Skechers USA Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Jay Sole - UBS Equities - Analyst : Great, thank you so much. David, John, you mentioned some of the things you're doing to deal with the tariff situation. 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 US. And what can you -- is there something you can do to minimize that and over what time frame? that's the first part of the question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 8:30PM, SKX.N - Q1 2025 Skechers USA Inc Earnings Call The second part is from an industry standpoint, you and your competitors, what are they -- is there anything you guys are doing collectively to try to communicate the issues that you have with the administration to try to figure out a way to lower the tariffs or create some kind of workaround so some of the tariffs that are out there don't become too onerous? Thank you.

Question: Jay Sole - UBS Equities - Analyst : Got it. Okay. Thank you so much.

Question: Laurent Vasilescu - BNP Paribas Exane - Analyst : Oh, good afternoon. Thank you, David. Thank you, John, for taking the question. I certainly recognize that you can't guide versus 90 days ago, but I think it's interesting from the prepared comments, there was a 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 the notable volatility? Is it within the United States, Europe, China. Love to get some more color there as we think about modeling 2Q and, potentially, for the back half of the year. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 8:30PM, SKX.N - Q1 2025 Skechers USA Inc Earnings Call

Question: Laurent Vasilescu - BNP Paribas Exane - Analyst : Thank you, John, for all that color. And then, with regards to tariff concerns, I think you laid out three strategies: cost sharing, sourcing optimization, pricing. How should we think about those three levers? You've listed them out in that order. Should we think about costing with your partners, manufacturing partners, as the biggest lever? And then pricing being the last lever. Love to get the degree of magnitude. Are they all equal weight and how fast can you implement each of those three levers? Thank you.

Question: Laurent Vasilescu - BNP Paribas Exane - Analyst : Understood. Last question. Two weeks ago, Levi's was asked if there was anti-Americanism starting to brew with the brand 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 take. 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.

Question: Laurent Vasilescu - BNP Paribas Exane - Analyst : Thank you very much. Best of luck.

Question: Peter McGoldrick - Stifel - Analyst : 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 US, can you discuss your appetite for taking price and ability to do so across regions and not just in in the US? Could you elaborate there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 8:30PM, SKX.N - Q1 2025 Skechers USA Inc Earnings Call

Question: Peter McGoldrick - Stifel - Analyst : 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?

Question: Peter McGoldrick - Stifel - Analyst : Very helpful. Thank you.

Question: Adrienne Yih - Barclays - Analyst : Thank you very much for all the color. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 8:30PM, SKX.N - Q1 2025 Skechers USA Inc Earnings Call I guess my first question is the comment on 65% outside of the US, roughly 40% is sourcing in China. Is there any, under any circumstance, is it possible to be so aggressive about redirecting all the China sourcing to non-US 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 2012, and 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.

Question: Adrienne Yih - Barclays - Analyst : Fantastic. Appreciate the color. Best of luck.

Question: Alex Straton - Morgan Stanley - Analyst : Thank you so much for taking the questions. Just a couple of follow-ups from me. Just on your China sourcing exposure being relatively high, I'm just curious if, historically, something has kept you from moving out of that country compared to peers, and whether that's more flexible now and for whatever reason. And then, another follow up on inventory is I'm just curious, how much do you have on hand right now that's not tariff? And how do you think about the flow of how long you have this window of non-tariff inventory before it starts becoming tariff, trying to think about how this flows to the income statement throughout the year. Thanks a lot.

Question: Alex Straton - Morgan Stanley - Analyst : Can I ask a quick follow up just when do you have to have holiday orders in by? Like how long do you have until you have the shoe drops on that?

Question: Alex Straton - Morgan Stanley - Analyst : Thanks a lot. Good luck.

Question: John Kerman - TD Cowen - Analyst : All right, thanks for taking the question, guys. Hope all is well out in Manhattan Beach.

Question: John Kerman - TD Cowen - Analyst : 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 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 8:30PM, SKX.N - Q1 2025 Skechers USA Inc Earnings Call percent of your overall costs, whether it's FOB or I don't know the other term maybe might just be landed cost, but how much of that, when we look at our much more simple Excel models and trying to forecast the gross margin and EBIT margin impact, how should we think about that critical input?

Question: John Kerman - TD Cowen - Analyst : Got it. That's helpful. Just one follow up question. DTC has gradually become a bigger portion of the business; I think it's mid-40% globally. I think at the beginning of the year when you issue guidance, you talk to 180 to 200 new stores that puts you, I think, it's low-teens 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 put forth in DTC and how do we think about the omnichannel comps, both domestically and internationally.

Question: John Kerman - TD Cowen - Analyst : Very helpful details. John. Thank you.

Question: Jesalyn Wong - EVERCORE ISI - Analyst : 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 color on what franchises there are, and what's the percentage of total products they make up. And the other question is, you guys highlighted being conservative around capital allocation for this year, but at 150 to 170 stores for the remaining of the year seems to imply that we're keeping our stock expansion plans similar to the 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?

Question: Jesalyn Wong - EVERCORE ISI - Analyst : Got it. Just one quick follow up. How much is kids' business as a percentage in US?

Question: Jesalyn Wong - EVERCORE ISI - Analyst : Got it. Thanks, guys.

Question: Josh Rees - Raymond James - Analyst : Hi, this is Josh Rees on for Rick Patel. Thanks for taking our questions. I was hoping that you could kind of go through as the company is evaluating where tariffs are going to land, can you talk about the opportunity to delay decision making by leaning more into air freight if that's a possibility, if that makes logical -- like logistical sense.

