Skechers U.S.A. - Q1 2022

Transcript

Speaker 0

I would now like to turn this conference over to your host, Skechers Investor Relations. Thank you. You may begin.

Speaker 1

Thank you everyone for joining us on Skechers conference call today. I will now read the Safe Harbor statement. Certain statements contained here or future results or events may constitute forward looking statements that involve risks and uncertainties. Specifically, the COVID-nineteen pandemic has 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-nineteen 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-nineteen pandemic. The dynamic nature of these circumstances means that what is said on this call Additional forward looking statements involve known and unknown risks, including, but not limited to, global, national and local economic business and market conditions 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 ks, quarterly reports on Form 10 Q, current reports on Form 8 ks and all other reports filed with the SEC as is required by federal securities laws for 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 Vandemore. David?

Speaker 2

Welcome everyone to our Q1 2022 conference call. Before we discuss our record quarterly results, I would like to acknowledge the devastating humanitarian crisis in Europe as a result of the war in Ukraine. Together with our employees and partners, we have donated close to $500,000 to organizations working to provide relief on the ground This year marks Skechers 30th anniversary and we are off to an excellent start in 2022 With a new quarterly sales record of over $1,800,000,000 We are proud of the accomplishments and milestones we've achieved and couldn't be more excited about what the future Our product offering and the enthusiasm for the SKECHERS brand have never been stronger. This is clear in the Skechers stores from London to Los Angeles and Munich to Mumbai and in displays and shops in shops and shops and retailers around the world. It is also apparent in our marketing campaigns, whether it's alongside major events like commercials with Willie Nelson surrounding the Super Bowl For being the official footwear sponsor at this month's U.

S. Open Pickleball Championships and the LPGA's LA Open here in Los Angeles Comfort along with an active lifestyle, we remain a leading choice as the Comfort Technology Company. Now let me turn to our Q1 results, which include the updates to our reporting structure that we announced 2 weeks ago. We believe this approach best reflects how we manage and lead our business and will improve transparency in our operational results. More information regarding these changes can be found in our investor website.

The Q1 sales record is a remarkable achievement Given the ongoing pandemic related challenges we continue to face, including worldwide store closures and supply chain disruptions. Sales grew nearly 27% overall, well balanced between domestic growth of 29% and international growth of 26%. We believe the significant growth was due to the broad based demand for our innovative comfort products from consumers globally, National business now comprises 57% of our sales, reflective of our strong brand awareness worldwide. In the quarter, our wholesale business increased 33% led by growth in the Americas and EMEA, Both of which grew over 40% in the quarter. Overall wholesale sales were driven by a 23% increase in units shipped And an 8.6% increase in average price per unit.

Of particular note in the quarter, our U. S. Wholesale performance increased markedly Due to double digit improvements across genders and most categories, reflecting strong consumer demand and sell through at retail, As well as improved availability of product and our ability to receive and process additional inventory. For EMEA, the growth was the result of increases across All of Europe. Asia Pacific wholesale sales in the quarter were essentially flat year over year due to the weakness in the region Where COVID continued to negatively impact our ability to operate.

China grew over 9%, though lower than our long term targets, A notable achievement given the constraints in the quarter. We expect continued market challenges in APAC throughout the second quarter As governments contend with the impacts of the pandemic, we are confident in the return to historical growth patterns and the long term growth prospects for the SKECHERS brand in this region. We invested significantly in increased personnel and worked diligently to process in transit inventory to our wholesale partners To ensure consumers get the product they want, we value our relationship with our diverse network of retail partners Sales increased 16% in the quarter, led by results in EMEA, where sales increased over 150%, primarily reflecting last year's COVID related store closures and operating restrictions. However, consumer demand for Skechers remain robust across all regions, and our e commerce business, primarily as a result of a 15% improvement in average price per unit from increased demand for a more innovative In the Q1, we opened 31 company owns SKECHERS stores, including 13 in the United States and 7 in China. We closed 41 locations in quarter, including 12 in the United States and 7 in China.

