UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20202022
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-14429
SKECHERS U.S.A., INC.
(Exact name of registrant as specified in its charter)
Delaware |
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(State or other jurisdiction of incorporation or organization) |
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228 Manhattan Beach Blvd.,
Manhattan Beach, California 90266
(310) 318-3100
(Address, including zip code, and telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, par value $0.001 per share |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Ifsecurities areregistered pursuant toSection 12(b)oftheAct,indicate bycheckmarkwhether thefinancial statements oftheregistrant included inthefilingreflectthecorrection ofanerrortopreviously issued financial statements. ☐
Indicate bycheckmarkwhether anyofthoseerrorcorrectionsarerestatementsthatrequired arecoveryanalysis ofincentive-based compensation received byanyoftheregistrant’sexecutive officers during therelevant recovery period pursuant to§240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2020,2022, the aggregate market value of the voting and non-voting Class A and Class B Common Stock held by non-affiliates of the registrant was approximately $4.3$4.9 billion based upon the closing price of $31.38$35.58 of the Class A Common Stock on the New York Stock Exchange on such date.
The number of shares of Class A Common Stock outstanding as of February 15, 2021: 136,729,982.2023: 134,473,612.
The number of shares of Class B Common Stock outstanding as of February 15, 2021: 21,016,133.2023: 20,810,041.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement issued in connection with the 20212023 Annual Meeting of the Stockholders of the registrant are incorporated by reference into Part III.
Skechers U.S.A., INC. and subsidiaries
tableForm 10-K
Table of contents TO ANNUAL REPORT ON form 10-k
for the year ended DECEMBER 31, 2020Contents
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||||
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i
Special Note SPECIAL NOTE ON Forward-lookingon Forward-Looking Statements
This annual report on Form 10-K contains forward-looking statements that are made pursuant to the safe harbor provisions of the Section 27A of thePrivate Securities Litigation Reform Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)1995, including statements with regards to future revenue, projected operating results, earnings, spending, margins, cash flow, orders, expected timing of shipment of products, inventory levels, future growth or success in specific countries, categories or market sectors, continued or expected distribution to specific retailers, liquidity, capital resources and market risk, strategies and objectives. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or simply state future results, performance or achievements, and can be identified by the use of forward-looking language such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will, be,” “will continue,” “will result,” “could,” “may,” “might,” or any variations of such words with similar meanings. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected in forward-looking statements, and reported results shall not be considered an indication of our future performance. Factors that might cause or contribute to such differences include:
| • | the COVID-19 pandemic and its adverse impact on our |
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| • | our ability to sustain, manage and forecast our costs and proper inventory levels; |
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| • | our ability to continue to manufacture and ship our products that are sourced in China and Vietnam, which could be adversely affected by various economic, political, health or trade conditions, or a natural disaster in China or Vietnam; |
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• | the loss of any significant customers, decreased demand by industry retailers and the cancellation of order commitments; |
• | our ability to remain competitive among sellers of footwear for consumers, including in the |
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The risks included here are not exhaustive. Other sections of this report may include additional factors that could adversely impact our business, financial condition and results of operations. Moreover, we operate in a very competitive and rapidly changing environment, and new risk factors emerge from time to time. We cannot predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Given these inherent and changing risks and uncertainties, investors should not place undue reliance on forward-looking statements, which reflect our opinions only as of the date of this annual report, as a prediction of actual results. We undertake no obligation to publicly release any revisions to the forward-looking statements after the date of this document, except as otherwise required by reporting requirements of applicable federal and state securities laws.
PART I
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Skechers U.S.A., Inc., The Comfort Technology CompanyTM, was incorporated in California in 1992 and reincorporated in Delaware in 1999. Skechers U.S.A., Inc., its consolidated subsidiaries and certain variable interest entities (“VIEs”) of which it is the primary beneficiary, is referred to throughout this annual report as “we,” “us,” “our,” “the Company” and “Skechers” unless otherwise indicated. Reference in this annual report to “sales” refers to Skechers’ net sales reported under U.S. generally accepted accounting principles in the United States (“U.S.”).principles. Our internet address is www.skechers.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Form 3’s, 4’s and 5’s filed on behalf of directors, officers and 10% stockholders, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on our corporate website, www.investors.skechers.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). You can learn more about us by reviewing such filings at www.investors.skechers.com or at the SEC’s website, at www.sec.gov.
GENERAL
We design and market Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under the Skechers Performance brand name, and work footwear for men and women under Skechers Work brand name. We also design and market men’s and women’s Skechers branded lifestyle apparel and license the Skechers brand to others for accessories, pet accessories, leather goods, eyewear and scrub manufacturers,medical scrubs, among others.other categories. Skechers footwear reflects a combination of innovation, style, quality, comfort, qualityinnovation and value that appeals to a broad range of consumers. Our product offering is sold through wholesale distribution to department and specialty stores, athletic and independent retailers, boutiques and online retailers. In additione-commerce retailers, and directly to wholesale distribution, our footwear is available on our direct-to-consumer websitesconsumers through Skechers brick and in our own retailmortar and digital stores. Our objective is to profitably grow our operations worldwide while leveraging our recognizable Skechers brand through our diversified product lines, innovative advertising and diversifiedvarious distribution channels.
We seek to offer consumers a vast array of footwear that satisfies their active, casual, dress casual and athletic footwear needs. Our core consumers are attracted to our relevant brand image, fashion-forward designs, affordable and comfortable product, as well as athletes and fitness enthusiasts attracted to our performance footwear. Many of our best-selling and core styles are also developed for children with colors and materials that reflect a playful image appropriate for this demographic. Further, we offer children a unique collection of footwear designed just for them, including those with innovative light technology.
We believe that brand recognition is an important element for success in the footwear business. We have aggressively marketedmarket our brands through comprehensive marketing campaigns for men, women and children. During 2020, theThe Skechers brand wasis supported by print, television, digital, radio, outdoor and outdoorpress campaigns as well as donation events for BOBS from Skechers. To further drive recognition, we have enlistedenlist numerous celebrities, former and current athletes, and influencers to appear in our campaigns. In 2020,2022, our brand ambassadors included television personalities and entertainers Martha Stewart, Amanda Kloots, Brooke Burke, Willie Nelson and Chesca, athlete Clayton Kershaw, and former athletes Sugar Ray Leonard, Tony Romo, Howie Long, Cris Carter, Meb Keflezighi, and Brooke Burke, along withRusty Wallace. More recently, culture and entertainment icon Snoop Dogg joined our stable of brand ambassadors. Additionally, athletes supporting our performance footwear included runner Edward Cheserek, Meb Keflezighi,elite golfers Matt KucharFitzpatrick, Brooke Henderson and Brooke Henderson.Colin Montgomerie, and pro pickleball players Tyson McGuffin and Catherine Parenteau.
Since 1992, when we introduced our first line, Skechers USA Sport Utility Footwear, we have expanded our product offering and grown our sales while substantially increasing the breadth and penetration of our account and customer base. Our men’s, women’s and children’s product lines benefit from the Skechers reputation for style, quality, comfort, and innovation and affordability.all at a reasonable price. Our Performance lines benefit from our marketing, product development, technology, wins on the course or track, and feedback from athletes and wear testers. To promote innovation and brand relevance, we manage our product lines through separate dedicated sales and design teams.
SKECHERS LINES
We offer a wide array of Skechers-branded footwear lines, for men, women and children, many of which have categoriescollections that have developed into well-known names. Most of these categoriescollections are marketed and packaged with unique shoe boxes, hangtags and in-store support.
From fashion styles to lifestyle product and performance shoes for sport enthusiasts, our offering is enhanced with the Company’s signature comfort innovations—including its Skechers Arch Fit® Technology, Skechers Max Cushioning® Technology, Skechers Air‑Cooled Memory Foam®, Skechers Relaxed Fit® Technology, Skechers Stretch Fit® Technology, Skechers Hands Free Slip-ins® Technology, Skechers Hyper Burst® Technology, and Massage Fit® Technology.
Lifestyle Brands. Our lifestyle offering includes multiple categories such as Skechers USA, Skechers Sport, Skechers Active, Modern Comfort, Skechers Street, Foamies, Mark Nason, the charity-minded BOBS from Skechers collection, and the recycled materials line Our Planet Matters, among others. Comfort, style and value are at the cornerstone of our vast lifestyle collections. Types of footwear sold under this division include casual, casual athletic, sport athletic, trail, sandals, boots, and retro fashion.fashion, and also include the well-known Skechers Uno, Skechers Arch Fit®, and new in 2022, Skechers Hands Free Slip-ins™. Innovation is also important within our lifestyle offering and select styles across many lines include a patented Arch Fit insole design fordesigns including podiatrist-certified arch support and Goodyear Performance Outsolesoutsoles for enhanced traction, stability and durability. Also within
Within our lifestyle collections are collaborations with known brands and properties—including street artists influential boutiqueslike James Goldcrown and manga characters.well-known animated characters like tokidoki.
Performance Brands. Skechers Performance encompasses several technical footwear lines, each designed with a focus onfor specific activities to maximize performance and promote comfort. The Skechers Performance division designs footwear to utilize the latest advancements in materials and innovative design, including lightweight ULTRAUltra GO and HYPER BURSTHyper Burst midsole compounds for comfort and responsive feedback. Skechers Performance includes the lines of Skechers GOrun, Skechers GOwalk, Skechers GOtrain, Skechers GOtrail, and Skechers GO Golf. Additional features found in select styles across multiple categories include Arch Fit insoles, Goodyear Performance Outsoles, and Max Cushioning designs.Golfas well as Skechers Viper Court for pickleball.
Skechers Kids. Skechers Kids is comprised of a wide range of sneakers, casuals, boots, and sandals for boys and girls of all ages – pairing the latest trends with innovative comfort technology. The Skechers Kids offering includes its namesake collection; Skechers Mega-Craft; S-Lights; SKECH-AIR;collection, S-Lights, Skech-Air, Foamies, Twinkle Toes; Z-Strap;Toes, Skechers Stretch Fit;Fit, and Skechers Street.Skechers Kids also includes shoes that are designed as “takedowns” of their adult counterparts, allowing younger consumers the opportunity to wear the same popular styles as their older siblings and schoolmates. This “takedown” strategy maintains the product’s integrity by offering premium leathers, hardware and outsoles without the costs involved in designing and developing new products. In addition, we adapt current fashions from our men’s and women’s lines by modifying designs and choosing colors and materials that are more suitable for the playful image that we have established in the children’s footwear market.
Skechers Work.Work. Skechers Work offers a complete line of men’s and women’s slip-resistant and safety-toe casuals, boots, hikers and athletic shoes for professionals who use protective footwear across a wide range ofin their work environments. Skechers Work styles include Skechers comfort technologies along with safety and durability features such as steel, composite and lightweight safety toes; high-abrasion soles; puncture resistance; waterproofing and electrostatic-dissipative technology, as well as Skechers’ comfort technologies such as Relaxed Fit construction; Max Cushioning; Skechers Memory Foam insoles and Arch Fit insoles. Designed for men and women working in jobs with certain safety requirements, these durable styles are constructed on high-abrasion, long-wearing soles for prolonged durability.technology.
In addition,Skechers Apparel. Skechers designs and markets a collection of lifestyle apparel for men, women and kids. The collection features the same Skechers characteristics that consumers around the world have come to expect from the brand. The activewear garments are designed to directly coordinate with the brand’s footwear initiatives.products. The Skechers apparel collection is sold at Skechers retail stores, toon our domesticwebsites and through wholesale accounts and select international partners.customers.
PRODUCT DESIGN AND DEVELOPMENT
Our principal goal in product design is to develop innovative, comfortable, stylish, quality footwear at a reasonable price for the entire family. Our footwear is designed for active lifestyles and consumers needing comfort in their footwear from fashionable 18- to 34-year-olds, to a broader base of 5- to 50-year-olds, and even an exclusive selection for infants and toddlers. Designed by the Skechers Performance Division, our performance products are for professional and recreational athletes who want a technical shoe that performs under the demands of competition. Our occupational footwear is designed to meet the specifications and demands of the service, medical and construction industries while also meeting testing specifications in the markets where the product is sold.
We believe that our products’ success is related to our ability to recognize trends in the footwear markets and to design products that anticipate and accommodate consumers’ ever-evolving preferences. Lifestyle trend information is compiled and analyzed by our designers in various ways, including reviewing and analyzing pop culture, clothing, and trend-setting media; traveling to domestic and international fashion markets to identify and confirm current trends; consulting with our customers for information on current retail selling trends; participating in major footwear trade shows to stay abreast of popular brands, fashions and styles; and subscribing to various fashion and color information services. In addition, a key component of our design philosophy is to continually reinterpret and developimprove our most successful styles in our brands’ images.styles.
SOURCING
Factories. Our products are produced by independent contract manufacturers located primarily in Asia. We do not own or operate any manufacturing facilities. We believe that the use of independent manufacturers substantially increases our production flexibility and capacity, while reducing capital expenditures and avoiding the costs of managing a large production work force.
When possible, we seek to use manufacturers that have previously produced our footwear, which we believe enhances continuity and quality while controlling production costs. To help avoid disruption of our product supply due to political instability, civil unrest, economic instability, changes in government policies or regulations, natural and manmade disasters, and other risks, we source product from multiple facilities across multiple countries. We believe that the existing production capacity at our third-party manufacturers’ facilities is sufficient to handle expected volume in the foreseeable future.
We finance our production activities in part through the use of interest-bearing open purchase arrangements with certain of our contract manufacturers. These facilities currently bear interest at a rate between 0.0% and 0.4% for 30- to 60-day financing, depending on the factory. We believe that the use of these arrangements affords us additional liquidity and flexibility. We do not have any long-term contracts with any of our manufacturers. However, we have long-standing relationships with many of our contract manufacturers and believe our relationships to be good.
Production Oversight. To safeguard product quality and consistency, we oversee the key aspects of production from initial prototype manufacture, through initial production runs, to final manufacture. Monitoring of all production is performed in the U.S. by our in-house production department and in Asia throughby staff working from our offices in China and Vietnam. We believe that our Asia presence allows us to negotiate supplier and manufacturer arrangements more effectively, decrease product turnaround time, and ensure timely delivery of finished footwear. In addition, we require our manufacturers to operate in a manner consistent with the Skechers Supplier Code of Conduct posted on our corporate website. We partner with factories that ensure humane conditions for their employees and we engage in routine auditing and monitoring procedures to ensure that those who contribute to our product are treated with the civility and respect they deserve.respect.
Quality Control. We believe that quality control is an important and effective means of maintaining the quality and reputation of our products.products and brand. Our quality control program is designed to ensure that not only finished goods meet our established design specifications but also thatand all goods bearing our trademarks meet our standards for quality. Our quality control personnel located in China and Vietnam perform an array of inspection procedures at various stages of the production process, including examination and testing of prototypes of key raw materials prior to manufacture, samples and materials at various stages of production and final products prior to shipment. Our employees are on-site at each of our major manufacturers to oversee production. For some of our lower volume manufacturers, our staff is on-site during significant production runs, or we will perform unannounced visits to their manufacturing sites to further monitor compliance with our manufacturing specifications.
Sustainability. We believe that sustainability is an important responsibility in managing our business. In 2021, we introduced Our Planet Matters, a collection for men, women and kids that utilizes recycled materials. We havepartnered with a global conservation organization to help fund its organization’s global efforts which align with our interests and commitment to reduce tree harvesting and emissions through packaging.
We worked to make our packaging more sustainable for the more-than-150more-than-225 million pairsunits of Skechers that consumers purchase every year.purchased in 2022. Since 2016, we’vewe have reduced our products’ packaging plastics by 85%99% down to 10%less than 1%; all of our foot forms, and have made remaining plastics completelywhich is recyclable. Many facilities can now recycle 93% of Skechers-branded shoeboxes, and all of our foot forms and tissue paper packaging is alsoare recyclable and printed with soy-or water-based ink. We are proud to haveFurther, 99% of our shoes packaged in shoeboxes that meet the FSC® standard for responsible resources, and we are continually looking outlook for new ways to improve with green materials, regular assessments, and assurance that our items are FSC-certified, recycled or ethically harvested.
Our shipping methods reflect our green-minded approach to sustainability: master cartons are printed with soy-or-water-based ink and are 100% recyclable, and at the distribution centers managing more than 90% of our business, our outbound shipping cartons are made withcomposed of 96%-100% recyclablerecycled materials and are 100% recyclable.
Many of our facilities are designed and operated with sustainability in mind, including one of America’s largest LEED Gold certified facilities at our North America distribution facilitycenter in Rancho Belago,Southern California. Our newexpanding corporate headquartersoffices in Manhattan Beach,Los Angeles, California are also being designed and developed to qualify for LEED Gold certification.
Product Styles. We closely monitor sales activity after initial introduction of Our European Distribution Center in Liege, Belgium, has both a product in our concept storesBREEAM Very Good rating and on-line to determine whether there is substantial demand for a style, thereby aiding us in our sourcing decisions. Styles that have substantial consumer appeal are highlighted in upcoming collections or offered as part of our periodic style offerings, while less popular styles can be discontinued after a limited production run. We believe that sales in our concept stores can also help forecast sales in national retail stores,Lean and we share this sales information with our wholesale customers. Sales, merchandising, production and allocations management analyze historical and current sales along with market data from our wholesale account base and our own retail stores to develop an internal product quantity forecast that allows us to manage our future production and inventory levels. For those styles with high sell-through percentages, we maintain an in-stock position to minimize the time necessary to fill customer orders by placing orders with our manufacturers prior to the time we receive customers’ orders for such footwear.Green certification.
ADVERTISING AND MARKETING
With a marketing philosophy of “Unseen, Untold, Unsold,” we take a targeted and 360-degree approach to marketing to drive traffic, build brand recognition and properly position our diverse lines within the marketplace. Senior management is directly involved in shaping our image and the conception, development and implementation of our advertising and marketing activities. Our marketing planstrategy has an omni-channel approach, and we utilize print, outdoor, television, radio, and digital, along with public relations, influencers and social media, promotions, and in-store events. In addition, we utilize celebrity and athlete endorsers in some of our advertisements. We also believe our websites are effective marketing tools to consumers. We have historically budgeted advertising as a percentage of projected sales.
