Skechers U.S.A., Inc.

Greetings and welcome to the Skechers fourth quarter and full year 2024 earnings conference call. At this time all participants are in a listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance please press star zero on your telephone keypad. As a reminder this conference is being recorded. It is not my pleasure to turn the call over to Skechers USA incorporated. Thank you, you may begin.

Good afternoon everyone. Thank you for joining Skechers fourth quarter and full year 2024 earnings conference call. My name is Jason DeEast and I lead the cybersecurity engineering team here at Skechers. I have been with the company since 2013 and my favorite style is the SKX float from our Skechers basketball line. Joining us on today's call are Skechers chief operating officer David Weinberg and chief financial officer John Vandermor. Before we begin I would like to remind everyone of the company's safe harbor statement. Certain statements made on today's call contain forward-looking statements based on current expectations including without limitation statements addressing the beliefs, plans, objectives, estimates and expectations of the company and its future results and certain events. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from such statements. 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. Please refer to the company's reports filed with the SEC including its annual report on form 10 K and quarterly reports on form 10 Q for more information on these risks and conditions, cash flows and results of operations. With that I would like to turn the call over to Skechers chief operating officer David Weinberg.

Good afternoon and thank you for joining us today on our fourth quarter and full year conference call. 2024 was another growth year for Skechers marked by strong financial performance and profitability, the launch of innovative products and the expansion into new categories worldwide. It also marked a significant milestone in our history, our 25th year as a publicly traded company. On a constant currency basis, Skechers delivered sales of over 9 billion, a 13% increase and diluted earnings per shares of $4.40, representing a 26% increase while recording strong growth margin of .2% and achieving a double-digit operating margin of 10.1%. We also continued to return value to our shareholders through a repurchase of approximately 5.2 million shares during the year while maintaining a healthy balance sheet. We ended the year on a strong note, achieving fourth quarter constant currency sales of 2.24 billion and earnings per share of 86 cents. Our performance in the quarter was broad based with reported sales growth of 17% in wholesale and 8% in direct to consumer, as well as 18% growth domestically and 10% growth internationally. For over three decades, we've upheld our core principles of delivering style, comfort, innovation and quality at an affordable price. We have maintained this commitment while evolving and adapting to meet the needs of our customers and drive global demand. This was again evident over the past year as we've broadened the category reach of Skechers Performance to deliver innovation and comfort for the court, pitch, field, green and trail. Building on the momentum of our Skechers Pickleball debut in 2022, we strategically expanded into soccer and basketball the following year. We focused initially on major markets for these global sports while partnering with world class athletes to gain recognition and establish legitimacy. In 2024, we expanded our soccer and basketball offering with elite academy and youth styles available worldwide. And we introduced Skechers Cricket Footwear and Apparel to India, which are now available globally. Our athletes provide valuable feedback on the development of best in comfort and best in performance technical footwear. In 2024, we expanded our roster of elite athletes to include Premier Leagues, Mohamed Kudus and Anthony Alanga, La Liga's Ikar Lasada, Indian Superleagues, Sunil Chettri and Turkey's national star Baris Alper Gilmaz, as well as NBA player Joel Embiid and WNBA player Rikaia Jackson. These athletes join our national golfers, Matt Fitzpatrick and Brooke Henderson, pickleball pros, Tyson McGuffin and Catherine Parentel, and major league baseball players, Clayton Kershaw and Avinola, among others. Additionally, we announced the signing of Ishan Kishan and Yastika Bhatia, two cricket athletes from the Mumbai Indians, with more cricket and soccer players joining this year. Leveraging our innovative designs, technical expertise and commitment to comfort that performs, we see tremendous opportunities to expand beyond our existing performance footwear offering, extend our reach into new accounts in countries and meet the evolving needs of our global consumer base. Further, we are focused on building successful signature technologies, including Skechers hand-free slip-ins and Skechers ArchFit, as well as pursuing unique partnerships to unlock new market opportunities and enhance our product portfolio. These include the low-branded footwear offering with John Deere, collections with Martha Stewart and Snoop Dogg, and a collaboration with the Rolling Stones. We continue to support our diverse product offering with broad-based campaigns to engage new and existing customers. These are featured across traditional mediums such as linear and digital television, newspapers, magazines and social media, as well as unconventional presence on stadium perimeter voids, buses and trains, airport security areas and much more. Our lifestyle marketing efforts featured our diverse talented roster that includes Howie Mandel, Howie Long, Martha Stewart and Brooke Burke, as well as regional ambassadors like former European footballers Jamie Redknapp, Fabio Cannavaro and Frank LeBuff, influencer Lele Pons in Mexico, K-pop singer and actor Cha Eun Woo in Southeast Asia, and singer David Bisbal, among others. We also partnered with regional influencers and key opinion leaders to drive awareness across social media platforms. Building on our history of airing memorable Super Bowl campaigns, this year we're planning an impactful moment with a commercial celebrating Kansas City Chiefs coach Andy Reid and his need for hands-free comfort. Believing consumers should be able to purchase our footwear in their destination of choice, we are enhancing the Skeptics shopping experience in an impactful manner as we further grow our direct to consumer business with our first interactive performance store in Canada and in our wholesale business with shop-in shops and brand takeovers. We are focused on enhancing our distribution network for greater efficiency and reach, enabling us to deliver more innovation, drive purchase intent and ensure that our products are available globally. Looking at our fourth quarter results in more detail. Our record fourth quarter sales of 2.21 billion reflected breadth across geographies and channels. Domestic sales rose 18% and international improved 10%. We saw regional growth in the Americas of 14% with continued strength in the United States and Canada. In EMEA with growth of 25% driven by strength across nearly all markets and in APAC which increased .3% led by double digit growth in India, Japan, South Korea and Thailand. This was partially offset by a decline in China. However, our diverse product portfolio and established network of retail stores and online shopping destinations gives us confidence that we will return to growth as the market recovers. Wholesale increased 17% due to increases of 31% domestically and 10% internationally. Our domestic wholesale growth reflects the continued demand for our comfort technology products resulting in strong double-digit increases across our many footwear product lines for men, women and kids. Within international wholesale we saw continued demand for innovative products which resulted in growth across nearly all markets. Turning to our -to-consumer segment, sales increased .4% with international improving .3% and domestic 6.8%. For the important holiday selling period we saw an increase in in-store shopping with growth in nearly every market including China. For our e-commerce the Americas and EMEA both improved double digits while APAC was negatively impacted by the challenges in China. With the breadth of our product and global reach, Sketch's branded stores both concept locations and quality malls and outlets and big-box stores in high traffic areas continue to drive awareness and purchase intent. We ended the quarter with 5,296 Sketch's stores worldwide of which 1,787 are company-owned locations including 610 in the United States. We opened 77 company-owned stores in the quarter including 20 big-box locations in the United States, 15 stores in China and 5 each in Canada, Colombia and Mexico. We also opened our first company-owned stores in the Philippines, 3 in total, and our first company-owned store in Prague. We closed 33 stores in the quarter. Also in the period 121 third-party stores opened including 36 in China, 10 in Indonesia, 7 in Australia, and 6 each in India, Malaysia, and South Africa. Also of note, 197 third-party stores closed in China. This brings our third-party store count at quarter end to 3,509. In the first quarter to date we've opened 14 company-owned stores, 6 of which are in China and 3 in the United States. We also relocated 4 stores including our West Edmonton Mall location which is now our largest concept store and includes indoor courts for both basketball and pickleball. We expect to open an additional 180 to 200 company-owned stores worldwide in 2025. From an investment perspective, our priorities include expanding our distribution centers in the United States, Europe, and China to more efficiently deliver our product and manage the expected growth in these markets, continuing to strengthen our product offering while amplifying demand creation, and building our business. Now I would like to turn the call over to John for more details on our financial results.