Including our 2,958 third party stores, 77 of which opened in the Q1, including our first location in Bolivia, there were 4,308 Skechers stores worldwide at the end of the period. In the second quarter, we've opened 10 company owned stores to date and by year end, We plan to open an additional 160 to 180 locations. Our investments remain focused on supporting our strategic priorities, growing our direct to consumer business, expanding the presence of our brand and meeting the needs of our consumers globally. The rollout of our new e commerce platform continued in the Q1 with the launch of new sites in France and Spain. And already in this quarter, we have launched new sites in the Netherlands and Italy and plan to launch others across Europe, Asia and South America this year.

We also continue to invest in our retail capabilities in the quarter by upgrading our POS systems in Japan and Belgium With the rest of Europe to be completed by the end of Q3. These investments further our progress as an omni channel retailer.

Speaker 3

We have improved the flow of

Speaker 2

goods through our North American distribution center and expect to be operational on our LEED certified gold expansion in the Q3 of 2022. We have also finalized the location for our new distribution center in India, which we expect to be opened in 2023 And have recently secured locations for distribution centers in Canada and Chile. We are also planning to open a new distribution center in Panama and expand our distribution Investments in product and marketing continue to result in strong global demand for our comfortable and innovative product. We introduced several new Comfort collections in the quarter that enhanced our fit and function offerings. We also introduced 2 new ambassadors, Willie Nelson and Martha Stewart And launch campaigns with Chris Carter, Rusty Wallace and Amanda Kloots.

This quarter, we announced a global agreement with pro golfer, Max Fitzpatrick And pro pickleball players Tyson McCuffin and Catherine Parenteau, who are playing in Skechers Pickleball Footwear. This growing roster of well known talent and athletes allows us to appeal to an ever widening consumer base. And now I would like to turn the call over to John for more details

Speaker 4

Thank you, David, and good afternoon, everyone. Skechers once again delivered record 1st quarter results, Exceeding internal and external expectations. The strength of our Comfort Technology product portfolio coupled with capabilities derived Despite the ongoing COVID related operating restrictions and shutdowns, supply chain disruptions and other macroeconomic headwinds we faced. Before discussing our financial results this quarter, I first want to touch on our new segment reporting structure. As David mentioned, we recently unveiled new segment reporting that reflects how we run and assess the performance of our business as well as make decisions to support our growth strategies.

Commencing with the Q1 of this year, we are reporting segment results for wholesale and direct to consumer operations, including our joint venture entities. In addition, we are introducing enhanced geographic sales reporting, including regional reporting and domestic and international reporting that we believe will provide 2020 2021 recast in this format are available on our Investor Relations webpage. Now let's turn to the details of our Q1 financial results and updated operating segment performance. Sales in the quarter increased 27% to a new quarterly record of $1,820,000,000 an increase of $385,100,000 from the prior year. On a constant currency basis, sales increased 29% or $412,200,000 Wholesale sales increased 33% year over year to $1,250,000,000 led by 43% growth domestically and 26% growth internationally.

We saw significant improvements in the pace of receipts and as a result shipments to our domestic wholesale accounts, 16% year over year to $568,300,000 supported by growth in domestic and international markets 5% 25% respectively. Several markets saw significant traffic improvement as compared to last year's COVID closures And e commerce remains a critical component of our overall direct to consumer strategy, delivering mid teens growth globally. We continue to expand our online presence and further invest in our digital and omnichannel capabilities. And now turning to our regional sales. In the Americas, sales for the Q1 increased 31% strong brand resonance and a significant improvement in the pace of our inbound receipts and outbound shipments to wholesale customers drove the results, particularly in the United States, which accounted for over 3 quarters of the growth.

In Europe, Middle East and Africa or EMEA, Sales increased 49% or $145,700,000 year over year to $441,200,000 As we continue to see recovery in many markets that were heavily impacted by the pandemic last year. We are deeply concerned with the devastating war and the humanitarian crisis in the region. As many of you know, We operate through long standing distributor relationships in both Russia and Ukraine and sales to both countries, We continue to monitor events in EMEA closely, but have yet to see a material change in consumer discretionary spending patterns in the region. In Asia Pacific or APAC, sales increased 4% or $18,100,000 year over in several adjacent markets. The SKECHERS brand and our products continue to resonate well in China, where growth was driven by strong e commerce performance in January February.

