Skechers U.S.A. - Q3 2024

Executive Summary

• Record quarter: Sales $2.35B (+15.9% YoY) and diluted EPS $1.26 (+35.5% YoY) on broad-based strength; Wholesale +20.6% and DTC +9.6%, with EMEA +30% and U.S. wholesale +26%.
• Gross margin 52.1% (-80 bps YoY) on slightly higher promotions/lower ASPs; management guides Q4 gross margin roughly flat vs last year (around 53.1%) given higher Europe freight and mix dynamics.
• Raised FY24 guidance: Sales to $8.925–$8.975B (from $8.875–$8.975B) and EPS to $4.20–$4.25 (from $4.08–$4.18); introduced Q4 guide: Sales $2.165–$2.215B, EPS $0.70–$0.75. Effective tax rate trimmed to 18–19% for the year.
• Offsets: China -5.7% YoY; inventory +24% YoY driven by China and elevated in-transit (EMEA). Management expects Singles Day/helpful reallocation to mitigate and called early Singles Day read “encouraging”.

What Went Well and What Went Wrong

• What Went Well

  • Broad-based growth and record sales: “The third quarter marked a new quarterly sales record…$2.35 billion…growth of 21% in wholesale, 9.6% in DTC…16% internationally and 15% domestically” (COO).
  • EMEA acceleration and domestic wholesale recovery: EMEA +30% YoY; domestic wholesale +26% on partners’ capacity and adoption of comfort technologies (CFO).
  • Brand/product resonance: Diverse comfort technology portfolio and ambassador program (e.g., Slip-ins, Arch Fit; Snoop Dogg, Joel Embiid) driving awareness and purchase intent (CEO/COO).

• What Went Wrong

  • China underperformed expectations: Sales -5.7% YoY on macro pressures; inventory build concentrated in China (CFO).
  • Gross margin pressure: 52.1% (-80 bps YoY) from lower ASPs/promotions and international mix; freight to Europe also a headwind (CFO).
  • Elevated in-transit inventory (EMEA): Supply chain delays improved but still elevated; expected to normalize as constraints ease (CFO).

Transcript

Operator (participant)

...Greetings, and welcome to Skechers' Third Quarter Twenty Twenty-Four Earnings Conference call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Skechers. Thank you. You may begin.

Melissa Tankersley (Assistant to the President)

Good afternoon, everyone. Thank you for joining Skechers' third quarter twenty twenty-four earnings conference call. My name is Melissa Tankersley. I'm a manager on our digital marketing team at Skechers and have been with the company since twenty twenty-one. My favorite style at Skechers is the Eden LX from our Core and Classics collection. Joining us on today's call are Skechers' Chief Operating Officer, David Weinberg, and Chief Financial Officer, John Vandemoer. 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 uncertainties 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.

David Weinberg (COO)

Good afternoon, and thank you for joining us today on our third quarter 2024 conference call. The third quarter marked a new quarterly sales record as we achieved $2.35 billion in sales, an increase of 16% or $323 million. Earnings per diluted share were $1.26, a 35% increase. We saw significant growth in both our segments, 21% in wholesale, 9.6% in direct-to-consumer, and balanced growth of 16% internationally and 15% domestically. These across-the-board increases and record sales are a testament to the widespread acceptance of our diverse product, as customers and consumers increasingly look to Skechers as their source of innovative, comfortable footwear. Our product line offers a unique value proposition for our partners and consumers, providing style, comfort, quality, and innovation at a reasonable price. These attributes differentiate Skechers.

Our consistent focus on new products and delivering our signature comfort technology across the portfolio, from sandals and boots to performance and sports styles, is key. Consumers now seek Skechers comfort features, knowing these styles offer more value. For the Skechers Performance division, we see a significant opportunity to build on our existing performance business, which includes technical running, golf, and pickleball footwear, with the addition of new categories that will attract a broader audience. We are in the early stages of team sports with a growing roster of Olympians and elite athletes competing in our basketball, soccer, court, and cleated footwear globally. Regardless of the sport and skill level, elite or recreational, athletes can trust that with Skechers, they will experience and enjoy comfort that performs. Raising awareness and creating purchase intent for our lifestyle and performance technologies has been an integral part of our growth.

We achieve this through both future-focused marketing campaigns and by leveraging our strong team of ambassadors and athletes. Earlier this quarter, Snoop Dogg and Philadelphia 76ers basketball star, Joel Embiid, both achieved golden moments at the Paris Games wearing Skechers. Joel and Team USA earned a gold medal in basketball, while Snoop championed athletes around the world in his Skechers by Snoop Dogg gold shoes. Also, earlier this year, Harry Kane, the celebrated striker and Skechers athlete, received the Golden Boot award as the leading scorer in Europe, and just last month, he competed in his limited edition gold Skechers football boots while earning a gold cap for his hundredth match on England's national team. For lifestyle, we recently signed TV host Howie Mandel and launched a campaign featuring him across North America, as well as former Dutch footballer Ruud Gullit, whose Slip-ins campaigns began airing last month in Europe.

