Skechers USA Inc (SKX) 2021 Q1 法說會逐字稿

Thank you for standing by.

This is the conference operator.

Welcome to Skechers' First Quarter 2021 Earnings Conference Call.

(Operator Instructions)

I would now like to turn the conference over to Skechers.

Please go ahead.

Thank you, everyone, for joining us on Skechers' conference call today.

I will now read the safe harbor statement.

Certain statements contained herein, including, without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events may constitute forward-looking statements that involve risks and uncertainties.

Specifically, the COVID-19 pandemic has had 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-19 pandemic include, without limitation, the company's plans in response to the pandemic.

At this time, there is significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic.

The dynamic nature of these circumstances means that what is said on this call could change at any time.

And as a result, actual results could differ materially from those contemplated by such forward-looking statements.

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-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other reports filed with the SEC as required by federal securities law for a description of all other significant risk factors that may affect the company's business, financial condition, 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?

Thank you for joining us today for our first quarter conference call.

I hope you, your colleagues and loved ones are staying safe and healthy.

As the COVID-19 pandemic continues to be a global challenge, we remain dedicated to the safety of everyone in the entire Skechers organization and appreciate their ongoing efforts and resiliency during this difficult period.

While in many countries restrictions are easing, our thoughts are with those regions facing another coronavirus wave.

As is the case with most businesses, the pandemic continued to impact Skechers.

But the high demand for our comfort technology product resulted in a strong beginning to 2021 and it feels reminiscent of 2019.

In the first quarter, we achieved revenue growth of 15% over the same period last year, which resulted in our first quarterly sales of more than $1.4 billion.

This was done while parts of the world remained closed due to the pandemic.

The $1.43 billion first quarter sales were also an 11.9% increase over first quarter 2019, which was then a record for the period.

Driving the record sales was a 20.2% increase in our international business and an 8.5% increase in our domestic business.

This double-digit growth drove international sales to 57.8% of total sales in the first quarter.

Throughout the quarter, we focused on delivering our footwear and apparel to meet the needs of both our consumers and customers.

Our sell-throughs across customer types and categories exceeded expectations in many markets, and we were able to deliver double-digit growth.

Skechers' mission of delivering comfort, style and quality and innovation at a value resonated with consumers prior to the onset of the COVID-19 pandemic and the same is true now.

Consumers are returning to a new normalcy, one that involves more walking, more comfort on the job and a casual lifestyle mindset.

We are a natural choice for any demographic worldwide with comfort technology at our core.

The record sales are a testament to the fact that consumers appreciate our product offerings, which was seen by the success across many divisions.

Our international wholesale business grew 23.8% for the first quarter last year and 13% from 2019.

The quarterly sales growth was driven by an increase of 174% in China, which was severely impacted by the pandemic in the prior year.

However, even as compared to 2019, China grew 45.5%.

The international wholesale growth was partially offset by decreases in our subsidiary and distributor businesses.

Subsidiary sales decreased 4.8% from 2020 but improved 4.2% from 2019.

The first quarter 2021 decrease was due to temporary closures and reduced operating hours in Spain and Italy, and especially in the United Kingdom, where businesses were closed for the entire quarter.

When markets were open, sales were strong, including in Germany, India and Canada.

Our distributor business was down 6.5% from last year, yet several markets experienced growth in the quarter, specifically Russia, Taiwan, Turkey and Ukraine.

We believe we will continue to see improvements in our distributor business in the second quarter and the remainder of the year.

Sales in our domestic wholesale business decreased less than 1% in the first quarter compared to the same period in 2020, but improved 8.1% compared to the first quarter of 2019.

We believe sales in our domestic wholesale business were negatively impacted by logistical challenges, which caused slower replenishment and product shipments to some accounts.

Key sales drivers came from multiple categories with the largest gains in our women's sport, kids, work and men's performance.

Additionally, the average selling price per pair increased 2.7%, reflecting the strength and appeal of new comfort products and technologies.

Skechers' direct-to-consumer business increased 18.1% over 2020 and 13.1% over 2019 despite the fact that domestic operating hours were reduced by approximately 15% during January and February and 7% in March.

In our international company-owned stores, we lost 37% of the days available to sell during the quarter.

Our domestic direct-to-consumer sales increased 28.4% compared to the first quarter of 2020 and 18% compared to 2019.

This improvement came from our domestic e-commerce channel, which grew by 143% and our brick-and-mortar stores, which grew by 13.6%.

Our domestic direct-to-consumer average selling price per unit rose 10.9%, which speaks to the strength of our current product offering.

While we expected our e-commerce business to continue to perform exceptionally well, we were pleased with the increased traffic and sales in our domestic retail stores, especially in March, which we believe improved as more people became comfortable shopping and we ramped up our marketing efforts.

We have now completed the update of our point-of-sale system, which further optimizes our domestic direct-to-consumer channels and will continue to improve our omnichannel capabilities.

We are now focused on rolling out this same platform worldwide.

Our e-commerce channel remains a meaningful growth opportunity as sales increased significantly across the globe.

