual report on Form 10-K and quarterly reports on Form 10-Q, for more information on these risks and uncertainties that may affect the company's business, financial conditions, cash flows, and results of operations. With that, I would like to turn the call over to Skechers' Chief Operating Officer, David Weinberg. David Weinberg: Good afternoon, and thank you for joining us today on our First Quarter 2025 Conference Call. The first quarter marked a new sales record for Skechers U.S.A., Inc. With $2.41 billion in revenue, or $2.46 billion on a constant currency basis, and earnings per share of $1.34. Our strong financial performance across both our wholesale and direct-to-consumer segments was the result of continued global demand for our comfortable and innovative footwear, and growth across geographies, driving our international to 65% of our total business. This growth is of significant importance given increasing macroeconomic uncertainty and waning consumer sentiment. Both domestic and international sales increased by 7% with growth of 14% in EMEA and 8.3% in The Americas. In APAC, sales decreased by 2.6% primarily due to soft consumer spending in China. However, when excluding China, APAC 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. Our mission is to make convenience and comfort part of consumers' everyday life, no matter their age, interest, or lifestyle. Skechers' proprietary hands-free slip-ins technology, ArchFit, StretchFit, and other features are the center of this comfort movement. Our technical performance division continues to expand its roster of elite athletes with the signing of footballers Isco Alarcon, a Spanish national team veteran, and rising star Niccolo Pasili, who plays for Roma and the Italian national team, Jaspert Bumra, India's fast cricket bowler and national team veteran, baseball player Jake Berger of the Texas Rangers, and basketball pro Norman Powell of the Los Angeles Clippers. This quarter, we also announced the signing of Kiki Iriathan, first-round draft pick of the WNBA Washington Mystics, and legendary golfer Bernard Langer. Our athletes provide valuable feedback on the development of our best-in-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. Complementing our athlete-driven initiatives, our multi-format lifestyle marketing campaigns feature a diverse roster of talents. 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 Frank LaBeouf, Spanish singer David Bisbal, and German singer Vanessa May, among others. Looking at our first quarter results in detail, our record first-quarter sales of $2.41 billion were the result of 7% increases in both our domestic and international channels due to the continued demand for Skechers. We saw regional growth in EMEA of 14%, driven by strength across nearly all markets, and The Americas of 8.3%, with continued strength in The United States and Canada, partially offset by a decrease of 2.6% in APAC, primarily due to the continued economic pressures in China. 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. Wholesale sales increased 7.8% with growth of 4.2% domestically and 9.5% internationally. The domestic wholesale growth reflected broad-based demand for our comfort technology products across our kids, men's, and women's categories. Within international wholesale, we experienced solid growth across many regions and markets, driven by the strength of our brand and appealing innovative products. Turning to our direct-to-consumer segment, sales increased 6% with domestic growth of 11%, including strong performance in e-commerce. International increased 2.9%. When excluding China, international grew 12% due to the strong DTC sales in nearly every market. 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. We ended the quarter with 5,318 Skechers stores worldwide, of which 1,821 are 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 Hong Kong and Mexico. We also relocated five stores, including the new performance-focused store in Edmonton, Canada, and expanded two others. We closed 17 stores in the quarter. Also in the period, 53 third-party stores opened, including 12 in China, six in Indonesia, and the first Skechers store in Argentina. Sixty-two third-party Skechers stores closed in the quarter, including 42 in China, bringing our third-party store count at the quarter end to 3,497. We expect to open an additional 150 to 170 company-owned stores worldwide in Q2 2025. Included in the estimate is the 13 company-owned stores open to date in the second quarter. 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 capabilities. We are encouraged by the positive reception to our varied 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. 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 distinct and global market position, and our healthy balance sheet. And now, I'd like to turn the call over to John for more details on our financial results. John Vandemore: Thank you, David, and good afternoon, everyone. 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 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. 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. Insofar 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 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. 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 will enable Skechers to endure and likely thrive during this time. Now turning to our financial results. We achieved first-quarter sales of $2.41 billion, an increase of 7.1% in line with our expectations. On a constant currency basis, sales were $2.46 billion, up 9%. Direct-to-consumer sales grew 6% year over year to $879.4 million. Domestic increased 11%, driven by strong performance in our e-commerce channel and growth in our retail stores. International grew 2.9% year over year. 