Skechers USA Inc at Evercore ISI Consumer & Retail Conference Transcript

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

Question: Jesalyn Wong - Evercore ISI - Analyst : So thanks, John, for joining. Let's start with a broader topic here. Can you share with us any insights on the current demand environment? In the last quarter, domestic wholesale saw a recovery with significant improvement in flow of orders. Has that trend continued over the past months? What has surprised you or what has disappointed over the last months?

Question: Jesalyn Wong - Evercore ISI - Analyst : Right. On the topic of value, given the macro challenges, have we seen any indications of trade on consumption and whether that has benefited us in terms of the demand of our products there? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 6:00PM, SKX.N - Skechers USA Inc at Evercore ISI Consumer & Retail Conference

Question: Jesalyn Wong - Evercore ISI - Analyst : Got it. And in terms of market share, obviously, Skechers has been gaining share in most of the markets. Which markets do you see the most opportunity to gain more market share, or are the most underpenetrated in terms of your international geographies?

Question: Jesalyn Wong - Evercore ISI - Analyst : Got it. And John, given you touched on India, China, maybe just dig in deeper into India? Can we get an update on how the regulatory environment has been on India? What's the progress there in terms of the manufacturing ability?

Question: Jesalyn Wong - Evercore ISI - Analyst : When you think about manufacturing in India, how do you think about the economics of that versus the other regions?

Question: Jesalyn Wong - Evercore ISI - Analyst : And shifting gears maybe a little bit to China. China is roughly $1.2 billion business right now, but it has been growing pretty well in the last quarters, previous couple of quarters. But we have heard macro concern trends have been pretty sluggish there. Any concerns on the growth there and just the outlook overall in China? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 6:00PM, SKX.N - Skechers USA Inc at Evercore ISI Consumer & Retail Conference

Question: Jesalyn Wong - Evercore ISI - Analyst : And maybe moving on to the long-term algo here. That $10 billion top-line target, longer-term EBIT margin, at one point, it was low 10s between 11% and 13%, but it's now at 10% there. Can you help us to understand the puts and takes to get to the high end of the guide? If we were to think about that 13% operating target, what needs to happen to achieve that goal? And maybe from your growth to SG&A leverage, how do we think about that?

Question: Jesalyn Wong - Evercore ISI - Analyst : John, I'm going to double-click into that growing the DTC business. And we've known that Skechers has always leaned into the DTC, the closer to the end market to understand the demand trends, react more nimbly there, but some other brands have also leaned back into the wholesale. How does Skechers think about allocating resources between the DTC and wholesale strategy. How do we balance that choice? And is there any difference across the different geographies you invest thinking about the channel strategy?

Question: Jesalyn Wong - Evercore ISI - Analyst : And maybe just a little bit more on the DTC. There was the guidance of 155 to 170 owned stores for the remaining of the year to be opened. Maybe a bit to understand where the stores will be mostly opened at, and any difference in the economics of those new stores versus the older stores?

Question: Jesalyn Wong - Evercore ISI - Analyst : And on your wholesale partnerships, are we happy with the current wholesale footprint there? Are there any regions where you would like to add on new partners or reduce any wholesale partnership there?

Question: Jesalyn Wong - Evercore ISI - Analyst : Maybe moving on to the margin front. On the gross margin, we heard some companies started to call out the rate situation as a slight headwind, especially in the second half of the year. I just wanted to double-click on that, whether the situation has impacted us. And are we seeing risk of it being a headwind going forward? Especially in the first quarter, we had a very nice bit of gross margins on that front.

Question: Jesalyn Wong - Evercore ISI - Analyst : Got it. And any sense to quantify that Asia to Europe route? What percentage of sales is that of our business?

Question: Jesalyn Wong - Evercore ISI - Analyst : And earlier, you mentioned about pricing and rested on pricing nicely over the last couple of years, given inflation. How should we think about ability to increase pricing going forward? And in that $10 billion target, how should we think about ASPs versus volumes growth?

Question: Jesalyn Wong - Evercore ISI - Analyst : And moving to the SG&A cadence there, just broadly, how should we think about SG&A there? 2Q EPS is guided to be slightly down due to timing of demand creation, but one -- the first quarter, the SG&A deleveraged by 150 basis points there. So how should we think about it? Should SG&A deleverage in second quarter, then we see some form of SG&A leverage in the second half?

Question: Jesalyn Wong - Evercore ISI - Analyst : John, you touched on slip-ins and new technologies there. Any sense on what are the new technologies percentage of those mix right now? Where do you see that goal? And in terms of innovation, Skechers has done really well within there. So any other major call in terms of new product innovation and anything new in the pipeline that you would like to call out?

Question: Jesalyn Wong - Evercore ISI - Analyst : Talking about consumers, maybe a last question on demographics. How is it different in our demographics versus peers by income, by age group? Any difference in one market versus the other markets?