We plan to expand our e-commerce reach across Europe, beginning with a new site in Ireland and the revamp of our U.K. site this summer.

Our international direct-to-consumer business increased 1.9% over the first quarter of 2020 and 4.4% over 2019.

The growth was largely attributable to our company-owned e-commerce sites and the strength of our sales in Korea, India and Thailand, partially offset by ongoing temporary store closures due to stay-at-home guidelines across many markets, most notably in the United Kingdom.

While we are seeing some markets reopening this month, including England last week, other countries have extended or reinstated their lockdowns.

Given the unpredictability of the coronavirus and its impact on many markets, we remain cautious about a return to normal traffic and sales in many international stores.

In the first quarter, we opened 12 company-owned Skechers stores, 6 of which are in international locations, including our largest store in India.

We have opened 7 stores to date in the second quarter, including our first in Antwerp.

We closed 20 locations in the first quarter as we opted not to renew expiring leases, and we expect to close one additional store at the end of this month.

An additional net 106 third-party Skechers stores opened in the first quarter, bringing our total store count at quarter end to 3,989.

The stores that opened were across 16 countries, with most located in China and India.

To support the open regions during the first quarter, we ramped up our marketing efforts to drive home our comfort message.

This included former professional quarterback and lead NFL commentator, Tony Romo, in a Max Cushioning commercial during the Super Bowl and NFL coach, Jon Gruden, and sports analyst, Howie Long, in new commercials for Skechers Arch Fit as well as Brooke Burke featured in Arch Fit and Skechers apparel commercials during the quarter.

Our new campaign ran on television as well as digital platforms to support key initiatives for men, women and kids.

In the first quarter, we were awarded Company of the Year by leading industry publication Footwear Plus for the ninth time in 15 years.

This was due to our efforts during the challenging 2020 year and our ability to deliver to consumers the comfort they wanted.

We are pleased with our performance in the first quarter and think this was a solid beginning, especially given the ongoing pandemic-related difficulties most recently impacting our international business, which now represents 58% of our total sales.

While many markets continue to face challenges, we are seeing strong signs of recovery and remain focused on delivering our comfort technology and managing the flow of our inventory to fulfill demand where we are open and drive sales where possible.

Now I'd like to turn the call over to John.

Thank you, David, and good afternoon, everyone.

The Skechers brand performed exceptionally well this quarter despite ongoing challenges posed by the pandemic, including continuing store closures and operating restrictions in many markets across the world.

The quarter began as expected with the pandemic continuing to influence tepid consumer trends worldwide, especially as many markets reinstituted lockdowns.

However, mid-quarter, we began seeing signs of consumer engagement and optimism domestically that we have not seen in over a year.

That led to results in March that even exceeded our own internal expectations, reflecting high demand for the Skechers brand.

Although we remain cautious given the nature of government responses to COVID-19 globally, we are optimistic that our first quarter results are indicative of the power of our brand as the world begins to recover from the pandemic.

Now let's turn to our first quarter results, where you will note that due to the unusual nature of last year, we will occasionally compare to both 2020 and 2019, where we feel the added measure is beneficial to evaluating the performance of our business.

Sales in the quarter achieved a new record totaling $1.43 billion, an increase of $186.1 million or 15% from the prior year and an impressive 11.9% increase over the first quarter of 2019.

On a constant currency basis, sales increased $145.9 million or 11.7%.

International wholesale sales increased 23.8% in the quarter compared with the first quarter of 2020 and 13.4% compared with the first quarter of 2019.

Our joint ventures grew an impressive 120% in the quarter, led by China, which grew 174% against prior year results which contain the most severe impacts of the COVID-19 outbreak.

As compared to the first quarter of 2019, China grew 45.5% driven by strong e-commerce performance.

Subsidiary sales declined slightly in the quarter by 4.8%, primarily as a result of continuing closures in Europe and Latin America.

However, as compared to 2019, our subsidiary sales grew an impressive 4.2% despite the current year operational restrictions.

As expected, our distributor business continued to face pandemic headwinds in the first quarter, decreasing 6.5%, but saw a marked improvement as compared to the second half of 2020.

Although we continue to expect this portion of our business to recover more slowly than the overall international wholesale segment, we remain optimistic that we will ultimately see a full recovery of sales in this important channel.

Domestic wholesale sales decreased slightly in the quarter by less than 1%, primarily due to the unfavorable timing of shipments to customers, which we now expect to occur in the second quarter.

Compared to the first quarter of 2019, sales increased 8.1%, which we believe is more reflective of the positive underlying trends we are seeing with the majority of our domestic wholesale partners, particularly based on sell-through we observed in the back half of the quarter.

Direct-to-consumer sales returned to growth in the quarter, increasing 18.1%, the result of a 28.4% increase domestically and a 1.9% increase internationally.

The results reflect a slight benefit from the pandemic store closures in the prior year, but more importantly, also reflect a notable 143% increase in our domestic e-commerce business and a significant increase in store traffic and sales in March, a trend that has continued.

