Skechers U.S.A., Inc.

Greetings. Welcome to Skechers' third quarter 2022 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.

Thank you, everyone, for joining us on Skechers' conference call today. I will now read the Safe Harbor Statement. Certain statements contained herein, including, without limitation, statements addressing the beliefs, plans, objectives, estimates, or expectations of the company or future results or events may constitute forward-looking statements that involve risks and uncertainties. Specifically, the COVID-19 pandemic has had and is currently having a significant impact on the company's business, financial conditions, cash flow, and results of operations. Such forward-looking statements with respect to the COVID-19 pandemic include, without limitation, the company's plans in response to this pandemic. At this time, there is significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic. The dynamic nature of these circumstances means that what is said on this call could change at any time And as a result, actual results could differ materially from those contemplated by such forward-looking statements. Additional forward-looking statements involve known and unknown risks, including but not limited to global, national, and local economic, business, and market conditions, including the impact of inflation, Russia's war with Ukraine, and supply chain delays and destruction. in general and specifically as they apply to the retail industry and the company. 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. Users of forward-looking statements are encouraged to review the company's filing with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8K, and all other reports filed with the SEC as required by federal securities laws or a description of all other significant risk factors 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, and Chief Financial Officer, John Vandemor. David?

Thank you for joining us today on our third quarter 2022 conference call. Before we discuss our business in detail, I would like to thank Footwear News for naming Skechers as Company of the Year for the third time in our 30-year history. This honor wouldn't have been possible without the collective energy, dedication, and creativity of the entire Skechers organization, both here in Southern California as well as in every Skechers showroom, office, logistics center, and retail store around the world. The Skechers team worked extremely hard this year alongside our loyal partners globally, be it our accounts, distributors, factories, and vendors. From the bottom of our hearts, thank you for your enthusiasm and collaboration as we work through the challenges of the last couple years. We are optimistic that the COVID-related restrictions are easing, with only a few markets around the world still facing temporary closures and restrictions, and that freight costs are beginning to decline. However, macroeconomic headwinds, including foreign currency exchange rates and congestion within our distribution centers due to the strong demand for our product and supply chain disruptions over the past year, impacted our reported results in the third quarter, and we expect will remain a factor into the new year. While we focused on working through these challenges, we remained a go-to source for consumers and our partners around the world, resulting in a new quarterly sales record of $1.88 billion for the third quarter. We are proud of this achievement, which was driven by double-digit increases in EMEA and the Americas and high single-digit growth in APAC, bringing our international business to 60% of our total sales. As we see improvements from supply chain logistic costs, distribution center congestion, particularly in North America, foreign currency exchange rates, and closures in China, we believe we will achieve continued revenue growth. Our ongoing success of record annual sales in 2021 and this year's three consecutive quarterly sales records is rooted in our talented team. Our core design principles, comfort, innovation, style, and quality at a reasonable price, by which every pair is measured, our focused marketing efforts, our deep distribution network, and our determination to deliver our product as quickly as possible to our consumers. Years ago, we recognized the need for comfortable footwear, and as the third largest athletic footwear company in the world, we are widely known for our comfort technology products. As consumers have truly come to view casual as the new normal, we are in a unique position with our extensive offering. Always looking for new ways to meet our customers' needs, we extended our Skechers ArchFit technology into a wider offering of styles, introduced Skechers hands-free slip-ins, the ultimate in ready-to-go footwear for men, women, and children, and expanded our fashion collection within our Skechers Street offering and collaborations. Innovation is the core of our performance division, and it's never looked stronger, including the gripping outsole and comfort upper of our Viper Court Pickleball Collection and the awards given to the Max Road 5 by both Men's Health and Self magazines. Also, this month, the Razor 4, an update to the technical running shoe that Meb wore in his Boston Marathon win, was released with Hyperburst Pro, the latest evolution of our signature ultra-lightweight resilient cushioning foam. We are always focused on meeting the demands of our wholesale partners globally and our consumers who shop at our approximately 4,450 Skechers retail stores worldwide and through our expanding e-commerce footprint, all to ensure Skechers, the comfort technology company, is the leading choice and is available when and where consumers want. Total sales growth of 21% or 27% on a constant currency basis was the result of increases in our international and domestic businesses of 25% and 15% respectively. By region, EMEA saw improvements of 48% and the Americas grew 16%. We are also particularly pleased with our APAC sales growth of 9% or 17% on a constant currency basis. which includes China decreasing by 19% for a not so strong double-digit 13% in constant currency. Despite China's zero COVID policy, we remain confident in a long-term success for Skechers in this country. In the quarter, our wholesale business increased 26% due to double-digit growth both in domestic and international. The international growth was led by a 59% increase in EMEA, an 18% increase in the