Skechers USA Inc Q4 2024 Earnings Call Transcript

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

Question: Jay Sole - UBS Securities LLC - Analyst : David John, thanks so much for giving the guidance on '25 and first quarter. Just looking for a little detail. If you're thinking about gross margin for fiscal '25, what outlook, should we think about when it comes to modeling gross margin. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 9:30PM, SKX.N - Q4 2024 Skechers USA Inc Earnings Call Thank you.

Question: Jay Sole - UBS Securities LLC - Analyst : All right, that sounds great. So there was a lot of information in that answer. You're saying basically that the mixed 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 geography. So that's one reason we should think about gross margin -- it sounds like similar sort of the last year is basically I think John what you're saying (multiple speakers) if I'm correct.

Question: Laurent Vasilescu - BNP Paribas Exane - Analyst : I wanted to follow up on Jay's question about margins. I might be modeling this form, but it looks like, I know you don't guide the even 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&A that is a source of pressure to the operating margin?

Question: Laurent Vasilescu - BNP Paribas Exane - Analyst : Okay, very helpful, John. And then, US 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 lack those growth rates from 2024, so it could be actually lower than that. And then just a housekeeping question on FX. I was a little bit surprised that FX was a $0.21 hit to the fourth quarter. Just to understand what's the implications. What is your FY25 and first-quarter guide [in that] in terms of FX, on EPS with current spot? Thank you so much.

Question: Laurent Vasilescu - BNP Paribas Exane - Analyst : Okay, very helpful. Thank you very much for the call and best of luck.

Question: Alex Straton - Morgan Stanley - Analyst : I just wanted to focus quickly on the international part of the business. It looks like revenue decelerated a bit quarter over quarter, 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.

Question: Alex Straton - Morgan Stanley - Analyst : Thanks so much. Good luck.

Question: Adrienne Yih - Barclays - Analyst : John, can you talk about -- you 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 ride. 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 any signs of China stabilization, what are you doing there to mitigate 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 US, but just remind us, please. Thank you.

Question: Adrienne Yih - Barclays - Analyst : Thank you very much. Best of luck.

Question: John Kernan - TD Cowen - Analyst : Just curious on the CapEx spend at $700 million on the high end. Can you get frame 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.

Question: John Kernan - TD Cowen - Analyst : Understood.

Question: John Kernan - TD Cowen - Analyst : All right, that's helpful. One follow-up for you, maybe not related to the near term. We're essentially at the $10 billion in total revenue. The 10% EBIT margin you generate in '24, what's -- where do you see the long-term opportunities on the margin profile of the business? Is it in gross margin? Is it in selling and G&A leverage? How should we think about the $10 billion in top line and now the incremental margin opportunity long term? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 9:30PM, SKX.N - Q4 2024 Skechers USA Inc Earnings Call

Question: John Kernan - TD Cowen - Analyst : Got it. Fly, eagles fly this weekend, I think next year you're going to need a Nick Sirianni collaboration, but we'll see.

Question: Rick Patel - Raymond James - Analyst : Can you talk about the shape of growth this year? Guidance seems to apply a modest acceleration as you move beyond Q1. Curious what you attribute that to and if there's anything we should be keeping in mind from a modeling perspective in terms of lumpiness that may be caused by the wholesale channel.

Question: Rick Patel - Raymond James - Analyst : Okay. And then can you also talk about your foray into basketball cleats and running. You see 2025 is the year where you hit the accelerator in

Question: Rick Patel - Raymond James - Analyst : Look forward to seeing the innovation. Thanks guys.

Question: Jesalyn Wong - Evercore ISI - Analyst : Maybe just following up on EMEA's growth paired up really well during the quarter. Were there specific categories that did well? And also following on Rick's question, the performance category, how big is it as a percentage of sales right now? I think over the medium term as you grow this category what -- how big of a contribution do you expect this to be? Thanks.

Question: Jesalyn Wong - Evercore ISI - Analyst : Thank you. Maybe just one follow-up on China. I would imagine it's embedded to progressively improve throughout the year. Is there any point or are we expecting second half to have positive growth in China, like how are we thinking on China for this year for cadence?