Gross profit was $679.6 million, up 24.1% or $131.9 million compared to the prior year.

Gross margin was 47.6%, an increase of 350 basis points versus the prior year primarily driven by increases in our average selling price across all segments as well as a favorable mix of online sales.

Total operating expenses increased by $19.9 million or 3.9% to $528 million in the quarter.

Selling expenses increased by $11.2 million or 15.2% to $85.3 million, which was flat as a percentage of sales versus last year.

The dollar increase was primarily due to higher domestic digital demand creation spending as well as the reopening of certain markets internationally.

General and administrative expenses increased slightly by $8.6 million or 2% to $442.7 million, which was primarily the result of volume-driven expenses in warehouse and distribution for both our international and domestic e-commerce businesses.

This was partially offset by lower retail labor costs.

Earnings from operations was $157.7 million versus prior year earnings of $44.8 million.

This represents an increase of 252% or $112.9 million.

Operating margin was 11% compared with 3.6% a year ago and 13% in 2019, reflecting strong combination of top line performance and operating expense leverage despite ongoing pandemic-related challenges.

Net earnings were $98.6 million or $0.63 per diluted share on 155.9 million diluted shares outstanding.

This compares to prior year net income of $49.1 million or $0.32 per diluted share on 154.7 million diluted shares outstanding.

Our effective income tax rate for the quarter was 20.2% versus 15.3% in the same period last year.

The increase was predominantly due to an unfavorable mix of earnings from higher tax jurisdictions.

And now turning to our balance sheet.

We ended the quarter with $1.51 billion in cash, cash equivalents and investments, which was an increase of $148.2 million or 10.8% from March 31, 2020.

Trade accounts receivable at quarter end were $798.8 million, an increase of $2.6 million from March 31, 2020.

Total inventory was $1.07 billion, an increase of 8.3% or $81.8 million from March 31, 2020.

The increase is largely attributable to higher inventories to support growth in China and government closures in Europe.

Total debt, including both current and long-term portions, was $779.7 million at March 31, 2021 compared to $699.8 million at March 31, 2020.

Capital expenditures for the first quarter were $84.2 million, of which $42.9 million related to the expansion of our joint venture-owned domestic distribution center, $13.8 million related to investments in our new corporate offices in Southern California, $12.4 million related to investments in our direct-to-consumer technology and retail stores and $3.6 million related to our new distribution center in China.

Our capital investments remain focused on supporting our strategic growth priorities, growing our direct-to-consumer relationships and business as well as expanding the presence of our brand internationally.

For the remainder of 2021, we expect total capital expenditures to be between $200 million and $250 million.

Now turning to guidance.

First, let me preface by saying that we remain in a dynamic situation where conditions can change materially at any point in time.

As a result, assessing the ongoing impact of the pandemic to our business is difficult.

Incorporated into the following guidance is our best estimate of the influence of these factors on our expected results for 2021.

However, if the situation deteriorates and closures continue longer than anticipated, our expected results may differ materially from this guidance.

That being said, we are providing a perspective today for our second quarter and full year 2021 results based upon current trends, backlog and other indicators.

We expect second quarter 2021 sales to be in the range of between $1.45 billion and $1.5 billion, and net earnings per diluted share to be in the range of between $0.40 and $0.50.

For fiscal year 2021, we expect sales to be in the range of between $5.8 billion and $5.9 billion, and net earnings per diluted share to be in the range of between $1.80 and $2.

We also anticipate that gross margins for the full year will be flat or up slightly compared to 2020 and that our effective tax rate for the year will be approximately 20%.

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

Thank you, John.

We achieved a new quarterly sales record over $1.4 billion due to the strong demand for our comfort technology footwear in markets where we are open.

International, which is approximately 58% of our total sales, was the biggest driver, but we saw strong improvements in our domestic business with increasing traffic in March and now in April.

The achievement came despite ongoing pandemic-related issues.

We drove sales through strong marketing campaigns across multiple platforms, continue to roll out our BOPIS and BOPAC initiative in the United States and plan for additional e-commerce sites in 2021.

To further support our business in the coming years, we are in the process of enhancing our infrastructure with new distribution centers in Peru, the U.K. and Japan.

In addition, our new 1.5 million square foot China distribution center remains on track for full implementation by midyear.

Given today is Earth Day, I'd like to note that we are continuing to work on the expansion of our LEED Gold certified North American distribution center, which will bring our facility in Southern California to 2.6 million square feet in 2022.

We are also completing construction on Phase 1 of our new LEED Gold certified office buildings and we are increasing efficiencies in our existing corporate office buildings, including the addition of solar panels.

Although we remain cautious given the ongoing temporary closures in many countries, we are seeing the improved traffic that we experienced in March continue in April where markets are open.

The demand for our product is strong as consumers want familiarity, comfort, quality and value, all of which the Skechers brand delivers together with innovation and style.

Now I'd like to turn the call over to the operator for questions.

(Operator Instructions) Our first question comes from the line of Jay Sole with UBS.

