Skechers U.S.A., Inc.

Greetings, and welcome to the Skechers' third quarter 2023 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 David Roach from the FP&A team. Thank you 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. Such 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, foreign currency fluctuations, challenging consumer retail markets in the United States, wars, active war, and other conflicts around the world, 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 filing with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarter reports on Form 10-Q, current reports on Form 8-K, and all other reports filed with the SEC as required by federal security laws or 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?

Good afternoon, and thank you for joining us today for our third quarter 2023 conference call. Before we discuss our record quarterly results, I would like to express our concern for those impacted by the devastating crisis in the Middle East and the ongoing war in Ukraine. This is a very difficult and uncertain time for many of our colleagues, partners, and customers, with whom we remain in close contact, offering whatever comfort and assistance we can. Once again, our financial results exceeded expectations with a new quarterly sales record of $2.25 billion, a strong gross margin of 52.9%, and earnings per share of 93 cents. Along with our continued momentum in the quarter, we extended our product portfolio which we believe will further strengthen our position in the global footwear market. We released three capsules from our new Snoop Dogg collaboration across North America, Europe, and several other key markets, creating media attention and expanding our reach with fans of the legendary entertainer. Our collection with Snoop Dogg, along with our collaborations with Martha Stewart and the Rolling Stones, heightened awareness and consumer engagement for the Skechers brand. We also launched an exciting expansion to our Skechers Performance Division, Skechers football, or soccer as it's known in the United States, with boots built for speed and control. In support of this initiative, we signed Harry Kane, the leading striker for Bayern Munich and captain of the England national football team. Harry, along with a roster of athletes from the Premier League and Women's Super League, have been instrumental in testing and launching of this product. Harry's move to Bayern Munich created additional excitement and generated headlines as he made his inaugural Bundesliga appearance in Skechers boots with a goal and an assist. The SKX-1 and Skechers Razor are currently available in key football specialty retailers, select Skechers stores, and online in Europe. Just this week, we announced the further expansion of our technical performance footwear with the addition of Skechers basketball, and the unveiling of the SKX Resigrip and the SKX Float. Similar to our approach with football, we have partnered with two-time All-Star Julius Randle from the New York Knicks and local star Terrence Mann from the Los Angeles Clippers, both of whom have been training and playing in Skechers basketball footwear leading up to the 2023 NBA season. Skechers basketball will be available shortly in North America, China, and the Philippines, the world's largest basketball markets. With the launch of Skechers football and basketball, we expanded our Skechers performance division with two of the biggest sports in the world, building on our assortment of award-winning running, golf, and pickleball footwear. Taken together, the expansion of Skechers performance footwear and our collaborations with Snoop Dogg, Martha Stewart, the Rolling Stones, as well as others, illustrates our commitment to innovation, and our determination to deliver comfort, style, and quality in every pair. We continue to develop fresh takes on our successful and in-demand Skechers hands-free slip-ins, arch fit, max cushioning, go-walk, and street collections, as well as many other styles. All of our key initiatives, whether they are related to performance or lifestyle, have targeted and unique marketing campaigns to drive awareness and purchase intent. This includes athletes and brand ambassadors who are admired in their respective countries, like newly signed former footballer Fabio Cannavaro in Italy and actress and TV personality Liliko in Japan. As we review our accomplishments in the third quarter, we want to note that our goals and objectives remain unchanged. We are committed to delivering the ultimate in comfort technology products to the world, enhancing the sketch of shopping experience, and operating in an increasingly efficient, sustainable, and impactful manner. Looking at our third quarter results, we achieved record sales of $2.25 billion, an increase of 8% year-over-year. International sales increased 9%, representing approximately 61% of our total sales, and domestic sales increased 7%. Gains were driven by a 24% increase in our direct-to-consumer segment. Our wholesale sales decreased 1% to primarily lower distributor sales in the quarter, which led to international wholesale being down 2%. Excluding distributor sales, international wholesale was up 5%. Domestic wholesale was significantly better than expected at flat to prior year, driven by accelerated deliveries in the third quarter. We are encouraged by the positive signals we continue to see in the domestic wholesale marketplace. including requests for early deliveries, solid sell-throughs, healthier inventory levels, and most importantly, booking trends for the first part of 2024. After a difficult year, we are optimistic about the prospects of a return to growth in domestic wholesale in 2024 on the back of our incredible product lineup. Turning to direct-to-consumer, where our 24% growth was the result of a 33% increase internationally and with strong performance in both online and brick and mortar locations, and a 14% increase domestically, driven by our stores. This includes growth of 17% in the Americas, 24% in APAC, and 61% in EMEA. At 42% of our total sales, our direct-to-consumer segment is a key driver of our long-term growth strategy. As such, we are focused on improving efficiencies and creating a more seamless experience for consumers driving demand and ensuring we have a fresh flow of inventory. In the third quarter, we opened 72 company-owned Skechers stores and closed 23. Store openings included 43 in China, five big box stores in the United States, five in Vietnam, four in South Korea, three in both Chile and India, two each in France, Israel, and Hong Kong, and one each in Canada, Colombia, and Peru. In the period, 324 third-party stores opened, including 282 in China and 11 in India, bringing our third-party store count to 3,399 and our total worldwide count to 4,992 Skechers stores. In the fourth quarter to date, we've opened three company-owned stores in the United States and one each in the UK, Colombia, and Chile. We expect to open 45 to 55 company-owned stores worldwide over the remainder of the year. Reflecting our diligent efforts to manage our inventory, levels declined 24% from year-end 2022, while simultaneously increasing our gross margins and maintaining growth. We have also begun shipping out of our new distribution centers in Canada and Chile, and we expect to be operational at our facilities in India and Panama before the end of the year. And now, I would like to turn the call over to John for more details on our financial results.