PRODUCT DISTRIBUTION CHANNELS
We have threetwo reportable segments: Domestic Wholesale, International Wholesale and Direct-to-Consumer. In the U.S., our productsThe Company’s collections are available in approximately 180 countries and territories through department and specialty stores, and direct to consumers through digital stores and approximately 4,540 Company- and third-party-owned physical retail stores. The Company manages its international business through a network of wholesale customers comprised of department, athleticwholly-owned subsidiaries, joint venture partners, and specialty stores and online retailers. Internationally, our products are available through wholesale customers in more than 170 countries and territories via our global network of distributors as well as through our subsidiaries in Asia, Europe, Canada, Central America and South America. Skechers owns and operates retail stores both domestically and internationally through three integrated retail formats—concept, factory outlet and warehouse outlet stores. Each of these channels serves an integral function in the global distribution of our products.
In addition, 18 distributors and 51 licensees have opened and operate 799 distributor-owned or -licensed Skechers retail stores and 1,771 licensee-owned Skechers retail stores, respectively, as of December 31, 2020.distributors.
Domestic Wholesale. We distribute our footwear through the following domestic wholesale distribution channels: big-box footwear stores, department stores, wholesale clubs, specialty stores, athletic specialty shoe stores, independent retailers, and internet retailers. Skechers footwear is available in a variety of wholesale customers, many of whom may operate stores within the same retail location due to our distinct product lines, variety of styles and the price criteria of their specific customers. Management has a clearly defined growth strategy for each of our channels of distribution. An integral component of our strategy is to offer our accounts the highest level of customer service so that our products will be fully represented in existing and new customer retail locations.
In an effort to provide knowledgeable and personalized service to our wholesale customers, the sales force is segregated by product line, each of which is headed by a vice president or national sales manager. Reporting to each sales manager are knowledgeable account executives and territory managers. The vice presidents and national sales managers report to our senior vice president of sales. All of our vice presidents and national sales managers are compensated on a salary basis, while our account executives and territory managers are compensated on a commission basis. None of our domestic sales personnel sells competing products.
InternationalWholesale.Our products are sold in more than 170 countries and territories throughout the world. We generate revenues from outside the U.S. from three principal sources: (i) sales to department stores and specialty retail stores through our joint ventures in Mexico, Asia and the Middle East, as well as through our subsidiaries in the Americas, Europe, and Asia; (ii) sales to international distributors who deliver our footwear to department stores, specialty retail stores and third-party-owned Skechers stores in select countries and territories across Asia, South America, Africa, the Middle East and Australia; and (iii) to a lesser extent, royalties from licensees who manufacture and distribute our non-footwear products abroad.
We believe that international distribution of our products represents a significant opportunity to increase sales and profits. We intend to further increase our share of the international footwear market by heightening our marketing in those countries in which we currently have a presence through our international advertising campaigns, which are designed to establish Skechers as a global lifestyle and performance brand.
The following subsidiaries and joint ventures merchandise, market and distribute Skechers product to generate sales in their named countries, and we consolidate their results in our financial statements:
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Canada – We currently operate through Skechers USA Canada, Inc. with its offices and showrooms outside Toronto in Mississauga, Ontario. Product sold in Canada is primarily sourced from our U.S. distribution center in California. We have company-owned retail stores in key locations across Canada.
Europe – We currently operate in Europe through the following subsidiaries: Skechers USA Ltd., with its offices and showrooms in London, England; Skechers S.a.r.l., with its offices in Lausanne, Switzerland; Skechers USA France S.A.S., with its offices and showrooms in Paris, France; Skechers USA Deutschland GmbH, with its offices and showrooms in Dietzenbach, Germany; Skechers USA Iberia, S.L., with its offices and showrooms in Madrid, Spain; Skechers USA Benelux B.V., with its offices and showrooms in Waalwijk, the Netherlands; Skechers USA Italia S.r.l., with its offices and showrooms in Milan, Italy; and Skechers CEE, Kft. with its offices and showrooms in Budapest, Hungary as well as regional showrooms in Albania, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Kosovo, Macedonia, Moldova, Montenegro, Romania, Serbia, Slovakia and Slovenia. To accommodate our European subsidiaries’ operations, we operate a 1.8 million square-foot distribution center in Liege, Belgium.
India – We currently operate through Skechers South Asia Private Limited and Skechers Retail India Private Limited.
Japan ��� We currently operate through our subsidiary, Skechers Japan GK, with its offices and showrooms located in Tokyo, Japan. Product sold in Japan is primarily shipped directly from our contract manufacturers’ factories in China.
South America and Central America – We currently operate in South America and Central America through the following subsidiaries: Skechers Do Brasil Calcados LTDA, with its offices and showrooms located in Sao Paulo, Brazil; Comercializadora Skechers Chile Limitada, with its offices and showrooms located in Santiago, Chile; and Skechers Latin America LLC, with its offices and showrooms in Panama City, Panama as well as regional showrooms in Panama, Peru, Colombia and Costa Rica.statements. Our Latin America subsidiary also distributes products in the Caribbean, Ecuador, Guatemala, El Salvador, Honduras and Nicaragua. Product sold in South America and Central America is primarily shipped directly from our contract manufacturers’ factories in China and Vietnam.
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China and Hong Kong – We have a 50% interest in a joint venture ininterests include China, and a minority interest in a joint venture in Hong Kong. Under the joint venture agreements, the joint venture partners contribute capital in proportion to their respective ownership interests.
Israel – We have a 51% interest in Skechers Ltd. (Israel). Under the joint venture agreement, the joint venture partners contribute capital in proportion to their respective ownership interests.
Mexico – We have a 60% interest in Manhattan SKMX, S. de R.L. de C.V. (“Skechers Mexico”). Under the joint venture agreement, the joint venture partners contribute capital in proportion to their respective ownership interests.
South Korea – We have a 65% interest in Skechers Korea Co., Ltd. Under the joint venture agreement, the joint venture partners contribute capital in proportion to their respective ownership interests.
Malaysia, Singapore and Thailand – We have a 50% interest in a joint venture in Malaysia and Singapore (50%), Thailand and a 51% interest in a joint venture in Thailand. Under the joint venture agreements, the joint venture partners contribute capital in proportion to their respective ownership interests.
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Israel (51%), Mexico (60%), and South Korea (65%). Where we do not sell directly through our international subsidiaries and joint ventures, our footwear is distributed through a network of more than 23 distributors and licensees who sell our products to department, athletic and specialty stores. As
Wholesale. Our Wholesale segment primarily comprises sales to a vast network of December 31, 2020, we also had agreements with 18partners. These include: department stores, family shoe stores, specialty running and sporting goods retailers, and big box club stores; franchisee and licensee third-party store operators representing approximately 3,100 Skechers branded stores worldwide; dedicated e-commerce retailers; and international distributors.
Direct-to-Consumer. Our Direct-to-Consumer segment primarily comprises sales by Skechers directly to consumers through a combination of these distributors and 51 licensees regarding 799 distributor-owned or licensed Skechers retail stores and 1,771 licensee-owned Skechers retail stores. Our distributors, licensees and franchisees own and operate the followingchannels. These include approximately 1,450 company-owned retail stores in more than 170 countries around the world:formats consisting of concept, factory outlet and big box; digital commerce sites and mobile applications; and hosted direct-to-consumer sales through marketplaces in select international markets
|
| Number of Store Locations at December 31, 2019 |
|
| Opened during 2020 |
|
| Closed during 2020 |
|
| Number of Store Locations at December 31, 2020 |
| ||||
Distributor, licensee and franchise stores |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa |
|
| 60 |
|
|
| 8 |
|
|
| (1 | ) |
|
| 67 |
|
Asia |
|
| 1,694 |
|
|
| 350 |
|
|
| (247 | ) |
|
| 1,797 |
|
Australasia |
|
| 109 |
|
|
| 12 |
|
|
| — |
|
|
| 121 |
|
Central America |
|
| 16 |
|
|
| 3 |
|
|
| — |
|
|
| 19 |
|
Europe |
|
| 303 |
|
|
| 53 |
|
|
| (4 | ) |
|
| 352 |
|
Middle East |
|
| 164 |
|
|
| 2 |
|
|
| (1 | ) |
|
| 165 |
|
North America |
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
South America |
|
| 35 |
|
|
| 2 |
|
|
| — |
|
|
| 37 |
|
Total distributor, licensee and franchise stores |
|
| 2,393 |
|
|
| 430 |
|
|
| (253 | ) |
|
| 2,570 |
|
Distributors and licensees are responsible for their respective stores’ operations, have ownership of their respective stores’ assets, and select the broad collection of our products to sell to consumers in their regions. In order to maintain a globally consistent image, we provide architectural, graphic and visual guidance and materials for the design of the stores, and we train the local staff on our products and corporate culture. We intend to expand our international presence and global recognition of the Skechers brand name by continuing to sell our footwear to foreign distributors and by opening retail stores with distributors that have local market expertise.
Direct-to-Consumer. We pursue our direct-to-consumer strategy through our integrated retail formats: e-commerce, concept stores, factory outlet and warehouse outlet stores. Our formats, which enable us to promote the full Skechers product offering in an attractive environment that appeals to a broad group of consumers.
| • |
|
| • | Concept Stores – Our concept stores are located at high street locations, major tourist areas or in key shopping malls in metropolitan cities. Our concept stores |
|
The typical Skechers concept store is approximately 3,000 square feet, although in certain markets we have concept stores ranging from 600 square feet to 14,300 square feet. When deciding where to open concept stores, we identify top geographic markets in larger metropolitan cities around the world.
| • | Factory Outlet Stores – Our factory outlet stores are generally located in manufacturers’ direct outlet centers in the U.S. and in select international markets. Our factory outlet stores provide opportunities for us to sell discontinued and excess |
| • |
|
Store count, openings and closings for our domestic, international and consolidated joint venturethird-party stores are as follows:
|
| Number of Store Locations at December 31, 2019 |
|
| Opened during 2020 |
|
| Closed during 2020 |
|
| Number of Store Locations at December 31, 2020 |
| ||||
Domestic stores |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concept |
|
| 109 |
|
|
| 3 |
|
|
| (7 | ) |
|
| 105 |
|
Factory Outlet |
|
| 171 |
|
|
| 2 |
|
|
| (1 | ) |
|
| 172 |
|
Warehouse Outlet |
|
| 217 |
|
|
| 31 |
|
|
| (2 | ) |
|
| 246 |
|
Domestic stores total |
|
| 497 |
|
|
| 36 |
|
|
| (10 | ) |
|
| 523 |
|
International stores |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concept |
|
| 200 |
|
|
| 21 |
|
|
| (1 | ) |
|
| 220 |
|
Factory Outlet |
|
| 93 |
|
|
| 9 |
|
|
| (2 | ) |
|
| 100 |
|
Warehouse Outlet |
|
| 10 |
|
|
| 1 |
|
|
| — |
|
|
| 11 |
|
International stores total |
|
| 303 |
|
|
| 31 |
|
|
| (3 | ) |
|
| 331 |
|
Joint venture stores |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
|
| 157 |
|
|
| 111 |
|
|
| (23 | ) |
|
| 245 |
|
Hong Kong |
|
| 47 |
|
|
| 2 |
|
|
| (3 | ) |
|
| 46 |
|
Israel |
|
| 15 |
|
|
| 2 |
|
|
| — |
|
|
| 17 |
|
Mexico |
|
| 81 |
|
|
| 4 |
|
|
| (1 | ) |
|
| 84 |
|
South Korea |
|
| 17 |
|
|
| — |
|
|
| (2 | ) |
|
| 15 |
|
South East Asia |
|
| 37 |
|
|
| 23 |
|
|
| — |
|
|
| 60 |
|
Joint venture stores total |
|
| 354 |
|
|
| 142 |
|
|
| (29 | ) |
|
| 467 |
|
Total domestic, international and joint venture stores |
|
| 1,154 |
|
|
| 209 |
|
|
| (42 | ) |
|
| 1,321 |
|
|
| Number of locations |
| |||||||||||||
|
| December 31 2021 |
|
| Opened |
|
| Closed(1) |
|
| December 31, 2022 |
| ||||
Domestic stores |
|
| 515 |
|
|
| 43 |
|
|
| (19 | ) |
|
| 539 |
|
International stores |
|
| 845 |
|
|
| 172 |
|
|
| (112 | ) |
|
| 905 |
|
Distributor, licensee and franchise stores |
|
| 2,946 |
|
|
| 529 |
|
|
| (382 | ) |
|
| 3,093 |
|
Total Skechers stores |
|
| 4,306 |
|
|
| 744 |
|
|
| (513 | ) |
|
| 4,537 |
|
(1) | Does not reflect temporary closures due to the COVID-19 pandemic. |
LICENSING
We believe that selective licensing of the Skechers brand name and our product line names to manufacturers may broadenbroadens and enhanceenhances the individual brands without requiring significant capital investments or additional incremental operating expenses. Our multiple product lines plus additional subcategories present many potential licensing opportunities on terms with licensees that we believe will provide more effective manufacturing, distribution or marketing of non-footwear products. We believe that the reputation of Skechers and its history in launching brands has also enabled us to partner with reputable non-footwear brands to design and market their footwear.
As of December 31, 2020,2022, we had 2327 active domestic and international licensing agreements in which we are the licensor. These includeWe license a variety of Skechers-branded kids’ apparel; bags, backpacks and lunch boxes; belts, wallets and travelproducts including apparel, accessories, and watches for adults and kids; headwear, socks and shoe care; prescription and sunglass eyewear; outerwear, swimwear, underwear, sleepwear and medical scrubs; fitness and yoga accessories; headwear;accessories, and cold weather products. Additional category-specific collections include Skechers Sport apparel, bags, backpacks and headwear; Twinkle Toes backpacks and lunchboxes; BOBS from Skechers socks and backpacks; and Skechers Work socks and Skechers Go Golf apparel for men and women.socks. We also have BOBS from Skechers pet accessories in Petco. We have international licensing agreements for the design and distribution of prescription and sunglass eyewear globally; men’s, women’s and kids’ apparel in the United Kingdom; kids’ apparel in Europe; socks and watches throughout Europe; bags and backpacks in the Philippines, Taiwan, Australia, New Zealand, Europe Russia, Scandinavia and the Middle East; medical scrubs in the Middle East, United Kingdom, Australia, and New Zealand; apparel, socks, headwear, bags, and backpacks in Indonesia; apparel, socks, and bags in Mexico; bags, backpacks, luggage, wallets, watches, medical scrubs and accessories in Latin America; apparel, bags, and backpacks, headwear, socks, and shoe care Turkey; socks in Japan and watches in the Philippines.
DISTRIBUTION FACILITIES AND OPERATIONS
We believe that strong distribution support is a critical factor in our operations. Once manufactured, our products are packaged in shoe boxes bearing bar codes that are shipped either:Our distribution network includes (i) to our approximate 2.8an approximately 2.6 million square-foot North American distribution center located in California, (ii) to our approximate 1.8an approximately 2.2 million square-foot European Distribution Centerdistribution center located in Belgium, (iii) to ouran approximately 1.6 million square foot China distribution center, (iv) an approximately 0.3 million square foot United Kingdom distribution center, (v) company-operated distribution centers or third-party distribution centers in Central America, South America and Asia, orand (vi) directly from third-party manufacturers to our other international customers and other international third-party distribution centers. Upon receipt at either of the distribution centers, merchandise is inspected and recorded in our management information system and packaged according to customers’ orders for delivery. Merchandise is shipped to customers by whatever means each customer requests, which is usually by common carrier. The distribution centers have multi-access docks, enabling us to receive and ship simultaneously, and to pack separate trailers for shipments to different customers at the same time. We have an electronic data interchange system which is linked to some of our larger customers. This system allows these customers to automatically place orders with us, thereby eliminating the time involved in transmitting and inputting orders, and it includes direct billing and shipping information.
INTELLECTUAL PROPERTY RIGHTS
We own and utilize a variety of trademarks, including the Skechers trademark. We have a significant number of both registrations and pending applications for our U.S. trademarks. In addition, we have trademark registrations and trademark applications in approximately 155162 foreign countries. We also have design patents and pending design and utility patent applications in both the U.S. and approximately 39 foreign countries. We continuously look to increase the number of our patents and trademarks both domestically and internationally, where necessary to protect valuableour intellectual property. We regard our trademarks and other intellectual property as valuable assets and believe that they have significant value in marketing our products. We vigorously protect our trademarks against infringement, including through the use of cease and desist letters, administrative proceedings and lawsuits.
COMPETITION
The global footwear industry is a competitive business. Although we believe that we do not compete directly with any single company with respect to its entire range of products, our products compete with other branded products within their product category as well as with private label products sold by retailers, including some of our customers. Our footwear competes with footwear offered by companies such as Columbia Sportswear Company, Nike, Inc., Crocs, Inc., Deckers Outdoor Corporation, Kenneth Cole Productions Inc., Steven Madden, Ltd., V.F. Corporation, Adidas AG, Reebok International, Puma SE, ASICS America Corporation, New Balance Athletic Shoe, Inc., Under Armor Inc. and Wolverine World Wide, Inc. These and other competitors pose challenges to our market share in domestic and international markets. We also compete with numerous manufacturers, importers and distributors of footwear for the limited shelf space available for displaying such products to the consumer. Moreover, the general availability of contract manufacturing capacity allows ease of access by new market entrants. Some of our competitors are larger, have been in existence for a longer period of time, have strong brand recognition, have captured greater market share and/or have substantially greater financial, distribution, marketing and other resources than we do.
EMPLOYEESHUMAN CAPITAL
As of December 31, 2020,2022, we employed approximately 11,70015,100 persons, of whom approximately 5,9007,800 were employed on a full-time basis and approximately 5,8007,300 were employed on a part-time basis, primarily in our retail stores.