However, beginning in March and continuing into April, slower retail traffic patterns and operational limitations have emerged as China continues to feel the negative effects of the COVID pandemic. We remain optimistic about the long term health of our brand in the APAC region, but we are adopting a cautious view relative to expected performance over the next few quarters. 1st quarter gross margins decreased 250 basis points year over year to 45.3%, primarily due to increased freight costs as well as an unfavorable mix impact from higher wholesale sales. These pressures were partially offset by higher average selling prices, which have yet to fully reflect all of the wholesale price adjustments we have Operating expenses improved 120 basis points as a percentage of sales year over year from 36.8% to 35.6%. Selling expenses improved 40 basis points year over year as a percentage of sales As domestic selling expenses leveraged meaningfully against higher sales, general and administrative expenses improved 80 basis points year over year As a percentage of sales, where leverage returned to our international direct to consumer business after last year's COVID related closures.

Earnings from operations increased 12% compared to 2021 and operating margin for the quarter was 9.7% as compared with 11% in the prior year. The decrease was due to the previously mentioned gross margin pressures. Earnings per share were $0.77 per diluted share on 157,400,000 diluted shares outstanding, representing 22% growth year over year. Our effective tax rate for the Q1 was nearly flat to prior year at 20%. Now turning to our balance sheet.

We ended the quarter with $819,900,000 in cash, cash equivalents and investments. This reflects a decrease of $695,100,000 or 46% from March 31, 2021. As a reminder, we fully repaid our revolving credit facility in the Q2 of 2021. In addition, we are feeling the effects of increased working capital requirements year over year from inventory and accounts receivables. Inventory was $1,450,000,000 an increase of 36% or $382,100,000 versus the prior year.

This balance includes nearly $370,000,000 of in transit inventory, a year over year increase of over 50%. Accounts receivable at quarter end were $1,000,000,000 an increase of $211,800,000 from March 31, 2021, Predominantly the result of higher wholesale sales particularly over the back half of the quarter. Capital expenditures for the Q1 were 89 $4,000,000 of which $32,300,000 related to investments in our new corporate offices domestically and in India, $27,200,000 related to the expansion of our distribution infrastructure globally and $24,700,000 related to investments in Our direct to consumer technologies and retail stores. For the remainder of 2022, we expect total capital expenditures structure both in the United States and internationally, omni channel capabilities and our corporate offices. In alignment with our capital allocation philosophy, we previously announced a 3 year $500,000,000 share repurchase program.

During the Q1, we repurchased approximately 652,000 shares of our Class A common stock at a cost of 25,000,000 We will continue to deploy our capital consistent with this philosophy toward investments in our business and direct returns to shareholders. Now I will turn to guidance. We remain confident in our growth strategy, but because of external pressures, including recent COVID related shutdowns in China, geopolitical unrest, escalating inflationary pressures on both our business and our consumers, As well as ongoing supply chain disruptions, we are incorporating a more conservative outlook into our guidance, particularly in the second quarter until we have more certainty around the length and severity of these external headwinds. For fiscal 2022, we expect sales to be in the range of $7,200,000,000 to $7,400,000,000 and net earnings per diluted share to be in the range of $2.75 to 2 point For the Q2, we expect sales to be in the range of $1,750,000,000 to 1,800,000,000 And net earnings per diluted share in the range of $0.50 to 0 point In the Q2 and for the full year as freight costs will offset improved pricing. However, we do expect gross margins for the year is expected to be between 19% 20%.

And now I'll turn the call over to David for closing remarks.

Speaker 2

Getters is in great shape as we mark our 30th year in business with record first quarter sales of $1,800,000,000 following a record sales year in 2021. This growth was the result of quarterly increases of 33% in our wholesale business and 16% in our direct to consumer business, notable achievements given the pandemic and macroeconomic related headwinds. Consumers want innovation, style, quality and casual comfort at a reasonable price and SKECHERS delivers on all these attributes. We are the Comfort Technology Company. Our immediate focus along with the safety of Skechers personnel is to continue to deliver consumers what they want as quickly as possible.

Our entire organization is working to this end. We're expanding our reach around the world From Shoppe and Shop at key retailers in the United States and many international markets to expanding our offering with enhanced technologies and collaborations launching this As we look ahead, we are also thinking of how we can grow in more sustainable ways, including developing more styles with recycled materials, Building our new facilities with energy efficiencies and addressing other ways we can lessen our impact on the environment. With 3 decades of expertise under our belts, we see numerous opportunities to efficiently and profitably grow our business. With the momentum we are experiencing, we believe we will deliver record sales in 2022, furthering Skechers toward our goal of $10,000,000,000 in sales by 2026. Now, I would like to turn the call over to the operator

Speaker 0

Our first question comes from the line of Jay Sole with UBS. You may proceed with your question.