Thank you, David, and good afternoon, everyone. Sketchers delivered another year of outstanding results in 2024 as we continued executing against our long-term growth algorithm which is rooted in our innovative comfort technology products and a compelling value proposition. For the full year, Sketchers achieved constant currency sales of 9.04 billion, an increase of 13%, and earnings per share of $4.40, an increase of 26%. Gross margins were .2% and we obtained a double-digit operating margin of 10.1%. During the fourth quarter, particularly after the U.S. elections, the strengthening of the U.S. dollar resulted in unfavorable foreign currency exchange headwinds, with significantly impacted reported results, where sales grew to 8.97 billion, up 12%, and earnings per share rose 19% to $4.16. Our 2024 accomplishments are noteworthy, from the rebound in domestic wholesale sales to incredible strength abroad, particularly in the EMEA region. In addition, we saw steady growth in our domestic direct consumer channel following last year's impressive growth of 19%. All of this is remarkable considering the challenges we experienced throughout the year, including the difficult macroeconomic environment in China, supply chain disruptions resulting from the Red Sea crisis, and new regulatory standards abroad. Our performance is a testament to the effectiveness of our global diversification, as well as the investments we have made to increase awareness and accessibility for our comfort technology products. Turning to the quarter, Skechers delivered, as reported, fourth quarter sales of 2.21 billion, an increase of 13%, driven by growth across segments and geographies. Direct to consumer sales grew .4% -over-year to 1.08 billion. International sales grew 9.3%, with strength throughout the quarter in most markets and across both retail and e-commerce channels. Domestic sales increased .8% following 12% growth last year, with improvements across channels. The key holiday shopping period was characterized by robust online sales and improved sequential sales in our stores. These results illustrate the resiliency of the domestic consumer who continues to choose the Skechers brand and our compelling array of comfortable and affordable footwear. Wholesale sales increased 17% -over-year to 1.13 billion. Domestic sales grew 31%, the result of a healthier wholesale marketplace combined with strong consumer demand for Skechers products. International sales increased 10%, reflecting double-digit growth in most markets, partially offset by the results in China. Now turning to our regional sales, in the America sales for the fourth quarter increased 14% -over-year to 1.09 billion, driven by strength in our domestic wholesale channel and steady growth in our direct to consumer business across nearly every market. In EMEA sales increased 25% -over-year to 478.6 million, driven by double-digit growth in both the wholesale and direct to consumer businesses. In Asia Pacific sales increased .3% versus the China sales. After excluding China, Asia Pacific sales grew 26%, led by India delivering another strong quarter of robust gains as well as strength across channels in nearly every other market. China continues to navigate a challenging macroeconomic environment and our fourth quarter sales declined 11%. Gross margin was 53.3%, up 20 basis points compared to the prior year, primarily due to a favorable channel mix. Operating expenses decreased 70 basis points as a percentage of sales -over-year to 45.8%. Telling expenses as a percentage of sales decreased 40 basis points versus last year to .9% as we lapped higher spending in the prior year on brand building to increase awareness and to educate consumers about our comfort technologies and new categories. General and administrative expenses decreased 30 basis points as a percentage of sales to 36.9%, with the leverage primarily driven by improvements in distribution and outside services expenses. Earnings from operations were 165.5 million, an increase of 27% compared to the prior year. Operating margin for the quarter was .5% compared to .6% last year, and for the full year, Skechers achieved a double-digit operating margin of 10.1%. As mentioned earlier, unfavorable foreign currency exchange rates during the quarter, the impact of which is reflected in the other expense line item of our P&L, totaled 34.7 million, and represented an increase of 45.1 million compared to the prior year. Our effective tax rate for the fourth quarter was .8% compared to .3% in the prior year, reflecting a favorable mix of earnings in lower tax jurisdictions and impacts from foreign currency losses. For the full year, our effective tax rate was .9% compared to .8% in the prior year. As we prepare for 2025, an important consideration will be the implementation of global minimum tax regulations, which we will address further in our guidance. Earnings per share were 65 cents per diluted share, a 16% increase compared to the prior year on 152.2 million weighted average diluted shares outstanding. However, on a constant currency basis, earnings per share were 86 cents, representing a 54% increase year over year. And now turning to our balance sheet. Inventory was 1.92 billion, an increase of 26% or 394 million compared to the prior year. In-transit inventory remains elevated, particularly in EMEA due to increased shipping times from the closure of the Suez Canal, and we continue to actively manage inventory levels in China, which improved sequentially. Accounts receivable a quarter end were 990.6 million, an increase of 130.3 million compared to the prior year, reflecting higher wholesale sales. We ended the quarter with 1.38 billion in cash, cash equivalents and investments, and maintained liquidity of 2.13 billion when including a revolving credit facility. Capital expenditures for the quarter were 133.4 million, of which 54.5 million related to investments in our distribution infrastructure, 51.3 million related to new store openings and enhancing our -to-consumer technologies, and 15.6 million related to expansion of our corporate offices. During the quarter, we repurchased approximately 1.9 million shares of our Class A common stock at a cost of $120 million. And for the year, we repurchased approximately 5.2 million shares at a cost of approximately $330 million. We continue to deploy our capital consistent with our stated philosophy, while maintaining a durable balance of our capital, and we continue to build our capital with our own energy and ample liquidity. Now turning to guidance. As we begin 2025, we face several headwinds and uncertainties, including unfavorable foreign currency exchange rates, the emergence of global minimum tax regulations, and the depth and length of the continuing macroeconomic weakness in China. In addition, the recently announced incremental U.S. tariffs on goods from China has impacted our visibility. And while we have not yet fully factored their potential impact and our response into the following guidance, it will likely comprise a combination of actions, including the reallocation of certain production, vendor concessions, and pricing. For the full year 2025, we expect sales in the range of 9.7 million to 9.8 million. Based on prevailing foreign currency exchange rates, this reflects a headwind of approximately 200 basis points, or roughly $200 million to our organic sales growth rate. Earnings per diluted share are expected to be in the range of $4.30 to $4.50, reflecting both foreign currency exchange rate impacts, as well as the upcoming application of global minimum tax regulations, which is anticipated to elevate our effective tax rate for the year to be between 22 and 23 percent, although the precise impact remains to be assessed. Minority interest is expected to decline mid-teens, and capital expenditures are anticipated to be between $600 million and $700 million for the year, as we continue to invest in our strategic priorities. This includes ongoing distribution center expansions to support continued growth, including the expansion of our North America distribution center, which is expected to be operational at the end of 2026, and the further expansion of our North America distribution center with an adjacent 1 million square feet, which is expected to be operational in early 2026. For the first quarter, we expect sales in the range of 2.4 billion to 2.425 billion, and net earnings per share in the year ahead is expected to be between $1.15, reflecting a roughly proradish share of the aforementioned impacts from foreign currency and taxes, as well as some elevated demand creation spending. While the year ahead presents many unknowns, we remain confident in our long-term strategies and committed to reinvesting in our business for sustainable and profitable growth, while consistently delivering consumers the style, comfort, and quality they desire at a reasonable price. We thank you all for your time today and look forward to updating you on our first quarter financial results, which we expect to release on Thursday, April 24, 2025. With that, I will now turn the call over to David for closing remarks.