Social Responsibility.As a family-focused brand, Skechers was founded on inclusivity, diversity, respect and entrepreneurial spirit with the philosophy of putting people first – offering comfort and care to itsour employees and customers,customers. In conjunction with our policy against discrimination, Skechers emphasizes that every employee, applicant, contractor and supporting bothcustomer is entitled to be treated with dignity and respect. Human rights is a core value at the heart of how we conduct our business, at every level of our companythe Company – fromincluding our factories and suppliers. All full-time and part-time corporate employees in the U.S. undergo harassment and diversity training, and
employees of our wholly-owned operations in other countries comply with their local laws regarding human rights, harassment and diversity training in the workplace. As it relates to our suppliers.factories and suppliers specifically, we provide employee and management training to ensure that employees and companies who oversee our production and manufacturer auditing know the most current issues regarding human rights. Our Code of Ethics, Corporate Code of Conduct and Supplier Code of Conduct codify these values and our commitment to diversity, equity and inclusion. These codes are in the Corporate Governance section of the Investor Relations page of our corporate information website located at https://investors.skechers.com/corporate-governance/governance-documents. We intend to post any amendment to, or waivers of, these codes on our website. The information found on, or otherwise accessible through our website, is not incorporated into, and does not form a part of this annual report.
Skechers is focused on reducing its carbon footprint. We have made environmental advancements a top priority at our corporate facilities. Now under construction, our expanding corporate offices remain future-focused as we incorporate our earth-friendly philosophy into our growing footprint. All four corporate buildings are being designed to receive LEED Gold certification upon completion, and include solar panels.
Community. Skechers encourages active participation in the greater community, with annual charity walks for children in the U.S. and around the world. We promote charitable giving and volunteering by sponsoring community service days along with blood drives, food drives, and shoe drives. Additionally, we regularly donate product to not-for-profit organizations. In 2022, the Company donated over 105,000 pairs of new shoes to those in need, more than $1.5 million to Petco Love Foundation to help save the lives of animals in need in the U.S. and Canada.
Health and Safety.Skechers’ lifestyle and performance product offering has shaped our culture with a focus on wellness, and a commitment to providing a safe and healthful work environment for all employees. The Company offers healthy lunch options, an in-house fitness consultant and corporate exercise programs. We offer paid time off to get the COVID-19 vaccine and provided on-site vaccination clinics for our corporate employees and our domestic distribution center employees. We made changes to our corporate facilities, increasing cleaning protocols and distributing personal protective equipment and cleaning supplies to employees; installing touchless doors and faucets in common areas.
Talent. We offer competitive benefits in a casual, creative atmosphere and a fun, fast-paced environment where employees can always learn and grow. Employee benefits are designed to help employees and their families stay healthy, meet their financial goals, and help them balance their work and personal lives. Benefits include health and wellness programs, training and development programs, an employee stock purchase program, a childcare incentive program, on-site electric vehicle charging stations, and product discounts.
Item 1A. |
|
In addition to the other information in this annual report, the following factors should be considered in evaluating us and our business.
Risks Related to COVID-19
The COVID-19 Pandemic Has Had, And May Continue To Have, A Material Adverse Effect On Our Business And Results Of Operations.
Impact on Global Economy and on Our Business and Financial Performance
The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. The COVID-19 pandemic has had, and may continue to have, a material adverse impact on our business and financial performance. The extent of this impact on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, is highly uncertain and cannot be predicted, as information is rapidly evolving with respect to the duration and severity of the pandemic. It will depend on future developments, including the duration and severity of the pandemic, related restrictions on travel, temporary store closure requirements and the related impact on consumer confidence and spending, and the extent of any recession resulting from the pandemic. At this time, we cannot reasonably estimate the duration and severity of the COVID-19 pandemic, or its overall impact on our business and financial performance.
Closures and Operational Restrictions of Our Retail Stores and Our Wholesale Customers’ Stores
As a result of the COVID-19 pandemic, and in response to government mandates or recommendations, as well as decisions we have made to protect the health and safety of our employees, consumers and communities, beginning in March 2020, we (including our joint ventures), and our distributors, licensees and franchisees, temporarily closed a significant number of our company- and joint venture-owned retail stores, and our distributor-, licensee- and franchisee-owned retail stores, respectively, around the world. While over 90% of our company- and joint venture-owned retail stores and over 90% of our third party-owned retail stores around the world have reopened (although many with temporarily reduced operating hours) as of the filing date of this report, collectively, we may face recurring store closure requirements and other operational restrictions with respect to some or all of our physical locations for prolonged periods of time due to, among other factors, evolving or new increasingly stringent governmental restrictions including public health directives, quarantine policies or social distancing measures. In addition, many of our significant wholesale customers have closed many of their stores, which will adversely impact our revenues from these customers. As a result, our business and results of operations have been, and will continue to be, materially adversely impacted by store closures and operational restrictions.
Even as we and our wholesales customers reopen our stores, as the number of people affected by the COVID-19 pandemic continues to grow, consumer fear about becoming ill with the disease and recommendations and/or mandates from federal, state and local authorities to avoid large gatherings of people or self-quarantine may continue to increase, which has, and will continue to, adversely affect traffic to stores. Any significant reduction in consumer visits to, or spending at, our wholesale customers’ stores and our retail stores, caused by the COVID-19 pandemic, and any decreased spending at stores caused by decreased consumer confidence and spending during and following this pandemic, has resulted in, and will continue to result in, a loss of sales and profits and other material adverse effects on our business and results of operations.
Disruptions or Delays in Our Supply Chain
Although not a material issue as of the filing date of this report, the COVID-19 pandemic has also caused delays in shipments of our products and could once again have the potential to significantly impact our supply chain if the factories that manufacture our products, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed or experience worker shortages. More specifically, the majority of our manufacturers are located primarily in China and Vietnam. To date, the Chinese and Vietnamese governments have imposed certain restrictions on business operations and the movement of people and goods, including the temporary closure of some factories and businesses in China and restrictions on others in Vietnam, to limit the spread of COVID-19. As a result, we have seen and may yet again see disruptions or delays in shipments, and we may experience negative impacts to pricing of our products due to changes in availability of inventory, which could materially adversely impact our business and results of operations.
Office Closures, Focus of Key Personnel and Productivity of Employees
As a result of the COVID-19 pandemic, including related governmental guidance or requirements, beginning in March 2020, we also temporarily closed many of our corporate offices and other facilities, including our corporate headquarters in Manhattan Beach, California, and implemented a policy for many of our corporate employees to work remotely. While we began to allow a limited number of personnel back to our corporate offices with added safety measures and staggered work schedules in June, these evolving work place arrangements may negatively impact productivity and cause other disruptions to our business.
In addition, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time and resources across the entire company, thereby diverting their attention from other priorities that existed prior to the outbreak of the pandemic. If these conditions worsen, or last for an extended period of time, our ability to manage our business may be impaired, and operational risks and other risks facing us even prior to the COVID-19 pandemic may be elevated.
The COVID-19 Pandemic Has Had A Negative Impact On The Global Economy, And Our Sales Are Influenced By Economic Conditions That Impact Consumer Spending And Consumer Confidence.
Footwear is a cyclical industry that is dependent upon the overall level of consumer spending and consumer confidence. Consumer purchases of discretionary items, including our products, generally decline during periods when disposable income is adversely affected, there is economic uncertainty or volatility or during recessionary periods. Our wholesale customers anticipate and respond to adverse changes in economic conditions and uncertainty by closing doors, reducing inventories, canceling orders or increasing promotional activity. Our retail stores are also affected by these conditions, which may lead to a decline in consumer traffic and spending in these stores as they reopen. As a result, factors that diminish consumer spending and confidence in any of the markets in which we compete, particularly deterioration in general economic conditions, consumer credit availability, consumer debt levels, inflation, the impact of foreign exchange fluctuations on tourism and tourist spending, volatility in investment returns, fear of unemployment, increases in energy costs or tax or interest rates, housing market downturns, fear about and impact of pandemic illness (such as the impact of the COVID-19 pandemic, including reduced store traffic and widespread temporary store closures), and other factors such as acts of war, natural disasters or terrorist or political events that impact consumer confidence, have reduced, and may continue to reduce (with respect to the COVID-19 pandemic), our sales and may continue to have a material adverse effect on our operations and financial condition through their negative impact on our wholesale customers as well as decreased spending in our retail stores and potentially via our e-commerce business.
Risks Related to Customers, Competition and Retail OperationsRISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our Future Success Depends On Our Ability To Maintain Our Brand Name And Image With Consumers.
Our success to date has in large partlargely been due to the strength of the Skechers brand. Maintaining, promoting, and growing our brand name and image depends on sustained effort and commitmentour ability to and significant investment in, both the successful development ofdevelop high-quality, innovative, and fashion forward products, andas well as our ability to create fresh and relevant marketing and advertising campaigns. Even if we are ableThe inability to timely and appropriately respond to changing consumer preferences and trends with new high-quality products,execute or adverse developments in these areas could negatively impact our marketing and advertising campaigns may not resonate with consumers, or consumers may consider our brand to be outdated or associated with footwear styles that are no longer popular or relevant.brand. Our brand name and image with consumers could also be negatively impacted if we or any of our products were to receive negative publicity whether related to our products or otherwise.of any kind. If we are unable to maintain, promote and grow our brand, image, then our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
Our Future Success Also Depends On Our Ability To Respond To Changing Consumer Preferences, Identify And Interpret Consumer Trends, And Successfully Market New Products.
The footwear industry is subject to rapidly changing consumer preferences. The continued popularity of our footwear and the development of new lines and styles of footwear with widespread consumer appeal, including consumer acceptance of our performance footwear, requires us to accurately identify and interpret changing consumer trends and preferences and to effectively respond in a timely manner. Continuing demandDemand for and market acceptance for bothof existing and new products are uncertain and depend on the following factors:
| • | substantial investment in product innovation, design and development; |
| • | commitment to product quality; and |
| • | significant and sustained marketing efforts and expenditures, including with respect to the monitoring of consumer |
In assessing our responseWe are often required to anticipated changing consumer preferences and trends, we frequently must make decisions about product designs and marketing expenditures several months in advance of the time when actual consumer acceptance can be determined. As a result, we may not be successful in responding to shifting consumer preferences and trends with new products that achieve market acceptance. Because of the ever-changing nature of consumer preferences and market trends, a number of companies in the footwear industry, including ours, experience periods of both rapid growth, followed by declines, in revenue and earnings. If we fail to identify and interpreteffectively respond to changing consumer preferences, and trends, or are not successful in responding to these changes with the timely development of products that achieve market acceptance, we could experience excess inventories, higher than normal markdowns, returns, order cancellations or an inability to profitably sell our products, and our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
We Face Intense Competition, Including Competition From Companies In The Performance Footwear Market and Those With Significantly Greater Resources Than Ours, And If We Are Unable To Compete Effectively, With These Companies, Our Market Share May Decline And Our Business Could Be Harmed.
We face intense competition from other established companies in the footwear industry. Our competitors’industry in the areas of product offerings, pricing, costs of production, and advertising and marketing expenditures are highly competitive areas inexpenditures. Consumer demand for our business. Ifproducts may decline significantly if we do not adequately and timely anticipate and respond to our competitors, consumer demand for our products may decline significantly. A numbercompetitors. Some of our competitors have significantly greater financial, technological, engineering, manufacturing, marketing and distribution resources than we do. Their greater capabilities in these areas may enable them to better withstand periodic downturns in the footwear industry, compete more effectively on the basis of price and production, more effectively keep up with rapid changes in footwear technology, and more quickly develop new products. New companies may also enter the markets in which we compete, further increasing competition in the footwear industry.competition. In addition, negative consumer perceptions of our performance features due to our historical reputation as a fashion and lifestyle footwear company may place us at a competitive disadvantage in the performance footwear market. We may not be able to compete successfully in the future, and increased competition may result in price reductions, cost increases, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand our development and marketing of new products, which would materially adversely impact our business, results of operations and financial condition.
We Depend Upon A Relatively Small Group Of Customers For A Large Portion Of Our Sales.
During the year ended December 31, 2020, our net sales to our five largest customers accounted for approximately 8.8% of total net sales, respectively. No one customer accounted for more than 10.0% of outstanding accounts receivable balance at December 31, 2020. Although we have long-term relationships with many of our customers, our customers do not have a contractual obligation to purchase our products and we cannot be certain that we will be able to retain our existing major customers. Store closures or re-closures, decreased foot traffic and economic recession resulting from the COVID-19 pandemic has, and will likely continue to, adversely affect our performance and could continue to adversely affect the financial condition of many of our customers. If any major existing customer ceases or decreases its purchases from us, cancels its orders, delays or defaults on its payment obligations to us, reduces the floor space, assortments, fixtures or advertising for our products or changes its manner of doing business with us for any reason, such as due to store closures, decreased foot traffic or recession resulting from the COVID-19 pandemic, such actions may adversely affect our business and financial condition. Furthermore, the retail industry regularly experiences consolidation, contractions and closings, which may result in our loss of customers or our inability to collect accounts receivable of major customers, and we have recently experienced delays in payments from some of our customers and others have gone bankrupt. If we lose a major customer, experience a significant decrease in sales to a major customer or are unable to collect the accounts receivable of a major customer due to any of the foregoing reasons, our business and financial condition could be harmed.
Our Strategies Involve A Number Of Risks That Could Prevent Or Delay The Successful Opening Of New Stores As Well As Negatively Impact The Performance Of Our Existing Stores.
Our ability to successfully open and operate new stores depends on many factors, including among others, our ability to identify suitable store locations, the availability of which is outside of our control; negotiate acceptable lease terms, including desired tenant improvement allowances; source sufficient levels of inventory to meet the needs of new stores; hire, train and retain store personnel; successfully integrate new stores into our existing operations; and satisfy the fashion preferences in new geographic areas.
In addition, some or a substantial number of new stores could be opened in regions of the U.S. in which we currently have few or no stores. Any expansion into new markets may present competitive, merchandising and distribution challenges that are different from those currently encounteredwe encounter in our existing markets. Any of these challenges could adversely affect our business and results of operations. In addition, to the extent that any new store openings are in existing markets we may experiencecould result in reduced sales volumes in existing stores in those markets. If sales decline at our retail stores, whether through competition from online sites or other companies, weWe may decide to close stores that experience sales declines, which could result in additional costs, expenses, asset impairments or asset write-downs.
Our Global Retail Business Has Required, And Will Continue To Require, A Substantial Investment And Commitment Of Resources And Is Subject To Numerous Risks And Uncertainties.
Our global retail business has required substantial investments in leasehold improvements, inventory, and personnel. We have also made substantialsignificant operating lease commitments for retail space worldwide. Due to the high fixed-cost structure associated with our global retail business, a decline in sales or the closure or poor performance of individual or multipleclosure of stores could result in significant lease termination costs, write-offs or impairments of leasehold improvements, and employee-related termination costs. The success of our global retail operations also depends on our ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences globally, including the shift from brick and mortar to direct-to-consumer and mobile channels, and our ability to effectively develop our direct-to-consumerdigital and mobile channels. Our failure to successfully respond to these factors could adversely affect our retail business, as well as damage our brand and reputation, and could materially affect our results of operations, financial position, and cash flows.
Many Of Our Retail Stores Depend Heavily On The Customer Traffic Generated By Shopping And Factory Outlet Malls Or By Tourism.
Many of our concept stores are located in shopping malls and some of our factory outlet stores are located in manufacturers’ outlet malls where wemalls. We depend on obtaining prominent locations and the overall success of the malls to generate customer traffic. We cannot control theThe overall success of individualthe malls and an increase incan be negatively impacted by factors outside of our control, such as store closures by other retailers may lead to mall vacancies and reduced foot traffic.retailers. Some of our concept stores occupy street locations that are heavily dependent on customer traffic generated by tourism. Tourism can be adversely affected by external factors such as an economic slowdown or social or political events. Any substantial decrease in tourism resulting from an economic slowdown, political, socialcustomer traffic generated by malls or military events or otherwise,tourism has, and is likely tomay continue to adversely affecthave, an adverse effect on sales in our existing stores, particularly those with street locations. The effects of these factors could continue to reduce sales of particular existing stores or hinder our ability to open retail stores in new markets, which could negatively affect our operating results.
We Depend On Key Personnel To Manage Our Business Effectively In A RapidlyChanging Market, And If We Are Unable To Retain Existing Personnel, OurBusiness Could Be Harmed.
Our future success depends upon the continued services of Robert Greenberg, Chairman of the Board and Chief Executive Officer; Michael Greenberg, President and a member of our Board of Directors; and David Weinberg, Executive Vice President, Chief Operating Officer and a member of our Board of Directors. The loss of the services of any of these individuals or any other key employee could harm us. Our future success also depends on our ability to identify, attract and retain additional qualified personnel. Competition for employees in our industry is intense, and we may not be successful in attracting and retaining such personnel.
We Have A Significant Work Force And Are Subject To Risks Related To Human Capital Management.
We employ approximately 15,100 employees worldwide and a significant portion of our operating expenses relate to Inventory, Manufacturingcompensation and Distributionbenefits. Although we spend a significant amount of time and expense on human capital management, we cannot ensure that we will be able to maintain a happy and productive workforce. If we are unable to offer competitive compensation and benefits, appropriate training and development, and a compelling work environment or sustain employee satisfaction, our culture may be adversely affected, our reputation may be damaged, and we may incur costs related to turnover.
RISKS RELATED TO SUPPLY CHAIN
Our Business Could Be Harmed If We Fail To Maintain Proper Inventory Levels.
We place orders with our manufacturers for some of our products prior to the time we receive all of our customers’ orders. We do this to minimize purchasing costs, the time necessary to fill customer orders, and the risk of non-delivery. We also maintain an inventory of certain products that we anticipate will be in greater demand. Any unanticipated decline in the popularity of Skechers footwear or other unforeseen circumstances may make it difficult for us and our customers to accurately forecast product demand, trends, and we may be unable to sell the products we have ordered in advance from manufacturers or that we have in our inventory. Inventory levels in excess ofexceeding customer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could significantly impair our brand image and have a material adverse effect on our operating results, financial condition and cash flows. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply the quality products that we require at the timewhen we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and distributor relationships, and diminish brand loyalty.
Our International Sales And Manufacturing Operations Are Subject To The Risks Of Doing Business Abroad, Particularly In China and Vietnam, Which Could Affect Our Ability To SellManufacture Or ManufactureSell Our Products, In International Markets, Obtain Products From Foreign Suppliers Or Control The Costs Of Our Products.