Great.

So my question is first about the domestic comp, 25.7%.

Can you give us a sense of what the contribution was from online versus stores and give us maybe a little bit more color about how the business trended from January to February and then into March?

Yes.

I would say, in the early part of the quarter, January, probably through about mid-February, e-commerce continued to demonstrably outperform the business.

Traffic patterns were still somewhat depressed, both domestically and obviously with closed markets internationally significantly.

What we saw in March is, and really the last part of February, March as our marketing began to take hold and relaxation of guidelines to close stores and keep them restricted relaxed, is just both channels went north significantly.

Obviously, we have a more significant store base than our current online offering, but both grew tremendously in the back half of the quarter evidencing, like we said, the very strong demand for the brand that we saw was out there.

I would note, Jay, though, we also saw that demand in the sell-throughs for our domestic wholesale partners.

So it was pretty broad-brush demand for the brand evidencing itself in both segments.

Got it.

Okay.

If I can ask you about the international distributor business.

John, I think you mentioned that there was a pretty significant, I think you called it a marked improvement in the quarter versus the second half of last year.

Do you expect the same type of improvement quarter-over-quarter in 2Q for that business?

Can you just tell us about how you see that business getting to, the timing of when it gets to full recovery?

Yes.

If you're looking at it relative to 2020, I think you can expect to see a similar improvement that you saw in Q1, probably a bit better, as you start to look at 2020, where we started to experience some of the declines last year.

If you look at it relative to 2019 as well, you're still going to see a challenge, which is kind of our high-water reference point and what we're aiming for the business to get back to.

But overall, yes, you'll see significant improvement going through Q2 to Q4 because we start to lap the effects of last year, which were pretty severe.

Okay.

Got it.

And maybe one more for me, if I could.

There's a really big increase in the retail segment gross margin and the international segment gross margin.

It sounds like a lot of that was ASP, maybe some mix.

Can you talk about why the gross margin guidance for the year is only flat to up slightly?

Is it that you see some of the ASP gains sort of onetime in nature just because of the unusual environment with stimulus and whatnot?

Or if you can maybe talk about some of the puts and takes that are going into your gross margin forecast, that would be super helpful.

Yes.

I mean the ASP experience, we don't expect to subside.

I mean, the brand is selling well.

Our comfort technologies that David referenced in his comments are performing exceedingly well.

We do expect, as we talked about, there are some input cost pressures materializing in the back half of the year, plus that mix benefit gets a little less pronounced because it is, this quarter, in particular, largely e-commerce influenced.

As the rest of the retail business comes back into play, that has a slight downward pressure.

Keep in mind, though, we're generating more dollars overall, so it's definitely a good story at the end of the day.

But I'd most importantly point out, that ASP success is a true reflection of the quality of the product and how well it's selling through because, again, we see that in our stores.

We see that in our partner doors.

And it's a reflection of people wanting the product and the technology that we're offering today.

Yes, Jay, I'd reinforce the fact that it's a mix issue.

As distributors come back, obviously, they have a lower impact on gross margin.

And when you talk about gross margin and ASPs, they're not often the same frame.

We can keep the same margins with higher ASPs and end up with higher-margin dollars, which is our goal to begin with.

So we anticipate that the margins will hold in there even with the increase in lower-margin businesses and the ASPs will stay higher so we'll be a much more efficient company as we go through with this.

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley.

Okay.

Great.

Fantastic, really nice quarter, guys.

And I wanted to ask about the ASP, just following up on Jay's question.

It sounds like you expect the strong ASP to continue but the aggregate mix of ASP for the business will change just as the various pieces of business come back.

Am I hearing you correctly on that?

I just want to make sure I've got a good understanding.

Yes.

Absolutely.

And so I'm just trying to think about if there is any sort of supply/demand imbalances out there that could be influencing ASP one way or the other and if you feel like you're in a good inventory position or if there are any, let's say, supply issues that may be helping ASP at the moment that you would expect to unwind later in the year?

Well, we think our inventories are in great shape.

As far as creating demand, it's not something we would do.

We deliver at the prices we committed to.

This was in the cards to begin with.

I think what it shows is less markdown cadence and a stronger base for our higher-priced items as this comfort technology that we've been developing and putting in multiple shoes is now coming into its own.

So we have less markdowns.

We have higher ASPs in our own retail.

We assume all around the world our wholesale partners will continue to take the benefit as well as they open up.

There were probably some imbalances as we moved along, but we never raised prices or changed anything for it.

That just was part of our mix.

I think we actually handled the imbalances as well as anyone.

We weren't significantly late.

We delivered most on time.

We were able to move things from countries that had closed down to countries that we're operating.

It's part of our core competency.

So I think logistically, we came through this as well as we could anticipate and sort of spread the wealth to everybody we deliver to.

Our next question comes from the line of Jim Duffy with Stifel.

Terrific quarter.

Thank you.

Thank you.

And thanks for the guidance.

With the inventory, it looks like you've left yourself in a good position to capitalize on improving demand should that materialize 2Q, 3Q and so forth.