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. Wholesale sales increased 7.8% year over year to $1.53 billion. International sales increased 9.5% with robust growth in many markets, reflective of our geographic diversity and strength. Domestic growth of 4.2% aligned with our expectations of the marketplace returning to more stable growth trends. Turning to our regional sales. In 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. In The Americas, sales increased 8.3% 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. In Asia Pacific, sales declined 2.6% year over year to $589 million. Excluding China, Asia Pacific sales grew 12%, led by double-digit growth in Japan, Thailand, and South Korea. We continue to navigate a difficult macroeconomic environment in China, where sales declined 16% following double-digit growth in the prior year. As challenging market conditions persist, our expectations for the year remain modest. 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. 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. Operating expenses increased 180 basis points as a percentage of sales year over year to 41%. Selling expenses as a percentage of sales increased 70 basis points versus the last year to 7.7%, largely focused on brand-building investments and expanding awareness for our latest comfort technologies. 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. 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. 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. 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. 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. And now turning to our balance sheet. We ended the quarter with $1.24 billion in cash, cash equivalents, and investments, and maintained liquidity of $1.85 billion when including our revolving credit facility. 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 7.6%, including a slight decrease in China where we continue to actively manage inventory levels. Capital expenditures for the quarter were $147.1 million, of which $68.9 million related to investments in 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 technologies, and $14.8 million related to the expansion of our corporate offices. We continue 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. And now turning to guidance. As we began Q2 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. The first quarter confirmed that belief, reflecting the strength of our brand and product assortment. Today, we still believe many markets will continue along that trajectory, absent unforeseen impacts from the current macroeconomic environment. However, we must also acknowledge the world is significantly more uncertain today than three months ago. 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 used then is equally applicable today. Quote, 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. End quote. 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. 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. David Weinberg: Thank you, John. We believe our first-quarter performance, including record sales, is exceptional. We delivered our outstanding comfort products to consumers globally, further grew our direct-to-consumer business, and expanded our presence within our extensive network of retail partners. 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. Like then, we are grounded in a clear strategic plan and remain agile and responsive to this dynamic situation. As a truly global brand with international representing 65% of 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 products are available when and where consumers want to shop, all while operating in this volatile environment. We would like to thank the entire Skechers 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. Thank you. Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. Before pressing the star keys. 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 requeue, and time permitting, those questions will be addressed. One moment, while we poll for questions. Our first question comes from the line of Jay Sole with UBS. Please proceed. Jay Sole: Great. Thank you so much. David, John, you mentioned some of the things you're doing to 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 is coming to The U.S? And can you is there something you can do to minimize that? And over what time frame? That's the first part of the question. The second part is, from an industry standpoint, what would you and your competitors, what are they what do is there anything you guys are doing collectively to try to communicate you know, the issues that you have with the administration to try to figure out a way to lower the tariffs or create some kind of workaround. So it you know, the the some of the tariffs that are out there don't become, you know, too onerous. Thank you. John Vandemore: Thanks, Jay. Obviously, a key question although we're not in the habit of giving you know, 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. Same same way we did this before. That's looking at resourcing. It's looking at vendor cost sharing, and looking at pricing. And all those are actively being pursued by the company to one degree or another. Obviously, in the current environment, we will be looking to minimize, you know, production going to The United States from from high-cost locations including, you know, tariffs. But we're not ready to say today, you know, anything more specific than that. I I would also though 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, recognize that two-thirds of our business is much less impacted, if not minimally, to to not impacted at all. You know, by the current situation. The other thing I'd note is that we have a a substantial base of very valuable, highly collaborative partners we work with to manufacture goods. And we are working hand in glove with them in this process so we can get to the best outcome overall for our business. In in so far as industry efforts, you know, we've participated in efforts alongside many of our, many of our, you know, competitors. To convey what we think is know, the best approach towards the the global trade parameters that are in discussion today. But at the moment, I I think that's probably not going to be the most likely outcome for for a near-term resolution Rather, it's gonna rest on our shoulders to to deal with the issue in front of us, in in many of the same ways we've dealt with it before. Jay Sole: Got it. Okay. Thank you so