Skechers U.S.A., Inc.

Greetings, and welcome to the Skechers' fourth 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.

Hello, everyone. My name is Amanda Starziak from the FP&A team. Thank you for joining us on the 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 disruptions, 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 filings 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 8-K, 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 Vandermoer. David?

Thank you for joining us today on our fourth quarter and full year 2022 conference call. 2022, our 30th year in business, was a significant milestone for the company. We achieved record sales of $7.4 billion, an increase of 1.1 billion or 18% year over year. On a constant currency basis, sales would have exceeded 7.7 billion, an increase of over 1.4 billion. Our four quarterly sales records in 2022 are the result of our focused marketing efforts, extensive distribution network, and core design principles, style, comfort, innovation, and quality, all at a reasonable price. From a product perspective, we further cemented Skechers as the comfort technology company with the introduction of Skechers hands-free slip-ins and continue to innovate our performance solutions with the launch of Skechers pickleball shoes. Among many other standout moments, Footwear News named Skechers Company of the Year for the third time, and our elite golf athletes, Matt Fitzpatrick and Brooke Henderson, won majors wearing Skechers GoGolf. was also a year that presented challenges, including temporary COVID-related store closures in China and rising freight and logistic costs, which have started to moderate. We also experienced supply chain disruptions that created inventory congestion throughout the distribution channel as we moved through the year. We overcame those challenges and achieved record annual sales due to the flexibility, creativity, and dedication of the global Skechers organization. Thank you to all the team members at our corporate headquarters, in our offices and distribution centers, our sales teams in the field, and our retail associates throughout our global network of Skechers stores. Each and every one of our team members is an important contributor to our ongoing success. We remain focused on meeting the demands of consumers, continuing to replenish stock at all our Skechers retail stores worldwide and partnering with our global accounts to ensure shoppers have access to the leader in comfort footwear. For the fourth quarter, Skechers achieved sales of $1.88 billion, a 13.5% increase, marking a new fourth quarter record and slightly above our previous quarterly record. This notable achievement was led by increases of 16% in wholesale and 11% in direct-to-consumers. Domestic sales increased 22% and international sales increased 9%, with international representing 62% of our revenues for the quarter and 59% for the full year. By region, EMEA grew 29% and the Americas grew 22%. APAC sales decreased 7%, which included a China sales decrease of 23%. Excluding China, APAC sales increased 31%. At approximately 62% of our global sales for the year, wholesale remains a key element of our growth strategy. As a consumer-driven company, we focus on what shoppers want and deliver it as efficiently as possible to our global wholesale partners. This allows us to reach our loyal base where and when they want to shop, be it department stores, family channels, or their favorite specialty store. In the quarter, wholesale increased by 16% in both the U.S. and international. The international growth was driven by double-digit increases across many markets globally. Overall, wholesale sales were driven by increases in unit volume of 9% and average selling price per unit of 6%. The Americas wholesale business grew 19%, attributable to double-digit growth in nearly every market, including a 16% increase within our domestic wholesale channel, which saw a double-digit growth in our men's and kids' lines and single-digit growth in women's. Of note, for the quarter, men's rose to 41% of our domestic wholesale business as we saw increases in most product categories. Recently, we have seen strong sales drivers across several men's key categories, and we believe that performance across the board speaks to the relevance and broad acceptance of our men's styles. EMEA wholesale growth of 31% was primarily driven by double-digit improvements in Germany, Spain, and Central Eastern Europe, as well as to our distributors, including Turkey, the Middle East, Scandinavia, and Greece. This was partially offset by the termination of shipments to Russia. APAC wholesale decreased 6%, primarily due to the challenges in China. Excluding China, APAC wholesale sales grew 32% as we experienced growth across most other markets, most notably in India and Indonesia with high double-digit growth and Taiwan with triple-digit growth. A key focus area for the company is direct-to-consumer, where we are working to create a more seamless omnichannel experience. The 11% sales increase in the quarter was the result of 27% growth in the Americas and 19% in EMEA, partially offset by a decrease of 7% in APAC, again, primarily due to China. Direct-to-consumer comparable