John, just looking at the guide, the second quarter and full year guide implies you'll be more than halfway to the full year earnings guide at the midpoint of the year.

Is there some significant incremental expense to flag in the second half of the year or is this just conservative assumptions on revenue and margin?

Well, like many, we derive our guidance based on a number of different scenarios we run.

The reality is, mix has a pretty big impact here.

It really depends on what happens relative to, for example, the international retail market.

So there's some latitude there.

I would just note broadly, we are seeing a higher tax rate this year, which I'd urge you all to incorporate because that's something that we feel is durable for the remainder of the year.

And we have had some exposure to FX to the downside, which we saw this quarter.

This quarter, we lost probably about $0.05 on an FX charge.

So we're incorporating all of that at once, but given the dynamics of the market, we felt this is a prudent way to give a range you could rely on.

And then we'll obviously be working as hard as we can to get better than that.

Given the significant unknowns on mix and influences there, it felt like a prudent path for us.

Got it.

I'm glad you mentioned the tax rate.

I was penciling like an 8% operating margin at that earnings number, but it seems like it's probably a higher tax rate, and therefore, higher operating margin than that.

I wanted to ask just kind of parsing out the strength in the quarter, a number of different variables to consider.

Your advertising was notable and highly visible.

That clearly drove traffic.

Did you see that immediately turn on the business in the e-commerce as you started to air the ads for some of the campaigns like the Max Cushioning and so forth?

Yes.

I mean, it absolutely had an impact.

I think quantifying it specifically is a little challenging.

Our advertising was extraordinarily well-timed.

It hit as you were seeing many markets relax restrictions on traffic for consumers.

And then it also, about the same time, you saw the third round, I guess, of stimulus hit.

But there's no doubt it had an impact.

And we saw it across the board.

We saw it in e-com.

We saw it in the stores.

We saw it in our partner doors.

It was tremendously effective.

And as it was noted in the commentary, was focused on our comfort technology products, which are the ones that are really performing exceptionally well at that ASP level.

So it was a great combination and a great success for us.

And we should point out, it worked around the world as markets opened.

And there was a great demand created just from the lockdown.

Our advertising, we feel, pushed it dramatically in our direction, which is why we performed so well in countries that had just opened up.

Great.

And last one for me, just on the advertising, can you speak about plans for timing of advertising across the remaining quarters of the year?

We don't anticipate anything out of the realm of normal on a relative basis.

So I would encourage you to look at where we generally sit in different times of the year on a percent of revenue basis.

Nothing outlandish anticipated there.

And Jim, just a follow-up on, you didn't ask, one other thing to highlight on that EPS guide.

As the mix tilts towards a market like China, there is a minority interest impact, too.

So that's one other thing to consider as you kind of pare down from an operating earnings perspective down to EPS, more heavily tilted towards a market like that, there is some minority interest impact that gets taken into consideration.

Our next question comes from the line of Omar Saad with Evercore ISI.

I'll add my congratulations as well, really exceptional quarter, guys.

Two quick questions, number one, Europe, it's an important market for you guys.

We've been hearing from a lot of other companies that it's still pretty tough there, a lot of closures.

I mean, obviously, you've put up really impressive global numbers.

Can you talk about Europe specifically, how much it was or wasn't a drag in the quarter?

And then I have a follow-up on China.

Yes.

As we said in our prepared remarks, it was down slightly from last year and up from 2019.

We thought it was a very strong performance in those countries that were open.

So if you look through the countries, they're obviously a dichotomy of those open, those closed and those that had second waves as they came through.

I think it's true to say that in the times we were open, no matter where we were open, we sold very well.

And I think because of how well we performed in the first openings in Europe last May, June and July, a lot of people felt they were short product going into the second closure, especially in the U.K. and more predominantly in Germany and places like that.

So they accepted a lot.

They wanted to come out of this closure fully stocked, especially with our stuff because it performed so well.

So that helped our wholesale business in Europe, which was outsized to the number of stores that were closed so.

And we talked about, that's one of the things we take into account also when we did our guidance because we filled up so dramatically in places that were closed on our wholesale business.

The longer it takes to reopen may have some kind of minor impact in the back half of the year.

So the sooner they open, we certainly have upside to wherever we stand because the performance is that good and everybody that has our inventory is depending on it.

Got you.

That's helpful color.

And then quickly on China.

I think it sounds like it's up 50% versus pre-COVID levels in the quarter, which kind of like puts you back on the prior trend.

It seems like that you're getting a lot of pent-up demand there.

Is that a fair characterization or is it new customers coming into the brand?

Can you tell where this really incredible numbers in China, where the various sources of demand are and how big of a market can China become for you guys?

It seems like there's a lot of runway there.

And then are you seeing any impact from the boycotts of some other Western brands around the Xinjiang issue?

Well, we're always dependent on new customers, and China does have 1.5 billion people and more and more are coming to the middle-class or can afford the footwear as time goes by.