This month, we introduced our first ambassador for the Philippines, Pia Wurtzbach, who attracted crowds of fans at a Manila mall event. Overall, we experienced healthy consumer sentiment and shopping behavior for Skechers across channels as more of our comfort technology products became widely available. As we continue to drive purchase intent, infuse more innovation in more of our products, and ensure that they are available globally, we remain focused on building efficiencies within our business to scale for profitable growth. Looking at our third quarter results in more detail. International sales increased 16% and represented 61% of our total sales. By region, we saw growth in EMEA of 30% due to increases across every market, and the Americas of 14%, led by the United States and Canada. Additionally, APAC increased 7.4%, led by Japan, Korea, and India.

We achieved impressive international sales growth while navigating challenges in certain markets, especially in China, where we continue to see pressure on consumer discretionary spend. ... With our established long-standing business in China and a strong team on the ground, we are confident in our ability to withstand these short-term impacts. In India, we saw an impressive rebound in the quarter with 24% growth. We continue to work closely with both our India team and regulators to further advance our local sourcing strategy. We are seeing positive trends and remain optimistic about the progress in this important market. We see tremendous opportunity, not only in our lifestyle business, but also in performance. We have long-established run clubs across 10 cities and are branching into new sports. This year, we became the kit sponsors for the All India Pickleball Association and signed multiple players.

For the introduction of cricket footwear, we are also the kit sponsors for the Mumbai Indians, signing multiple players from the Indian national team. In September, we announced a deal with NBA India to sponsor the youth basketball team. The demand for our product is strong in India, as demonstrated in the third quarter, and we will continue to invest in this important market. For wholesale, sales grew 21% due to increases of 26% domestically and 18% internationally. Our domestic wholesale strength reflects a healthier market that is embracing our comfort technologies. This resulted in double-digit increases across our men's, women's, and kids' footwear across our many, many product lines and significant improvements in volume. Within international wholesale, we saw meaningful growth, especially in EMEA, due to continued demand for our innovative products and improved timing of shipments.

Given the breadth of product offering available, direct-to-consumer continues to be a key indicator of consumer sentiment. Sales increased 9.6%, primarily due to an increase of 14% internationally, with improvements in both our retail and e-commerce channel. Domestic direct-to-consumer sales improved 3.7% on top of last year's 14% increase, primarily due to strong e-commerce growth as more consumers gravitated to shopping online. We ended the quarter with 5,333 Skechers-branded stores worldwide, of which 1,743 are company-owned locations, including 592 in the United States. We opened 68 company-owned stores in the quarter, including 20 in China, 17 in the United States, 8 in Mexico, 5 in Korea, and 3 in Colombia. We closed 27 stores in the quarter.

Also, in the period, 121 third-party stores opened, including 56 in China, 14 in Indonesia, 10 in India, 7 in South Korea, and 4 each in the Netherlands and Vietnam. This brings our third-party store count at quarter end to 3,589. In the fourth quarter to date, we've opened 21 company-owned stores, including 7 big box stores in the United States and 4 locations in China. We expect to open a total of 55-60 company-owned stores worldwide in the fourth quarter. From an investment perspective, our priorities include continuing to strengthen our product offering while amplifying demand creation and enhancing our worldwide operational capabilities, building our Skechers retail footprint, and ensuring Skechers product is available where and when our diverse consumer base wants to shop.

Now I'd like to turn the call over to John for more details on our financial results.

John Vandemore (CFO)

Thank you, David, and good afternoon, everyone. Skechers delivered record third quarter financial performance with sales of $2.35 billion, an increase of 16%, and earnings per share of $1.26, up 35%, driven by strong international growth across segments, continued momentum in domestic wholesale, and durable gross margins. Our diverse portfolio of innovative comfort technology products, combined with our distinctive value proposition, continues to attract and engage consumers, fortifying Skechers as a preferred brand within the industry. These results are particularly impressive considering the challenges we faced during the quarter and demonstrate the resilience of the Skechers brand. Let me address the market in China, where macroeconomic pressures and its impact on the consumer are well documented. Sales declined 5.7% year over year, which was below our initial expectations for the quarter.

Our talented local team has responded by adjusting our near-term plans to navigate the uncertain situation, and we have modest expectations for the balance of the year, including Singles' Day. Over the years, we have built an incredible brand in China and remain confident and optimistic about the long-term opportunities for Skechers in this market. In contrast to this challenge, we saw marked improvement in several of our international businesses, particularly in Europe, where our mitigation strategies to address supply chain delays bore fruit. We also saw a rebound in India, where the continued collaboration between our local team, suppliers, and regulators led to a meaningful turnaround from last quarter's results. Overall, we believe our double-digit sales growth in the quarter is a testament to the strength of our brand, the effectiveness of our global diversification, and the nimble execution by our talented teams.

Turning to direct-to-consumer, sales grew 9.6% year over year to $931.7 million. International was a key driver, growing 14%, with increases in both retail and e-commerce channels across most markets. Domestic sales increased by 3.7% on top of 14% growth last year. We maintained growth in e-commerce while observing a gradual improvement in store traffic, which yielded stable retail sales. Based on early results, we expect similar direct-to-consumer trends in the fourth quarter, recognizing that the key holiday period remains ahead. In wholesale, sales increased 21% year-over-year to $1.42 billion. Domestic wholesale sales grew 26%, or $107 million versus the prior year, driven by solid consumer demand and the increased capacity of our wholesale customers to embrace our comfort technology products.