Speaker 5

Great. Thank you so much. My question is on the guidance. Can you just talk about what gives you confidence to raise the full year EPS guidance? And just sort of talk about the Q2 guide, is it different from your original projection that you had when you first gave the full year guidance?

And John, maybe in what way are you being more

Speaker 4

everything from the retail trends we're seeing both our own and those of our wholesale partners, our backlog And quite frankly, the robust appetite for the brand we're seeing across the globe. The conservatism we know aligns with some of the pressures we called out Really across the globe, but probably most acutely in Asia Pacific and within that region in China. As they continue to contend with the COVID pandemic, we're seeing shutdowns, we're seeing store closures, operating We're seeing movement restrictions for goods. So that's impacting our view in China. What you're seeing kind of in the net effect of that is Probably more robust input outside of the Asia Pacific market with more conservatism from The Asia Pacific market, and then I would add to that, we have talked about freight being Obviously, we're going to have to see how things unfold, but that's an impact we're tolerating And we're really waiting for some of our pricing to catch up to that just given the delay in supply chain.

Some of the pricing we had expected to take place take hold in the early part of this year is being deferred a bit while we get those goods processed. The net effect of it though is really A continuing and robust perspective on what we think the brand can do this year. That's why we've raised the top line And confidence in the EPS guide we gave originally, but obviously with some offsets and some conservatism in there, in particular, as I mentioned for The continuing effects of COVID and some of the global unrest.

Speaker 5

Got it. Maybe then, John, if I can just follow-up on that one and I'll pass it on. Just to focus on China for a little bit, you mentioned sales were up 9% in Q1. Presumably, there was a little bit of back half of March. Can you maybe elaborate on what kind of growth you expect in China in Q2 and give us a sense of how The lockdown and some of the COVID related issues that are happening there are impacting sales?

Yes.

Speaker 4

I don't want to get into country level guidance Other than to say that we definitely saw a very strong January February. And then as we noted in our prepared comments, Weakness in March as the effects of COVID became increasingly acute. That's carried on into April. I would say we're taking a pretty conservative view of what we expect the balance of the quarter, not dissimilar, Though not to the same magnitude as what we saw in 2020 when China was grappling with The initial effects of the COVID pandemic. Now our hope is obviously things get better faster and that we're able to recover more of what our original for growth were, but given what we've seen, which again includes numerous store closures, operating restrictions And other challenges, we're taking a pretty conservative view on China in particular.

I should also note there were effects outside of China as well. This is not just a one country issue. And as you saw in kind of the growth in Asia Pacific In the quarter, it was definitely an impact.

Speaker 5

Okay, got it. Thank you so much. Thanks, Jay.

Speaker 0

Our next question comes from the line of Laurent Vasilecu with BNP Paribas. You may proceed with your question.

Speaker 6

Thank you very much. Good afternoon, John and David. I want to follow-up on Jay's question. I recognize, John, you don't want to really parse out or give guidance on at the country level. But With the new reporting segments, how do we think about Americas, Asia Pacific and EMEA embedded in your 2Q or full year guidance.

Any color on that would be very helpful.

Speaker 4

Yes. Thanks, Laurent. Although, I certainly anticipated you would go straight to regional guidance, if not country guidance. What I would say is, again, expectation for Q2 is probably going to be very similar to what we saw in Q1, which is strength in EMEA, strength in the Americas And then challenges in APAC, that's borne out of the commentary I just provided relative to China in particular, but also What we believe the effects will be on adjacent markets. So if I were to paint a picture, it would be probably similar to Q1 with a more significant effect in APAC in the second quarter.

We do plan for a recovery. We do expect to see a recovery. That would be a similar trajectory to what we saw In 2020, so we're using that as a bit of a guidepost. However, I think probably the more important observation I would draw out of the guidance is Despite our 2nd largest single market experiencing what is arguably comparable challenges to what they saw In the early instances of the pandemic, we're still taking our guidance up and reaffirming our EPS. So, what we feel great about The way the brand is performing and I think unhindered, we would have shown both better results in Q1 and a more robust trajectory Because the brand is that strong and we're seeing the growth opportunities really across the globe.