Substantially all of our sales during the year ended December 31, 2020, 2022 were derived from sales of footwear manufactured in foreign countries, with most manufactured in China and Vietnam. We also sell our footwear in several foreign countries and plan to increase our international sales efforts as part of our growth strategy. Foreign manufacturing and sales are subject to a number of risks, including the following: political and social unrest, including terrorism; changing economic conditions, including higher labor costs; increased costs of raw materials; currency exchange rate fluctuations; labor shortages and work stoppages, including those due to the outbreak of a disease leading to an epidemic or pandemic spread; electrical shortages; transportation delays; loss or damage to products in transit; expropriation; nationalization; the adjustment, elimination or imposition of domestic and international duties, tariffs, quotas, import and export controls and other non-tariff barriers; exposure to different legal standards (particularly with respect to intellectual property); compliance with foreign laws; changes in domestic and foreign governmental policies; and there may bethe potential for circumstances in the future where we may have to incur premium freight charges to expedite the delivery of product to our customers. If we incur a significant amount of premium charges to airfreight product for our customers and we are not able to collect those charges, our gross profit will be negatively affected if we are unable to collect those charges.affected. Apart from the aforementioned impacts of the COVID-19 pandemic, including supply chain constraints, we have not, to date, been materially affected by any such risks, but we cannot predict the likelihood of such developments occurring or the resulting long-term adverse impact on our business, results of operations, financial condition and cash flows.
In particular, because most of our products are manufactured in China and Vietnam, the possibility of adverse changes in trade or political relations with China or Vietnam, political instability in China or Vietnam, increases in labor costs, the occurrence of prolonged adverse weather conditions or a natural disaster such as an earthquake or typhoon in China or Vietnam, or the outbreak of a pandemic disease in China or Vietnam could severely interfere with the manufacturing and/or shipment of our products and would have a material adverse effect on our operations. Our business operations may be adversely affected by the current and future political environment in the Communist PartyPeople’s Republic of China (“PRC”). The government of the PRC has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate under the PRC may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under its current leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice. A change in policies by the PRC government could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises.
We Rely On Independent Contract Manufacturers And, As A Result, Are Exposed To Potential Disruptions In Product Supply.
Our footwear products are currently manufactured by independent contract manufacturers. During the year ended December 31, 2020,2022, the top five manufacturers of our products produced approximately 42.1%39.0% of our total purchases. One manufacturer accounted for 21.0%16.5% of total purchases for the year ended December 31, 2020.2022.
We compete with other footwear companies for production facilities, and we do not have long-term contracts with any of our contract manufacturers. Under our current arrangements with them, these manufacturers generally may unilaterally terminate their relationship with us at any time. If our current manufacturers cease doing business with us, we could experience an interruption in the manufacture of our products. Although we believe that we could find alternative manufacturers, we may be unable to establish relationships with alternative manufacturers that will be as favorable as the relationships we have now. For example, new manufacturers may have higher prices, less favorable payment terms, lower manufacturing capacity, lower quality standards or higher lead times for delivery. If we are unable to provide products consistent with our standards or the manufacture of our footwear is delayed or becomes more expensive, our business and financial condition would be harmed.
While not a material issue as of the filing date of this report, the COVID-19 pandemic previously led to the Chinese and Vietnamese governments imposing temporary closures of some of our factories in China and restrictions on others in Vietnam that caused delays in shipment of our products. We may encounter similar challenges yet again with these manufacturers, or new difficulties could arise with our manufacturers or any raw material suppliers on which our manufacturers rely, including prolonged manufacturing or transportation disruptions due to public health conditions, such as the recent COVID-19 pandemic, reductions in the availability of production capacity due to government imposed restrictions, failure to meet our quality control standards, failure to meet production deadlines or increased manufacturing costs. This could result in our customers canceling orders, refusing to accept deliveries or demanding reductions in purchase prices, any of which could have a negative impact on our cash flowflows and harm our business and results of operations.
Our Ability To Deliver Our Products To The Market Could Be Disrupted If We Encounter Problems Affecting Our Logistics And Distribution Systems.
We rely on owned or independently operated distribution facilities to transport, warehouse and ship products to our customers. Our logistics and distribution systems include computer-controlled and automated equipment, which may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of our products are distributed from a few key locations. Therefore, our operations could be interrupted by travel restrictions, earthquakes, floods, fires or other natural disasters near our distribution centers. Our business interruption insurance may not adequately protect us from the potential adverse effects that could be caused byof significant disruptions affectingto our distribution facilities,system, such as the long-term loss of customers or an erosion of brand image. In addition, our distribution capacity is dependent on the timely performance of services by third parties, including the transportation of product to and from our distribution facilities. If we encounter problems affecting our distribution system, our ability to meet customer expectations, manage inventory, complete sales, and achieve operating efficiencies could be materially adversely affected.
Risks Related to Economic and External FactorsRISKS RELATED TO ECONOMIC AND POLITICAL CONDITIONS, PANDEMICS AND OTHER EXTERNAL FACTORS
The Uncertainty Of Global Market Conditions May Continue To Have A Negative Impact On Our Business, Results Of Operations Or Financial Condition.
WhileThe uncertain state of global economic and political conditions, have recently improved slightly, their uncertain state, including the impact of inflation and challenging consumer retail market, in the U.S., may negatively impact our business, which depends on the general economic environment and levels of consumers’ discretionary spending that affect not only the ultimate consumer, but also retailers, who are our primary direct customers.spending. If the current economic situation does not improve or if it weakens, we may not be able to maintain or increase our sales to existing customers, make sales to new customers, open and operate new retail stores, maintain sales levels at our existing stores, maintain or increase our international operations on a profitable basis, or maintain or improve our earnings from operations as a percentage of sales. Additionally, if there is an unexpected decline in sales, our results of operations will depend on our ability to implement a corresponding and timely reduction in our costs and manage other aspects of our operations. These challenges include (i) managing our infrastructure, (ii) hiring and maintaining, as required, the appropriate number of qualified employees, (iii) managing inventory levels and (iv) controlling other expenses.
Russia’s ongoing war with Ukraine and the subsequent economic sanctions imposed by the U.S., NATO and other countries may impact global economic conditions or our ability to sell products to customers in the affected regions. The conflict could also have broader implications on economics outside the region, such as the global inflationary impact of a potential boycott of Russian oil and gas by other countries. Furthermore, any unfavorable developments in global political, social and regulatory conditions, including geopolitical conflicts, political unrest, civil strife, terrorist activity, acts of war, public corruption, expropriation, nationalism and other economic or political uncertainties in the U.S. or internationally, could also impact our business. Any negative sentiment toward the U.S. as a result of any such developments could also adversely affect our business and reputation. If the uncertain global market conditions continue for a significant period of time or worsen, our results of operations, financial condition, and cash flows could be materially adversely affected.
Our Business Could Be Adversely Affected By Changes In The Business Or Financial Condition Of SignificantOur Customers Due To Global Economic Conditions.
TheA global financial crisis affectedcould affect the banking system and financial markets and resultedresult in a tightening in the credit markets, more stringent lending standards and terms, higher inflation, and higher volatility in fixed income, credit, currency and equity markets. In addition, our business could be adversely affected by other economic conditions, such as the insolvency of certain of our key distributors, which could impair our distribution channels, or the diminished liquidity or an inability to obtain credit to finance purchases of our product by our significant customers. Our customers may also experience weak demand for our products or other difficulties in their businesses. If economic, financial or political conditions in global markets deteriorate in the future, demand may be lower than forecasted and insufficient to achieve our anticipated financial results. Any of these events would likely harm our business, results of operations, financial condition and cash flows.
Natural Disasters, The Effects Of Climate Change, Pandemics, Including the COVID-19 Pandemic, And Other Events Beyond Our Control Could Have A Material Adverse Effect On Our Business And Results Of Operations.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce, and the global economy, and thus could have a negative effect on us. Our business operations are subject to interruption from earthquakes, hurricanes, tornadoes, floods, fires, extreme weather events, power shortages, pandemics such as COVID-19, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, the effects of climate change, and other events beyond our control. Although we maintain disaster recovery plans, such events could disrupt our operations or those of our customers and suppliers, including through the inability of employees and contract professionals to work, destruction of facilities, loss of life, and adverse effects on supply chains, power, infrastructure and the integrity of information technology systems, all of which could materially increase our costs and expenses, delay or decrease revenue from our customers and disrupt our ability to maintain business continuity. We could incur significant costs to improve the climate-related resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate the effects of climate changes. Our insurance may not be sufficient or cover losses or additional expenses that we may sustain. A significant natural disaster or other event that disrupts our operations or those of our customers or suppliers could have a material adverse effect on our business, results of operations, financial condition, and prospects.
Our business relies heavily on the health and safety of our employees, contract professionals and customers. The impact of a health crisis such as the COVID-19 pandemic on our business, operations, and future financial performance could include, but is not limited to, adverse impacts to our operating income, operating margin, net income, earnings per share and operating cash flows, as expenses may not decrease at the same rate as revenues decline. In addition, our quarterly and annual revenue growth rates and expenses as a percentage of our revenues may differ significantly from our historical rates, and our future operating results may fall below expectations.
Our Sales Are Influenced By Economic Conditions And Uncertainty That Impact Consumer Spending And Consumer Confidence.
Consumer confidence and spending on discretionary items generally declines during periods of economic uncertainty or recession. Our wholesale customers anticipate and respond to adverse changes in economic conditions and uncertainty by reducing inventories and/or increasing promotional activity. Our retail stores are also affected by these conditions and may experience declines in consumer traffic and spending. As a result, factors that diminish consumer confidence and spending, particularly deterioration in general economic conditions, consumer credit availability, consumer debt levels, inflation, the impact of foreign exchange fluctuations on tourism and tourist spending, volatility in investment returns, fear of unemployment, increases in energy costs or taxes or interest rates, housing market downturns, fear about and impact of pandemic illness (such as the impact of the COVID-19 pandemic), and other factors such as acts of war, natural disasters or terrorist or political events that impact consumer confidence, have had, and may continue to have (with respect to the COVID-19 pandemic), a material adverse effect on our operations and financial condition through their negative impact on our wholesale customers as well as decreased spending in our retail stores and potentially via our e-commerce business.
Natural Disasters Or A Decline In Economic Conditions In California Could Increase Our Operating Expenses Or Adversely Affect Our Sales Revenue.
As of December 31, 2020, aA substantial portion of our operations are located in California, including 11096 of our retail stores, our headquarters in Manhattan Beach, and our U.S.North America distribution center in Rancho Belago. Because a significant portion of our sales is derived from sales in California, aA decline in the economic conditions in California whether or not such decline spreads beyond California, could materially adversely affecthave a material adverse impact on our business. Furthermore, a natural disaster or other catastrophic event in California, such as an earthquake or wildfire, affecting California, could significantly disrupt our business including the operation of our only domestic distribution center. We may be more susceptible to these issues than our competitors whose operations are not as concentrated in California.
Our Environmental, Social And Governance (“ESG”) Commitments and Disclosures May Expose Us To Reputational Risks RelatedAnd Legal Liability.
Our brand and reputation are associated with our public commitments to Currencyvarious corporate ESG initiatives, including our goals relating to sustainability and Debtdiversity and inclusion. Our disclosures on these matters and any failure or perceived failure to achieve or accurately report on our commitments, could harm our reputation and adversely affect our client relationships or our recruitment and retention efforts, as well as expose us to potential legal liability. Increasing focus on ESG matters has resulted in, and is expected to continue to result in, the adoption of legal and regulatory requirements designed to mitigate the effects of climate change on the environmental, as well as legal and regulatory requirements requiring climate-related disclosures. If new laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to meet such obligations. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or may not meet the expectations of investors or other stakeholders. Our processes and controls for reporting ESG matters across our operations and supply chain are evolving along with multiple disparate standards for identifying, measuring, and reporting ESG metrics, including ESG-related disclosures that may be required by the SEC, European and other regulators, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future.
RISKS RELATED TO CURRENCY EXCHANGE RATES
Foreign Currency Exchange Rate Fluctuations Could Have A Material Adverse Effect On Our Business And Results Of Operations.
Foreign currency fluctuations affect our revenue and profitability. Changes in currency exchange rates may impact our financial results positively or negatively in one period and not another, which may make it difficult to compare our operating results from different periods. Currency exchange rate fluctuations may also adversely impact third parties that manufacture our products by making their costs of raw materials or other production costs more expensive and more difficult to finance, thereby raising prices for us, our distributors and/or our licensees. We do not currently engage in hedging activities with respect to these currency exchange rate risks. For a more detailed discussion of the risks related to foreign currency fluctuation, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.”
In addition, our foreign subsidiaries purchase products in U.S. dollars, in which causes the cost of those products willto vary depending on the foreign currency exchange rates and will impactimpacts the price charged to customers. Our foreign distributors also purchase products in U.S. dollars and sell in local currencies, which impacts the price to foreign consumers. As the U.S. dollar strengthens relative to foreign currencies, our revenues and profits are reduced when translated into U.S. dollars and our margins may be negatively impacted by the increase in product costs due to foreign currency exchange rates. Although we typically work to mitigate the impact of exchange rate fluctuations through price increases and further actions to reduce costs, we may not be able to fully offset the impact, if at all. Our success depends, in part, on our ability to manage or mitigate these foreign currency impacts, as changes in the value of the U.S. dollar relative to other currencies could have a material adverse effect on our business, results of operations, financial position and cash flows.
We Have Debt And Interest Payment Requirements At Levels That May Restrict Our Future Operations.
As of December 31, 2020, we had $735.0 million of debt and $250.0 million of additional borrowings available under our unsecured revolving credit facility. In March 2020, as a precautionary measure to maximize liquidity and to increase available cash on hand, we drew down on our unsecured revolving credit facility. Our debt requires us to dedicate cash flow from operations to the payment of interest and principal due under our debt. This dedicated use of cash could impact our ability to successfully compete by, for example:
• increasing our vulnerability to general adverse economic and industry conditions;
• limiting our flexibility in planning for or reacting to changes in our business and the general retail environment; and
• limiting our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporate purposes.
Risks Related to Legal and Regulatory MattersRISKS RELATED TO LEGAL AND REGULATORY MATTERS
Changes In Tax Laws Or The Potential Imposition Of Additional Duties, Quotas, Tariffs And Other Trade Restrictions Could Have An Adverse Impact On Our Sales And Profitability.
All of our products manufactured overseas and imported into the U.S., the European Union and other countries are subject to customs duties collected by customs authorities. Customs information submitted by us is routinely subject to review by customs authorities.duties. We are unable to predict whether there may be unfavorable changes in tax laws in the U.S. or overseas, additional customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions to prevent terrorism or other trade restrictions imposed on the importation of our products in the future. Such actions could adversely affect our ability to produce and market footwear at competitive prices and might have an adverse impact on theour sales and profitabilityresults of Skechers.operations.
Changes toTo U.S. Or Other Countries’ Trade Policy, including New Tariffs Imposed By The U.S. Government, CouldPolicies And Import/Export Regulations Or Our Failure To Comply With Such Regulations May Have A Material Adverse Effect On Our Reputation, Business, Financial Condition And Results Of Operations.
Changes in social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories or countries from whichwhere we importcurrently sell our products or conduct our business as well as any negative sentiment toward the U.S. as a result of such changes, could adversely affect our business. The U.S. government has placedpresidential administrations have instituted or proposed additionalchanges in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on certain goods imported from China and may enact new tariffsimports into the U.S., economic sanctions on additional goods imported from China, including footwearindividuals, corporations or countries, and other products that we import. China had imposed tariffs on a wide range of American products in retaliation and responded to the new proposed tariff by, among other things, adjusting the value of its currency. China andgovernment regulations affecting trade between the U.S. and other countries where we conduct our business. It may be time-consuming and expensive for us to alter our business operations in order to adapt to or comply with any such changes.
In addition, changes or proposed changes in U.S. or other countries' trade policies may result in restrictions and economic disincentives on international trade. Tariffs and other changes in U.S. trade policy have made progressin the past and could in the future trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are in discussions to finalize a trade agreement, however there is no guarantee thatconsidering imposing retaliatory measures on certain U.S. goods. Further, any agreement between the countries will be reached. China could impose additional tariffsemerging protectionist or take other actions if the countries are unable to come to an agreement. The majority of our products that we sellnationalist trends either in the U.S. are manufacturedor in China.other countries could affect the trade environment. The U.S. government has also negotiatedCompany, similar to many other multinational corporations, does a replacementsignificant amount of business that would be impacted by changes to the trade deal for NAFTA with Mexico and Canada, the U.S.-Mexico-Canada Agreement (the “USMCA”), which still needs to be ratified. There is also a concern that the impositionpolicies of additional tariffs by the U.S. could result inand foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the adoption of additional tariffs by other countries as well. Ifpotential to adversely impact the U.S. government does not reach a trade agreement with Chinaeconomy or replaces NAFTA with USMCA,certain sectors thereof or if additional tariffs or trade restrictions are implemented by the U.S. or other countrieseconomy of another country in connection with a global trade war, the resulting escalation of trade tensions could have a significant, adverse effect on world tradewhich we conduct operations, our industry and the world economy. While it is too early to predict whether or how the recent policy changes will impactglobal demand for our business, the imposition of tariffs on footwear, apparel or other items imported by us from China could require us to increase prices to our customers or, if unable to do so,products, and as a result, in lowering our gross margin on products sold. Tariffs on footwear imported from China could have a material adverse effect on our business, financial condition and results of operations.operations
Our Business Could Be Harmed If Our Contract Manufacturers, Suppliers Or Licensees Violate Labor, Trade Or Other Laws.
We require our independent contract manufacturers, suppliers and licensees to operate in compliance with applicable laws and regulations. Manufacturers are required to certify that neither convicted, forced or indentured labor (as defined under U.S. law) nor child labor (as defined by law in the manufacturer’s country) is used in the production process, that compensation is paid in accordance with local law and that their factories are in compliance with local safety regulations. Although we promote ethical business practices and our sourcing personnel periodically visit and monitor the operations of our independent contract manufacturers, suppliers and licensees, we do not control them or their labor practices. If one of our independent contract manufacturers, suppliers or licensees violates labor or other laws or diverges from those labor practices generally accepted as ethical in the U.S., it could result in adverse publicity for us, damage our reputation in the U.S., or render our conduct of business in a particular foreign country undesirable or impractical, any of which could harm our business.