Thank you, John. The robust global demand for a diverse product led to a new annual sales record of 9 billion on a constant currency rate. The strength in our business is attributable to our differentiated market position that combines comfort, innovation, style, and quality at an attainable price. We continue to advance our product innovation with comfort technologies across our collections, from extensions in Skechers hands-free slip-ins to our existing performance footwear offering, as well as expanding the portfolio, including our latest edition of Skechers Cricket in India. While we remain focused on our core business, we believe our performance division with basketball, soccer, golf, running, and pickleball footwear will become an increasingly important part of our growth story globally. To meet the evolving needs of consumers worldwide, both now and in the future, we are investing in our operations. This includes improved operational capabilities with the expansion of our distribution centers in the U.S., China, and Europe, delivering an exceptional customer experience through our -to- customer experience, increasing our sales, and increasing our points of sale through our valuable retail partnerships. We believe our strategic product, marketing, and operational plans executed by our dedicated team will result in notable achievements and continued profitable growth in the years to come. As always, we are grateful for the contribution of the entire Skechers organization. Now, I would like to turn the call over to the operator for questions.

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while you poll for questions. Our first question comes from Jay Sol with UBS. Please proceed with your question.

Great. Thank you so much. David John, thanks so much for giving the guidance on 25 and first quarter. Just looking for a little detail, if you're thinking about gross margin for fiscal 25, what kind of outlook should we think about when it comes to modeling gross margin? Thank you.

Yeah, first of all, I realize there's a lot going on in the guidance, which is why we try to elaborate a bit. The tax rate is definitely something I would encourage everyone to take a look at. The emphasis on global minimum tax regulations is pretty significant in the year. So that's certainly something to be cognizant of. I think if we look at the gross margin, I mean, one of the things we're most proud of over the last three years is the accretion we've delivered through gross margin, starting at a product level and then carrying through the rest of our business channels, both in wholesale and in direct consumer. I would say we're not anticipating a material change in the gross margin overall. Right now, as we look, the business looks fairly balanced in growth, so we might not see as much of that incremental accretion from the emphasis on international and DTC that we've talked about historically, but that's a good thing because we're seeing strong growth across the channels before us. Now, I will say in the quarters, we may see some fluctuations. Certainly, we need to understand more fully how the recently enacted tariffs are going to unfurl throughout the year, but we do believe we have the ability and have shown in the past to compensate for that and defend these margins. So more than anything else, I would say looking for stability overall. There may be some small variability on a quarter to quarter basis, but overall, we think the year should offer us a continued opportunity to appreciate the gross margin improvement we've made over the last three years.

All right, that sounds great. So there was a lot of information in that answer. You're saying basically the mixed impact that you've been seeing to DTC and also international. This year, maybe you're going to see balanced growth across channels and also across geographies, so that's one reason we have been seeing that. Yeah,

that's absolutely

right. All right, super. Thank you so much.

Thank you. Our next question comes from Lauren with BNP Paribas. Please proceed with your question.

Good afternoon, David and John. Thank you very much for taking my question. I wanted to follow up on Jay's question about margins. I might be modeling this down, but it looks like, I know you don't guide the EBIT margins, John, but it looks like it implies operating margins for the year to be down about 150 basis points. So I'm trying to square this away with the answer to Jay. If gross margins are going to be somewhat slottish, is there something in the -N-A that is a source of pressure to the operating margin?

I think that sounds a bit much to us. Our objective is obviously to sustain this recently achieved double-digit operating margin. There's going to be some push and pull on factors in the business that we don't quite control, particularly around foreign exchange. We're also obviously monitoring China in a material way, and we do know that we want to be aggressive in managing that inventory as we were this quarter, and it was down sequentially, reflecting that. So what you mentioned sounds a bit rough. I would probably suggest that our objective is to guide to flat. If we get there, I think that will be an indication that we saw some cooperation in situations like FX in China. If we're going to be off from that, I don't expect at this point in time that it would be a materially different rate than what we delivered this year. And again, our goal is to maintain that and move that forward, but there are some factors that are beyond our control we need to consider.