Question: Josh Rees - Raymond James - Analyst : Yeah, I appreciate the color, and just to follow up on that. I know you mentioned that the Wholesale accounts are excited for a 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 D2C channel can do the heavy lifting and move more units.

Question: Josh Rees - Raymond James - Analyst : Thanks so much and best of luck.

Question: Krisztina Katai - Deutsche Bank - Analyst : Hi, good afternoon and thanks for taking the question. So John, just on the pair 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 US, 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.

Question: Krisztina Katai - Deutsche Bank - Analyst : Okay, thank you so much. Best of luck. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 8:30PM, SKX.N - Q1 2025 Skechers USA Inc Earnings Call

Question: Christopher Nardone - BofA Global Research - Analyst : Thanks, guys. I just want to go back to China and want to see if you're expecting the business to improve as we move through the year. And then if there's anything you can speak to that provides any color on whether you're taking share or if the health of inventory in the channel is getting cleaner versus the last couple quarters.

Question: Christopher Nardone - BofA Global Research - Analyst : Got it. Then just a quick follow up on pricing. So how quickly are you looking to make a decision on whether you're going to raise prices to protect your earnings power, especially if the assumption holds that the current tariff structure for now remains in place for the next couple months?

Question: Christopher Nardone - BofA Global Research - Analyst : Understood. Thank you. Good luck.

Question: Anna Andreeva - Piper Sandler - Analyst : Great, thanks so much and thank you, guys, for all the color. We wanted to follow up on the US. I think in the prepared remarks you mentioned demand signals are more uncertain. Did you see sales moderate in April, or is this a concern about what could transpire in the business going forward? And then we had a follow up.

Question: Anna Andreeva - Piper Sandler - Analyst : Okay, that makes a lot of sense. I appreciate that. And on the CapEx, it sounded like you're looking to rein in that $600 million to $700 million range that you guided to previously just given the environment and you already mentioned pulling back on some of the new store openings slightly. Can you talk about what other projects you guys are considering to pull back.

Question: Anna Andreeva - Piper Sandler - Analyst : Alright, thanks so much. Best of luck.

Question: Tom Nikic - Needham & Company Inc. - Analyst : Can you hear me now?

Question: Tom Nikic - Needham & Company Inc. - Analyst : Okay. Sorry about that. I wanted to follow up on some of the discussion around pricing. How do you feel about the consumer's ability to absorb price increases. And, presumably, there's going to be a lot of goods that are going to become more expensive and inflation generally broadly in the economy may become a pretty meaningful headwind to consumer confidence. So how are you thinking about the elasticity and your ability to push price and not have it negatively impact the volume of pairs that you're selling?

Question: Tom Nikic - Needham & Company Inc. - Analyst : Understood. And a quick follow up, in terms of your inventory planning, is there any thought to just potentially taking the more conservative stance towards ordering new inventory for the back half of the year with hopes that perhaps there'll be a deal on the table 90 days from now, 180 days from now, who knows. But that maybe you don't want to get stuck with too much inventory at a time when this might be the worst time to be buying it.

Question: Tom Nikic - Needham & Company Inc. - Analyst : Understood. All right. Thanks, John. Thanks, David. Best of luck the rest of the year and navigating this situation.

Question: Sam Poser - Williams Trading, LLC - Analyst : Good afternoon. I thought you completely forgot about me, but I do appreciate it.

Question: Sam Poser - Williams Trading, LLC - Analyst : My goodness gracious. Anyway, let me just do one thing. Given the 90-day hiatus or whatever is going on, the July 9 date, would we expect, given sort of the combination of what's going on with the Suez Canal and shipping goods around and trying to get ahead of any reverting to higher tariffs. That inventory at the end of the second quarter is going to be pretty high as you attempt to get goods in to avoid, of course, within the orders that you have, but if you have orders in for September. Could we see those showing up in June, at the end of June, theoretically?

Question: Sam Poser - Williams Trading, LLC - Analyst : That's on top of the tariff. That is already a problem. The other one is a different problem. So --.

Question: Sam Poser - Williams Trading, LLC - Analyst : But I mean, as you said, you're trying to move orders up that you have. I'm not talking about building spec inventory. I'm talking about, for instance, you have an order for September. If you could get that made and delivered in June, right now, you would do it, not spec, the order.

Question: Sam Poser - Williams Trading, LLC - Analyst : And then you brought up that the kids' business is a China sourced issue. Does that mean that theoretically we could expect, I mean, given that the kids' business is they're very price sensitive. Would we expect a shortage in kids' shoes at the back half of the year if you can't move a lot of that production? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 8:30PM, SKX.N - Q1 2025 Skechers USA Inc Earnings Call And secondly, you talked about demand, you talked about eyes on demand. I mean, how is your demand planning evolved over the last few years and how, and how do you expect that'll serve you now, let's say, compared to COVID times.

Question: Sam Poser - Williams Trading, LLC - Analyst : And then, thank you. And then lastly, you said, you're in shifting to sort of be more geared to protect gross margin dollars. But my question to you is, given that you don't want to take price I guess because of tariffs, could we expect that in order to sort of keep product where you are, that you will, you could take a -- that we should expect a haircut on the gross margins if things don't change? But and that also could be a good way for you to gain some market share because everybody else will have to raise price. I mean, you have, and again, that also helps with 65% of your business outside the US I would assume. I'm surprised you're not thinking globally on prices because you could price average it and minimize the increases, but I don't know.

Question: Sam Poser - Williams Trading, LLC - Analyst : All right, thank you, guys, very much. Good luck with all this.