In addition, if we, or our foreign manufacturers, violate U.S. or foreign trade laws or regulations, we may be subject to extra duties, significant monetary penalties, the seizure and the forfeiture of the products we are attempting to import, or the loss of our import privileges. Possible violations of U.S. or foreign laws or regulations could include inadequate record-keeping of our imported products, misstatements or errors as to the origin, quota category, classification, marketing or valuation of our imported products, fraudulent visas, or labor violations. The effects of these factors could render our conduct of business in a particular country undesirable or impractical, and have a negative impact on our operating results.
The Disruption, Expense And Potential Liability Associated With Existing And Unanticipated Future Litigation Against Us Could Have A Material Adverse Effect On Our Business, Results Of Operations, Financial Condition And Cash Flows.
In addition to the legal matters included in our reserve for loss contingencies, we occasionally become involved in litigation arising from the normal course of business, and we are unable to determine the extent of any liability that may arise from any such unanticipated future litigation. We have no reason to believe that there is a reasonable possibility or a probability that we may incur a material loss, or a material loss in excess of a recorded accrual, with respect to any other such loss contingencies. However, the
outcome of litigation is inherently uncertain and assessments and decisions on defense and settlement can change significantly in a short period of time. Therefore, although we consider the likelihood of such an outcome to be remote with respect to those matters for which we have not reserved an amount for loss contingencies, if one or more of these legal matters were resolved against us in the same reporting period for amounts in excess of our expectations, our consolidated financial statements of a particular reporting period could be materially adversely affected. Further, any unanticipated litigation in the future, regardless of its merits, could also significantly divert management’s attention from our operations and result in substantial legal fees being incurred. Such disruptions, legal fees and any losses resulting from these unanticipated future claims could have a material adverse effect on our business or financial condition.
Risks Related to Management and Employees
We Depend On Key Personnel To Manage Our Business Effectively In A RapidlyChanging Market, And If We Are Unable To Retain Existing Personnel, OurBusiness Could Be Harmed.
Our future success depends upon the continued services of Robert Greenberg, Chairman of the Board and Chief Executive Officer; Michael Greenberg, President and a member of our Board of Directors; and David Weinberg, Executive Vice President, Chief Operating Officer and a member of our Board of Directors. The loss of the services of any of these individuals or any other key employee could harm us. Our future success also depends on our ability to identify, attract and retain additional qualified personnel. Competition for employees in our industry is intense, and we may not be successful in attracting and retaining such personnel.
We Have A Significant Work Force And Are Subject To Risks Related To Human Capital Management.
As of December 31, 2020, we employee over 11,500 employees worldwide. A significant portion of our operating expenses relate to compensation and benefits, and we spend significant time and effort managing these employees. We cannot ensure that we will be able to maintain a happy and productive workforce. Some of our employees may take actions that harm our business or we may face other issues with our employees, such as retention. Although we spend a significant amount of time and expense on human capital management, we cannot ensure that these efforts will be successful.
Risks Related to Intellectual Property and Information Technology
Our Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our Intellectual Property Rights Or If We Are Sued For Intellectual Property Infringement.
We believe that our trademarks, design patents and other proprietary rights are important to our success and our competitive position. We use trademarks on nearly all of our products and believe that having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying us and in distinguishing our goods from the goods of others. We consider our Skechers®, Skechers Slip-ins® Skechers Hands Free Slip-ins®, Skechers Performance™, Skechers GOrun®, Skechers GOwalk®, Skechers GOgolfGO golf®, Skechers GOtrain®, Skechers on-the-GO®, ®,
®,
®,
®,
®, Skechers Cali®,
Skecher Street®Skechers Street™, Skechers USA®, Skechers Active™, Skechers Sport Active™, Skechers Work™, Skechers Max Cushioning™Cushioning®, Massage Fit®, Mark Nason®, D’Lites®, DLT-A®,BOBS®, Energy Lights®, Glide Step™Step®, Skech-Air®, Skechers Kids™, Twinkle Toes®, Z-StrapS Lights®, Mega-Flex®, Luminators®, Heart Lights™, Relaxed Fit®, Arch Fit™®, Ultra GO®, Hyper Burst®, Skechers Memory Foam™, and Air-cooled Memory Foam® trademarks to be among our most valuable assets, and we have registered these trademarks in many countries. In addition, we own many other trademarks that we utilize in marketing our products. We also have a number of design patents and a limited number of utility patents covering components and features used in various shoes. We believe that our patents and trademarks are generally sufficient to permit us to carry on our business as presently conducted. While we vigorously protect our trademarks against infringement, we cannot guarantee that we will be able to secure patents or trademark protection for our intellectual property in the future or that protection will be adequate for future products. Further, we have been sued in the past for patent and trademark infringement and cannot be sure that our activities do not and will not infringe on the intellectual property rights of others. If we are compelled to prosecute infringing parties, defend our intellectual property or defend ourselves from intellectual property claims made
by others, we may face significant expenses and liability as well as the diversion of management’s attention from our business, each of which could negatively impact our business or financial condition.
In addition, the laws of foreign countries where we source and distribute our products may not protect intellectual property rights to the same extent as do the laws of the U.S. We cannot be assured that the actions we have taken to establish and protect our trademarks and other intellectual property rights outside the U.S. will be adequate to prevent imitation of our products by others or, if necessary, successfully challenge another party’s counterfeit products or products that otherwise infringe on our intellectual property rights on the basis of trademark or patent infringement. Continued sales of counterfeit products could adversely affect our sales and our brand and result in the shift of consumer preference away from our products. We may face significant expenses and liability in connection with the protection of our intellectual property rights outside the U.S., and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition could be adversely affected.
Breaches Or Compromises Of Our Information Security Systems, Information Technology Systems And Our Infrastructure To Support Our Business Could Result In Exposure Of Private Information, Disruption Of Our Business And Damage To Our Reputation, Which Could Harm Our Business, Results Of Operation And Financial Condition.
As a routine part of our business, we utilize information security and information technology systems and websites that allow for the secure storage and transmission of proprietary or private information regarding our customers, employees, vendors and others. A security breach of our network, hosted service providers, or vendor systems, may expose us to a risk of loss or misuse of this information, litigation and potential liability. Hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks, and the retail industry, in particular, has been the target of many recent cyber-attacks. Although we take measures to safeguard this sensitive information, we may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks targeted at us, our customers, or others who have entrusted us with information. Actual or anticipated attacks may cause us to incur costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants.
We invest in industry standard security technology to protect personal information. Advances in computer capabilities, new technological discoveries, or other developments may result in the technology used by us to protect against transaction or other data being breached or compromised. In addition, data and security breaches can also occur as a result ofdue to non-technical issues, including breach by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Although we maintain insurance designed to provide coverage for cyber risks related to what we believe to be adequate and collectible insurance in the event of theft, loss, fraudulent or unlawful use of customer, employee or company data, any compromise or breach of our cyber security systems could result in private information exposure and a violation of applicable privacy and other laws, significant potential liability including legal and financial costs, and loss of confidence in our security measures by customers, which could result in damage to our brand and have an adverse effect on our business, financial condition and reputation. In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data. Compliance with existing and proposed laws and regulations can be costly, and any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage to our reputation and credibility and could have a negative impact on revenues and profits.
Risks Related to Our Stock and Stock PriceRISKS RELATED TO OUR STOCK AND STOCK PRICE
Our Quarterly Revenues And Operating Results Fluctuate As A Result Of A Variety Of Factors, Including Seasonal Fluctuations In Demand For Footwear, Delivery Date Delays And Potential Fluctuations In Our Estimated Annualized Tax Rate, Which May Result In Volatility Of Our Stock Price.
Our quarterly revenues and operating results have varied significantly in the past and can be expected to fluctuate in the future due to a number of factors, many of which are beyond our control. Our major customers have no obligation to purchase forecasted amounts may and have canceledfrom time to time cancel orders, in the past, and may change delivery schedules, or change the mix of products ordered with minimal notice and without penalty. As a result, we may not be able to accurately predict our quarterly sales. In addition, sales of footwear products have historically been somewhat seasonal in nature, with the strongest domestic sales generally occurring inFurthermore, our second and third quarters for the back-to-school selling season. Domestic back-to-school sales typically ship in June, July and August, and delays in the timing, cancellation, or rescheduling of these customer orders and shipments by our wholesale customers could negatively impact our sales and results of operations for our second or third quarters. More specifically, the timing of when product ships is determined by the delivery schedules set by our wholesale customers, which could cause sales to shift between our second and third quarters. Because our expense levelsexpenses are partially based on our expectations of future sales, our expenses may be disproportionately large relative to our revenues, and we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shifts,shifts. As a result, our expenses may be disproportionately large relative to our revenues, which could have a material adverse effect on our operating results.
Our annualized tax rate is based on projections of our domestic and international operating results for the year, which we review and revise as necessary at the end of each quarter, and it is highly sensitive to fluctuations in projected international earnings.quarter. Any quarterly fluctuations in our annualized tax rate that may occur could have a material impact on our quarterly operating results. As a result of these specific and other general factors, our operating results will likely vary from quarter to quarter, and the results for any particularone quarter may not be necessarily indicative of results for the full year. Any shortfall in revenues or net earnings from levels expected by securities analysts and investors could cause a decrease in the trading price of our Class A Common Stock.
One Principal Stockholder Is Able To Control Substantially Control All Matters Requiring Approval By Our Stockholders And Another Stockholder Is Able To Exert Significant Influence Over All Matters Requiring A Vote Of Our Stockholders, And TheirHis Interests May Differ From The Interests Of Our Other Stockholders.
As of December 31, 2020,2022, our Chairman of the Board and Chief Executive Officer, Robert Greenberg, beneficially owned 86.5%87.3% of our outstanding Class B Common Stock, members of Mr. Greenberg’s immediate family beneficially owned an additional
7.9% of our outstanding Class B Common Stock, and Gil Schwartzberg, trustee of several trusts formed by Mr. Greenberg and his wife for estate planning purposes, beneficially owned 29.8% 8.1% of our outstanding Class B Common Stock. The holders of Class A Common Stock and Class B Common Stock have identical rights except that holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock are entitled to ten votes per share on all matters submitted to a vote of our stockholders. As a result, as of December 31, 2020, 2022, Mr. Greenberg beneficially owned 37.6%53.1% of the aggregate number of votes eligible to be cast by our stockholders, and together with shares beneficially owned by other members of his immediate family, Mr. Greenberg and his immediate family beneficially owned 43.4% of the aggregate number of votes eligible to be cast by our stockholders, and Mr. Schwartzberg beneficially owned 18.0%58.6% of the aggregate number of votes eligible to be cast by our stockholders. Therefore, Messrs.Mr. Greenberg and Schwartzberg are eachis able to exert significant influencecontrol over all matters requiring approval by our stockholders. Matters that require the approval of our stockholders include the election of directors and the approval of mergers or other business combination transactions. Mr. Greenberg also has significant influence over our management and operations. As a result of such influence, certain transactions are not likely without the approval of Messrs.Mr. Greenberg, and Schwartzberg, including proxy contests, tender offers, open market purchase programs or other transactions that can give our stockholders the opportunity to realize a premium over the then-prevailing market prices for their shares of our Class A Common Stock. Because Messrs.Mr. Greenberg’s and Schwartzberg’s interests may differ from the interests of the other stockholders, theirhis ability to substantially control, or significantly influence, respectively, actions requiring stockholder approval, may result in the Company taking action that is not in the interests of all stockholders. The differential in the voting rights may also adversely affect the value of our Class A Common Stock to the extent that investors or any potential future purchaser view the superior voting rights of our Class B Common Stock to have superior value.
Our Charter Documents And Delaware Law May Inhibit A Takeover, Which May Adversely Affect The Value Of Our Stock.
Provisions of Delaware law, our certificate of incorporation or our bylaws could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. Mr. Greenberg’s substantial beneficial ownership position, together with the authorization of Preferred Stock, the disparate voting rights between our Class A Common Stock and Class B Common Stock, the classification of our Board of Directors and the lack of cumulative voting in our certificate of incorporation and bylaws, may have the effect of delaying, deferring or preventing a change in control, may discourage bids for our Class A Common Stock at a premium over the market price of the Class A Common Stock and may adversely affect the market price of our Class A Common Stock.
|
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None.
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|
Our corporate headquarters are located at several properties in or near Manhattan Beach,Los Angeles, California, which consist of an aggregate of approximately 204,000248,000 square feet. We own and lease portions of our corporate headquarters.
Our North AmericanAmerica distribution center occupies approximately 2.82.6 million square feet on its main campus in southern California. The majority of this distribution centerSouthern California, which is leased from a joint venture, HF Logistics-SKX (the “JV”), that we. The JV was formed with HF Logistics I, LLC (“HF”) in January 2010 for the purpose of building and operating the facility. The leases provide for terms expiring in November 2031 with a small portion set to expire in early 2026. The JVfacility and is consolidated in our financial statements. An additional 2.4 million square feet of distribution center space is leased from third parties. The main campus leases expire at various dates through August 2036, and the leases for the remaining space expire at various dates through May 2028.
Our European distribution center occupies approximately 1.82.2 million square feet in Liege, Belgium under operating leases. These leases provide for original terms of 10 to 15 years, commencing between January 2016 and June 2016,July 2020, subject to automatic extensions for recurring periods of five years unless we or the landlord terminates the lease in writing 12 months prior to the expiration of the original lease term or 12 months prior to the end of the then applicable five-year extension.
AllOur China distribution center occupies approximately 1.6 million square feet in Taicang, China.
Substantially all of our domestic retail stores and showrooms are leased with terms expiring through January 2033.2036. The leases provide for rent escalations tied to either increases in the lessor’s operating expenses, fluctuations in the consumer price index in the relevant geographical area, or a percentage of the store’s gross sales in excess of the base annual rent.
We lease most of our international administrative offices, retail stores, showrooms and distribution facilities located in Asia, Central America, Europe, North America and South America. The property leases expire aton various dates through October 2033.2037.
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Converse, Inc.Michael Conte v. Skechers U.S.A., Inc.Robert Greenberg, et al. – On October 14, 2014, Converse filed anJuly 21, 2022, Skechers and certain past and present members of the Board of Directors were sued by a stockholder on behalf of our company in a derivative action against the Company in the United States DistrictChancery Court forof the Eastern DistrictState of New York, Brooklyn Division,Delaware, Case 1:14-cv-05977-DLI-MDG,No. 2022-0633, alleging trademark infringement, false designationbreach of origin, unfair competition, trademark dilutionfiduciary duty, waste of corporate assets, breach of duty of candor and deceptive practices arising outbreach of our allegedcontract in connection with certain executive officers’ personal use of certain design elements on footwear.two company-owned aircraft. The complaint seeks among other things, injunctive relief, profits, actual damages enhanced damages, punitive damages, costs and attorneys’ fees. On October 14, 2014, Converse also filed a complaint naming 27 respondents includingin favor of Skechers sustained as the Company with the U.S. International Trade Commission (the “ITC” or “Commission”), Federal Register Doc. 2014‑24890, alleging violationsalleged result of federal law in the importation into and the sale within the United Statesdefendants’ alleged breaches of certain footwear. Converse has requested that the Commission issue a general exclusion order, or in the alternative a limited exclusion order, and cease and desist orders. On December 8, 2014, the District Court stayed the proceedings before it. On December 19, 2014, Skechers respondedfiduciary duties, judgment directing our company to the ITC complaint, denying the material allegations and asserting affirmative defenses. A trial before an administrative law judge of the ITC was held in August 2015. On November 15, 2015, the ITC judge issued his Initial Determination finding that certain discontinued products (Daddy’$ Money and HyDee HyTops) infringed on Converse’s intellectual property, but that other, still active product lines (Twinkle Toes and Bobs Utopia) did not. On February 3, 2016, the ITC decided that it would review in part certain matters that were decided by the ITC judge. On June 28, 2016, the full ITC issued its Final Determination affirming that Skechers Twinkle Toes and Bobs Utopia shoes do not infringe Converse’s Chuck Taylor Midsole Trademark and affirming that Converse’s common law trademark was invalid. The full ITC also invalidated Converse’s registered trademark. Converse appealed this decision to the United States Court of Appeals for the Federal Circuit. On January 27, 2017, Converse filed its appellate brief but did not contest the portion of the decision that held that Skechers Twinkle Toes and Bobs Utopia shoes do not infringe. On June 26, 2017 we filed our responsive brief, on February 8, 2018 the court heard oral argument, and on June 7, 2018 the court requested supplemental briefing on certain issues. On October 30, 2018, the United States Court of Appeals for the Federal Circuit vacated portions of the ITC’s ruling and remanded the matter back to the ITC for further proceedings. Although Converse did not appeal the Commission’s non-infringement findings for Skechers Twinkle Toes and Bobs Utopia shoes to the Federal Circuit, Converse asked the Commission to reconsider its previous non-infringement findings on remand. On October 9, 2019, the ITC judge issued his Remand Initial Determination (the “RID”) finding that Converse did not have any rights in the subject intellectual property as to Skechers, and that Skechers Twinkle Toes, Bobs Utopia, and Hydee Hytop did not infringe Converse’s intellectual property but the discontinued Daddy’$ Money would infringe, but only if Converse had rights in the subject intellectual property as to Skechers (which the ITC judge found that Converse did not). On October 22, 2019, the parties filed petitions seeking review of the RID. Converse did not, however, seek review of the finding in the RID that Skechers Twinkle Toes and Bobs Utopia do not infringe. On February 7, 2020, the full Commission decided to review the RID and outlined the issues it wanted briefed. The parties subsequently filed briefs on those issues and, on September 9, 2020, the full Commission issued its decision. In that decision, the Commission found that, although Converse had demonstrated enforceable rights in its Chuck Taylor Midsole Trademark, it had not proven that the Skechers Twinkle Toes, Bobs Utopia or Hydee Hytops infringe those rights, or otherwise established a violation of the applicable federal statutes by Skechers. The time for Nike to appeal the Commission’s decision to the United States Court of Appeal for the Federal Circuit has expired and the ITC matter in now concluded. The federal court action that Nike filed in New York, which was stayed pending the outcome of the ITC proceedings, remains pending. While it is too early to predict the outcome of these legal proceedings or whether an adverse result in either or both of them would have a material adverse impact on our operations or financial position, we believe we have meritorious defenses and intend to defend these legal matters vigorously.