International wholesale sales increased 18%, or $134.4 million, reflecting the robust consumer appetite for our brand across the globe, leading to double-digit growth in every region when excluding results in China. Based upon booking trends and early results, we anticipate wholesale will continue to deliver strong results through the fourth quarter. Now turning to our regional sales. In the Americas, sales for the third quarter increased 14% year-over-year to $1.16 billion, driven by continued momentum in domestic wholesale. The Americas direct-to-consumer business also grew impressively across nearly all markets, demonstrating continued consumer demand for our product. In EMEA, sales increased 30% year-over-year to $625.6 million, driven by double-digit growth in both our wholesale and direct-to-consumer businesses.

All channels exhibited outstanding growth in nearly every market, driven by strong consumer demand and wholesale benefiting from improved product availability. In Asia Pacific, sales increased 7.4% versus the prior year to $566 million, with results impacted by the aforementioned challenges in China. Excluding China, sales grew an impressive 21%, reflecting a remarkable turnaround in India, as well as broad strength across channels in most markets. Gross margin was 52.1%, down 80 basis points compared to the prior year, primarily due to a lower average selling price from slightly higher levels of promotional activity in certain markets. Operating expenses decreased 30 basis points as a percentage of sales year-over-year to 42.2%. Selling expenses as a percentage of sales increased 20 basis points versus last year to 9%.

As mentioned in prior quarters, the higher spend was largely focused on brand-building investments and increasing awareness for our latest comfort technologies and new categories. General and administrative expenses decreased 40 basis points as a percentage of sales to 33.2%, with the leverage primarily driven by efficiencies realized in our distribution network. Earnings from operations were $233.4 million, an increase of 9.5% compared to the prior year, and operating margin for the quarter was 9.9%, compared to 10.5% last year. Other income was $11.9 million, an increase of $18.9 million compared to the prior year, driven by favorable foreign currency exchange rates and increased interest income.

Our effective tax rate for the third quarter was 14.7%, compared to 19.5% in the prior year, reflecting the release of certain allowances and other provision adjustments. Earnings per share were $1.26 per diluted share, a 35% increase compared to the prior year on 153.7 million weighted average diluted shares outstanding. Now turning to our balance sheet. Inventory was $1.71 billion, an increase of 24% or $324.8 million compared to the prior year. The increase resulted from higher inventory levels in China and elevated in-transit inventory, particularly in EMEA, which we believe will be remedied as market conditions stabilize and supply chain constraints continue to improve.

Accounts receivable at quarter end were $1.19 billion, an increase of $257.7 million compared to the prior year, reflecting higher wholesale sales. We ended the quarter with $1.6 billion in cash, cash equivalents, and investments, and maintained liquidity of $2.42 billion when including a revolving credit facility. Capital expenditures for the quarter were $113.9 million, of which $56.3 million related to new store openings and enhancing our direct-to-consumer technologies, $22.6 million for the expansion of our corporate offices, and $17.1 million for investments in our distribution infrastructure. Our capital investments are focused on supporting our strategic priorities, which include maintaining our best-in-class distribution capabilities, growing our direct-to-consumer segment, and expanding our brand presence globally.

During the quarter, we repurchased approximately 1.4 million shares of our Class A common stock at a cost of $90 million. We continue to deploy our capital consistent with our stated philosophy, while maintaining a durable balance sheet and ample liquidity. Now turning to guidance. For the full year of 2024, we expect sales in the range of $8.925 billion-$8.975 billion, and earnings per diluted share in the range of $4.20-$4.25, representing annual growth of 12% and 21% respectively at the midpoint. This implies fourth quarter sales in the range of $2.165 billion-$2.215 billion, and earnings per diluted share in the range of $0.70-$0.75.

Our effective tax rate for the year is expected to be between 18% and 19%, and minority interest is expected to grow in line with total sales. Capital expenditures are anticipated to be between $375 million and $400 million for the year.

... We remain committed to achieving $10 billion in sales by 2026, and delivering sustainable, long-term, and profitable growth. We thank you all for your time today, and look forward to updating you on our fourth quarter results, which we expect to release on Thursday, February sixth, 2025. With that, I will now turn the call over to David for closing remarks.

Thank you, John. As the comfort technology company with innovations that include Skechers Hands Free Slip-ins, Skechers Arch Fit, Skechers Air-Cooled Memory Foam, Hyper Burst, Fit Knit, and many more technologies, we are focused on designing product that consumers both want and need at a reasonable price and delivering it through their preferred distribution channels. Our consumer-centric philosophy and innovative and comfort-driven mindset across our diverse product portfolio is what differentiates us and is what drives us to excel and results in record-breaking sales. With fresh products to introduce, campaigns to support, and opportunities to explore around the world, we will continue to invest in the brand, our infrastructure, and our people. We remain committed to design best-in-class and best-in-value products for consumers and to profitably grow the company as we bring comfort to people from all walks of life.

As always, we are grateful for the contributions of the entire Skechers organization and our valuable partners as we deliver profitable growth this year and into the future. Now, I'd like to turn the call over to the operator for questions.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would 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 these stars. One moment, please, as we poll for questions. Our first question comes from the line of Jay Sole with UBS. Please proceed with your question.