So we are being conservative in Asia Pacific, but it's not without A lot of enthusiasm for how the brand is performing at a consumer level and what that means outside of the region.

Speaker 7

That's very helpful, John.

Speaker 6

And then last year, Vietnam was a hot topic. Maybe 90 days from now, we'll see what How China is evolving with COVID, but just for this call for today, if you can maybe get provide some color on what you're seeing from a supply chain standpoint. I think you have a big presence in China. Are you seeing factory disruptions? Are you seeing Issues with the ports there.

Any color on that would be helpful. And then I have a quick follow-up on the 2Q GMs.

Speaker 2

Well, I think we see all the above, certainly to a partial degree, just like everybody else. No one's immune, but we seem to be doing Well enough to get as much goods as we can ship. Nothing has really changed significantly. It's gone a little up or down Throughout the quarter and going into the next quarter. So we still have a significant amount that's impacted, but even a greater amount that's coming in Relatively on time and we're processing.

The good news is we're getting through the ports quicker, both in Europe and South America and in the U. S. So we're able to process significant amount. I mean, even with all the disruptions, domestically Out of the U. S.

And I was kind of surprised nobody's picking up on China rather than the U. S, which I thought was a great part for us in the Q1. We had our biggest shipping month out of our distribution center in Moreno Valley that we've ever had. So that It gives you an idea of how we can process through this whole issue that's going on.

Speaker 6

Thank you, David. Just On the 2Q EPS guide, I think it's a little bit light versus expectations. John, if you could just parse out like how much we should think about GMs and how much of it's driven by supply chain versus just the tough comparing DTC business, which has a higher GM?

Speaker 4

Yes. I mean, the gross margin pressures that we've talked about, the freight in particular, as I said, we've kind of readjusted our expectations to kind of this persistent and stubbornly high level. So that's the gross margin pressures. We expect those to continue Into Q2, keep in mind, we also had a pretty substantial mix lift last year that because we've grown so much in particular on the wholesale side of things, You're just getting a mixed dilution effect that's not altogether small. But the big issue on the gross margin level Is that freight being high on our pricing over the course of the year catching up?

After that, the biggest impact from an earnings per share standpoint is going to be what we expect to be that Performance in China and that will cause us to pretty significantly under lever international wholesale component of the business. And that's just the effects of seeing sales hampered by COVID.

Speaker 6

Very helpful. Thank you very

Speaker 7

much. Sure.

Speaker 0

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. You may proceed with your question.

Speaker 8

Okay, great. Thank you so much. It's very clear the brand has a ton of momentum here and that's so evident in the top line. So well done on that. And I just want to say thanks so much for the additional transparency in the segment reporting.

I think it's Extremely helpful. John, I wanted to follow-up on the gross margin discussion. In that 250 basis point decline here in Q1. How much of that or how many basis points, if you could help us understand the magnitude of impact, would The freight headwinds be. And if you could help us understand what you think the freight impact is likely to be on the full year gross margin, That would be great.

And I'm just looking at the segments. It looks like perhaps maybe the freight cost impact is impacting wholesale more than direct to consumer. I'm just wondering if you can help us understand why that might be?

Speaker 4

Yes. I mean, I probably don't want to get too far into dissecting the basis points other than to say, the 2 biggest factors, Diluting gross margin were far and away freight first. And when we say freight, just for clarification, we're including All aspects of transportation costs to land products. So there's more than just container rates, although that's The single biggest annoyance from my perspective, and then mix, which is a fraction of that. And then we did take pricing.

I don't want Anybody to misconstrue that we haven't yet taken pricing. It's just the full effect of the pricing has yet to catch up. And that's going to be the same formula you're seeing across the year, although over the course of the quarters, it will get smaller and smaller as that pricing impact, Particularly on the wholesale side of things catches up. Keep in mind, when we were adjusting prices with the order book As it stands, you're anticipating months in advance. And I don't think anybody would have thought middle of last summer when you're contemplating price adjustments that Freight would have stayed as high as it has.