much. David Weinberg: Thank you. Operator: Our next question comes from the line of Laurent Vasilescu with BNP Paribas. Please proceed. Laurent Vasilescu: Good afternoon. Thank you, David. Thank you, John, for taking the question. I certainly recognize that you can't guide around versus ninety days ago, but I think what's interesting from the prepared comments there was a cut point of when you said we still believe many markets will continue along with the trajectory versus the original guide. John, David, could you guys potentially unpack that a little bit more for the audience? Like what markets are you seeing notable volatility? Is it within The United States, yeah, Europe, China? Love to get some more color there as we think about modeling Q2 and potentially for the back half of the year? Thank you. John Vandemore: 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 two-thirds of our business occurring outside of The United States. The majority the vast majority of those markets performed very, very well. This quarter, and, you know, we expect we'll continue to perform well absent you know, unbeknownst changes from the macroeconomic climate that may result from from the current situation in in several of the larger economies. But but I would state most clearly that that 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. And so that's not the issue. Now, obviously, the markets that, today probably present the most uncertainty are The United States and and China for two different reasons. In The United States, it's it's obviously a market where we're watching consumer behavior pretty closely. And we're watching both signals in our own business, but signals in other businesses, and those have clearly gotten more uncertain, in 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. The, the decline this quarter, I think, is a bit more outsized mostly because of last year. If you recall last year, you know, China in the first quarter was a a good growth market for us, grew double digits. So I I would take into context this quarter's result is more, in our view, a continuation of the performance we saw over the February. 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, a focus on comfort, we think will actually yield significant benefit as the market continues to improve. So that's more of a status quo than anything else, but still a market where we know long term there is great prospects for the brand. And we believe the actions we're taking today will have you know, a significant impact to help drive that that market toward recovery. But more than anything, I would I would want folks to understand that there is certainly, at the outset, you know, no concern from a consumer perspective you know, for our brand because what we see there are tremendous signals as evidenced by, you know, a lot of the regional growth you saw across both wholesale and, and our direct-to-consumer business. Particularly in EMEA, but also in The Americas, and then ex China in in APAC, which all grew quite nicely in the quarter. Laurent Vasilescu: Thank you, John, for all that color. And then, you know, with regards to tariff concerns, think you laid out three strategies, cost sharing, sourcing optimization, pricing. How should we think about those three levers? Listed them on that order. Should we think about with your your partners, manufacturing partners, the biggest lever And then pricing being the last lever. Love to get you know, the degree of magnitude. Are they all equal weight? And how how fast can you implement each of those three levers? Thank you. John Vandemore: Yeah. You know, you're gonna get a lot of, you know, unknowns in that. Laurent. Yeah. No. We did not list the those levers in order of either economic unit or other importance to us. They're all being actively managed. And we're we're working on all aspects of the strategy. And the reason why we're inhibited on our ability to explain fully is that that's an evolving topic. I mean, we're we're right now today only in a pause on potentially drastic increases everywhere outside of China. And so how that unfolds will have a dramatic impact on how we plan sourcing. David Weinberg: Yeah. I think it's important to note that we have to remain flexible. We don't have a target, and then keep moving, you know, part of our strength and what we've done in the past is we use all the levers and all sets of those levers, stay flexible, and apply them where it's the best for us to go at that particular time. And that that could change, like John said, over a short period of time. So I think just to reiterate, we think we're in a good place. We have some levers. We don't know what the final is, so we don't know which levers will do the best. What we do know is that the product is being received very well. Around the world and selling through And we have faith in our way to maneuver these things to know that we'll come out as well as is possible. Laurent Vasilescu: Understood. Last question. Two weeks ago, Levi's was asked if there was anti-Americanism starting to brew with with the brand and the and the answer was no. I'd love to get your take there. Obviously, which is a very dynamic environment, but just love to get your takes. Obviously, you guys are seen as a global brand, but just to get a little bit more color there would be very helpful for the audience. Thank you. John Vandemore: I would not say in any way we've seen any evidence of, either anti-Americanism or anti-Skechersism No isms. 