Jay Sole (Managing Director and Equity Analyst)

Great. Thank you so much. David, John, my question is about domestic wholesale growth. 26% is a really big number. You mentioned that some of the drivers were increased capacity of your customers to, I think, add SKUs and just adoption of new technologies. Can you just elaborate a little bit more on, you know, where the growth is coming from, what categories, like, how you're able to achieve such high growth in domestic wholesale? Thank you.

John Vandemore (CFO)

Hey, Jay. I mean, we need to keep in mind where we were last year with the domestic wholesale marketplace, and we spoke quite a bit about the inability of certain customers, either because they had too much inventory, they didn't have an open-to-buy, to fully embrace our comfort technology products. And what you're seeing is after a year of maturation in market, and quite frankly, the success of those products, that those customers are coming back, and they're able to fully embrace the line. It is our comfort technology products that's succeeding in the market, both in our own stores, our own retail, online, as well as with our wholesale partners.

So the primary driver is an ability that was not there last year to really fully embrace the comfort technology message and product that Skechers is putting forward. And obviously, that's supported by the marketing that we're doing to really drive consumer awareness of the technology, of the products that incorporate the technology.

Jay Sole (Managing Director and Equity Analyst)

Got it. And maybe if we can also talk about India, it sounds like that market's seen some real progress in the last ninety days. Can you just tell us a little bit more about what you're seeing there? And just give us an idea of, you know, how important is India to future growth? Like, where, what kind, how big is the market today for Skechers, and where do you think it can go over time?

John Vandemore (CFO)

Well, you know, we're not going to say how big the market is, but I appreciate you asking. But it's an incredibly important strategic priority for the company. Keep in mind that we've been growing exceptionally well in India, really for the last, you know, eight to ten years. What you saw last quarter, as we mentioned, was a bit of an anomaly in our view, in part because of, you know, some of the regulatory changes that had been made that we had not yet had an ability to fully respond to. You saw some alleviation of that that allowed us to get inventory into the market in a concentrated way, and that really bore a lot of fruit this quarter.

In addition, as we mentioned in our prepared remarks, we are seeing tremendous progress in collaboration, you know, between our teams, our suppliers, and the regulators, that we believe will set the table for, you know, longer-term success, similar to what we've seen up to this point in time. So we remain optimistic. You know, there may be challenges ahead associated with incorporating, you know, a stronger supplier base locally, but it's something we're working on diligently. And again, you know, this quarter, I think, is the right example of when we can bring inventory to market in the right way, with the right balance across our product line. It succeeds and succeeds wildly in that market, and it's one we're very excited about for the future.

Jay Sole (Managing Director and Equity Analyst)

Okay, that sounds great, very helpful. John, thank you so much.

John Vandemore (CFO)

Great. Thanks, Jay.

Operator (participant)

Thank you. Our next question comes from the line of, Laurent Vasilescu with BNP Paribas. Please proceed with your question.

Laurent Vasilescu (Managing Director and Senior Equity Analyst)

Oh, good afternoon. Thank you very much for taking my question. David, John, I wanted to ask about the guide for top line. I know you raised the bottom end of the range a little bit. And obviously, you know, recent conferences, you talked about your expectations for China to be more muted for the back half. So I'm just curious to know what's the offset there that drove a little bit more, you know, upside for to the top line for the year?

John Vandemore (CFO)

I'd say you hit on the most sizable unknown at the moment, which is, you know, the market in China. We talked about that in our prepared remarks. Again, I would stress that long term, you know, we remain fully confident in our opportunity there as a brand. Our talented team there is working to adapt to the environment, you know, we're in. And so that's been the biggest net deduct from our view. But obviously, the strength of what we delivered this quarter gave us the confidence to raise that guidance, which if I recollect, is the second quarter in a row we've done that. That's on the back of the strength you saw, you know, domestically, you saw in international markets outside of China, really everywhere.

As we noted, you know, the wholesale growth across regions, if you exclude China, was all double digits. So what you're seeing is the product coming through, the brand coming through. I think the macroeconomic environment in China will resolve itself. I think it's just a question of how quickly and in what manner. Right now, I would tell you what we're eagerly watching is the early returns of Singles' Day, which has started out nicely. It's a long way to go, obviously, much like I would probably caution about the holiday season and the direct-to-consumer business as a whole, but so far, you know, what we've seen has been encouraging. We'll just wanna wait it out and see how the entire, you know, holiday plays out.

But that's kind of the net effect of what we changed in our guidance to bring it up by what I would consider to be not so small amount.

Laurent Vasilescu (Managing Director and Senior Equity Analyst)

Very helpful. And then maybe just a two-part question here. John, I think you mentioned the higher level of in-transit inventory, particularly around the West. Can you maybe kind of frame us, how much do you think leakage will go into four Q on revenues for top line as we kind of try to model out the EMEA? And then second part of the question is really on the gross margin. I think that's a little bit of a surprise for many, that the GM was down 80 basis points. You know, I could see a bridge for the wholesale on DTC gross margins. Maybe can you just try to provide a little bit more color? I think you talked about, you know, a little bit more discounting.

Maybe you can kind of frame how we should think about the fourth quarter gross margin for the audience. Thank you very much, John.