And so we're just suffering the consequences of that freight staying higher much Longer than anybody anticipated and then the pricing catching up. So it's also why we mentioned, we expect gross margin to sequentially will improve quarter over quarter, in particular, on that wholesale side of the business as that pricing catches up. We don't have the same Challenge on timing in the direct to consumer side of the business. There, as we noted last year, we were able to adjust prices Much more quickly. And so you're not seeing as much of that impact affect the direct to consumer side of things because we've already taken the benefit of That pricing adjustment.

So it's helping us out there. So hopefully that answers the question both contextually and with some specificity.

Speaker 8

Okay, great. That's great color. So for the year, should we be thinking about like a 150 basis point decline in gross margin In aggregate or any sort of zip code that you could help us get into? And then beyond this year, Would 2023 be a year where you would expect the full benefit of those pricing increases to kick in? And would you expect Next year to see gross a sort of full gross margin recovery?

Speaker 4

So to the latter part of your question, absolutely expect the benefit of the pricing to kind of catch up. And that's assuming freight stays higher, All things being equal, I mean, keep in mind, I think it's noteworthy that we're still seeing a fairly strong environment on the direct to consumer side of things, low promotions, a low need for promotion. So assuming those all stay We feel really good about where gross margins get back to by the time the full effect of our pricing takes hold. But Like I said, it will take some time over the course of the year. Given that in the 1st two quarters as well as the challenge in China that we mentioned, which is usually And accretive gross margin contributor, I don't think we can get we can't get back to at least at this point, don't expect that we can get back to prior year gross margin.

So I would anticipate something on the full year that's down, probably not as severe as what we've seen in this quarter, but Definitely not fully back, just given the passage of time and the challenges that we've noted in Asia Pacific.

Speaker 8

Okay, great. Thanks so much. And we look forward to monitoring the situation throughout the year. Thanks, John. Yes.

Speaker 0

Our next question comes from the line of Gabby Carbone with Deutsche Bank. You may proceed with your question.

Speaker 9

Good afternoon. Thanks so much for taking my question. So kind of piggybacking off a prior question, you mentioned you expect strength in the Americas to continue. Obviously, there's been a lot of concerns around a consumer spending slowdown in the U. S.

So I was wondering if you could just touch on your thoughts around the U. S. Consumer. Thank you.

Speaker 2

Yes, we find the U. S. Consumers doing quite well and we continue to have great sell throughs Both our own and from what we hear from our 3rd party retailers as well. So right now, We haven't seen any slowdown or any decrease in demand when product hits our shores and we can get it out. So I know there were other things hanging out there and other macro situations that people are thinking about.

But currently, We could certainly deliver more if we get it. So we think our bias is to the upside right now, and we'll see as we go forward. And it's certainly held up for us through this month. To date, historically, April is not a big month for wholesale And we continue to ship on a very strong basis, not significantly dissimilar to what we did in March.

Speaker 9

Great. Thank you. And then just

Speaker 8

a quick follow-up. Kind of longer term, just wondering how

Speaker 9

you're thinking about the SG and A rate. I know you talked about kind of growing that As a reminder, this conference has grown SG and A kind of in line with sales, but where do you kind of see the opportunity to lower the rate kind of over time?

Speaker 2

I think it's the same as we've seen in the past. I think the only reason it hasn't is because we've now open up to the strength of the brand and how well it's doing universally And have to make some significant investments as we said in the prepared remarks, both to our POS, to our own retail We're growing at a much quicker pace over a broader spectrum of geography. So we do anticipate that continues. As usual, we believe we've accounted for in some of the commitments we've made for increases both in China, South America, as well as the U. S.

And distribution and should that hold true and we get the efficiencies we're looking for from some of our upgrades, we You should start to see that significant as we get through 2023 into 2024. But with us, there's always a caveat. We could always Seems to be with the way we're developing and the way the marketplace is coming back, increase the pace of growth again and have to step up again. So that would be the only caveat.

Speaker 9

Great. Thank you so much.

Speaker 0

Our next question comes from the line of Brian McNamara with Berenberg Capital Markets. You may proceed with your question.

Speaker 7

Hi. Thanks for taking my question. I'm curious if you could elaborate on your Buyback and kind of how we should think about that moving forward? It looks like

Speaker 5

you did buybacks

Speaker 7

at around $38 In Q1, the share price is pretty depressed here. So how should investors think about buybacks? Are you willing to get a little more aggressive given what the stock's done recently Despite strong results.