Nike, Inc. v. Skechers USA, Inc. – On January 4, 2016, Nike filed an action against the Company in the United States District Court for the District of Oregon, Case No. 3:16-cv-0007, alleging that certain Skechers shoe designs (Men’s Burst, Women’s Burst, Women’s Flex Appeal, Men’s Flex Advantage, Girls’ Skech Appeal, and Boys’ Flex Advantage) infringe the claims of eight design patents. Nike seeks injunctive relief, disgorgement of Skechers’ profits, damages (including treble damages), pre-judgment and post-judgment interest, attorneys’ fees, and costs. In April and May 2016, we filed petitions with the United States Patent and Trademark Office’s Patent Trial and Appeal Board (the “PTAB”) for inter partes review of all eight design patents, seeking to invalidate those patents. In September and November 2016, the PTAB denied each of our petitions. On January 6, 2017, we filed several additional petitions for inter partes review with the PTAB, seeking to invalidate seven of the eight designs patents that Nike is asserting. In July 2017, we were notified that the PTAB granted our petitions and instituted inter partes review proceedings with respect to two of the seven design patents but denied our petitions as to the others. In June 2017, we filed a motion to transfer venue from the District of Oregon to the Central District of California based on a recent United States Supreme Court decision and the motion was granted on November 17, 2017. On June 28, 2018, the PTAB issued final decisions in the two inter partes review proceedings, rejecting the invalidity challenges made by the Company in those proceedings. On June 4, 2018, the court, over Nike’s opposition, granted our request for a claim construction hearing. On March 28, 2019, the court issued an order declining to issue a claim construction at this stage of the proceedings, but it did not foreclose the issue, instead observing that it might be appropriate to address claim construction at a later stage. The parties have now completed discovery and have filed summary judgement motions. Nike has also withdrawn its claim for treble or enhanced damages. The summary judgment motions were heard on February 18, 2020, and on October 27, 2020, the Court issued its ruling. The court granted Skechers’ motion for summary judgment of non-infringement as to three of the eight design patents at issue. The court, however, concluded that whether Skechers had infringed any of the five remaining design patents presented issues for a jury to resolve. The court also denied Nike’s motion for summary judgment of validity as to the five remaining design patents, holding that Skechers’ invalidity challenges had to be resolved by the jury. While it is too early to predict the outcometake
all necessary actions to reform and improve its corporate governance practices, termination of certain executive officers for allegedly violating their employment agreements, judgment directing the sale of one of the case or whether an adverse result would have a material adverse impact on our operations or financial position, wecompany-owned aircraft and attorneys’, accountants’ and experts’ fees, costs and expenses. We believe that we have meritorious defenses and intend to defend this legal matter vigorously.
Nike, Inc. v. Skechers USA, Inc. – On September 30, 2019, Nike filed an action against our company in Notwithstanding, given the United States District Court for the Central Districtearly stages of California, Case No. 2:19-cv-08418, alleging that certain Skechers’ shoe designs (Skech-Air Atlas, Skech-Air 92, Skech-Air Stratus and Skech-Air Blast) infringe the claims of twelve design patents. Nike seeks injunctive relief, disgorgement of Skechers’ profits, damages (including treble damages), pre-judgment and post-judgment interest, attorneys’ fees, and costs. Skechers has filed its answerthese proceedings and the case is in the early stages. While it is too early tolimited information available, we cannot predict the outcome of the casethis legal proceeding or whether an adverse result would have a material adverse impact on our operations or financial position, we believe we have meritorious defenses and intend to defendin this legal matter vigorously.
Nike, Inc. v. Skechers USA, Inc. – On October 28, 2019, Nike filed an action against the Company in the United States District Court for the Central District of California, Case No. 2:19-cv-09230, alleging that certain Skechers’ shoe designs (Skech-Air Jumpin’ Dots and Skech-Air Mega) infringe the claims of two utility patents. Nike seeks injunctive relief, disgorgement of Skechers’ profits, damages (including treble damages), pre-judgment and post-judgment interest, attorneys’ fees, and costs. Skechers has answered the complaint and the case is in the early stages. While it is too early to predict the outcome of the case or whether an adverse result would have a material adverse impact on our operations or financial position, we believe we have meritorious defenses and intend to defend this legal matter vigorously.
Ealeen Wilk v. Skechers U.S.A., Inc. – On September 10, 2018, Ealeen Wilk filed a putative class action lawsuit against the Company in the United States District Court for the Central District of California, Case No. 5:18-cv-01921, alleging violations of the California Labor Code, including unpaid overtime, unpaid wages due upon termination and unfair business practices. The complaint seeks actual, compensatory, special and general damages; penalties and liquidated damages; restitutionary and injunctive relief; attorneys’ fees and costs; and interest as permitted by law. On July 5, 2019, the court granted, in part, plaintiff’s motion for conditional certification of a Fair Labor Standards Act (FLSA) collective action. On July 22, 2019, the parties submitted to the court an agreed upon notice to be sent to members of the collective. The parties are delaying the mailing of the Belaire-West privacy opt out notice until after mediation. The parties have agreed to an informal stay of discovery and have stipulated to continue all relevant discovery and motion deadlines accordingly. The parties reached a settlement in principle as a result of a January 27, 2020 mediation but the details of the settlement still need to be worked out and the settlement has to be documented. In the event the settlement is not concluded successfully, it is too early to predict the outcome of the litigation or a reasonable range of potential losses and whether an adverse result would have a material adverse impact on our results of operations or financial position, we believe that we have meritorious defenses, vehemently deny the allegations, and intend to defend the case vigorously.position.
In addition to the matters included in our reserve for loss contingencies, we occasionally become involved in litigation arising from the normal course of business, and we are unable to determine the extent of any liability that may arise from any such unanticipated future litigation. We have no reason to believe that there is a reasonable possibility or a probability that we may incur a material loss, or a material loss in excess of a recorded accrual, with respect to any other such loss contingencies. However, the outcome of litigation is inherently uncertain and assessments and decisions on defense and settlement can change significantly in a short period of time. Therefore, although we consider the likelihood of such an outcome to be remote with respect to those matters for which we have not reserved an amount for loss contingencies, if one or more of these legal matters were resolved against the Company in the same reporting period for amounts in excess of our expectations, our consolidated financial statements of a particular reporting period could be materially adversely affected.
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Not applicable.
PART II
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Our Class A Common Stock trades under the symbol “SKX” on the New York Stock Exchange.
HOLDERS
As of February 15, 2021,2023, there were 8681 holders of record of our Class A Common Stock (including holders who are nominees for an undetermined number of beneficial owners) and 2739 holders of record of our Class B Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class B Common Stock is not publicly traded, but each share is convertible upon request of the holder into one share of Class A Common Stock.
ISSUERDIVIDEND INFORMATION
Since inception, we have not declared or paid any cash dividends on our common stock, and we have no present intention of paying any dividends on our common stock in the foreseeable future. Our Board of Directors periodically reviews our dividend policy to determine whether the declaration of dividends is appropriate.
COMPANY PURCHASES OF EQUITY SECURITIES
NoOn January 31, 2022, the Company's Board of Directors authorized a share repurchase program (the “Share Repurchase Program”), pursuant to which the Company may, from time to time, purchase shares of ourits Class A Common Stock, par value $0.001 per share, for an aggregate repurchase price not to exceed $500 million. The Share Repurchase Program expires on January 31, 2025 and does not obligate the Company to acquire any particular amount of shares. There were repurchasedno repurchases during the three months ended December 31, 2020. Our $150.02022 and the maximum dollar value of shares that may yet be purchased under the share program was $425.8 million share repurchase program expired on February 6, 2021..
EQUITY COMPENSATION PLAN INFORMATION
Our equity compensation plan information is provided as set forth in Part III, Item 12 of this annual report on Form 10-K.
PERFORMANCE GRAPH
The following graph demonstrates the total return to stockholders of our Class A Common Stock from December 31, 20152017 to December 31, 2020,2022, relative to the performance of the Russell 20001000 Index, which includes our Class A Common Stock,S&P Retail Select Industry Index, and the peer group index, which is believed to include companies engaged in businesses similar to ours. The peer group index consists of six companies: Nike, Inc., adidas AG, Steven Madden, Ltd., Wolverine World Wide, Inc., Crocs, Inc., and Deckers Outdoor Corporation.
The graph assumes an investment As of $100 on December 31, 2015 in each of our Class A Common Stock,fiscal year 2022, we believe the Russell 2000 Index and the customized peer group index. Eachmembers of the indices assumes that all dividends were reinvested. The stock performance ofS&P Retail Select Industry Index better represents our Class A Common Stock shown on the graph is not necessarily indicative of future performance. We will neither make nor endorse any predictions as to our future stock performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURNSbusiness.
Comparison of 5 Year Cumulative Total Returns
(in dollars) |
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
| ||||||||||||
Skechers U.S.A., Inc. |
|
| 100.00 |
|
|
| 81.36 |
|
|
| 125.26 |
|
|
| 75.77 |
|
|
| 142.97 |
|
|
| 118.97 |
|
|
| 100.00 |
|
|
| 60.49 |
|
|
| 114.14 |
|
|
| 94.98 |
|
|
| 114.69 |
|
|
| 110.86 |
|
Russell 2000 |
|
| 100.00 |
|
|
| 121.31 |
|
|
| 139.08 |
|
|
| 123.76 |
|
|
| 155.35 |
|
|
| 186.36 |
| ||||||||||||||||||||||||
Russell 1000 |
|
| 100.00 |
|
|
| 95.22 |
|
|
| 125.14 |
|
|
| 151.37 |
|
|
| 191.42 |
|
|
| 154.80 |
| ||||||||||||||||||||||||
S&P Retail Select Industry |
|
| 100.00 |
|
|
| 92.12 |
|
|
| 104.99 |
|
|
| 148.70 |
|
|
| 212.60 |
|
|
| 145.17 |
| ||||||||||||||||||||||||
Peer Group |
|
| 100.00 |
|
|
| 99.06 |
|
|
| 125.55 |
|
|
| 146.21 |
|
|
| 209.01 |
|
|
| 273.39 |
|
|
| 100.00 |
|
|
| 116.76 |
|
|
| 165.94 |
|
|
| 219.31 |
|
|
| 243.31 |
|
|
| 166.51 |
|
|
|
The following tables set forth the Company’s selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2020 and should be read in conjunction with our audited consolidated financial statements and notes thereto included under Part II, Item 8 of this annual report.
|
| For the Year Ended December 31, |
| |||||||||||||||||
(in thousands, except per share data) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Sales (1) |
| $ | 4,597,414 |
|
| $ | 5,220,051 |
|
| $ | 4,642,068 |
|
| $ | 4,164,160 |
|
| $ | 3,563,311 |
|
Gross profit |
|
| 2,189,781 |
|
|
| 2,491,157 |
|
|
| 2,223,605 |
|
|
| 1,938,889 |
|
|
| 1,634,596 |
|
Earnings from operations |
|
| 133,684 |
|
|
| 518,443 |
|
|
| 437,765 |
|
|
| 382,880 |
|
|
| 370,518 |
|
Earnings before income taxes |
|
| 154,729 |
|
|
| 516,005 |
|
|
| 431,884 |
|
|
| 384,260 |
|
|
| 359,484 |
|
Net earnings attributable to Skechers U.S.A., Inc. |
|
| 98,564 |
|
|
| 346,560 |
|
|
| 301,041 |
|
|
| 179,190 |
|
|
| 243,493 |
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.64 |
|
| $ | 2.26 |
|
| $ | 1.93 |
|
| $ | 1.15 |
|
| $ | 1.58 |
|
Diluted |
| $ | 0.64 |
|
| $ | 2.25 |
|
| $ | 1.92 |
|
| $ | 1.14 |
|
| $ | 1.57 |
|
Weighted-average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 154,184 |
|
|
| 153,392 |
|
|
| 155,815 |
|
|
| 155,651 |
|
|
| 154,169 |
|
Diluted |
|
| 154,894 |
|
|
| 154,151 |
|
|
| 156,450 |
|
|
| 156,523 |
|
|
| 155,084 |
|
|
|
|
| As of December 31, |
| |||||||||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||
Working capital |
| $ | 2,131,645 |
|
| $ | 1,581,360 |
|
| $ | 1,621,918 |
|
| $ | 1,507,676 |
|
| $ | 1,206,036 |
|
Total assets |
|
| 5,812,369 |
|
|
| 4,892,943 |
|
|
| 3,228,255 |
|
|
| 2,735,082 |
|
|
| 2,393,670 |
|
Long-term borrowings, excluding current installments |
|
| 679,415 |
|
|
| 49,183 |
|
|
| 88,119 |
|
|
| 71,103 |
|
|
| 67,159 |
|
Skechers U.S.A., Inc. equity |
|
| 2,481,435 |
|
|
| 2,314,665 |
|
|
| 2,034,958 |
|
|
| 1,829,064 |
|
|
| 1,603,633 |
|
|
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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on Form 10-K.We intend for this discussion to provide the reader with information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our consolidated financial statements. The discussion also provides information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of operations of our company as a whole.
ThisDuring the first quarter of 2022, the Company realigned its reporting structure to two reportable segments, Wholesale and Direct-to-Consumer. Prior period amounts have been recast. Wholesale includes sales to department stores, family shoe stores, specialty running and sporting goods retailers, and big box club stores; franchisee and licensee third-party store operators; dedicated e-commerce retailers; and international distributors. Direct-to-Consumer includes direct sales to consumers through an integrated retail format of company-owned physical stores and digital platforms and hosted digital marketplaces in select international markets. With the exception of our segment realignment, this section of this Form 10-K generally discusses 20202022 and 20192021 items and year-to-year comparisons between 20202022 and 2019.2021. Discussions of 20182020 items and year-to-year comparisons that are not included in this Form 10-K can be found in “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” and “—Liquidity and Capital Resources” in our annual report on Form 10-K for the fiscal year ended December 31, 20120219 filed with the SEC on February 28, 202025, 2022.
OVERVIEW
The COVID-19 pandemic continues to impact various markets andThis year was a significant milestone for the Company. Not only was it our 30th year in business, channels. After we temporarily closed our stores aroundalso achieved record sales of $7.4 billion, an increase of $1.1 billion or 18% over the world and temporarily furloughed a meaningful portion of our hourly workforce in March 2020, we saw meaningful improvements during the second half of 2020 including a return toprior year. Our continued growth in many markets. Although the recovery has progressed at a different pace across countries, we remain confident in our actions and strength of the brand. Consumers have gravitated towards comfort in their lives as people are predominately working from home and increasingly focused on their well-being. We believe the actions we have taken anddemonstrates the strength of our brand positions Skechers well asand the robust demand for our innovative product portfolio. The year also presented challenges, including temporary COVID-related store closures predominantly in China, rising freight and logistics costs, elevated inventory levels and supply chain disruptions that created congestion in our distribution network. We were able to manage these challenges due to the flexibility, creativity and dedication of the global recovery continues.Skechers organization.
Our core product philosophy of comfort, style, innovation, and quality at the right price continues to resonate with consumers, and we remain focused on delivering our comfort technology footwear as quickly as possible to meet consumer demand. We continueremain focused on executing against our long-term growth strategies and believe we are well positioned to invest formeet our sales goal of $10 billion by 2026. We are committed to the following investments in support of our global growth with a focus on our direct-to-consumer capabilities and global infrastructure.strategy:
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Growth in the Wholesale segment is expected to derive from expanding our existing shelf-space with current partners, acquiring new partners, supporting the growth of incremental franchise and licensed Skechers branded stores, as well as the introduction of new products to existing partners. Growth in the Direct-to-Consumer segment is expected to derive from increasing our digital commerce capabilities, expanding our physical retail footprint and leveraging third-party digital platforms and marketplaces.
RESULTS OF OPERATIONS
We have three reportable segments – Domestic Wholesale, International Wholesale, and Direct-to-Consumer, which includes results from both our retail store and e-commerce channels. We evaluate segment performance based primarily on sales and gross margin.
The following table sets forth, for the periods indicated, selectedSelected information from our results of operations:
operations follows:
|
| Year Ended December 31, |
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| Year Ended December 31, |
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| Change |
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(in thousands) |
| 2020 |
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| 2019 |
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| 2022 |
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| 2021 |
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| $ | % |
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Sales |
| $ | 4,597,414 |
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| $ | 5,220,051 |
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| $ | 7,444,550 |
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| $ | 6,310,187 |
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| 1,134,363 |
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| 18.0 |
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Cost of sales |
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| 2,407,633 |
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| 2,728,894 |
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| 3,929,193 |
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| 3,185,816 |
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| 743,377 |
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| 23.3 |
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Gross profit |
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| 2,189,781 |
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| 47.6 |
| % |
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| 2,491,157 |
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| 47.7 |
| % |
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| 3,515,357 |
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| 3,124,371 |
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| 390,986 |
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| 12.5 |
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Royalty income |
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| 16,017 |
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| 22,493 |
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| 2,205,798 |
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| 2,513,650 |
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Operating expenses: |
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Gross margin |
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| 47.2 |
| % |
| 49.5 |
| % |
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| (230 | )bps | ||||||||||||||||||
Operating expenses |
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Selling |
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| 318,097 |
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| 369,901 |
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| 583,626 |
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| 499,532 |
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| 84,094 |
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| 16.8 |
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General and administrative |
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| 1,754,017 |
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| 1,625,306 |
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| 2,385,061 |
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| 2,026,652 |
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| 358,409 |
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| 17.7 |
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| 2,072,114 |
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| 1,995,207 |
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Total operating expenses |
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| 2,968,687 |
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| 2,526,184 |
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| 442,503 |
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| 17.5 |
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As a % of sales |
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| 39.9 |
| % |
| 40.0 |
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| (20 | )bps | ||||||||||||||||||
Earnings from operations |
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| 133,684 |
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| 518,443 |
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| 546,670 |
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| 598,187 |
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| (51,517 | ) |
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| (8.6 | ) | |
Interest income |
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| 5,912 |
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| 11,782 |
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Interest expense |
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| (16,327 | ) |
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| (7,509 | ) |
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Other, net |
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| 31,460 |
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| (6,711 | ) |
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Earnings before income tax expense |
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| 154,729 |
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| 516,005 |
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Income tax expense |
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| 8,502 |
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| 88,753 |
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Operating margin |
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| 7.3 |
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| 9.5 |
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| (210 | )bps | ||||||||||||||||||
Other expense |
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| (24,413 | ) |
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| (28,430 | ) |
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| 4,017 |
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| (14.1 | ) | ||||||||||||||||||
Earnings before income taxes |
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| 522,257 |
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| 569,757 |
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| (47,500 | ) |
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| (8.3 | ) | ||||||||||||||||||
Income tax expense (benefit) |
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| 93,095 |
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| (245,875 | ) |
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| 338,970 |
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| n/m |
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Net earnings |
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| 146,227 |
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| 427,252 |
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| 429,162 |
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| 815,632 |
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| (386,470 | ) |
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| (47.4 | ) | |
Less: Net earnings attributable to noncontrolling interests |
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| 47,663 |
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| 80,692 |
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| 56,134 |
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| 74,129 |
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| (17,995 | ) |
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| (24.3 | ) | |
Net earnings attributable to Skechers U.S.A., Inc. |
| $ | 98,564 |
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| $ | 346,560 |
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| $ | 373,028 |
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| $ | 741,503 |
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| (368,475 | ) |
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| (49.7 | ) |
Sales
Sales for 2020 were $4.6 billion, a decrease of $0.6increased $1.1 billion, or 11.9%18.0%, compared to sales of $5.2$7.4 billion for 2019 reflecting the impact of the global pandemic on our businesses worldwide. The decrease isas a result of a 12.9% decrease in our domestic business20.0% increase domestically and an 11.2% decreasea 16.6% increase internationally. Our Domestic Wholesale segment sales decreased 9.7%, International Wholesale segment sales decreased 8.3%increased 23.2% and Direct-to-Consumer segment sales decreased 19.7%increased 10.2%. Sales increased overall due to improved volume and higher average selling prices.