John Vandemore (CFO)

Let me touch on the gross margin first. You know, I would also just note, you know, we set an incredibly attractive gross margins vis-à-vis our historical norm. So, you know, even though we're seeing a little bit of volatility in between quarters, you know, we think the gross margin that we've established certainly reflects an intense and successful effort over the years to bring the gross margin up pretty significantly. So I don't wanna lose sight of that. I would say, you know, we had cautioned all along that with the factors at play, in particular on freight, but also the environment in China, also just the natural cadence of when you offer product on discount, we were gonna see a little bit of movement.

We didn't project that this gross margin was gonna see a leap like you saw last quarter. So it's pretty much in line with what we expected, probably with the caveat that some of the international markets that we've mentioned, you know, came under a little bit of pressure, most notably China. As we look forward, I would probably guide you to be, you know, flat to up a little, down a little for the fourth quarter as compared to last year. You know, we are seeing, and certainly we've talked about this, the impacts of the increased freight, particularly to Europe, but also to other markets that we incurred over the course of the early summer. We wanna see that roll through. That'll come through.

And that was also a bit of the offset, you know, at play in the current quarter. So I would say, you know, we get to kind of a flat gross margin, which would be, you know, an attractive gross margin, 53.1%, if I'm not mistaken. That's a good outcome in our view, given all that's going on. Relative to inventory, you know, two main factors there. Obviously, the sales performance in China was, as we mentioned, unanticipated. That almost always has a knock-on effect on the short term to inventory. It's one we're actively addressing. It doesn't give us any pause for concern long term, but it is a situation we'll have to remedy in the future, simply because our expectations there were not met.

The other is just a continuation of the in-transit issue we saw last quarter. I would say it definitely got better this quarter, but we're still dealing with some elevated in-transit numbers, particularly in EMEA, but also a little bit in a few other markets. But again, we expect that to remedy itself. And that's all, you know, that's all included in the guidance that we provided.

Laurent Vasilescu (Managing Director and Senior Equity Analyst)

Super helpful, John. Thank you very much, and best of luck for the holiday season.

Operator (participant)

Thank you. Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

Jim Duffy (Managing Director and Senior Equity Research Analyst)

Oh, thank you. Good afternoon. John, to start, a couple of clarification questions. In your prepared remarks, you talked about wholesale continuing to deliver strong growth in the fourth quarter, and you spoke to remedy of the inventory situation. Were those global comments or more specific to EMEA, which I think you were discussing just prior to each of those comments?

John Vandemore (CFO)

I would say it's a global comment. Obviously, you know, we have the weight factors that are, you know, probability weighted by market, so there's not, you know, one number. It's a range of perspectives, but it was intended to be a global indication, which again, you know, we take as a tremendous sign of the strength of the brand, to be able to continue to push forward at kind of a mid to high teens rate in wholesale would be fantastic. So that was generally intended to be a global.

Jim Duffy (Managing Director and Senior Equity Research Analyst)

Great. And then I wanted to ask on China, your comments at a conference mid-September preceded the announcement of stimulus. Since then, we've had Golden Week. Have you seen any uptick in consumer activity in the China marketplace since? Or is it really, you know, still quite stagnant? And if you could, in that context, speak to the pathway to remedy the inventory situation in China.

John Vandemore (CFO)

One thing we have to keep in mind is that there's been an adjustment. You're seeing the Double Eleven holiday has started earlier than in the past, so I'm not entirely confident that we're seeing a very comparable experience as compared to last year. I will say, as I mentioned previously, kind of the early reads so far are good, and we've been pleased with those. It's still too early, though, to make a you know, I think a firm comment on what we're seeing. I would say, as we noted in our prepared remarks, you know, we believe we've de-risked China going forward. And that's what we alluded to in some of the conference events that we spoke at earlier in the year.

I think that's de-risked pretty well in the forward guidance. What I think is remarkable in that, and I'd ask everybody to take note, is even with that this quarter, you know, we've shown pretty robust top line growth. And, you know, obviously, the guide is for, you know, additional top line growth that I think is fairly remarkable. So if you think about that in the context of our overall strategy, I think it speaks to the strength of the diversification geographically that we have in our portfolio, that I think is relatively unique. And I think probably one of the great strengths of the business, people don't fully grasp. Again, we think we've de-risked it. Early reads are generally positive, but still very early.

Jim Duffy (Managing Director and Senior Equity Research Analyst)

Great. Thank you.

John Vandemore (CFO)

Thanks, Jim.

Operator (participant)

Thank you. Our next question comes from the line of Alex Straton with Morgan Stanley. Please proceed with your question.

Alexandra Straton (Managing Director and Lead North America Softlines Retail & Brands Analyst)

Perfect. Thanks so much. Congrats on a great quarter. I just wanted to focus in just on SG&A here. It sounds like there might be an opportunity for you guys to curtail some of the selling expenses that ..., I'm just trying to understand kind of where should that go as a percentage of sales over time. It's definitely elevated versus history. And then really the same thing on G&A, just how you're thinking about that in the near term and long term, and where that can go from these elevated levels. Thanks a lot.