Speaker 4

Yes. I mean, keep in mind, we announced the buyback kind of mid quarter, so we didn't have a full quarter's worth of And we go into our blackout prior earnings. So there's only so much kind of capacity we had to buy. Our approach will be both market sensitive, but also I'd say ratable over the life of the repurchase. We'll be more aggressive when we think fair value is at a significant deficit to what the or significant premium to what the market is trading at.

Otherwise, you can expect to be a ratable deployment. I think it's we announced it and we got it into action and we were Happy to be able to take advantage of what was then some pretty depressed prices after today. I can only imagine that frame of reference will hold for The near term, but again what we're keeping our eye on is the long term value opportunity we see in the shares and then judging Our capacity in light of that against where the market is trading at any given point in time and I'm sure you won't find it a shock, but we can definitely feel like there There's a disconnect between what we feel the value of the shares are and what the market is showing currently.

Speaker 7

Thanks. So just a quick Follow-up on your enhanced geographic disclosures. I really applaud that. I'm curious what drove that decision. Is this kind of a A longer term discussion that you've had over there.

I think there's a lot of guesses in the marketplace in terms of your exposures to Eastern Europe and Russia, And the like, did that more drive the decision or is it kind of a longer term discussion you've had over the years?

Speaker 4

Well, as you can imagine, that's not something you change easily. It requires a lot of pre work and a lot of effort. And really, we've made a lot of All at once, so it comes across as a fairly simple change in reporting, but it's a reflection of a significant amount of work by the team here. Ultimately, we We feel like these segments reflect how we run the business, how we make decisions about the business. They better align, we think, with how investors Analyze the business in terms of the enhanced reporting.

It's often a question we receive from you all, how the business Consumer business was important and that's something that wasn't quite as visible as we felt it needed to be in the old reporting structure. So being able to then include the Our hope is obviously that leads to, as we said, greater transparency into the strength of our brand. Obviously, we feel very good about how our brand performing in the receptivity it's receiving worldwide. So anything we can do to help provide more visibility into that strength to you and other stakeholders we felt

Speaker 0

Our next question comes from the line of Omar Saad with Evercore. You may proceed with your question.

Speaker 10

Thanks Thanks for taking my question. I appreciate all the inside information. A couple of follow ups. Number 1, I thought I heard someone say early on, there's some When you talked about the conservatism in your guidance and the macro factors affecting your outlook, I think you mentioned some Signs or pressures or pressures on the consumer, are you seeing any signs of that, of the inflation, inflation hitting the consumer? And then I also would appreciate if you guys could maybe give a little bit of more thought process around the wholesale acceleration.

I'm sure big numbers going to that channel. Is a lot of that restocking and stocking up from your wholesale accounts? And is it accompanied with sell through? And are there certain wholesale channels that are winning and others that are Thanks.

Speaker 4

Insofar as the inflation comment, we're just noting that it's something we're As David mentioned and I would reiterate, we have not yet seen any significant pullback in consumer discretionary spending for our customer, because we're seeing both strong wholesale sales, but as David mentioned, very strong sell through And high ASPs to boot. So overall, while we haven't seen anything impacting the consumer, we're cognizant of We did note the inflationary pressures on transportation costs and that's something we've already commented on and how it's impacting our business. So those are kind of the 2 inflationary points I would address. I think from a wholesale perspective, In all honesty, Omar, part of it was simply the ability to receive goods and process goods. Our supply chain team did a fantastic job once in receipt of goods to process more than we've ever in March and against some pretty challenging circumstances.

The ability to get the goods in allowed us to process and sell through to our wholesale partners in a way that we just hadn't the capability In prior quarters because of the supply chain issues, it doesn't my perspective is it doesn't feel like Restocking, although clearly there is some restocking going on because we continue to see very robust sell through rates. And so Even if it is a restocking effort, you're seeing it sell through at the consumer level. And that's something we also see in our own retail stores. Really strong sell throughs to whatever we can get onto the shelves. So overall, I would characterize it more as robust consumer And for the product and anything else, but that's just my perspective.

Speaker 10

Got it. That's really helpful, Jonathan. Maybe you could quickly touch on that. Did you say 15% kind of ASP increases? How much of that is Higher retails versus lower markdown.