Okay, very helpful, John. And then the U.S. wholesale, another great quarter. I know you've given a long-term target to grow that channel mid-singles. Is that the right assumption for this fiscal year? Do you kind of lap those growth rates from 2024 so it could be lower than that? And then just a housekeeping question on FX. I was a little bit surprised that FX was a 21-cent hit to the fourth quarter. Just to understand what's the implications, what is your FY25 and first quarter guide embed in terms of FX on EPS with current spot? Thank you so much.

I'm pretty sure that was more than one question, Loran. I would say, first and foremost, you mentioned the tremendous rebound we saw on the domestic wholesale side this year. And I think that's worth mentioning again because the wholesale team here did a great job backed by fantastic product and excellent marketing. And to deliver on the back of a very challenging year, a rebound like we've seen is pretty phenomenal. And certainly our thanks go out to the entire team for delivering that. I think as you look to this year, I do believe we're going to start gravitating back down toward that longer-term horizon of kind of a -single-digit growth number for wholesale. So I'd say that's a good number to consider. But obviously we're also pushing to do better than that. There's certainly opportunities out there. So I wouldn't be shocked if it's a little bit above that this year. What it's not going to be like is this last year where we had such fantastic nearly 20% growth. That's pretty amazing. And that would be hard to duplicate in the current environment of any wholesale market at this point. As you look to the next year, it's difficult to project out an FX impact with perfect accuracy because I would presume we know exactly where all the currencies are going to be and quite frankly where all the revenue is going to come from. I would tell you it's a sizable impact. It's probably going to be on the order of between 15 and 20 cents right now as we look forward. And again, that's from the fairly pronounced move we saw after the U.S. elections, the strengthening of the U.S. dollar abroad. It hit us very much so in the fourth quarter beyond our expectation as well. And that simply comes from the transactional impact of having a lot of balance sheet items that are denominated in foreign currencies and how those get remeasured. And I'll note this is a pretty extraordinary environment. I don't think there was a currency that didn't weaken relative to the U.S. dollar. In some instances at high single digit levels over a very short period of time. That's why we were hit. Now we'll benefit from that when things turn around but in the short term it impacted us. Which is also why I think you need to look to the headline EPS we mentioned. Certainly the as reported results were below what we had previously guided but if you adjust for the extraordinary impacts of FX you can see we were well above that both on the sales side and on the earnings per share side. So I think recognizing that that was a fairly material sizable and on short notice impact for us to deal with is important.

You should also note that the balance sheet items don't replicate even if the currency doesn't get any better. So we're really talking about the impact to volumes and some of the profitability. The balance sheet items go away so it takes a little bit of the issue away and gives you some upside as they come back.

Okay

very helpful. Thank you very much Paul Bricola and best

of luck.

Thank you. Our next question comes from Alex Stratton with Morgan Stanley. Please proceed.

Perfect thanks so much. I just wanted to focus quickly on the international part of the business. It looks like revenue decelerated a bit quarter over quarter. Just trying to understand if something changed there as well as what you're assuming for 2025. Secondly on this tax change is that something that we should assume going forward or does something change next year? Thanks so much.

On the international side of things particularly in this quarter quite frankly China was the drag. We mentioned it was down about 11%. Really absent China and maybe one or two other markets what we saw and I think David gave comments on our prepared remarks was very broad strength across the world across geographies, across channels within the geography. The international market felt very robust for us. I would even say that we left a little bit on the table due to some delivery time frames that weren't achieved. We feel really good about where international was this quarter and where it's going. China continues to be the challenge and its size and scale gives it a disproportionate impact particularly in the Asia Pacific region. As we look forward to the year I think that's going to be the swing factor. We still expect a mid to high single digits maybe teens level. Some of that is going to be FX impacted though so when you think about the FX impact overall we mentioned it was probably around a $200 million headwind going into the year. Obviously that only applies to the international market so it's a heavy impact as it stands right now. We'll update that view as we go along throughout the year because the extent rates change back or move materially from here that would be a tailwind if the dollar gets a little bit weaker. On the global minimum tax that's a new tax regime that's going in across the globe. I think we're probably earlier on the curve to talk about that with you all because we have been very tax efficient historically. It very much matters which jurisdictions you've leveraged and how they apply the OECD's global minimum tax. This is going to be a global event. You've heard some chatter about it in the recent administration, some dissatisfaction about it, but as it stands the way regulations are established there's going to be almost no haven below that 15%. That's just going to naturally push up our rate. We're going to take some measures to mitigate that in the near term but it definitely will likely become a forthcoming base rate. I think you're going to see that from a lot of other companies as well. The one caveat would be it is subject to regulatory and administration pushes and pulls. We'll see if there's any change on that. The prior administration was a big supporter of global minimum tax regimes and now they're coming into effect.

Thanks so much. Good luck. Thank you. Our next question

comes from Adrian Yee

with

Barclays. Please proceed.

Thank you very much. John, you had mentioned the demand creation. You're going to have a little bit of a higher demand creation. I thought last year you had actually anniversary quite a big surprise. Just if you can direct us where that's going. Where and when would you see, if you can, any signs of China stabilization? What are you doing there to mitigate the inventory supply demand phenomenon there? My final one is just remind us what are the mitigation strategies on the tariff? I know you do quite a bit of sales in that Asia region. Probably half of what you make there can probably be redirected into the APAC region, not to the US. Just remind us please. Thank you.