John Vandemore (CFO)

Yeah. So Alex, as we started the year, I think we were pretty clear about overinvesting early, on a marketing basis, in large part to really drive awareness for our comfort technologies and some of the newer categories we're launching. We had started that last year in the fourth quarter, so you know, as you look at it from a comparable basis in the fourth quarter, there's much, much less of a differential, you know, from a leverage, deleverage perspective. So I would say that, you know, we generally expect to see a little bit of leverage, out of marketing. It's also obviously a testimony to the strength of the top line that we're envisioning. I would also want to call out our distribution team did a great job.

We saw leverage there, and that, that definitely flowed through, and that's why you saw some G&A leverage. There also is, to be fair, a bit of incomparability because, as we noted in Q2, due to the delays from the supply chain, you know, some of the sales that we would have expected to occur in, you know, naturally in Q2 came through in Q3. You know, that's certainly something we had to work to achieve, though, it didn't come free. So again, I wouldn't want to take anything away from the leverage achieved, but there, there is, you know, with the sales, the record sales we posted this quarter, there's some, some leverage in that naturally. So I'd say, you know, in general, you know, we're looking forward.

I don't think there'll be significant, you know, leverage or deleverage in, you know, the OpEx base, you know, as it stands at the moment, but that is obviously predicated on a lot to come, in particular, the holiday season.

Alexandra Straton (Managing Director and Lead North America Softlines Retail & Brands Analyst)

Great. Thanks, John. Maybe just one more quick, bigger picture question. As you guys are kind of getting, it sounds like more traction with this comfort technology, or it's being more appreciated, maybe there's some restocking happening, and you guys are expanding into new categories. Is this, like, opening up what types of wholesale partners that you guys can work with beyond what you've historically done? Or, how is your kind of wholesale partner network changing, if at all?

David Weinberg (COO)

I don't think it's kind of early to see a major change in that, but we're getting tests, we're doing little pieces around the world. Our movement into technical athletics is positive for the brand in general, wherever it is, and we do a lot of our own sales online, direct to consumer, so there's plenty of outlets for it. This is just the very, very early stages, and I think we still have a ways to go before we become a major player in that field. But we are certainly taking some steps, and it's certainly working for us, and we're getting some positive feedback around the world, in some places, certainly more than others. So I think it's the early stages. We don't have any really preconceived notions.

You know, our goal has always been to make the product available, wherever consumers want to buy it. So I would think, and I do feel personally, that as we continue to build this, there will become a demand in some of those avenues that we haven't been in, and it'll give us an opportunity to get started.

Alexandra Straton (Managing Director and Lead North America Softlines Retail & Brands Analyst)

Thanks a lot. Good luck.

David Weinberg (COO)

Thanks.

Operator (participant)

Thank you. Our next question comes from the line of Chris Nardone with Bank of America. Please proceed with your question.

Christopher Nardone (Director of Equity Research)

Thanks, guys. Good afternoon. John, just a follow-up on U.S. wholesale. Can you elaborate on how your spring order book is faring? And just want to gauge your confidence in growing the domestic wholesale business next year, given the strength so far this year. Then also within the channel, just your assessment on the state of inventory, would be very helpful.

John Vandemore (CFO)

It's a little early to be talking about twenty-five. I mean, what I can say at this point in time, we've generally been pleased both with the early stage bookings that we've seen and the conversations we're having with our customers. You know, we just had an opportunity to have them in for a review of the product that's forthcoming next year. And I would characterize most of the conversations as very healthy and encouraging. But it's a little too early to be specific, Chris. So I'd probably leave it there.

Christopher Nardone (Director of Equity Research)

Okay. And just on the overall state of inventory in the channel, like, how are you feeling about that heading into the holidays?

John Vandemore (CFO)

Good. Good. We don't, you know. Again, we've talked about this last year, you know, we haven't seen any significant imbalances. I mean, you definitely need to look at it almost at the customer level, if not kind of the regional level. But when we do that, you know, we don't see any significant imbalances in the aggregate. You know, there's some spots here or there where you see some either, you know, sell-through outpacing inventory deliveries or the reverse. But I would say, in general, we feel pretty good about where inventory sit. Obviously, you know, the key holiday selling period is ahead of us, so, you know, we're gonna watch that carefully. But at the moment, I would characterize it as fairly balanced.

Even though we do have, you know, a slightly higher than planned inventory level in certain locations, it's all new inventory, you know, very little static inventory, even in China. We feel pretty good about the composition of the inventory we have, as well as that which is in the market.

David Weinberg (COO)

Yeah, I will tell you, in those meetings, the feedback has all been very positive. And I will tell you from an operational perspective, we don't have any backup at our distribution centers. It's not like anybody's looking to hold back, even though October, historically, for us, has been a very weak month as far as shipments to wholesale. This year, because we have been running late, no one's not taking it, and it will hold up significantly better for October. So there's nothing really that we see that anybody's backing away or has enough or too much inventory at the present time. And anecdotally, the comments we have on what we've shown our wholesale partners and even our own retail people, it's been very, very positively received.

So as we get new stuff into the marketplace, we'll have a better idea of how well that'll fare next year.

Christopher Nardone (Director of Equity Research)

Great. Thank you.

Operator (participant)

Thank you. As a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the queue. Our next question comes from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.