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 in many markets. We don't rely as heavily as others on some US-based, assets for marketing the brand globally. We like to be very locally attuned And so, for that, the benefit is being perceived as as as much more of an international locally applicable brand than than, quote, an American brand, end quote, per se. So we haven't seen any evidence of that. We we wouldn't expect that. But obviously, we're watching the overall performance of the business very, very carefully, you know, at at this stage. Laurent Vasilescu: Thank you very much. Best of luck. David Weinberg: Thank you. Operator: Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question. Peter McGoldrick: Hi, this is Peter McGoldrick on for Jim. Thanks for taking our question. I was curious in the context of your playbook to address the tariff headwinds in The U.S, 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? John Vandemore: Well, as we said, I mean, pricing at the, you know, the customer and the consumer level is certainly something we're considering. Know, we wanna weigh that, as David said, against what type of impact we we feel that would have overall, but to customers and consumers. I would surmise that much like when we've dealt with tariff situations or extreme cost impacts before, some amount of that will will evidence itself ultimately in price. But if you know, we're weighing that as we go along. Know, I think 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, you know, 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. What we've generally seen is when when that's a a logical explanation and when it's contextualized in the consumer's mind, the customer's mind, as as to why and that it makes sense. 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'll need to assess the the impacts of. And and ultimately, as David also mentioned, you know, we'll be flexible about you know, if we if we try one approach and it's ineffective, we'll we'll very quickly move to another. We're not afraid to change tactics if that's what conditions dictate. Peter McGoldrick: Okay. And then, on the expense side, as you manage what you're able to control amidst the uncertain backdrop, can you size the discretion over spending growth as we progress through 2025? John Vandemore: There's a certain amount of of of certainly discretion that we have. I think what we wanna weigh again though is let let me step back. You know, we 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 wanna be penny wise, pound foolish in the near term. Obviously, we we will keep in mind the totality of what's going on in the world, how that impacts our business, and make adjustments from there. But we also don't want to 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, you know, we continue to invest through that cycle. And emerged as a stronger brand. And we feel many of the same opportunities will exist in the in the future ahead. So we'll we'll exercise discretion. We'll monitor things carefully, but we wanna be thoughtful and we we wanna bet on the long term. Long term health of our brand. First because that's what will ultimately enable the most success later on. Peter McGoldrick: Very helpful. Thank you. John Vandemore: Thanks, Peter. David Weinberg: Thank you. Operator: Our next question comes from the line of Adrienne Yih with Barclays. Please proceed. Adrienne Yih-Tennant: Excuse me. Thank you very much for all the color. I guess my first question is the comment on 65 outside of The U.S. Roughly 40%-ish sourcing in China. Is there any under any circumstance, is it possible to be so aggressive about redirecting all the China sourcing to non-U.S. locations? And how quickly could you shift any sourcing that you need to? And then my second question is on inventory. As we go kind of through this pricing cost dynamic, we saw this I think you probably didn't, but in the cotton inflation era in 2011 and '12, There's kind of a push-pull between units if you want them down and conservative versus the dollars that they're going to be up necessarily? 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. John Vandemore: Insofar as the production is concerned, you know, we'll I would say, all all cards are on the table. You know, we're looking at how we optimize the global cost of tariffs in all markets when we look to move production around. Obviously, with an effective tariff rate at about a 59%, Products from China to The U.S. are, you know, prohibitively expensive. So that will be, you know, an anchor behind some of our thinking. Again, we're gonna stay away from absolutes because what we believe will affect you know, the outcome most is being thoughtful and flexible as time goes on. But but, certainly, we'll look to optimizing for the lowest overall landed cost in total and by market when we make those decisions and and shifting around production by destination market will be a a feature of that. Terms of inventory, I think I think probably the what I would note most is we're still dealing with some of the impacts of the Suez Canal closure. And that is the that is the most significant impact to our inventories. And as we had said last year, that that will continue until we lap that situation because that's that's a logistics challenge, not a not a business challenge per se. From there, I would say, you know, quite frankly, is the the more inventory we have under the prior tariff regime in The United States, the better off you know, we we would have been. But mostly, we're we're continuing to manage inventory as closely you know, and thoughtfully as we have in the past. And that means you know, very, very low amounts of at-risk inventory. The substantial majority of our inventory is either you know, a booked order in the future or dedicated to our own DTC Business, Both Of Which You Know, Have Have A Pretty High Fidelity To Delivery. In Terms Of Orders, It's A It's A Little Early To Say Too Far Into The Future Other Than You Know, Next Quarter. But I Would Say, You Know, We're Watching Orders Carefully. We're Watching Customers Carefully. You Know, Some Some Are Certainly Nervous Because Of The Environment, But But What 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. You know, 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. So you know, although they may be nervous overall, when when we talk to them, they're excited about what we're bringing forward, about what we're offering. And, ultimately, you know, we'll have to find a way to manage through some of this uncertainty together. That's that's what we're poised to do. Adrienne Yih-Tennant: Fantastic. Appreciate the color. Best of luck. David Weinberg: Thank you. John Vandemore: Thank you. Operator: Our next question comes from the line of Alex Straton with