I'm pretty sure I'm going to have to have you repeat one of those questions. Let me talk about tariffs first because I assumed this was coming. We've talked for a long time about the strategies we employed last time we talked about tariffs, which ironically enough was about four years ago. We're going to apply the same tactics. That involves in some situations redirecting origin and manufacturing relationships to avoid to optimize for tariff structures. We're certainly going to go have conversations with our vendors. In some respects foreign exchange and the strengthening dollar helps with that. Then we'll look at price. I think all of those have to be available to us if these rates stay in effect or if the worst case happens and things go forward more severely. We're prepared to deal with those. We will deal with those. We have a little bit of time because the inventory we have on hand today is cleared and it won't be subject to those higher rates. As we've seen it seems like these policies can change relatively quickly, but if they endure that's the approach we're going to apply. On the marketing, I would say it's a little bit of a timing within the year and a desire to be a bit more focused early on. What we saw last year ultimately quite frankly was very good success on the incremental marketing spend. I would say on the year you probably won't see a material difference overall, but we're a little heavier weighted in the first quarter. We do have a spot coming up this weekend, which unfortunately isn't free. Other aspects of our strategy are certainly reinforcing the messaging around our new categories and our comfort technology products. I think your last question was about China. I think the team is working very diligently there to address what they can in the market, but stepping back we should all recognize this is a macro economic event. This is not particular to one brand or one category of brands or one category of shoes or styles. Some of this is going to be beholden to the overall improvement over the course of time in that market. We've already started the process of looking at how we make sure that our inventory stays fresh. That necessarily requires us to move inventory a little bit quicker than we might. We've got plans for that. We did a little bit of that in the fourth quarter. We'll do more in the first quarter with an eye towards getting back in a position where we can make the free flow of new and exciting goods into the market easily. We also have some of the strategies we talked about from a marketing perspective will be in the China market as well to attempt to spur demands for awareness around some of our comfort technologies that probably still have a lot of room there to go from an awareness perspective. We think ultimately it will be a very good fit with that market, but just given the last year it's been a little bit tough to be able to put that messaging forward in the right way.

I'd also just like to add on a tariff situation. We've been dealing with tariff situations in other parts of the world as we are one of the larger businesses outside the United States and our international business. There has been changes both in India, places like Mexico, South America, Europe where we've had a change in midstream and we've always come out better than we went in. I would tell you that while you never know what the situation is going to end, it is one of our core competencies and we have moved production and we have taken price where necessary. We continue to develop product on a regular basis that have more features that can carry that increase in product. We think this is not one of the worst ones we've seen. We'll come through it quite well. As far as demand creation is concerned, we've decided to step it up in the first and second quarter just because of the uneasiness in the world to keep our product in the forefront, especially in China while it would be an easy place to cut because volumes are coming down. We think it's important to go and reinforce our position there as we develop new product for China specifically and new advertising and look to move it on and continue to support around the world where we're growing. You have to consider that we grew 12% without China growing a lick in the past year. If we would have told anybody that a year ago, and I know we've taken a hit throughout the year by being overly Chinese oriented, but our growth projection for this year doesn't include any significant growth in China. It just shows you the strength of the brand and how it's moving there. I think all of that puts us in a very good, comfortable place as we go into this year even though there is a lot of uncertainty.

Thank you very much. That's the block.

Thank you. Thank you. Our next question comes from John Kernan with TD Count. Please proceed with your question.

Good afternoon, guys. Thanks for taking my question. Just curious on the CapEx spend at $700 million on the high end. Can you frame where that's going to us? Talk about what the normalized run rate is. I think this is closer to 7% of sales. I think a lot of your peers are closer to 2%. Just curious where this is going and how long this is going to remain at this level.

I thought someone might ask. I would really think about it in two big buckets, if you will. One is more normal run rate investments that we make. It's stores, it's technology. Obviously, we continue to build out our corporate campus here. We always have some element of distribution center investment ongoing. Every now and again, we have to bite off some of the bigger investments because they're investments you have to make for 10, 20 years, not one year. Really, there are two of those underway at the moment. One is a continuation of the China distribution center expansion that we talked about. The other, we mentioned in New York in the early part of the winter, we need to build additional storage capacity in the US. We have a prime opportunity to do that adjacent to our existing facility, which ultimately will drive a much more efficient relationship between bulk storage and processing. Unfortunately, we don't get to choose the timing of that. The timing of that is now. It's now in part because of our needs, but it's also the ability to take advantage of that location is unique. That's the big swing factor in the number. If you strip that out, because it's probably a once in a 10-year investment, at least you'd see the run rate is much more normalized. The reason for the width and the range, though, is a little bit of timing considerations for that project and the project in China. Those are going to be big determinants of how far we get against the plan this year. We gave a bit of a wider range to illustrate, in particular, those projects carry a lot of weight from a timing perspective. If you set those aside, I think you'd see a much more normalized level because the material portion of the above trend spend is associated with China and the US.

I'd like to also

clarify

some of the US spend. We have now two buildings we operate offsite that are quite expensive and cause us to move a lot of product around because of the growth we experienced after the pandemic and needed it and couldn't get the space close enough. You can imagine the inefficiencies in this time. The reason that it's so expensive in the US portion is this will become part of our joint venture. We own half of it. We pick up the whole cost and obviously we have a joint venture partner, but we will own it. It will be part of that facility. We will get rid of two outside buildings so we will have our own. This building will be phenomenal and will not require us to truck anything around to process. We'll sort of conclude our move into direct to consumer and e-com in such a big way as to be able to process and hold it all in one facility. The fact that we own it makes it a little more expensive but will make it that much more efficient as we go forward. I will point out in Europe we ended up a little bit behind the curve simply because we grew so significantly there. John said 25% in the last reporting time and we've converted there also to a significant piece of direct to consumer and e-com so we're processing significantly more. We've had a lot of pressure put on that facility simply because we're closing the Suez Canal and everything taking three more weeks and us having to process more efficiently and get product in earlier. So we're trying to catch up there which means we have to build a new facility that we're building and then enhance our existing facility with things that we'll be able to move automation wise to the new facility to process all this additional direct to consumer e-com and the wholesale business that I personally think will continue on this exaggerated growth piece for quite some time because we're doing quite well there. So it's a confluence of those two things that's a big investment that will come back to us I believe rather quickly and more efficiently in the next year or two.

All right, that's helpful. One follow up for you maybe not related to the near term. We're essentially at the $10 billion in total revenue. The 10% EBIT margin you generated in 24. Where do you see the long term opportunities on the margin profile of the business? Is it in gross margin? Is it in selling and G&A leverage? How should we think about the $10 billion in top line and now the incremental margin opportunity long term?

Well, I'll let John take most of that but I will tell you a lot will depend on how fast we grow. If you settle down with all the investments we've made it would likely grow at a significantly faster rate. We don't think the growth curve is done yet so we may have to invest and go especially on a worldwide basis. But that's just my opinion.