So we think there's, well, we hate to say unlimited, but there's not as much potential as there is anywhere in the world as we go to China.

As far as the boycott, we haven't seen anything as yet, although we're obviously aware of it.

And we have posted our own statements online.

We ask everybody to read them rather than go into a political conference as far as the conference call is concerned.

China is a great marketplace for us.

And obviously, we don't want to do anything that would, whether it's PR or political, do anything to do with those boycott plans or anything like that.

So we try to keep as clean as we can and as far away and just watch our own business.

I would add, Omar, the e-commerce business performance there has performed exceptionally well.

Part of that is obviously the natural trend in China to position online.

But you have also seen as a result of the pandemic an even heavier influence on e-commerce success in the marketplace.

And we've definitely reaped the benefit of that.

Our next question comes from the line of Gabriella Carbone with Deutsche Bank.

Congratulations on a great quarter.

Thank you.

So just bigger picture, how do you view the opportunity in the domestic wholesale channel, especially given the fact that a large competitor plans to pull out of some major retailers?

And then if you can just touch on the logistic issues that you mentioned in 1Q and how you see that playing out?

Yes.

I would first start off by saying, we feel like we've earned our performance in domestic wholesale.

The last 2 quarters of 2020 were very good.

We are seeing very good underlying trends.

We ran into a timing issue this quarter.

We are very optimistic about the balance of the year.

But that's, we think, largely earned by the strength of our product.

We welcome all of our competitors to pull out of the wholesale market if they so choose because we stand ready to serve those customers.

Many of them, we work very closely with to support the brand.

David mentioned, we work with them to support the price, especially on our comfort technology products because we believe that's a winning opportunity for everybody.

So we remain optimistic.

We're proud of what we've accomplished, especially because it's still a mixed bag of results out there.

Although we were very happy to see that the majority of our customers performed very well as markets emerged and as retail businesses started to see better customer traffic channel trends.

Great.

And just a quick follow-up.

Just was wondering if you can dig into products a little bit more on how you're seeing trends evolve as we kind of move into the recovery phase of the pandemic.

Well, we are into that comfort technology footwear, which I think fits very well.

And the product, it's across a broad range of product and product looks and certainly styling, but we're into comfort and style.

So we have it everywhere, and we constantly are creating new categories that we can compete in.

So I think even now, as we go through it, people are into more comfort and we're a company that is dependable as far as delivering orders through difficult times.

So I think we're seeing both, the styling, the product, the inventory, also the sell-throughs as we go through this, created quite a demand for the product.

We actually could ship significantly more if we had brought it in early enough.

But we try to sit back and let the market come to us.

And we know there's a high demand and we're turning our inventory certainly on the wholesale level very quickly, which means there's a high demand for the product and prices should hold up, and we sit in a good place.

Our next question comes from the line of Laurent Vasilescu with BNP Paribas.

John, I think in the press release it talks about domestic wholesale business decreasing 0.9% due to timing of shipments, just 2 quick points of clarification.

Was that a shipment delay from 4Q to 1Q or 1Q to 2Q?

And can you possibly parse out the size of that shipment?

I knew somebody would ask.

I didn't know it would be you, Laurent.

It was a shift from first quarter to second quarter.

We had a variety of logistical challenges we had to face that David referenced.

Our team did a great job, by the way, net-net, overcoming most of those.

This was just a timing situation.

I don't want to get into a full quantification, but we would have seen a result similar to, if not slightly better than, what we saw the last half of 2020, definitely would have been up, and we expect that to carry into Q2.

That's great to hear.

John, you have approximately $1.5 billion of liquidity on your balance sheet.

Your share buyback program expired in February.

Should we anticipate another buyback program?

And how do we think about the right amount of liquidity on the balance sheet going forward?

Yes.

I would say, at the moment, it's still an uncertain environment.

I think our first priority on any excess cash, it would be to probably repay the facility that we drew in the beginning of the pandemic.

We're becoming more and more confident that we're at least past what could be or could have been a significant liquidity event.

From there, our #1 priority is deploying cash back into the business where we can.

And we obviously, by virtue of the investments we're making, see a lot of opportunity for that.

After that, we discuss it regularly with the Board to let them make an evaluation.

I don't want to get into guessing on how they'll perceive things.

But I would say, we feel very good about the investments we're making in the business.

Those are the highest ROI opportunities.

And if there's more of those, we'll put the cash there.

And then we'll look at other opportunities over time.

Our next question comes from the line of Susan Anderson with B. Riley.

Sorry, I was on mute there.

Nice job on the quarter and managing through the pandemic.

I guess just a follow-up on the traffic front.

Maybe you could talk a little bit about the improvement from December up until now since we don't really have year-over-year data.

And then I'm just curious, have you seen that strength continue into April?

Yes.

I mean, really, comparing to 2020 is a little bit tough with some of the closures if you go worldwide.

But I would say, what we saw was January and February, as we mentioned, pretty similar to what we saw in the fourth quarter of 2020.

And then the market turned.

Things got better.

Perceptions definitely got better.

Consumer intent got better.

