Skechers U.S.A., Inc.

Greetings and welcome to Sketchers' fourth 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 Sketchers. Thank you. You may begin.

Hello, everyone. My name is Will Bjornholm from the FP&A team. Thank you for joining us on Sketchers' 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, acts of 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 could 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 for 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 Scheduler's Chief Operating Officer, David Weinberg, and Chief Financial Officer, John Vandermoer. David?

Good afternoon, and thank you for joining us today for our fourth quarter and full year 2023 conference call. We ended the year with a new annual sales record of $8 billion, an increase of $556 million compared to last year. This milestone was the result of four quarterly sales records, including $1.96 billion for the fourth quarter. We also achieved a new annual gross margin record of 51.9%. These impressive results were driven by the worldwide demand for our products, our innovative marketing efforts, growing base of loyal consumers, strong relationships cultivated throughout our partner network, and the hard work of our dedicated team worldwide. As always, we remain focused on our core design principles, style, comfort, innovation, and quality, all at a reasonable price. In 2023, we pushed our technologies to new heights with the introduction of two new categories, football and basketball. These new categories expand the breadth of our award-winning performance division which also includes running, walking, golf, and pickleball. We partnered with Harry Kane, last year's top goal scorer in Europe, to launch Skechers Football. Harry, along with a roster of athletes, including recently announced Arsenal defender Oleksandr Sinchenko, are generating excitement and elevating awareness of Skechers boots at key football specialty retailers, select Skechers stores, and online in Europe. Today, I'm pleased to announce that Skechers Football is now available in the United States and will be coming to markets around the world. We also signed New York Knicks All-Star Julius Randle and LA Clippers Terence Mann for Skechers Basketball. The collection has been launched in the world's largest basketball markets, North America, China, and the Philippines, and will expand to new markets in 2024. Athletes are a growing force in our marketing plans, but we remain committed to growing our successful lines, like Skechers' hands-free slip-ins, Go Walk, and Uno, and continue to focus on expanding our proven business. This past year, we introduced more standout collections to further extend our reach, including capsules with partners Martha Stewart and Snoop Dogg. For 2024, we are working on more initiatives and collaborations, including a global agreement with John Deere that will unite two trusted brands for a new technical footwear offering. These key initiatives are supported by targeted and unique marketing campaigns to drive awareness and purchase intent. This includes athletes and brand ambassadors recognized globally as well as locally, such as Cha Eun Woo, a K-pop star and actor who we will be using extensively across the Asia-Pacific region. Our accomplishments in the year were numerous, including becoming a Fortune 500 company and surpassing 5,000 Skechers retail stores. Together with our team and partners, we are designing and efficiently delivering our comfort products to the world, meeting our consumers' footwear needs, and enhancing the Skechers shopping experience in an impactful manner as we further grow our direct-to-consumer and wholesale businesses. Looking at our fourth quarter results, Sales increased 4.4% to $1.96 billion. International sales increased 7%, representing approximately 64% of our total sales in the fourth quarter, and domestic sales were flat. We continued to strengthen our direct-to-consumer segment, which increased 20%, and for the first time exceeded 50% of our total sales. Our wholesale sales decreased 8%, primarily due to some retailers conservatively managing inventory levels and taking goods closer to season. Domestic wholesale decreased 10%, though retail sell-throughs in our major accounts were actually up single digits. International wholesale declined 7%, primarily due to EMEA, which faced inventory congestion at a handful of retailers. The decrease was partially offset by improvements in APAC, including double-digit improvements in China, which had a healthy return to growth over the key fourth quarter holidays. In all, 2023 was a challenging year for wholesale, particularly in the United States, but our key indicators give us optimism that our wholesale business will return to growth in the first half of 2024. Turning to our direct-to-consumer segment, where sales grew 20%, international was up 27% due to strong performance across both physical and digital stores and domestic increased 12%, driven by strong sales during the key holiday selling period. In the fourth quarter, we reached a new milestone with our 5,000th Skechers store, opening in Bogota, Colombia. At year-end 2023, we had 5,168 Skechers-branded stores worldwide. We opened 67 company-owned Skechers stores in the quarter and closed 12, bringing us to 1,648 locations. We continue to expand our global reach with the addition of 27 stores in China, nine stores in the United States, four locations in Colombia, three each in Italy, Mexico, Thailand, and the United Kingdom, two each in Chile, Malaysia, and Peru, and one in France, Spain, and Vietnam. Also in the period, 217 third-party stores opened, including 160 in China, and 11 each in Australia and Indonesia, bringing our third-party store count to 3,520. In the first quarter to date, we've opened four company-owned stores in the United States and China, two each in Colombia, Thailand, and South Korea, and one each in Chile, Costa Rica, India, Malaysia, and Panama. We expect to open 140 to 160 company-owned stores worldwide in 2024. Following last year's supply chain congestion, we remained focused on carefully managing our inventory levels, which resulted in a 16% year-over-year reduction. We also continued to invest in our logistics capabilities. We began shipping from our new 600,000-square-foot facility in Mumbai, as well as our newly opened distribution center in British Columbia, which we expect to become a primary source of shipments for Canada this year, reducing delivery times and costs. Further, we expect our new distribution center in Panama to be operational this quarter, which will meaningfully increase our South American capacity. As always, we are committed to delivering the ultimate in comfort technology, enhancing the Skechers' shopping experience, and operating in an increasingly efficient manner. And now I would like to turn the call over to John for more details on our financial results.