Yeah, I would also say that we're not going to count our $10 billion before they hatch. So we're going to refrain from declaring success until we get there but certainly it's in sight. Ultimately, I would echo David's comment. I think it can come from a lot of different elements on the P&L. But the key question is how much growth is ahead of the business? We say this every year. We're constantly investing to grow the business. We're opening new stores. Each store as it opens represents a significant point of near term deleverage before it gets up to the point where it leverages and contributes to the business as a whole. That's just one illustration of the investments we make. When our growth trajectory subsides, we'll be able to harvest a lot of that investment because there certainly won't be the need for as much. But that being said, we're still looking to push the operating margin where we can against the backdrop of the business we're operating. We'll look to sustain for 2025 what we achieved in 2024 and look for opportunities to grow up from there while concurrently investing to grow the business. Because as you probably have guessed, we're not planning to stop at $10 billion. We think this business has the opportunity to continue to grow certainly above trend in the market. And with our product, with our technologies, we think that's absolutely worth investing in.

Got it. Five Eagles, five this weekend. I think next year you're going to need a Nick Sirianni collaboration, but we'll see.

Well, we'll let you tell that to Coach Reed.

Thank you.

And our next question comes from Rick Lattell with Raymond James. Please proceed with your question.

Thank you. Good afternoon. Can you talk about the shape of growth this year? Guidance seems to apply a modest acceleration as we move beyond Q1. I'm curious what you attribute that to and if there's anything we should be keeping in mind from a modeling perspective in terms of lumpiness that may be caused by the wholesale channel.

I think probably the biggest single factor there is going to be China. If you look at China last year, first quarter was the last quarter of meaningful growth. And obviously the business since that point in time had deteriorated. And so we're simply lapping that last quarter in China against a bit of a difficult comparison. We're also, as David mentioned, timing can always shift on some of the early spring shipment. So we're watching that carefully. But I think China is probably the number

one factor in there.

Okay. And then can you also

talk about your foray into basketball cleats and running? Do you see 2025 as the year where you hit the accelerator in terms of going after these opportunities? And if so, how do we think about the -to-market strategy by channel?

Well, we're trying to be receptive from the marketplace. What we're doing now is sort of seeding around the world. We're getting our players in. We're introducing the product. We'll go as fast as necessary and the market will allow us to. We very rarely try to push against the marketplace. As we get more acceptance and our athletes get more known and we continue to move out, as we get more critical mass, we will move through all different kinds of expansion around the world. So it depends how fast it's received, how well it does. Right now it seems to be doing very well. It's doing very well outside the United States as far as our football, soccer is doing. And we're getting a lot more requests about basketball and talking to basketball players on a professional level. So we're just at the top of the world in 2025, although we do think it might have some upside as we go through the year.

I would also add, Rick, that I think you'll see some other sports come into play. Looking at some of the sports we've operated in traditionally that we've reimagined in a way that I think will match more tightly with the recent performance sports we've launched. So I guess this is to say we're not done yet. We'll also continue to invest in awareness. One of the things we started, obviously, in 24 was to build awareness around the newer categories. We'll continue to do that in a measured way so that we can, as David mentioned, take advantage of what the market starts to yield us.

I look forward to seeing the innovation. Thanks, guys. Thank you. And

our next question comes from Jesslyn Wong with Evercore. Please proceed with your question.

Thanks, guys, for taking my questions here. Just following up on Emia's group, you had a really good quarter. Were there specific categories that did well? And also following on Rick's question, Lynn, the performance category, how big is it as a percentage of sales right now? I think over the medium term, as you grow this category, how big of a contribution do you expect this to be?

Thanks. Yeah, on the latter, we don't give what we'll call category or division level details. I would say today performance is not an overweight percentage of our business. It does somewhat depend upon what you call performance in the market relative to what others measured as. What I would say is most exciting about the opportunity as we build it out is not only are we tapping into new categories with tremendous addressable market characteristics, we're re-energizing existing categories that we're in that also have sizable, addressable markets. And then the ancillary benefit of that is they also provide a halo effect to the rest of the brand. They build awareness. They tap into new consumers who can then become more aware of what we offer broadly. So I would say that's one of the most attractive long-term opportunities we have. Emia performed fantastic on the back of quite frankly performing fantastic through most of the year. It really was across the board. I think their embrace of the Skechers hands-free slip-in technology as well as other product and comfort focused technologies has been enormous. We've seen it in wholesale. We've seen it in retail. That market just has continued to perform exceptionally well. And the brand and the comfort technologies continue to resonate at the consumer level.

Thank you. Maybe just one follow-up on China. I would imagine it's embedded to progressively improve throughout the year. Is there any point, or are we expecting second half to have positive growth in China? Like how are we thinking on China for this year and to look at it?

It's somewhat linked to Rick's question. If you go back to last year, Q1 was more robust than any of the other quarters. And so we face a more difficult comparison in the first quarter than we do the balance of the year. As a result, what we believe for the year is that we'll see improvement after the first quarter. Not to the point where we expect there to be a tremendous turn around in the year, but the year should get better as time goes on. And that just means the first quarter impact is the most acute.

Thank you. And

our next question comes from Christina Qatar with Deutsche Bank. Please proceed with your question.

Hi, good afternoon. Thank you for taking the question. I just wanted to ask on inventory and then the inventory composition overall. You said you made some progress in China quarter over quarter, but just how do you see the overall inventory levels, which are up 26% ending the year relative to your 13% sales growth? And then can you elaborate on your comments on how you see the overall inventory?

Yeah, I mean the inventory is incredibly healthy. I mean the biggest contributor to increased inventory year on year is merchandise and transit. Obviously the biggest culprit there is Europe where we're seeing elongated transit times. If you compare that to where we were last year, we're still dealing with elevated transit times and that requires more inventory. So that gives you a flavor of the nature of the inventory is not older inventory sitting around. It's stuff that's on the water that's bound for markets. And we feel really good about that. The comment relative to China was at the end of last quarter we said we were going to observe what happened on Singles Day, use that as an indicator of how quickly we need to act to move the inventory. Singles Day was at the end of the day probably a bit more disappointing than we had anticipated. As a result, we took some actions to move units. We'll do that again in the first and second quarter. But the objective there is to make room for the new product, to make room for our comfort technologies, to get those to the consumer. Ultimately we think that's the best and most important thing for us to do for the business and for the consumer. So we'll take action to expedite some of the inventory out of the channel to make room for new. And that's again to David's comment earlier about that it's something we do all the time. We're managing inventory actively all the time. We were pleased with the progress we made in the fourth quarter but there's more and we'll get after it.