Morgan Stanley. Please proceed. Alex Straton: Someone 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. Whether that's more flexible now and for whatever reason. And then just another follow-up on inventory is I'm just curious, how much do you have on hand right now that's not tariffed? How do you think about the flow of how long have this window of non-tariffed inventory before it starts becoming tariff, trying to think about how this flows to the income statement throughout the year. Thanks a lot. John Vandemore: Yeah. I mean, I think when you look at production, right, it it's it's partly about where your destination market is. It's partly about the capabilities of your partners. I mean, we've always maintained a fairly flexible view on where we wanna get our product from. It has historically emanated largely from Asia, but that's also quite frankly where we have, you know, some of the best quality some of the lowest cost opportunities, and and some of the most quite frankly, deeply rooted relationships with manufacturing partners It is it is flexible. We're in the process of flexing that right now. But, you know, we can't think about this just from a US perspective. Because that that two-thirds of our business that's not in The United States is is pretty robust and and is not currently impacted by you know, a similar environment to what you see unfolding in The United States. So we'll we'll be flexible on it, but I think it's important to keep the the broader aperture of our business in mind when you think about that because it's not you know, it's not a principally domestic business. In so far as inventories are concerned, you know, we need to take action to get more inventory on land at as as much as we could. Right before the most recent announcements, we did take efforts to preclear through our free trade zone DC what we could. I would say, you know, to answer your question in a slightly different way, we will begin to feel the impacts of the current tariff regime in, you know, the tail end of the second quarter and fairly acutely in the third quarter. Those are probably gonna be the two most sizable impacts based on what we know today. Some of that will, though, also be contingent upon what of those levers we pull and how how quickly we're able to pull them and and to what degree. So there's still more you know, more unknown than known in that, which is, again, why why we've, at the moment, paused our our guidance. But all of those are are being actively pursued, and and we're doing everything we can to bring in goods obviously, at the at the lowest you know, as possible landed cost. David Weinberg: Yeah. I think it's important to note also that at least in my perspective, we haven't really been slow to move and take multiple sourcing for our product. Like John said, because we're two-thirds outside The United States, that's still a very viable factory base for us on a worldwide business that we continue to support and work with. The percentages 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, in 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, we 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. 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. Till some new things are brought out. We really have no intention of bringing any 50% goods 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 and 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 those places. That, like we said, outside The United States and China, that continue to grow, and that can take production from multiple sources. Alex Straton: Can I ask a a quick follow-up? Just when do you have to have holiday orders in by? Like, how long do you have until you have to the the shoe drops on that? John Vandemore: Oh, that's a that's a questionable pun, Alex. I would say, the most part, about now, it it will depend upon the nature of the product if it's compiled an entirely new construction, it's earlier. If it's, you know, something that we've had before, the the current environment will that a bit as we move things around. That's one of the things you have to keep in mind. It's not just you know, 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 were facing down something like the holiday? Alex Straton: Thanks a lot. Good luck. David Weinberg: Thank you. Operator: Our next question comes from the line of John Kernan with TD Cowen. Please proceed. John Kernan: Alright. Thanks for taking the question, guys. Hope all is well out in Manhattan Beach. John Vandemore: Beautiful day today. John Kernan: Usually is. So so we're all obviously trying to become experts in how to model cost of goods sold in a new tariff regime. You talked about some of the key inputs and offsets like pricing, supply chain optimization, cost sharing. How do we think about your landed cost as a percent of your overall COGS whether it's FOB or, I don't know, the other term maybe might just be landing cost. But how much of that when we look at our much more simple Excel models and try to forecast the gross margin and EBIT margin impact, how should we think about that critical input? John Vandemore: Well, I first complement all of you, really. A lot of the work that's been done up to this point in time, we've found to be surprisingly close to the mark in terms of overall dynamics you know, with regards to factors like, you know, FOB costs, etcetera. I mean, obviously, it it is the most significant component of the cost of goods you know, when you take into account, you know, the product life cycle. I I think you do point out something that is important to keep in mind, though. Right? The primary impact for something like duties and tariffs is is to the is to the FOB price of the goods. But there are other elements that get impacted, particularly when you're moving production around both geographies into different production facilities. You know, efficiency factors are different. Labor costs are different. Freight and logistics, both availability and timing are different. And so that's why this is not an incredibly easy answer to give especially with the amount of volatility in the situation. Because all those