Krisztina Katai (Director of Equity Research)

Hi, good afternoon, and thank you for taking the question. I wanted to ask on ASPs, just to get a sense for the pricing dynamics play out for the fourth quarter. I know you will be lapping some more challenging compares on the domestic DTC side. And just how do you expect pricing to play out during the holiday quarter, as you just think about consumers continuing their value-seeking behavior? And just how do you see industry promotion? Have those changed at all, or how would you characterize the level of promotionality?

John Vandemore (CFO)

I would characterize promotionality as pretty stable. When we're using promotions, they are proving effective, so it's a pretty small envelope of promotions we're using, but those are the ones that have, over the course of the last year and a half or so, proven to yield results, so I would characterize that as stable. I think, you know, and some of the comparability on ASPs is gonna adjust in the fourth quarter, given where we were last year, and again, in that instance, we're talking about, you know, product that would have been on exclusion in the prior year, but because it's a year older, it starts to fold into some of our discounts, so that incomparability, of which I think this is largely the last quarter, that fades.

That all being said, I would look at the growth we have established, you know, in our guidance as largely volume-related. There'll be some price opportunity, we think, but largely volume-related, and then just looking back on Q3, I wanna stress that, you know, obviously, China being a sizable market to us, that had an impact on ASPs that can't be ignored, and that was obviously a reflection of the current conditions. To the extent those improve, you know, obviously, there'll be a pickup back through ASPs for us.

Krisztina Katai (Director of Equity Research)

Got it. That's helpful. And then just a follow-up I wanted to ask on India. Can you just update us where you are on your local sourcing strategy? Just what does capacity look like now? Anything you can share in terms of how much you can produce now within India to supply domestically, and then how should we think about that from a margin perspective as well? Thank you.

David Weinberg (COO)

We're working diligently every day, so it's a moving target. What we've done is, and part of this inventory build that you see, it's an inventory build in India, to bring it in as early as possible to give us more time on the higher end to build more. We've opened a number of factories. We're testing them. Our quantities grow. It's one of those things that's very much a moving target. I wouldn't anticipate any significant change in margins right this minute, as we move through, and certainly, it'll be should be some benefit to margin as you go through the long term. I think to John's point previously, it's a moving target. We're working on it diligently.

I think we're ahead of the game as far as most of our competitors are in getting that space and building that space and getting quality space and higher priced product as well. It won't be a straight line, so there may be some distortions along the way, but we feel extremely confident that we're early, that we're making positive progress, that we will be able to deliver. And in a relatively short period of time, it'll be an advantage to us rather than a disadvantage because of the early opportunities we took to get going and start moving this production along.

John Vandemore (CFO)

I would only add that we have a meaningful production base in country today. The reality is, you know, we produce a very wide array of product, and what we're able to produce locally isn't a complete match to that entire breadth. So it's less about just pure production capacity, 'cause we have a very sizable production base in India today. There's just certain categories, certain products that we are not yet able to produce in that market. So in order to offer the consumer the full array of product we want to bring to the Indian people, we still need to mix in some imports until we, you know, build the market up to be able to produce most of what we need.

It's not that we don't have production capacity. We actually have, as David noted, I'd say probably a leading amount of production capacity. It's just not the breadth of the product yet that we would want to offer.

Krisztina Katai (Director of Equity Research)

Thank you. Best of luck.

John Vandemore (CFO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of John Kernan with TD Cowen. Please proceed with your question.

Krista Zuber (Analyst)

Good afternoon, this is Krista Zuber on for John. First question, could you talk to what you're seeing in terms of same-store sales growth and e-commerce growth, and sort of new store productivity? It looks like there's been a fair amount of door growth, both domestically and internationally, in the past twelve months. And then I have one follow-up. Thank you.

John Vandemore (CFO)

So I would say, and not getting into too much detail, but as we noted in our prepared remarks, we saw continued strength across the world on e-commerce. That's, you know, domestic and all the sites that we've opened over the last couple of years, internationally. International comp store growth was very solid, continued to be very big element of what we were able to deliver from international DTC. The U.S., you know, we were sitting on top of some pretty impressive growth numbers last year, 14% in the quarter. I would say we generally were, you know, about flat in the market. That does, you know, imply that with new stores, we saw some give back, but I would characterize it as pretty minimal.

And in the end of the day, we're pretty happy to be holding on to the rather substantial increases we saw last year. You're right, there have certainly been a significant number of new doors and, you know, more doors to come. Recognize, though, that it takes time for those doors to get up to productivity. So sometimes there's always a catch-up adjustment, and that's obviously a number that wouldn't be in the comp numbers, but would be in the total only.

Krista Zuber (Analyst)

Great, thank you. And just circling back on the G&A, could you just talk to some of the efficiencies you're seeing within the supply chain that's driving, you know, the leverage that you saw in Q3 and the expectation going forward? Thank you.

John Vandemore (CFO)

It was really, in this quarter, about labor management, which is always a significant component of, you know, how we deal with the volatility in product flows that inevitably occurs over the course of a year. In addition to that, there were some other pinpoint practices that we went after that we were able to achieve some I would characterize as, you know, meaningful cost reductions on. But I would think generally considering them part of the distribution network is the right way to think about them. You know, we're optimistic we can harvest some more of those over the remainder of the year, but in part, it is contingent upon, you know, how goods arrive and how quickly we have to process them.