And it should be noted that this was a very specific decision on our part to try to get as much into Europe as early as we could for our first quarter. First quarter is the largest quarter for us in EMEA and because of the closing of the Suez Canal it's an additional four weeks in transit. So rather than trying to play it close to the vest we try to move up everything to get all seven weeks of what used to be three weeks in transit in at the early part of the quarter. So it was either received or on its way in or will be received in the early part of the quarter which is the big build up. So it is all new maybe in times past we would have received it a little later in the year closer to the end of the year and some after the new year and some would have gone on the water after Chinese New Year which also was a little earlier this year. So everything had to be done. So all that together just means some inventory that we think is going to power our growth and is not excess at all for EMEA.

Great. Thank you for all that color. Best of luck. And our next question comes

from Chris with

the

Bank of America. Please proceed with your question. Thanks guys. John,

can you just elaborate a little bit more on the drivers of the 31% US wholesale growth during the quarter and are you concerned at all about footwear inventory levels within the US wholesale channel? How are you expecting to navigate the potential pricing environment if the tariff situation worsens from here?

Domestic wholesale continues to perform on the back of quite frankly everything that had driven it up to this point in time in the year Chris. Got a handful of accounts that are doing extraordinarily well. We certainly got some lift from accounts in the prior year, I guess two years prior now, who hadn't really embraced our comfort technology. So what we saw is the same source of growth on the domestic wholesale side. And have you actually even recently seen some extraordinary wholesale events from a marketing perspective that we think are very conducive to continuing to drive that channel for the brand? Some brand takeovers in a couple partners and that's performed really, really well. In terms of overall inventory in the wholesale channel, no concerns there. We're watching it carefully. We're continuing to see really strong sell-throughs, particularly with those accounts that are again embracing the comfort technologies. Like I said, done a couple brand takeovers recently that performed really well. Saw a great sell-through there. So nothing that gives us pause on the domestic inventory landscape. That continues to do really well.

Yeah, I think from a shipping perspective, we see no slowdown in people, customers wanting to come on the wholesale level to pick up some way until later in January as their fiscal years close. But through the end of January into early February, we haven't had any indication from a shipping perspective that anybody's clogged

or looking to slow down any.

And

our

next question comes from Tom Nickic with NeedHim. Please proceed.

Hey guys, thanks for taking my question. John, I believe you said the minority interest line would be down in teens this year. Is that predominantly due to the expectation that says we're down in China? Is there anything else that's driving that?

Well, we're not going to guide

by line item by country, but I will say that is the most significant factor influencing the trend in minority interest. It's not a pure number or pure reflection of what's happening in China because there are other markets with minority interest impacting the business. But that's the main driver to the downside, yes.

And then the inventory growth, optically it's high and I know some of that's due to in transit, excluding the increase in transit inventory. I mean, is it safe to say you kind of feel that your inventories are in appropriate shape relative to the growth that you're expecting for 2025?

Yeah, absolutely. On hand levels were, I think they were up 12%. So a vast majority of the growth came out of, as we said, the in transits. And I was just looking, China, as we said, improved. It improved on hands pretty nicely. So yeah, I mean, again, we make mention of the in transit inventory, not because we enjoy talking about in transit inventory, but it has been for a couple of quarters now the most significant factor influencing inventory increases. And again, the Suez Canal crisis is a heavy, heavy contributor there because a lot of the in transit, probably, I'd say 60 to 70% of the in transit increase we saw year on year was precisely in Europe. So it's a reflection of the dynamics of the shipping market at the moment and I guess in a way geopolitical events. But again, to David's point, it's good inventory, it's healthy inventory, it's order backed inventory. So we'll absorb that and get it into our system and process it out as quickly as we can.

Thank you very much and best of luck this year. Thanks Tom.

And our next question comes from Anna and Dripa with Piper Sandler. Please proceed.

Great. Thanks so much. Good afternoon and thanks for taking our question. We had a question on comfort technologies. You've seen some nice traction there for some time. How do you view the pipeline of innovation either for one queue or as we go through the year? And are there any additional categories that technologies could be applied to? And just as a follow up, ASP has been under slight pressure, I think for both channels, despite you guys rolling out the new technologies in 2024. So should we expect the price to reverse in 2025 or what's been driving some of that decline? Thanks so much.

Sure. Let me touch on the price dynamics. I would separate the US and international price dynamics, which I know you guys can't see as well, but obviously FX plays a role on the international side. In the US, what we're seeing is as we spread the comfort technologies across more categories, that includes a broader range. And in that, what you're seeing is while individuals are taking advantage of the technology, they're doing so across a broader range of price points than existed previously. So you did see a little bit of ASP decline as a result of that. Also, as we've mentioned throughout the year, as a technology, as a style becomes more familiar with the consumer, the anticipation is that it will be included in certain promotional events. And that was the case. Over the course of the year, we started to include some of the technologies in more promotional events because you walk a fine line between protecting the price and irritating consumers who are visiting and appreciating promotions. I would say going into next year, I don't think at this juncture we're going to see as much price erosion. I think you'll probably see stability and maybe even a little bit of a price improvement for a variety of reasons. On the comfort technologies, I would think about them very much as features that can be embedded across a wide array of products. And I think that's what makes them so special. They're not particular to a style or a category. They can be used broadly. There's a tremendous amount of continuing runway with our Skechers hands-free slip-in technology, particularly around the more integrated versions of that, which I think we showed to some of you guys in early winter. But also the other technologies continue to perform really well. Our ArchFit technology continues to drive growth. We have some newer technologies coming out, new products that are still early, but they're going to be hitting the market. And they're all focused on the same thing, driving and delivering comfort to our consumers. I would add the last thing is, as we've grown new categories, performance categories that we haven't traditionally operated in, we've taken elements of those features and put them into that product. We're using the line, comfort that performs, but that's because we're putting some of our comfort features into our performance footwear. And while it's not always the primary focus, that continues to reinforce at the consumer level our particular offering around comfort and how unique that is. And so we think it has continuing impact across the business, across the globe, and opportunities for us to chase both what we've already delivered to the market and some new features as well.