factors have to be weighed. You know, bluntly speaking, it doesn't help when the policies change as quickly as they have over the last three weeks. Some stability is necessary to be able to run the analyses 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 that. And that's all that's all in the works. John Kernan: Got it. That's helpful. Just one follow-up question. I you know, DTC has gradually become a bigger portion of the business, and I it's it's mid-40s percent. Globally. I think the beginning of the year, when you issued guidance, you talked to 180 to 200 new stores. That puts you I think, at low teen square footage growth or store growth, I should say. If there aren't any store closures on top of that. But how do we think about the level of growth you want to to put forth in DTC And how do we think about the omnichannel comps? Both domestically and internationally? John Vandemore: 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, you know, we'll continue to look at all those very carefully, 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, And and because the results there have have been and continue to be very robust, we think there's there's there's a lot of ground to to tread in in that area. In The U.S., we still see, you know, exciting opportunities. You know, we'll watch those carefully as the macroeconomic environment unfolds. But right now, we we still see interesting and attractive opportunities to open stores. The final number may become something we look at as we as we deal with the repercussions of the of the current environment, but no decisions have been made on that as of, yet. I would also note, though, even over the last three months, we've seen some fairly interesting dynamics within the DTC space, and we spoke about these you know, previously in a couple of venues. You know, you 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 we're very pleased with the DTC results for the quarter, domestically and and and especially internationally. But there was a bit more volatility in that than we've seen of late. 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 in consumer behavior dynamics that we saw. So this quarter, in particular, we saw fairly robust e-com growth. Stores did well, but but they weren't the major source of the growth. And that was because, you know, consumers displayed a pension particularly in February. To move online. And we were there. We were there with the right product, right assortment. And availabilities, and and that's 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 you know, their their favorite comfort technology products. John Kernan: Very helpful details, John. Thank you. David Weinberg: Thank you. Operator: Our next question comes from the line of Jesalyn Wong with Evercore ISI. Please proceed. Jesalyn Wong: Hi, guys. Thank you for taking our questions here. Just on the manufacturing front, are there any specific products that are being made in China? Which is currently not being produced in Vietnam? If so, maybe just a little bit of on what franchises there are and what's the percentage of total products they make up. And the the other question is, you know, you guys highlighted being conservative around capital allocation for this year, but at a 50 to a 70 stores for the remaining of the year, seems to imply that we're keeping our store expansion plan similar to beginning of the year. Given the high volatility in the current environment, just help me understand what is the thought process of keeping the store openings here and how fast can we change our plans if needed in this environment? John Vandemore: So on your manufacturing question, I mean, I'm not going to give detail at, you know, a 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 know, the vast majority of it tends to emanate from China. It's very high quality. It follows all the regulatory requirements for consumer product safety in The United States. And and meets the right price point for a notorious lower gross margin business. So that'll be a challenge. That that's one we're gonna have to look at carefully because of that that unique differential in manufacturing capabilities. Outside of that, you know, there may be products here or there that we need to think about. But generally speaking, I would say, you know, we have the ability to back up most production in in multiple locations. In terms of the store, I would go back to my last to John. You know, we're making macroeconomic 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, we'll continue. We are evaluating whether or not it makes sense to, continue with with every store on a regular basis because the dynamics can change. I would go back, though. You know, we just you know, we're closing a quarter where our DTC business grew know, 6%, and that includes a drag coming from China. And so, you know, there's a lot of opportunity you know, that we still see in the business. And 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 as as we got through Q1, one of the most, I think, noticeable aspects of the, you know, the behavior of the the business was that ex China, it was it was up double digits on a DTC basis, and that's that's pretty healthy. So, you know, we'll continue to weigh those factors. I would say we're we're monitoring the situation, but it's really gonna be dependent upon consumer demand in our analysis of that at the time we make decisions about, you know, opening stores. Jesalyn Wong: Got it. Just one quick follow-up. How much is kids business as a percentage in US? David Weinberg: Don't well, I don't know if we'd give it by gender. I'd say, you know, it's it's the smallest of the three gender breakdowns. And it's not an extraordinary amount of the business, especially because kids, just as a general rule of thumb, carry a a lower ASP. But we like having the kids business. We think it's good for the consumers. It's a complement to other purchases. It's often quite frankly, the plus one purchase. You know, in in a from a a units know, per transaction basis. So it tends to be additive. You know, we think it's important to our franchise, and and we have some