To David's point, I think we did an incredibly good job of meeting, you know, many of the delivery times, even though we were experiencing some, you know, delivery issues, particularly in Europe. So, kudos to the team that was able to achieve that, given the conditions in the marketplace were less than ideal.

Operator (participant)

Thank you. Our next question comes from the line of Paul Kearney with Barclays. Please proceed with your question.

Paul Kearney (Vice President and Equity Research Analyst)

Hi, everyone. Thanks for taking my question. On EMEA, can you speak to the drivers behind that 30% growth, given some of the challenges in the region? And then how do you think about that growth for Q4, given what appears to be an easier comparison? Then I have a quick follow-up.

John Vandemore (CFO)

It's, it's largely the same thing that we've seen really over the last couple of years: consumer demand. I think, you know, as we bring more of our own stores into markets where the brand, you know, either hadn't been participating yet or, you know, was in a suboptimal situation, we've tended to see an acceleration on the DTC side. But it's, it's a reflection of the strength of the product. I think the, you know, the comfort technology message resonating in markets supported by, you know, active advertising, that's really been the case.

You know, for the last couple of years, we've all been wringing our hands about the conditions in that market, which are certainly there, but it hasn't yet shown itself to, in any way, diminish, at least for the Skechers brand, you know, consumer interest in what we're offering. So quite frankly, I don't mean to be glib, but it's the product, it's the advertising that supports it.

Paul Kearney (Vice President and Equity Research Analyst)

Yeah. Thanks. And the follow-up is on inventory, and wondering if you can help frame how much of the increase in the quarter was driven from higher levels in China versus higher in-transit in EMEA? And then on the China piece, what are your expectations for how long until inventory levels can normalize in the region? Thank you.

John Vandemore (CFO)

Yeah, I would just, without getting into too much specific detail, I'd say China was the single largest driver, and then in-transits were the second. In many markets, on-hand inventory levels actually decreased. So it gives you a flavor. Those are really the contributing factors, but in that order, China and then in-transits. I would say, you know, how long it takes to remedy, particularly the China situation is gonna be, you know, largely contingent upon what we see over the next two months, particularly around Singles Day, because that's a very significant event. But I would note, it's obviously a focus of the team there. You know, they know it's a priority. We know it's a priority. It's something we're going to make sure, you know, we resolve.

Importantly for us, because it then allows new product to get into the market, and we know that's what really drives the consumer at the end of the day. So I wouldn't expect it to be, you know, a long event, but it is somewhat contingent upon what we see in sales activity over the next couple of months.

David Weinberg (COO)

Yeah, I think it's a good idea to remind everybody that we have the capacity to move that inventory around the world. It's not like it's stuck in China, stays in China. We've shown in the past, and we're very adept at moving that inventory around depending on where demand is. And since we have very few, just special makeups for China, that's outside our normal range, there certainly are some mitigating circumstances, like sizes, colors, et cetera, that we move. But we make that available around the world, and we certainly take a look at it as we exit this year. As John says, once we see how good Singles Day is and how we've done with liquidating that inventory, then we'll take the best efforts to move it around the world to those places where it's necessary and just fill in.

It's a matter of timing. There's nothing that we think is old or debilitating in that inventory per se, that can't be moved around the world in a relatively short period of time.

Paul Kearney (Vice President and Equity Research Analyst)

Perfect. Thank you so much. Best of luck.

John Vandemore (CFO)

Thanks.

Operator (participant)

Thank you. Our next question comes from the line of Jesalyn Wong with Evercore. Please proceed with your question.

Jesalyn Wong (Vice President and Equity Research Analyst)

Hi, thanks for taking our questions here. I would like to ask a little bit more on China weakness. Could you just give us a little bit more details on where it was below expectations? Do you think the weakness was driven more by overall macro, or do we think that we missed on some opportunities and sales in the region?

John Vandemore (CFO)

It was a macro condition. I don't think there's anything that would suggest it wasn't, given the myriad of data we've seen from other brands. But also, just if you look at where the business underperformed what we had originally thought, it's pretty universal. So I think we're pretty confident in saying it's a macro condition. It's not a condition specific to the brand.

Jesalyn Wong (Vice President and Equity Research Analyst)

Got it. And, and when I look at guidance, it seems to implies that the second half operating margins, versus prior guidance is guided down. So I was wondering if there's any change to our expectations, to the fourth quarter operating margins there?

John Vandemore (CFO)

We hadn't previously given anything specific on fourth quarter operating margin. You know, obviously, as we have adjusted our forecast, we have to take into consideration the flow-through effect and what that means. I would say most notably, our expectation remains that we will be delivering double-digit operating margins this year. And that's, I think, something to be celebrated. We've talked about that for a while being an objective. It's not the end point, but it's a way point, and, you know, we'd be pretty excited to get there this year, which is our full expectation at this time.

Jesalyn Wong (Vice President and Equity Research Analyst)

All right. Thank you.

John Vandemore (CFO)

Thanks, Jesalyn.

Operator (participant)

Thank you, and we have reached the end of the question and answer session, and therefore, we have reached the conclusion of this call. We do thank you for your participation. You may disconnect your lines at this time.