Gross profitmargin
Gross profit for 2020margin decreased $0.3 billion to $2.2 billion as compared to $2.5 billion for 2019 due to the decline in sales. Gross margin remained relatively flat with the prior year at 47.6% with increases of 160230 basis points in Domestic Wholesaleto 47.2% primarily driven by increased freight and 101 basis points in Direct-to-Consumer,logistics costs, partially offset by a decrease of 71 basis points in International Wholesale.average selling price increases.
SellingOperating expenses
SellingOperating expenses decreased by $51.8increased $442.5 million, or 14.0%17.5%, to $318.1 million for 2020 from $369.9 million for 2019. As$3.0 billion, and as a percentage of sales sellingimproved 20 basis points to 39.9%. Selling expenses were 6.9% and 7.1% for 2020 and 2019, respectively. The decrease in selling expenses wasincreased $84.1 million, or 16.8%, to $583.6 million, primarily due to lower worldwide spending onhigher demand creation expenditures in digital advertising and marketing, and trade shows of $48.4 million.
General and administrative expenses
global marketing. General and administrative expenses increased by $128.7$358.4 million, or 7.9%17.7%, primarily driven by increased domesticto $2.4 billion, due to higher labor and internationalcompensation costs of $193.9 million and warehouse and distribution expenses of $64.3$75.4 million increased depreciationas a result of supply chain and amortization expenselogistics challenges at the domestic distribution center and higher volume driven expenses. Included in these costs is approximately $90.0 million of $31.7 million from fixed asset additionslabor and distribution expenses related to the Skechers Mexico acquisition, and increased stock compensation of $24.2 million which included a one-time $18.2 million non-cash, equity compensation charge associated with a legal settlement.supply chain challenges at the domestic distribution center.
Other income (expense)expense
Interest incomeOther expense decreased $5.9$4.0 million to $5.9$24.4 million, for 2020 as compared to $11.8 million for 2019. The decrease in interest income was due primarily due to lower average interest rates. Interest expense increased $8.8 million due to additional borrowings under our credit facility. Other income increased $38.2$28.4 million, primarily due to purchase price adjustments from the acquisition of Skechers Mexico andimprovements in foreign currency exchange gains.rates in Europe, Middle East & Africa.
Income taxes
Income tax expense (benefit) and the effective tax rate were as follows:
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| Year Ended December 31, |
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| Year Ended December 31, |
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(in thousands) |
| 2020 |
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| 2019 |
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| 2022 |
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| 2021 |
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Income tax expense |
| $ | 8,502 |
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| $ | 88,753 |
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Income tax expense (benefit) |
| $ | 93,095 |
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| $ | (245,875 | ) | ||||||||
Effective tax rate |
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| 5.5 | % |
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| 17.2 | % |
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| 17.8 | % |
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| (43.2 | )% |
Our provision forIncome tax expense was $93.1 million as compared to an income tax benefit of $245.9 million in 2021 due to the establishment of deferred tax assets from an intra-entity transfer of certain intellectual property rights of $346.8 million. Our effective tax rate was 17.8% as compared to negative 43.2% tax rate in the prior year, which included the impact of a 60.9% benefit from the intellectual property rights transfer.
Our income tax expense (benefit) and effective income tax rate are significantly impacted by the mix of our domestic and foreign earnings (losses) before income taxes. In the foreign jurisdictions in which we have operations, the applicable statutory rates range from 0.0% to 34.0%, which on average are generally significantly lower than the U.S. federal and state combined statutory rate of approximately 25%25.0%. The decrease in the effective tax rate in 2020 was primarily due to changes in the ownership structure of our international operations and related benefits provided by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.
See Note 10 – Income Taxes of the Consolidated Financial Statements for additional information.
Noncontrolling interest in net income and lossearnings of consolidated subsidiaries
Net earnings attributable to noncontrolling interest for 2020 decreased $33.0 million to $47.7 million as compared to $80.7 million for 2019 attributable to decreased profitability by our joint ventures due to the impacts of the COVID-19 pandemic. Noncontrolling interest represents the share of net earnings or loss that is attributable to our joint venture partners. Net earnings attributable to noncontrolling interest decreased $18.0 million to $56.1 million as compared to $74.1 million, primarily due to reduced earnings by our joint ventures, predominantly China, due to store closures resulting from COVID in China.
RESULTS OF SEGMENT OPERATIONS
Domestic Wholesale
|
| Year Ended December 31, |
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| Year Ended December 31, |
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| 2022 vs 2021 Change |
|
| 2021 vs 2020 Change |
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(in thousands) |
| 2020 |
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| 2019 |
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| 2022 |
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| 2021 |
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| 2020 |
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| $ |
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| % |
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| $ |
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| % |
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Sales |
| $ | 1,126,564 |
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| $ | 1,247,550 |
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| $ | 4,632,429 |
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| $ | 3,758,640 |
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| $ | 2,835,010 |
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| 873,789 |
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| 23.2 |
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| 923,630 |
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| 32.6 |
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Gross profit |
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| 431,603 |
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| 457,944 |
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| 1,669,276 |
|
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| 1,437,517 |
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|
| 1,112,558 |
|
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| 231,759 |
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|
| 16.1 |
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| 324,959 |
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| 29.2 |
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Gross margin |
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| 38.3 | % |
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| 36.7 | % |
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| 36.0 | % |
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| 38.2 | % |
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| 39.2 | % |
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| (220 | )bps |
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| (100 | )bps |
Domestic
2022 to 2021 Comparison
Wholesale sales decreased $0.1increased $0.9 billion, or 9.7%23.2%, to $1.1$4.6 billion, for 2020 from $1.2 billion for 2019. Sales volume decrease was driven primarily by a 12.4% reductiongrowth of 28.7% in the numberAmericas and Europe, Middle East & Africa of pairs sold, partially offset by a 1.0% increase in average price per pair. Sales volume decreased to 50.0 million pairs sold from 57.0 million. The average price per pair33.9%. Volume increased to $21.88 from $21.67.
Domestic Wholesale gross profit decreased $26.3 million, or 5.8%, to $431.6 million for 2020 compared to $457.9 million for 2019. Domestic Wholesale gross margin increased 160 basis points to 38.3% primarily driven by lower product costs and the aforementioned increase in average price per pair.
International Wholesale
|
| Year Ended December 31, |
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(in thousands) |
| 2020 |
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| 2019 |
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Sales |
| $ | 2,257,846 |
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| $ | 2,462,632 |
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Gross profit |
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| 1,023,183 |
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| 1,133,573 |
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Gross margin |
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| 45.3 | % |
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| 46.0 | % |
International Wholesale sales decreased $0.2 billion, or 8.3%, to $2.3 billion for 2020 compared to sales of $2.5 billion for 2019. Our distributor sales decreased to $239.1 million, a decrease of $176.3 million or 42.4% and direct sales by our foreign subsidiaries and joint ventures, were $2.0 billion, flat to the prior year. The number of units sold decreased 6.7% and the average selling price decreased by 1.8%.
International Wholesale gross profit decreased $0.1 billion, or 9.7%, to $1.0 billion for 2020 as compared to $1.1 billion for 2019. International Wholesale gross margin decreased 71 basis points to 45.3% as a result of higher promotional activity for our joint ventures as well as a non-cash, cost of goods purchase price adjustment related to the acquisition of Skechers Mexico.
Direct-to-Consumer
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| Year Ended December 31, |
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(in thousands) |
| 2020 |
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| 2019 |
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Sales |
| $ | 1,213,004 |
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| $ | 1,509,869 |
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Gross profit |
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| 734,995 |
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| 899,640 |
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Gross margin |
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| 60.6 | % |
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| 59.6 | % |
Direct-to-Consumer sales decreased $0.3 billion, or 19.7%, to $1.2 billion for 2020 as compared to sales of $1.5 billion for 2019. Declines were driven by lower domestic and international retail sales during temporary store closures and reduced operating hours as a result of the COVID-19 pandemic, partially offset by a 211.9% increase in domestic e-commerce sales. Direct-to-Consumer comparable same store sales decreased 24.0% for 2020, including decreases of 20.3% domestically and 32.2% internationally. Volume decreased due to a 21.5% reduction18.2% in the number of units sold and average selling price per unit increased 4.8%.
Wholesale gross margin decreased 220 basis points to 36.0% due to higher average cost per unit, primarily driven by increased freight and logistics costs, partially offset by average selling price increases.
2021 to 2020 Comparison
Wholesale sales increased $0.9 billion, or 32.6% to $3.8 billion, as a 2.3%result of growth across the Americas of 30.1%, Europe, Middle East & Africa of 37.3% and Asia Pacific of 32.3% which were impacted by 2020 COVID-related market closures. Volume increased 27.9% in the number of units sold and average selling price per unit increased 3.6%.
Wholesale gross margin decreased 100 basis points to 38.2% primarily due to higher average cost per unit, partially offset by the increase in the average selling price.price per unit.
Direct-to-Consumer
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| Year Ended December 31, |
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| 2022 vs 2021 Change |
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| 2021 vs 2020 Change |
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(in thousands) |
| 2022 |
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| 2021 |
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| 2020 |
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| $ |
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| % |
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| $ |
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| % |
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Sales |
| $ | 2,812,121 |
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| $ | 2,551,547 |
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| $ | 1,778,420 |
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| 260,574 |
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| 10.2 |
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| 773,127 |
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| 43.5 |
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Gross profit |
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| 1,846,081 |
|
|
| 1,686,854 |
|
|
| 1,093,240 |
|
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| 159,227 |
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| 9.4 |
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| 593,614 |
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| 54.3 |
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Gross margin |
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| 65.6 | % |
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| 66.1 | % |
|
| 61.5 | % |
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| (50 | )bps |
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| 460 | bps |
2022 to 2021 Comparison
Direct-to-Consumer sales increased $260.6 million, or 10.2%, to $2.8 billion, led by increases in the Americas of 13.8%, Europe, Middle East & Africa of 25.3%, and Asia Pacific of 1.8%. Volume increased 6.6% in the number of units sold and average selling price per unit increased 3.4%.
Direct-to-Consumer gross profitmargin decreased $164.6 million,50 basis points to 65.6%, due to higher average cost per unit, primarily driven by increased freight costs, partially offset by average selling price increases.
2021 to 2020 Comparison
Direct-to-Consumer sales increased $0.8 billion, or 18.3%43.5%, to $735.0 million for 2020 as compared to $899.6 million for 2019. $2.6 billion, driven by increases of 48.6% in the Americas, 31.6% in Asia Pacific, and 76.8% in Europe, Middle East & Africa which experienced COVID restrictions in 2020. Average selling price per unit increased 14.7% and volume increased 25.0% in the number of units sold.
Direct-to-Consumer gross margin increased 101460 basis points to 60.6% due to a favorable mix of e-commerce sales which have66.1%, primarily driven by higher overall margins.
Comparable store sales mentioned above includes stores that have been opened for at least thirteen calendar months as well as sales on our company-owned websites. We did not make any adjustments for the effects of the COVID-19 pandemic and the related impacts of store closures and reduced operating hours. Definitions and calculations of comparable store sales differ among companies in the retail industry, and therefore comparable store sales disclosed by us may not be comparable to the metrics disclosed by other companies.average selling prices.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity outlook
Our liquidity remains ample and we believe we are well-positioned to endure the environment associated with the COVID-19 pandemic. We have taken actionscash and cash equivalents of $615.7 million at December 31, 2022. Amounts held outside the U.S. were $516.8 million, or 83.9%, and approximately $206.7 million was available for repatriation to preservethe U.S. as of December 31, 2022 without incurring additional U.S. federal income taxes and applicable non-U.S. income and withholding taxes.
We finance our production activities in part through the use of interest-bearing open purchase arrangements with certain of our contract manufacturers. These facilities currently bear interest at a rate between 0.0% and 0.4% for 30- to 60-day financing, depending on the factory. We believe that the use of these arrangements affords us additional liquidity and manageflexibility. We do not have any long-term contracts with any of our cash flow. As a precautionary measure, in March 2020,manufacturers, however, we borrowed againsthave long-standing relationships with many and believe our unsecured revolving credit facility. relationships to be positive.
At December 31, 2020,2022, we have unused credit capacity of $8.8$747.3 million alongon our revolving credit facility, with an additional $250.0 million available through an accordion feature on the unsecured revolving credit facility. We continue to partner with our vendors, landlords, and lenders to maximize our liquidity and mitigate cash flow risk.feature. We believe that anticipated cash flows from operations, existing cash and investments balances, available borrowings under our revolving credit agreement,facility, and current financing arrangements will be sufficient to provide us with the liquidity necessary to fund our anticipated working capital and capital requirements for the next twelve months.
As of December 31, 2020, we had approximately $1.37 billion in cash and cash equivalents, of which $735.1 million, or 53.6%, was held outside the U.S. Of the $735.1 million held by its non-U.S. subsidiaries, approximately $405.2 million is available for repatriation to the U.S. without incurring U.S. income taxes and applicable non-U.S. income and withholding taxes in excess of the amounts accrued in the Company’s consolidated financial statements as of December 31, 2020.
Cash Flows
Our working capital at December 31, 20202022 was $2.1$2.0 billion, an increase of $0.5$0.1 billion from working capital of $1.6$1.9 billion at December 31, 2019.2021. Our cash and cash equivalents at December 31, 20202022 were $1.4 billion,$615.7 million, compared to $824.9$796.3 million at December 31, 2019.2021. Our primary sourcessource of operating cash areis collections from customers on wholesale and direct-to-consumer sales.customers. Our primary uses of cash are inventory purchases, selling, general and administrative expenses and capital expenditures.
Operating Activities
Net cash provided by operating activities was $331.5$238.3 million for 20202022 and $426.6$212.2 million for 2019. On a comparative year‑to‑year basis, the $95.12021. The $26.2 million decreaseincrease in cash flows from operating activities in 2020 primarily2022 resulted from reduced net earnings of $281.0 million.lower inventory purchases, partially offset by higher accounts receivables balances on wholesale sales.
Investing Activities
Net cash used in investing activities was $312.5$287.5 million for 20202022 as compared to $344.1$344.7 million for 2019.2021. The $31.6$57.2 million decrease was primarily due to the 2019 acquisition of Skechers Mexico of $100.7 millionlower investment purchases and proceeds, partially offset by an increase inincreased capital expendituresexpenditures.
Our capital investments remain focused on supporting our strategic growth priorities, growing our Direct-to-Consumer business, as well as expanding the presence of $73.8 million.our brand internationally. Capital expenditures for 2020the year ended December 31, 2022 were approximately $309.9$359.0 million, which consisted of $122.0included $132.3 million to support our worldwide distribution capabilities, $67.9 million was related to the acquisition of a corporate office building and new retail stores in China, and $59.8 million for retail stores and e-commerce investments worldwide, excluding China. Capital expenditures for 2019 were approximately $236.1 million, of which $72.6 million supported our worldwide distribution capabilities, $51.9 million related to retail stores worldwide, and $33.8 million to support our international wholesale operations.We expect our ongoing capital expenditures for 2021 to be approximately $275.0 million to $325.0 million, which is primarily related to the expansion of our worldwideglobal distribution capabilities, continuedinfrastructure, $103.7 million for investments in our retail stores and e-commercedirect-to-consumer technologies, and stores, and$88.8 million of investments in our newexpanded corporate offices domestically and in California.India. We expect our capital expenditures for 2023 to be approximately $300.0 million to $350.0 million, as we continue to invest in our strategic priorities, including additional stores, added omnichannel capabilities and incremental distribution capacity in key markets. We expect to fund ongoing capital expenses through a combination of borrowingsavailable cash and available cash.borrowings.
Financing Activities
Net cash provided byused in financing activities was $533.3$118.1 million during 20202022 compared to $132.0$433.9 million net cash used during 2019.in 2021. The change of $665.3 milliondecrease is primarily netthe result of lower payments on long-term borrowings of $616.6$392.0 million, which includes $452.5partially offset by the repurchase of $74.2 million on our unsecured revolving credit facility.of common stock.
Capital Resources and Prospective Capital Requirements
Share Repurchase Program
On January 31, 2022, the Company's Board of Directors authorized a share repurchase program (the “Share Repurchase Program”), pursuant to which the Company may, from time to time, purchase shares of its Class A Common Stock, par value $0.001 per share, for an aggregate repurchase price not to exceed $500 million. The Share Repurchase Program expires on January 31, 2025 and does not obligate the Company to acquire any particular amount of shares. As of December 31, 2022, $425.8 million remains available under the Share Repurchase Program.