franchise shoes in that. In that gender that that that work really well. The near term manufacturing is an issue we're gonna have to overcome. But but, eventually, we believe we can, and and we'll get back to, you know, a market where there's there's not a challenge around the on the kids manufacturing. Jesalyn Wong: Got it. Thanks, guys. Operator: Thank you. Our next question comes from the line of Rick Patel with Raymond James. Please proceed. John Reyes: Hi. This is John Reyes on for Rick Patel. Thanks for taking our questions. I was hoping that you could kinda go through as companies evaluating where tariffs are going to land. Can you talk about opportunities to delay decision making by leading more into air freight if that's a possibility that makes logical stuff. Like logistical sense. John Vandemore: 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 their sharing. And I do think it's that that lack of visibility that's one of the bigger challenges we face. Airframe really wouldn't be a solution in mass to us. The amount of benefit you would get would amount to, you know, maybe a couple of weeks And, you know, while that may be the case that in in this instance, that proves to be critical, the the higher costs to load and carry you know, our product in air is is not wouldn't make that worthwhile. I think, again, you touched on probably the most critical element of the situation is you know, the volatility with which policies and rates have changed is one of one of the more challenging elements of it. If we face a set of challenges and conditions, we can navigate around those. It's when those challenges and and those conditions change dramatically very quickly that that makes it very hard to plan. And that's probably been the most troublesome aspect of the current environment. John Reyes: Yeah. Appreciate the color. And just a follow-up on that. I know you mentioned that the wholesale accounts are excited for your new product. 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 end up softer than you plan, what's your confidence that the the DTC channel can do the heavy lifting and move more units? John Vandemore: Well, Jess, there's there's a lot assumptions built into any answer I would give you there. I'd say, look, clearly, there is more nervousness today than there was three months ago. That evidence that the customer level for us, our wholesale partners in The U.S., It's evidenced in in the consumer data that's coming out more broadly. The financial markets. You know, 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 there's 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, you know, make the choice to to buy product. Know, that's also incredibly contingent upon, you know, their spending power and power intent. So you know, we'll have to watch all of that. I I would say we feel good about our opportunities to to get product through our own DTC channel irrespective of the the tariff situation. We'll we'll make changes to ensure that our DTC business is in a position to have the product necessary to meet consumer needs. Now the wholesale partners, I think we're all gonna have to to watch and see. Because because it's a dynamic environment. And, certainly, you know, the confidence of everybody, you know, has taken a bit of a hit over the last couple of months. David Weinberg: Yeah. Think it's important that we keep our eyes focused on demand. If there's demand for the product, we'll pick it up whichever way the consumer wants to shop. And if it means we have to you know, we'll have more of the product, then then we will. We're always willing to share. So we plan to be ready. We do see demand for the product. And demand for the product on a relative basis holding up very well. So we'll be ready whichever way we need to get to our consumer. John Reyes: Thanks so much, and best of luck. John Vandemore: Thanks, Josh. Operator: Thank you. Our next question comes from the line of Krisztina Katai with Deutsche Bank. Please proceed. Krisztina Katai: Hi. Good afternoon, and thanks for taking the question. So, John, just on the payer mitigation strategies, how do you think about having to lean potentially more heavily on price adjustments either earlier than anticipated? Just really thinking about it in the context of unit elasticity. Just how are you guys thinking about taking up prices 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 offsets 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, you're locking in your ocean freight contracts here. Anything that you can share from that perspective as well. Thank you. John Vandemore: Yeah. I look, I I think we don't want to raise prices because of increased duties. That's not our, our objective. If we have to do that because circumstances require it, then, you know, we will. But we won't take that decision lightly. It'll be done with as much dexterity as we can manage. And in and in many instances, you know, we we will put ourselves in a position to potentially absorb some short-term pain to minimize the impact of those to both customers and consumers. We're willing to make that investment if we believe it's in the long-term interest of the brand. So you know, we we will look at all factors, but, I would state, you know, emphatically, our objective is not to raise prices for the sake of raising prices. But rather it will be in response to, you know, extraordinary costs. Know, if we see them. Insofar as the margin is concerned, I think at the moment, our bias would be to look at protecting over, you know, the medium term as best we can. The gross profit dollars, striving to maintain overall margins in an environment where you know, your your landed duty is a 59%. It's is a big challenge, and that would probably present, we think, know, an even bigger challenge at the consumer level. But but it's something we'll have to look at over the long term, you know, again, assuming some sort of normalization. We feel like our ability to reconstruct these, you know, quite impressive sustainable margins we've been at over the last two years is is pretty good because it's based on appeal of the product. It's based on the