Question: Krisztina Katai - Deutsche Bank - Analyst : I just wanted to ask on inventory and then the inventory composition overall. You said you made some progress in China quarter over quarter, but just how do you see the overall inventory levels which are up 26% ending the year relative to your 13% sales growth, and then can you elaborate on your comments to move inventory a little bit quicker? We just love to get some color there. Thank you.

Question: Krisztina Katai - Deutsche Bank - Analyst : Great. Thank you for all that color, best of luck.

Question: Christopher Nardone - BofA Securities - Analyst : John, can you just elaborate a little bit more on the drivers of the 31% US wholesale growth during the quarter? And are you concerned at all about footwear inventory levels within the US wholesale channel? How are you expecting to navigate the potential pricing environment if the tariff situation worsens for EMEA?

Question: Tom Nikic - Needham & Company Inc. - Analyst : John, I believe you said, the minority interest line would be down mid-teens this year. Is that predominantly due to the expectation that says are down in China or is there anything else that's driving that?

Question: Tom Nikic - Needham & Company Inc. - Analyst : Understood. Okay, and then the inventory growth, optically it's high, and I know some of that's due to in transit, excluding the increase in transit inventory, I mean, is it safe to say, you feel that your inventories are in appropriate shape relative to the growth that you're expecting for '25.

Question: Tom Nikic - Needham & Company Inc. - Analyst : Understood. Thanks very much and best of luck this year.

Question: Anna Andreeva - Piper Sandler - Analyst : We had a question on comfort technologies. You've seen some nice traction there for some time. How do you view the pipeline of innovation either for 1Q or as we go through the year? And are there any additional categories that technologies could be applied to. And just as a follow-up, ASP has been under slight pressure I think for both channels despite you guys rolling out the new technologies in '24. So should we expect the price to reverse in '25 or what's been driving some of that decline? Thanks so much.

Question: Anna Andreeva - Piper Sandler - Analyst : That's super helpful. I appreciate it. May I ask just one follow-up on gross margins? I believe you had expected freight to be a headwind in 4Q. Did you see that as a headwind and should we expect any freight instability as we go through the year or in 1Q? Thanks so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 9:30PM, SKX.N - Q4 2024 Skechers USA Inc Earnings Call

Question: Anna Andreeva - Piper Sandler - Analyst : All right. Thank you so much. Best of luck.

Question: Sam Poser - Williams Trading, LLC - Analyst : I have a couple here. One, what -- can you give us some idea because of this -- the FX impacts and all of that so we can back into it? Can you help us with what you think -- what you're planning the EBIT margin to be in the first quarter or a range of EBIT margin? And that'll help us a lot because we have this big chunk as we did in the previous quarter of FX. So can you help us or help us with the other income line and then we can back into it that way.

Question: Sam Poser - Williams Trading, LLC - Analyst : I understand it for the full year. What I'm probably just trying to -- Q1 seems to have the most acute movement in it. And so the question is, so I'm just asking for Q1. I'm not asking for the full year explanation. I'm just trying to get an idea of where you're thinking this operating margin falls, and we come back into the rest of it that way because you've given us piecing around it but we don't want to have a situation where you make or miss the number because -- but you hit the gross, we just want to have an idea of where you're thinking of a range of EBIT, and then we can sort out the rest of it -- in the first quarter. I'm not -- I don't want the rest of the year we can back into because they're less acute.

Question: Sam Poser - Williams Trading, LLC - Analyst : Okay. And then lastly, China. Again, that seems like more of a headwind than what you may have anticipated a few months ago for the year. Again, in the first quarter given it -- I mean, how much of -- is China really the big change in the revenue and everything else seems okay, or is there something else there?

Question: Sam Poser - Williams Trading, LLC - Analyst : I'm sorry, one more thing. In Europe, is there any invent given so much as in transit, is there any -- anything constraining sales given all the in-transit inventory in Europe given the strength of the business?

Question: Sam Poser - Williams Trading, LLC - Analyst : And was there any issue in the fourth quarter of the sales because of in-transits?