Speaker 4

Tough to tell with any decree of precision. What I would Probably say it's the same thing we previously said. We believe the majority of it is pricing, but there's a not insignificant component associated with A more favorable promotional environment, which is something obviously we're watching from a competitive standpoint globally to see What the temperature of promotional activity is, but so far it seems to be relatively subdued.

Speaker 0

Comes from the line of Sam Poser with Williams Trading. You may proceed with your question.

Speaker 3

Thank you. Thank you for taking my questions. I've got a few like just Housekeeping and then a more detailed question. One, can you give us where you think the gross margin can you give us the gross margin for Q2 2 or at least the basis points difference versus the prior year. Do you expect it to be greater?

I mean, just give us more details there. You sort of gave us some stuff on Q1. And then what is the share count that we should use both for the quarter and for the full year? And then I've got 2 more detailed questions.

Speaker 4

Yes. I mean, I don't we don't give precise gross margin guidance for a reason, in part because it depends on what unfolds in the business, including factors like mix. I would just note, it's more likely to be closer to what it was in the Q1 than it was in the Q2 of last year. Again, keeping in mind last year, We certainly over indexed as a business to our direct to consumer. So by virtue of the growth we've seen across the business, including wholesale, There's just some mixed down effect, but also obviously the continuing freight challenges.

So I'd point you more toward where we were this quarter because it's a Persistent cost issue we're dealing with than anything else, but also note that last year was elevated. For the moment, I would probably direct you towards using the current share count. We don't have any precise plans against the repurchase that we share in advance because like I said, it depends on where the market trades relative to our perception of fair value. So I wouldn't give you any other guidance on share count other than where we're at currently and then we'll update that as we progress throughout the year based on our actual repurchase activity.

Speaker 3

And just a clarification, by being similar, you're not talking about down in basis You're talking in like in the 45.3% range or are you talking sort of about similar in a year over year change?

Speaker 4

I would just to be clear, what I said is closer to where we were this quarter than the Q2 of last year. We do expect Improvement though quarter over quarter. So we are looking for a sequential improvement as more and more of that pricing takes hold.

Speaker 3

Okay. And then just two more things. 1, on your supply chain, could you go into some details on to how you really What sort of behind the scenes has allowed you to deliver more products, more efficiently than others or Probably more efficiently than others in the quarter. And then secondly, with the U. S.

Wholesale business, did you was any given you shipped so much in Q In March, were there April orders that got moved forward into the quarter, hence we probably won't expect another A number quite as big as Q1 was in domestic wholesale In the Q2?

Speaker 2

Well, to go from back to first, the answer to that would probably be no. We didn't move anything up. We're still catching up and we're still trying to catch up at a faster pace because I think the demand, Especially in the United States, probably in Europe as well. And if you go regionally, probably everywhere, but APAC is significantly stronger than most people would I believe, going into the quarter. So we haven't pulled any significant amounts forward.

As I said before, we continue to ship as well in April. And I guess I'm trying to come up with what the secret sauce is to deliver. But If we came public with that, we'd have to sell that for a significant amount as we do it this well. But by and large and for those listening to the call, it's our people. It's our people domestically, our people around the world, our people in Asia that work with the factories and our factories themselves That we've been very close to for a very significantly long period of time that all work together to get the best possible results That we can.

Speaker 3

All right. Thank you very much and continued success.

Speaker 4

Thanks, Alan.

Speaker 0

Our last question comes from the line of Tom Nikic with Wedbush. You may proceed with your question.

Speaker 10

Hi, Ezra Weiner here on for Tom. Thanks for taking my question. So just quickly, in terms of inflation, I know you said demand has been strong. Do you believe demand could be helped by people moving down from higher PricePoint Brands 2 Skechers as opposed to just standard not shopping at all?

Speaker 2

I think it's 2 fold. We do have some product that would fall into that category. And I think a lot of people may put us there. But I think the real strength It's the quality and the technologies we're putting into our footwear to match the lifestyle. I think we're creating demand for the product itself On a comparative basis, not only on a price basis and a redone.

So I think we get the best of both worlds And that's what you're seeing around the world as we pick up space on both sides of that equation.

Speaker 10

Got it. Thank you very much.