Americas, and an 8% increase in APAC. Overall, wholesale sales were driven by increases in unit volume of 25% and an average selling price per unit of 1%. The Americas wholesale sales growth was due primarily to a 15% increase within our U.S. wholesale business, where we saw improvements across genders and multiple categories, most notably our sport, casual, and work lines, as well as in unit price. Canada and Mexico are two largest American markets outside the United States, also achieved double-digit growth, and every Latin American country also saw sales improvements, except Chile, which is experiencing significant economic volatility. Growth in EMEA wholesale was primarily driven by double-digit improvements across all European countries, as well as growth within our distributors, primarily driven by the Middle East, Turkey, and Scandinavia, partially offset by the continued cessation of shipments to Russia. APAC wholesale sales increased primarily due to strength within our distributors, as well as India and Singapore, and the addition of the Philippines, which transitioned from a distributor in 2021. The increases were partially offset by decreases in China and Japan due to COVID-related lockdown measures. Turning to our direct-to-consumer business, which is a key focus area for the company, as we look to create more opportunities to showcase the broad range of Skechers products and connect directly with consumers. Sales increased 12% in the quarter due to growth of 14% in the Americas, 10% in APAC, and 6% in EMEA. Domestic direct-to-consumer sales increased 15%, primarily due to strong double-digit growth in our digital commerce channel. International direct-to-consumer sales grew in nearly every country, partially offset by declines in China, which was impacted by the temporary closures of just over 10% of our company-owned stores, and Chile, due to economic volatility. In total, direct-to-consumer unit volume increased 11%, and average selling price was essentially flat. In the third quarter, we opened 76 company-owned Skechers stores, including 46 in China, eight big-box stores in the United States, a flagship store in Madrid, and our first store in Rotterdam. We also expanded and relocated two stores in key Lima malls, Jockey Plaza and Plaza Norte. We closed 34 locations in the quarter, including 21 in China and two concept stores in the United States. We ended the quarter with 4,458 Skechers stores worldwide, of which 3,054 were third-party stores, including 177 that opened in the third quarter, 129 of which were in China, 12 in India, and five in South Korea. In the fourth quarter to date, we've opened 14 company-owned stores, including one big box store in the United States and five stores in China. For the remainder of the year, we plan to open an additional 35 to 45 company-owned locations. In the third quarter, we launched new e-commerce sites in Poland and Switzerland, and this month we launched our site in Japan. We also plan to launch several more e-commerce sites in the coming year. We are pleased with our record sales achievement in the third quarter, driven by the continued strong demand for our comfort technology products. With double digit growth across our wholesale and direct-to-consumer businesses, sales increased in nearly every market except those that faced either COVID-related lockdown measures or significant economic volatility. This is a testament to our product and marketing, resonating globally, as well as our determination to both deliver our footwear to consumers as quickly as possible, and the efforts we've made to improve our infrastructure, including our network of distribution centers, some of which are being impacted by the supply chain challenges. The expansion of our LEED-certified gold 2.6 million square foot North American distribution center is in the final process of integration with our existing system. This is expected to improve processing volumes and efficiencies over the course of 2023. With international representing 60% of our total sales, we remain focused on our infrastructure abroad. We plan to begin shipments out of two new distribution centers in the first half of 2023. This includes a new 427,000 square foot distribution center in Vancouver, which will result in improved shipping times in Canada, as well as some reduced pressure on our Rancho Belago facility. As we celebrate our 10th year of business in India, we begin the first phase of our 1.1 million square foot IGBC platinum pre-certified distribution center outside Mumbai, which is planned to be operational by mid 2023. This quarter, we also began phase two of our China distribution center, which is expected to be complete in 2024. Last month, we held our first in-person global product conference since COVID at the newly finished initial phase of our corporate headquarters in Southern California. And this month, our key retail partners joined us for 2023 buy meetings. The expanded building on Pacific Coast Highway is now home to our many showrooms serving to highlight our extensive comfort technology footwear. To support and drive awareness to our diverse product offering, we have an equally diverse team of ambassadors appearing in our marketing campaigns. From pop superstar Ava Max to lifestyle guru Martha Stewart, retired athletes Sugar Ray Leonard and Tony Romo, to elite major championship golfers Brooke Henderson and Matt Fitzpatrick, and local celebrities who launched in the third quarter, including Mylene Klaas in the UK and Vanessa Mai and Michael Ballack in Germany. Getcher's marketing campaigns appeared on billboards in Panama and Chile, buses in Greece, across buildings on high streets in Spain and Portugal, elevator kiosks in China, and malls in Canada, Hungary, and Colombia, as well as Getcher's shoes on the feet of influencers and key opinion leaders, on a catwalk in Berlin, and on covers and within the pages of fashion magazines worldwide, where consumers shop, be it on their phones or in malls, or where they visit, be it in stadiums or tourist centers, or where they commute, buses, trams, and subways, Getra's is everywhere, driving demand. There's no doubt that macroeconomic issues remain, but we believe our unique position as a brand that delivers on comfort, style, innovation, and quality at a reasonable price will continue to resonate with consumers in the U.S. and around the world. And now, I would like to turn the call over to John for more details on our financial results.