That's super helpful. I appreciate it. May I ask just one follow-up on gross margins? I believe you had expected freight to be a headwind in 4Q. Did you see that as a headwind? And should we expect any freight kind of instability as we go through the year or in 1Q? And thanks so much.

Yeah, I mean, there was a little bit in Q4. It wasn't material enough for us to really call out. There will be a little bit more in Qs 1 and 2. The impact always depends upon the size and scale of the business. We think that then gets us past what was the summer rate pressures coming from the initial elements of the Suez Canal crisis. So there's a little bit in there. We don't expect it to be a driving factor. But it's certainly something we're watching carefully.

Yeah, it will also depend on alternate sourcing and where stuff has to come from as we move things around in the coming year. Also, there has been somewhat of a slowdown since a lot of people before Chinese New Year have brought a significant amount even into the United States in anticipation of the new regime and its tariffs. So unless business holds up significantly, you would anticipate that there will be some relief on the ships as they come through.

You certainly have seen spot rates return to a more normalized level. That's not perfectly where we'd like them to be, but they've abated significantly since that summer pressure.

All right, thank you so much. Best of luck.

Thank you.

And our final question comes from Sam Opposer with William Trading. Please proceed.

I thought you forgot about me. Or how can we forget about you, Sam? I don't know. I have a couple here. One, can you give us some idea because of the FX impacts and all of that so we can back into it? Can you help us with what you think, what you're planning the EBIT margin to be in the first quarter or a range of EBIT margin? And that will help us a lot because we have this big chunk as we did in the previous quarter of FX. So can you help us or help us with the other income line and then we can back into it that way?

Yeah, we don't normally project other income impacts. That's why they're so painful when they arrive like they did in the fourth quarter. That's why we don't mind them as much when they go the other direction. But to know those, we'd have to have the impact. The FX impact we've cited really comes from the loss of top line value and then the flow through effect of that. I would say, as we've looked at it, this year, if you kind of project it out, it would be about a 15 to 20 cent impact. It's a little bit more acute in the first half of the year than in the back half, but not terribly so. And then the other impact is the tax rate that we talked about, which could be as sizable as 25, 30 cents, depending upon where you establish the normal baseline rate. I think if you actually look at those relative to where the street is and you make adjustments for that, you'll see that what we're guiding to is really a fairly comparable number, not perfectly so, but fairly comparable to the expectations we've talked about historically and what I think you all were baking in. Admittedly, those are big changes, but neither of which we have the ability to unilaterally control.

I understand it for the full year. Q1 seems to have the most acute movement in it. It does. And so the question is, I'm just asking for Q1. I'm not asking for the full year explanation. I'm just trying to get an idea of where you're thinking this operating margin falls, and we can back into the rest of it that way, because you've given us piecing around it, but we don't want to have a situation where you make or miss the number, but you hit the gross... We just want to have an idea of where you're thinking of a range of EBIT, and then we can sort out the rest of it in the first quarter. The rest of the year we can back into because they're less acute.

Yeah, look, I'd say... I don't want to get into specifics on each individual item. I would say we certainly at this point expect to see SG&AD leverage in the first and second quarter, and those get made up for in the back end of the year. You're probably talking about plus or minus 150 to 250 basis point impact in the first quarter, but again, there's more to it than that, so that's a very broad range, and quite frankly subject to a lot of other factors that we don't have a great line of sight into. I would also note there's opportunity to outperform that based upon the pace of shipping that we observe, so it could be that we end up much better than that as a reflection of some more encouraging shipping trends should those develop.

Okay, and then lastly, China. Again, that seems like more of a headwind than what you may have anticipated a few months ago for the year. Again, in the first quarter, given it, how much of... Is China really the big change in the revenue and everything else seems okay, or is there something else there?

Well, I think FX is the biggest overall change from where we would have been at the end of the last quarter, so the most significant impact we've seen globally is about FX. It's fair to say China came in in the fourth quarter worse than we had anticipated. When we last spoke about singles day, we had yet to see the effects of the end of the period and then the return window. That definitely came off worse than we expected, so I'd say Q4 and the early part of Q 2025 is definitely less encouraging than we had thought it would be. I would be very clear though, I look around the rest of the world and things look very good, not just okay, very good. Continued strength in EMEA, continued strength in the Americas. Asia pack excluding China looks fantastic, so I think the read on the business should be China remains challenged. It's a macro event. We're gonna work on what we can, but in a way we need the market to get a little healthier. Absent that, the business is performing very, very well, performing exceptionally well in Q4 because China performed worse than we still, on a constant currency basis, blew through our guidance. We're pretty encouraged quite frankly by what we see. Certainly there's some noise associated with China and FX and tax rates, but absent that, if you're looking at the organic nature of the business, it continues to be very, very encouraging and we're encouraged by that.

Yeah, you have to remember we grow almost 900 million with no growth in China, and if that continues through this year, we'll have made up about what China's volume is in less than a two-year period and growth continues through there. So on whatever metrics, and as we keep pointing out, we're not dependent on any one geography or any one category, and I think this proves it very much so. We continue to grow with China not growing and we do believe China will come back and add to the growth as we go through the next year. Ergo, we talked about increasing our creation demand within China and continuing to develop and putting our new developments front and center into China and we think that will change the scorecard as we get through the back half of this year. So we have a lot of positives going into a very difficult marketplace.

Last, I'm sorry, one more thing. In Europe, is there any given so much is in transit, is there anything constraining sales given all the in transit inventory in Europe, given the strength of the business?

First of all, it was in transit at December 31st and we did have some increases in inventory. So right now, it's just a lot of processing to do and we're very busy in those places, but we anticipate all the inventory that was anticipated for Q1 will be here.

And was there any issue in the fourth quarter of the sales because of in transits?

I don't know what the exact reason was. We felt we were a little short in December. I think business day, like anything else, we had a slight shift from December into January rather than the other way, so we did have to pick up some early in January. But on an overall basis for the season, I think we're going to come out quite well. We did grow in, I think it was the converse, in the fourth quarter, we had a very strong October simply because things were delayed and we were trying to catch all the inventory. So I thought, I think because we delivered so much in October on a relative basis, it moved things out through December into January, and now we have a significant demand pickup again and all the inventory is there.

Thank you very much. That does conclude today's

question and answer session. I'll pass it back to management for any closing comments.

No closing comments here. Thank you everybody for your time and look forward to speaking with you at the end of Q1.

Thank you. This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.