technology embedded in the product, and I think it's supported by by the marketing. In terms of non-landed costs, I'll let David comment on the carrier negotiations. I think those those are recently concluded. David Weinberg: Yeah. I mean, we recently concluded them, and we're still waiting to finalize exactly which routes we'll need for which countries as all this settles out and we get our points of production. But as of the time we were there a few weeks ago, prices were still very steady and didn't look to upset any of our caustic the near term. So it's something we're constantly monitoring and looking at as we change points of production for different countries. And so far, we think it's looking fairly stable. Krisztina Katai: K. Thank you so much. Best of luck. David Weinberg: Thanks. Operator: Thank you. Our next question comes from the line of Chris Nardone with Bank of America. Please proceed. Chris Nardone: Thanks, guys. I just wanna go back to China. And wanna see if you're expecting the business to improve as we move through the year. Then if there's anything you can speak to that provides any color on whether you're taking share or if the health of inventory in the channel is getting cleaner versus the last couple of quarters? John Vandemore: 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 was significantly exacerbated by the fact that last year, the first quarter was you know, a last the last sizable quarter of growth 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. I would say the encouraging signal is that it it feels like that market hasn't reached a level of stability at least. What that means from our point of view is that, you know, it should be you know, pretty modestly performing as you get into more comparable quarters in, you know, 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. You know, what we can do different in demand creation that might instigate some, you know, resurgence. I I don't think you know, we or 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 we still believe it has a significant opportunity for growth, and and we'll continue to invest behind that because we think that the brand has, that size of opportunity in it. Chris Nardone: Got it. Then just a quick follow-up on pricing. So how quickly are you looking to make a decision on whether you're gonna raise prices to protect your earnings power, especially if the assumption holds that the the current tariff structure for now remains in place for the next couple of months? John Vandemore: Well, that's a that's a critical assumption. Right? And I think having some clarity on that would be very informative. I I would say it's it's an in-process motion. It's not any you know, it's not like a given day all of a sudden you decide you're gonna you know, raise all the prices. We're making adjustments as we go. So it's it's it's I would say it's actively in process. 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, would be in Q2 and Q3. With some ability to resolve that starting in Q4. Chris Nardone: Understood. Thank you. Good luck. Operator: Thank you. Our next question comes from the line of Anna Andreeva with Piper Sandler. Please proceed. Anna Andreeva: Great. Thanks so much, and thank you guys for all the color. We wanted to follow-up on The U.S. I think in the prepared remarks, you mentioned demand signals are more uncertain. Do you see sales moderate in April? Or is this a concern about what transpire? In the business going forward? And then we had a follow-up. John Vandemore: Yeah. I mean, would say so far in April, we've seen a a fairly consistent trend from the back half of Q1. Nothing that I would call out as a a a notable change other than there are some there have been some calendar shifts with regard to Easter. 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 it and draw too much of a conclusion. Our commentary was more about what we're watching than what we've seen. We're watching the consumer carefully because there's been a lot of indicators from third parties be they, you know, traditionally published surveys, 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 our watchfulness on the DTC side of the of the business. More than anything we've seen. Anna Andreeva: Okay. That makes a lot of sense. Appreciate that. And on the CapEx, sounded like you're looking to rein in that $600 million to $700 million range that you guided to previously, given the environment. And you already mentioned pulling back on some of the new store openings. Slightly. Can you talk about what other projects you guys are considering to pull back? John Vandemore: Well, just to be clear, we we we haven't pulled back on anything yet. What I would emphasize is that we are evaluating all alternatives similar to evaluating all our alternatives to managing the business in response to the to the trade environment. So we haven't made any decisions yet to pull back. We have made decisions to continue on. And, you know, the China and U.S. distribution 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 you know, no without an impact to the business, you know, we'll 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, you know, going back to, you know, we're a 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. Anna Andreeva: Alright. Thanks so much. Best of luck. David Weinberg: Thank you. Operator: Our next question comes from the line of Tom Nikic with Needham and Company. Please proceed. Tom Nikic: Thanks for taking my question. Tom, we aren't able to hear you. May have yourself muted. Tom Nikic: I can you hear can you hear me now? David Weinberg: Yes. Hello? Yes. Tom Nikic: Okay. Sorry sorry about that. I wanted to follow-up on the some of the discussion around pricing. You know, how do you feel about the consumers ability to to to absorb, you know, price price increases. And, you know, presumably, there's gonna be a lot of, goods that are going to become more expensive and, you know, inflation, you know, generally broadly in the economy may become you know, a pretty meaningful headwind to, you know, consumer confidence So, you know, our how are you thinking about th