Traffic, I mean, everything got better at once.

So the comparison point we give is that comparable store sales did a 180 and then some from the mid-quarter on.

And those have thus far sustained and even improved slightly again for us as we saw markets like the U.K. come back online because many international markets, unexpectedly from our view, in the quarter stayed closed throughout.

All of which is to say, again, it's a continuing trend we see.

We're certainly doing what we can to foster more traffic at a consumer level.

But I think the most encouraging aspect for us is they're coming to the Skechers brand, be it in our own stores, online, in our partners.

We're seeing the sell-through continue to manifest at very, very good levels.

Great.

That sounds good.

And then I guess just on the wholesale front, is there any color you can provide just on or are you seeing any thoughts around how the wholesalers are thinking about the back half this year, I guess, particularly on the domestic front?

I think all we can say is, we're seeing good demand for Skechers.

I don't know if that holds true beyond that.

We're working with most every account as we speak getting ready for the back-to-school shipments and then orders for fall, winter '21.

Most of what we hear, at least relative to our product, is encouraging.

We've had very good performance, as we said, over the back half of this quarter and expect it to continue as evidenced, again, in the strong sell-through and pricing.

I mean, I think that's the really good thing that we're seeing is it's holding up despite some higher AURs, and that's encouraging.

And I think, as David mentioned, we've done a very good job of delivering in difficult circumstances.

The logistical issues impacting the market, we're not immune to, but I think we've done a very good job of navigating through those, and that's led us to see, I think, a higher receptivity to wanting to depend on Skechers to deliver to their consumers.

I'd like to add that our backlogs also indicate that there's a lot of dependency on us for the back half of the year, certainly on a comparable basis.

And there is still some customers that are more leery, not knowing what to do with themselves as this goes through and how it will last and how market conditions will change.

And we don't know what the retail will look like as we go through.

But we do know we'll be participating to a very large degree and our backlogs indicate that we will be a premier player in the back half should nothing change dramatically from now to then.

Our next question comes from the line of Sam Poser with Williams Trading.

Can you give us some idea of the size or the penetration of Arch Fit and Max Cushioning within the overall product mix right now?

I don't even know how to relate to that.

I mean, it goes into so many products to add it on.

I think the best way to put that is, we see ourselves as a comfort technology company and all our big selling products have comfort and technology in them, whether it's Arch Fit or Max Cushioning or Hyper Burst.

We have something to offer in almost all our shoes.

So it's fair to say it's the biggest piece of our line.

It's not that it's an item that fits in a shoe and that shoe is what carries the game.

It's very broad-based, in multiple styles, in multiple categories and all fits with the comfort technology that exists within the brand as a whole.

And I've got 2 more.

One, can you give us some idea of how big the e-commerce business is these days and how you're thinking about that for the full year?

And two, you mentioned it, I think, once in the call so far, but what do you believe the impact of stimulus was because your business kicked in right as the checks came and at the same time that your advertising kicked in.

So can you give us some view of how you believe stimulus in the U.S. is impacting the overall business right now?

Yes.

The stimulus effect is tough to pick out, Sam.

I understand the nature of the question.

But as you point out, we really had 3 major factors hit at once.

What we believe is that the marketing was probably the most powerful because it really drove awareness.

And it was on the products that we also then saw pull-through.

Obviously, the relaxed restrictions in many markets had effect.

That was a little bit more sensitive geographically.

In some areas, it was a big effect, in others, the market had been open for a while.

So it really depends on the geography there.

So overall, it probably wasn't as pronounced.

And then the stimulus checks came in at about the same time.

But we've tried to look at it in detail.

It's just very difficult to tease out that number overall.

What I would say is on the e-commerce question, if we take into consideration the totality of our e-commerce business, so domestically, internationally-owned markets, China, it's definitely in a mid-teens number this quarter, which is definitely an overall positive trend in the trajectory of our e-commerce business.

Our next question comes from the line of John Kernan with Cowen and Company.

Congrats on managing the business through the pandemic and the growth you're seeing into this year.

Just talk to e-commerce up another triple-digit number, at least domestically, can you give us some color on where this business is from a total top line perspective?

The demand for the brand digitally is clearly there.

In terms of the economics of the business, how much more can you scale your own digital business within the DTC platform?

Yes.

I mean, if we're looking just at the domestic side of the business, e-com was close to 20% of that business.

Honestly, it's hard to put a top on it because I think what we will see on a continuing basis is that digital-only transaction volume will continue to grow.

And just to be clear, this quarter, eye-popping numbers again, the team did a great job, but it was still not comparing against the pandemic-infused online buying of last year.

We actually suspect that next quarter, the domestic number will be a bit more challenged because you're going to be comparing against a window where the only opportunity to buy product was online.

So this is kind of the last quarter before that very difficult comparison.

But overall, we absolutely believe the business can continue to grow.

It will be a more important component of our total direct-to-consumer business in the omnichannel capabilities that David mentioned and referenced in the call because that's where we see consumers going.