same-store sales worldwide increased 7.5%. Domestic direct-to-consumer sales increased 30% due to strong triple-digit growth in our e-commerce channel, as well as a double-digit increase in our brick-and-mortar stores. International direct-to-consumer sales were flat, due to declines in China, where at one point over 35% of our stores were temporarily closed. Outside of China and Chile, which was impacted by economic volatility, every other market experienced growth within our company-owned Skechers store portfolio, and nearly every market grew in our direct e-commerce business. In total, direct-to-consumer unit volume increased 15%, and average selling price was down 3.5%. In the fourth quarter, we opened 62 company-owned Skechers stores and closed 22, of which 17 were in China. Included in the openings were 29 in China, seven big box or outlet stores in the United States, four in India, and our first company-owned store in Ireland, a flagship location on Grafton Street in Dublin. We ended the quarter with 4,537 Skechers stores worldwide, of which 3,093 were third-party stores, which include 157 that opened in the fourth quarter, 94 of which were in China, 16 in India, nine in the Philippines, and seven in Australia. In the first quarter, 2023, we've opened seven company-owned stores, six big box locations in the US, and one concept store in Germany. Year-to-date, we have closed one location in the United States, We expect to open a total of 35 to 40 company-owned stores worldwide in the first quarter and between 100 to 120 stores over the course of the year. In the fourth quarter, we launched our first Skechers e-commerce site in Japan and are pleased with the initial reaction from consumers. We remain focused on growing our direct-to-consumer business to efficiently drive sales and connect with our loyal consumers. To this end, we have planned additional e-commerce sites. including Peru, Colombia, and an update to our existing platform in Chile, which is already one of our most productive international e-commerce sites. Last month, we also launched our Sketch Plus loyalty program in Canada and plan to roll out this program to more countries throughout the year. Our fourth quarter growth across all segments of our business and the increases in nearly every market demonstrate the robust demand for our comfort technology products. the relevance of our footwear collections, the effectiveness of our marketing efforts, and our commitment and ability to execute in the face of headwind. Many of the shipping challenges we face within our own distribution centers have eased, and we are seeing improved operations in our recently expanded 2.6 million square foot North American distribution center. By the end of the first half of 2023, we expect to be shipping out of a new 427,000 square foot center in Vancouver that will improve delivery times for Canada and to have relocated our new Chilean distribution center, doubling our space to 430,000 square feet. Additionally, in India, the 660,000 square foot phase one of our new 1.1 million square foot distribution center outside Mumbai is expected to be completed by year's end. As always, we believe demand creation is critical to our brand's success. To support and drive awareness of a diverse product offering, we leverage a roster of notable talent both globally and in regional markets. The talent is as diverse as lifestyle guru Martha Stewart, retired athletes Sugar Ray Leonard and Tony Romo, and elite major championship golfers Brooke Henderson and Matt Fitzpatrick. We also sign pickleball pros Tyson McGuffin, and Catherine Parenteau in early 2022 to correspond with the launch of Skechers Viper Court Pickleball Shoes. We are now the official footwear sponsor of the Professional Pickleball Association Tour, creating an undeniable connection between the fastest growing sport in America and Skechers. Skechers employs a 360 degree marketing approach. Digital and social media, television, out of home, print, radio, and PR, and translates our campaigns into dozens of languages. Wherever consumers are, be it the most watched soccer matches in the world, a subway in Asia, billboards in South America, or fashion magazines in Europe, we are there. And wherever consumers shop, phones, high streets, or malls, we are there. All these marketing techniques build brand awareness and drive consumer demand. While we fully expect to face continuing challenges throughout the year, the recent elimination of the zero COVID policy is a positive for our business in China, and we believe both consumer confidence and more normal shopping behavior will build throughout the year. In addition, despite the recent inventory challenges impacting our domestic distribution network, we remain confident in the strength of our brand and the demand for our products. Further, we are beginning to see freight and logistic costs normalized, foreign currency rates moving in our favor, and our retail store is full of fresh inventory. We had a strong December and January direct-to-consumer sales tracked ahead of last year, giving us confidence that we'll see continued growth in 2023. And now, I would like to turn the call over to John for more details on our financial results.