They want a seamless ability to transact with the company online, maybe at a mobile device, a desktop device, in the store and to trade between those.

And that's why the investments we've made in the new POS platform and the new technology platform and our forthcoming relaunch of loyalty are all going to be materially beneficial long term.

But it's going to take some time for that maturation to occur.

I would also just say, I believe that we're getting better as an organization fine-tuning our capabilities in digital marketing, which will help and continue to help the business.

And that's an advantage we saw this quarter as well.

And then more broadly stepping back I'd say, we're very excited about the opportunity to begin launching in countries in which we're not yet penetrated from a company-owned online presence.

And so as we roll out the new platform and technologies across the globe, we're super excited about what that will mean then for our brand in those markets and our ability to begin offering direct-to-consumer online capabilities as well.

Got it.

That's helpful.

And then maybe we could shift to the margin profile of the business.

Gross margin has been consistently moving higher really over the last 5 years, and there hasn't been a lot of variance to it, particularly on the downside.

I mean, it's been on a structural uptrend.

It sounds like ASPs are moving higher.

Your DTC business domestically is doing very well.

I'm just curious, where do you think gross margins can go over time given that the consumer is responding to innovation you're putting in the product, ASPs are moving higher, your e-commerce business is getting better.

Within that double-digit operating margin business that you've targeted over time, where do you think gross margin goes because it's been on a structural uptrend for a while now?

Yes.

And that's by design, right?

Our strategy is to continue to grow this business internationally, which generally carries accretive gross margins to grow it in the direct-to-consumer channel.

I mean, I think if you have to take the last year or so out of the mix because you have so many different factors coming into play at a gross margin level, what we see underlying though is that continuing trend toward positivism.

We have some input cost pressures arising this year, which we've talked about, the transportation costs going up, some raw material pressure.

So I would think about some of the pricing as keeping up with that.

But overall, we think that mix continues to benefit us over the long haul.

I don't think you're going to see kind of 350-point bp jumps every quarter because that's heavily influenced by some mix dynamics.

But I think improving incrementally every year is definitely part of the plan.

The only thing I would say that could hold us back on that is that we also grow in some of the lower-margin businesses, like David mentioned, the distributor business, great operating margin for us, but it's a lower gross margin.

Still business we want to have, very profitable for us.

But if that grows at a higher clip, it will simply dilute that mix benefit, but that still means we're making more money as a company, which is ultimately our goal.

Our final question comes from the line of Brian McNamara with Berenberg Capital Markets.

Congrats on the strong results.

So we have seen 2 pretty material changes from you guys in the last week or so in terms of disclosures.

With the proxy statement released last week, you have some noteworthy changes in the compensation structure.

And this is the first full year guidance that I can recall you offering.

With clear momentum in the business, I'm just curious what drove these changes.

It's just a natural evolution of how we run the business.

We're continuing to grow the brand.

That still remains our #1 priority.

But we always look for opportunities to make the business better.

First, at a product level, then in marketing, then throughout the back of house.

It's not the only improvement.

It's probably just the ones you guys see, but we've made tremendous investments throughout our information technology infrastructure.

We continue to advance markets across the globe.

So there's a lot going on in that vein.

I think those 2, in particular, are just the natural evolution of us being in a position to be able to manage our business with better visibility in some respects but also aligning with some market practices and others.

But I wouldn't want you to take away that, that's the only improvement and just the ones you see are it because even in the last couple of years, we've made tremendous strides in many areas of the business, which I'll pitch and say, I don't think we get enough credit for because we're not great at chest beating.

But even David mentioned, on this Earth Day, we have one of the largest LEED certified distribution centers, we think, in California, at least, if not the country.

And we're adding on to that with the same level of environmental sensitivity.

We're doing that here.

We don't talk about that stuff a lot.

But I think those, I think, are improvements in the way we run the business, more aligned with kind of the ESG attention that's out there that don't often get appreciated.

So just I'd say one more step in improving the business and continuing to grow into really the #3 footwear provider in the world and maybe even north of that.

Great.

And then just one quick one on India.

How did India perform in the quarter relative, I guess, to your expectations?

And how is that recovery taking hold?

Obviously, it was one of the more impacted markets from the pandemic last year.

Yes.

It performed quite well through the end of the quarter.

It certainly met our expectations.

They were on target pre-pandemic levels.

But this new shutdown, especially for Delhi and Mumbai, while they haven't closed down the whole country, and we continue to do business there, it obviously will have impact until it's done as far as that particular business is concerned.

Yes.

Just for color, we were excited to potentially try to make a visit as our first international market to hit post-pandemic.

And heading to India was in our short-term plans, but obviously, that's been derailed.

But it doesn't in any way diminish our optimism for the country long term.

We still think it has tremendous prospects for our brand in particular, and we're excited about it.

We just wish them the best in this phase that they're dealing with the coronavirus pandemic.

Ladies and gentlemen, this does conclude today's question-and-answer session.

This also concludes today's call.

Thank you for your participation.

You may disconnect your lines at this time and have a wonderful day.