Financing Arrangements
As of December 31, 2020,2022, outstanding short-term and long-term borrowings were $735.0$339.3 million, of which, $452.5 million relates to our unsecured revolving credit facility, $229.2$257.4 million relates to loans for our domestic and China distribution centers, $48.7$54.4 million relates to our operations in China and the remainder relates to our international operations. Our long-term debt obligations contain both financial and non-financial covenants, including cross-default provisions. We were in compliance with all debt covenants related to our short-term and long-term borrowings as of the date of this annual report. See Note 6 – Financial Commitments of the Consolidated Financial Statements for additional information.
Disclosure about Contractual Obligations and Commercial Commitments
The following table summarizes ourOur material contractual obligations and commercial commitmentscash requirements as of December 31, 2020:2022 which are not reflected as liabilities in the consolidated balance sheets include open purchase commitments with our foreign manufacturers of approximately $1.1 billion.
(in thousands) |
| Total |
|
| Less than One Year |
|
| One to Three Years |
|
| Three to Five Years |
|
| More Than Five Years |
| |||||
Borrowings (1) |
| $ | 737,680 |
|
| $ | 56,638 |
|
| $ | 64,615 |
|
| $ | 616,427 |
|
| $ | — |
|
Operating leases |
|
| 1,437,927 |
|
|
| 254,674 |
|
|
| 429,356 |
|
|
| 353,636 |
|
|
| 400,261 |
|
Purchase obligations (2) |
|
| 1,359,414 |
|
|
| 1,359,414 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Warehouse and equipment and corporate construction (3) |
|
| 583,206 |
|
|
| 239,000 |
|
|
| 344,206 |
|
|
| — |
|
|
| — |
|
Minimum payments related to other arrangements |
|
| 43,180 |
|
|
| 26,065 |
|
|
| 17,115 |
|
|
| — |
|
|
| — |
|
Total (4) |
| $ | 4,161,407 |
|
| $ | 1,935,791 |
|
| $ | 855,292 |
|
| $ | 970,063 |
|
| $ | 400,261 |
|
|
|
|
|
|
|
|
|
OFF-BALANCE SHEET ARRANGEMENTS
We are required to provide standby letters of credit to support certain obligations that arise in the ordinary course of business and may choose to provide letters of credit in place of posting cash collateral. Although the letters of credit are off-balance sheet, the majority of the obligations to which they relate are reflected as liabilities in the consolidated balance sheets. Outstanding letters of credit totaled approximately $38.7 million as of December 31, 2020.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The preparation of our consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
We believe the following critical accounting estimates are affected by significant judgments used in the preparation of our consolidated financial statements.
Reserves for returns and chargebacks.Revenue Recognition.We derive income primarilyis recorded net of estimates for returns from the sale of footwearour customers and royalties earned from licensing the Skechers brand. We recognize revenue when control of the promised goodspotential disputed amounts or services is transferred to its customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We recognize revenue on wholesale sales upon shipment. We generate direct-to-consumer revenues primarily from the sale of footwear to customers at retail locations or through our websites. For our in-store sales, we recognize revenue at the point of sale. For sales made through our websites, we recognize revenue upon shipment to the customer. Sales and value added taxes collected from direct-to-consumer customers are excluded from reported revenues.
chargebacks. We accrue a liability for product returns at the time of sale based on our historical experience. We also accrue amounts for goods expected to be returned in salable condition.
We earn royalty income from symbolic licensing arrangements based on third-party sales of Skechers-branded product. Upon signing a new licensing agreement, we receive up-front fees, which are generally characterized as prepaid royalties. These fees are initially deferred and recognized as revenue is earned (i.e., as licensed sales are reported to us or on a straight-line basis over the term of the agreement). The first calculated royalty paymentOur chargeback reserve is based on actual salesa collectability percentage based on factors such as historical trends, current economic conditions, and nature of the licensed product or, in some cases, minimum royalty payments. We calculate and accrue estimated royalties based on the agreement terms and correspondence with the licensees regarding actual sales.chargeback receivables.
Allowance for bad debts returns, sales allowances and customer chargebacks. We provide a reserve against our receivables for. Accounts receivable is recorded net of estimated losses that may result from our customers’ inability to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed and adjusted periodically in accordance with external credit reporting services, financial statements issued by the customer and our experience with the account. We determine the amount of the reserve by analyzing known uncollectible accounts, aged receivables, economic conditions in the customers’ countries or industries, historical losses and our customers’ credit-worthiness. Amounts later determined and specifically identified to be uncollectible are charged or written off against this reserve. Allowances for returns, sales allowances and customer chargebacks are recorded against revenue. Allowances for bad debts are recorded to general and administrative expenses. Retail and direct-to-consumer receivables represent amounts due from credit card companies and are generally collected within a few days of the purchase.
We reserve for potential disputed amounts or chargebacks from our customers. Our chargeback reserve is based on a collectability percentage based on factors such as historical trends, current economic conditions, and nature of the chargeback receivables.
The likelihood of a material loss on an uncollectible account would be mainly dependent on deterioration in the overall economic conditions in a particular country or region. Reserves are fully provided for all probable losses of this nature. For receivables that are not specifically identified as high risk, we provide a reserve based upon our historical loss rate as a percentage of sales.
Inventory write-downsreserves. Inventory is stated at the lower of cost or market (netnet realizable value). We review our inventoryvalue. Inventory reserves are recorded for excess and slow-moving inventory. Our analysis includes a review of inventory quantities on hand at period-end in relation to year-to-date sales, existing orders from customers and projections for sales in the foreseeable future. The net realizable value is determined based on historical sales experience on a style-by-style basis.
Impairment The valuation of long-lived assets. When circumstances warrant, we test for recoverability of the asset groups’ carrying value using estimates of undiscounted future cash flows based on the existing service potential of the applicable asset group in determining the fair value of each asset group.
If the assets are considered toinventory could be impaired, the impairment we recognize is the amountimpacted by which the carrying value of the assets exceeds the fair value of the assets. We base the useful lives and related amortization or depreciation expense on our estimate of the
period that the assets will generate revenues or otherwise be used by us. We review all of our stores for impairment annually or more frequently if events or changes in circumstances require it. We prepare a summary of cash flowspublic and consumer preferences, demand for each of our retail stores, to assess potential impairment of the fixed assets and leasehold improvements. Stores with negative cash flows which have been open in excess of twenty-four months are then reviewed in detail to determine whether impairment exists. Management reviews both quantitative and qualitative factors to assess whether a triggering event occurred. We did not record a material impairment charge for the years ended December 31, 2020, 2019 and 2018.
Goodwill. The Company tests goodwill for impairment annually for each reporting unitproduct, changes in the fourth quarterbuying patterns of the fiscal year,both retailers and between annual tests if events occur or circumstances change which suggest that goodwill should be reevaluated. Such events or circumstances include significant changes in historical financial performance, macroeconomicconsumers and industry conditions and the legal and regulatory environment. The Domestic Wholesale, International Wholesale and Direct-to-Consumer segments each represent a reporting unit. The Company performed its annual impairment test using a qualitative approach to determine whether conditions existed to indicate that it was more likely than not that the fair valueinventory management of goodwill was less than its carrying value. Based on this assessment, the Company concluded that it was more likely than not that the fair value of goodwill was greater than its carrying values, and therefore a quantitative analysis, involving the calculation of an estimated fair value of each reporting unit based on projected future cash flows and comparing the estimated fair values of the reporting units to their carrying amounts, was not required.customers.
Litigation reserves. Estimated amounts for claims that are probable and can be reasonably estimated are recorded as liabilities in our consolidated financial statements. The likelihood of a material change in these estimated reserves would depend on additional information or new claims as they may arise as well as the favorable or unfavorable outcome of particular litigation. Both the likelihood and amount (or range of loss) on a large portion of our remaining pending litigation is uncertain. As such, we are unable to make a reasonable estimate of the liability that could result from unfavorable outcomes in our remaining pending litigation. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise our estimates. Such revisions in our estimates of potential liability could materially impact our results of operations and financial position.
Tax estimates.The establishment of deferred tax assets from intra-entity transfers of certain intellectual property rights and other transactions requires management to make significant estimates and assumptions to determine the fair value of such intellectual property rights. The valuation of deferred income taxes. tax assets requires significant estimates and assumptions including, but not limited to, future revenue growth, discount rates and the expected life of the assets, which by their nature are inherently uncertain and may ultimately differ materially from our actual results. We record a valuation allowance when necessary to reduce our deferred tax assets to the amount that is more likely than not to be realized. The likelihood of a material change in our expected realization of our deferred tax assets depends on future taxable income and the effectiveness of our tax planning strategies amongst the various domestic and international tax jurisdictions in which we operate. We evaluate our projections of taxable income to determine the recoverability of our deferred tax assets and the need for a valuation allowance.
EXCHANGE RATES
We receive U.S. dollars for substantially all of our domestic and a portion of our international product sales, as well as our royalty income. Inventory purchases from offshore contract manufacturers are primarily denominated in U.S. dollars. However, purchase prices for our products may be impacted by fluctuations in the exchange rate between the U.S. dollar and the local currencies of the contract manufacturers, which may impact our cost of goods in the future. During 20202022 and 2019,2021, exchange rate fluctuations did not have a material impact on our inventory costs. We do not engage in hedging activities with respect to such exchange rate risk.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 — Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements for recently adopted and recently issued accounting standards.
|
|
Market risk is the potential loss arising from the adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. Changes in interest rates and changes in foreign currency exchange rates have and will have an impact on our results of operations.
Interest rate fluctuations. As of December 31, 2020,2022, we have $55.5$122.8 million and $679.4$216.5 million of outstanding short-termcurrent and long-term borrowings, subject to changes in interest rates. A 200-basis point increase in interest rates would have increased interest expense by approximately $12.1$6.6 million for the year ended December 31, 2020.2022. We do not expect changes in interest rates to have a material impact on our financial condition or results of operations or cash flows during the remainder of 2021.2023. The interest rate charged on our unsecured revolving credit facility is based on LIBOR,SOFR, our domesticNorth America distribution center construction loan is based on the one month LIBOR, and ourone-month Bloomberg Short-Term Bank Yield Index (“BSBY”). Our China distribution center and China operational loans are based on a reference rate provided by the People’s Bank of China. Our loan with the Company’s joint venture with HF Logistics I, LLC (“HF”), HF Logistics-SKX, LLC (the “JV”), through a wholly-owned subsidiary of the JV (“HF-T1”), is based on the LIBOR Daily Floating Rate plus a margin of 1.75%. Changes in these interest rates will have an effect on the interest charged on outstanding balances.
We may enter into derivative financial instruments such as interest rate swaps in order to limit our interest rate risk on our long-term debt. We had one derivative instrument in place as of December 31, 20202022 to hedge the cash flows on our $129.5 million variable rate debt on our domesticNorth America distribution center.center, which was entered into by the JV. This instrument was a variable to fixed derivative with a notional amount of $129.5 million at December 31, 2020.2022. Our receive rate was one-month LIBOR and the average pay rate was 0.795%. The rate swap agreement utilized by us effectively modifies our exposure to interest rate risk by converting our floating-rate debt to a fixed rate basis over the life of the loan, thus reducing the impact of interest-rate changes on future interest payments.
Foreign exchange rate fluctuations. We face market risk to the extent that changes in foreign currency exchange rates affect our non-U.S. dollar functional currency foreign subsidiaries’ revenues, expenses, assets and liabilities. In addition, changes in foreign exchange rates may affect the value of our inventory commitments. Also, inventory purchases of our products may be impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of the contract manufacturers, which could have an impact on the cost of goods sold in the future. We manage these risks by primarily denominating these purchases and commitments in U.S. dollars.
Assets and liabilities outside the U.S. are located in regions where we have subsidiaries or joint ventures: Asia, Central America,the Americas, Europe, Middle East North America,& Africa, and South America.Asia-Pacific. Our investments in foreign subsidiaries and joint ventures with a functional currency other than the U.S. dollar are generally considered long-term. The fluctuation of foreign currencies resulted in a cumulative foreign currency translation gainloss of $2.7$36.6 million and $1.5loss of $21.0 million, for the years ended December 31, 20202022 and 2019,2021, that are deferred and recorded as a component of accumulated other comprehensive incomeloss in stockholders’ equity. A 200 basis200-basis point reduction in each of these exchange rates at December 31, 20202022 would have reduced the values of our net investments by approximately $61.5$87.5 million.
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|
indexIndex to CONSOLIDATED FINANCIAL STATEMENTS andConsolidated Financial statement schedule
Statements
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Report of Independent Registered Public Accounting Firm
StockholdersShareholders and Board of Directors
Skechers U.S.A., Inc.
Manhattan Beach, California
Opinion on theConsolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Skechers U.S.A., Inc. (the “Company”) as of December 31, 20202022 and 2019,2021, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control – Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 26, 202128, 2023 expressed an unqualified opinion thereon.
Change in Accounting Method Related to Leases
As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for leases during the year ended December 31, 2019 due to the adoption of the Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit mattersmatter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing separate opinions on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Accounting for Leases
As described in Note 3 to the Company’s consolidated financial statements, as of December 31, 2020, the Company’s operating lease right-of-use asset was $1,171.5 million and the operating lease liability was $1,269.4 million. The Company operates in the United States and various foreign countries and continues to expand its operations. The Company continues to execute new lease contracts and negotiate extensions and amendments of existing lease contracts.
We identified the accounting for leases under ASC 842 as a critical audit matter. The Company’s lease processes include the following: (i) ensuring the completeness of new leases, lease extensions and amendments, and (ii) assessment of incremental borrowing rates for each lease. Auditing these elements involved especially challenging auditor judgment and audit effort due to the
significant number of leases that are disaggregated in various countries and the specialized skills and knowledge needed to assess the reasonableness of the incremental borrowing rates.
The primary procedures we performed to address this critical audit matter included:
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|
|
|
|
|
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|
Accounting for Income Taxes
As described in Note 10 to the Company’s consolidated financial statements, the Company’s totalincome tax expense for the fiscal year ended December 31, 20202022 was $8.5$93.1 million, of which $32.3$7.3 million represented U.S. Federal tax benefit, $0.8expense, $8.3 million represented U.S. State tax expense, and the remaining $40.0$77.5 million represented foreign tax expense. The Company operates in multiple jurisdictions worldwide through its wholly-owned subsidiaries and several joint ventures. During the current reporting period, the Company implemented changes in the ownership structure of its international operations.
We identified accounting for the Company’s income tax provision as a critical audit matter. The Company’s income tax provision processes include the following: (i) reporting and data accumulation from multiple foreign jurisdictions, (ii) evaluation of potential impact of recent changes in regulations and tax laws in the United States and various foreign jurisdictions, (iii) evaluation of assumptions in the Company’s assessment of deferred tax assets and liabilities, and related tax reserves, (iv)(iii) development of certain complex assumptions used in transfer pricing studies and related determinations, (v) assessment of repatriation of foreign earnings and cash balances, and (vi) implementation of changes in the ownership structure of its international operations.determinations. Auditing these certain elements of the income tax provision involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
|
|
|
• | Evaluating management’s computation of deferred tax assets and |
| • | Testing mathematical accuracy and computation of the tax provision and agreeing to relevant source |
| • | Utilizing personnel with specialized skill and knowledge in transfer pricing to assist in evaluating the reasonableness of |
| • | Utilizing personnel with specialized skill and knowledge in domestic and foreign taxes to assist in |
/s/ BDO USA, LLP
We have served as the Company's auditor since 2013.
Los Angeles, California
February 26, 202128, 2023
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSConsolidated Balance Sheets
|
| As of December 31, |
|
| As of December 31, |
| |||||||||||
(in thousands, except par values) |
| 2020 |
|
| 2019 |
| |||||||||||
(in thousands, except par values) |
| 2022 |
|
| 2021 |
| |||||||||||
ASSETS |
|
|
|
|
|
|
|
| ASSETS |
| |||||||
Current assets: |
|
|
|
|
|
|
|
| |||||||||
Current assets |
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents |
| $ | 1,370,826 |
|
| $ | 824,876 |
|
| $ | 615,733 |
|
| $ | 796,283 |
| |
Short-term investments |
|
| 100,767 |
|
|
| 112,037 |
|
|
| 102,166 |
|
|
| 98,580 |
| |
Trade accounts receivable, less allowances of $48,562 and $24,106 |
|
| 619,800 |
|
|
| 645,303 |
| |||||||||
Trade accounts receivable, less allowances of $59,472 and $62,684 |
|
| 848,287 |
|
|
| 732,793 |
| |||||||||
Other receivables |
|
| 69,222 |
|
|
| 53,932 |
|
|
| 86,036 |
|
|
| 80,043 |
| |
Total receivables |
|
| 689,022 |
|
|
| 699,235 |
| |||||||||
Inventory |
|
| 1,016,774 |
|
|
| 1,069,863 |
|
|
| 1,818,016 |
|
|
| 1,470,994 |
| |
Prepaid expenses and other current assets |
|
| 166,962 |
|
|
| 113,580 |
| |||||||||
Total current assets ($862,954 and $752,965 related to VIEs) |
|
| 3,344,351 |
|
|
| 2,819,591 |
| |||||||||
Prepaid expenses and other |
|
| 176,035 |
|
|
| 193,547 |
| |||||||||
Total current assets ($1,014,962 and $1,040,765 related to VIEs) |
|
| 3,646,273 |
|
|
| 3,372,240 |
| |||||||||
Property, plant and equipment, net |
|
| 935,441 |
|
|
| 738,925 |
|
|
| 1,345,370 |
|
|
| 1,128,909 |
| |
Operating lease right-of-use assets |
|
| 1,171,521 |
|
|
| 1,073,660 |
|
|
| 1,200,565 |
|
|
| 1,224,580 |
| |
Deferred tax assets |
|
| 63,884 |
|
|
| 49,088 |
|
|
| 454,190 |
|
|
| 451,355 |
| |
Long-term investments |
|
| 108,412 |
|
|
| 94,589 |
|
|
| 70,498 |
|
|
| 145,590 |
| |
Goodwill |
|
| 93,497 |
|
|
| 71,412 |
|
|
| 93,497 |
|
|
| 93,497 |
| |
Other assets, net |
|
| 95,263 |
|
|
| 45,678 |
|
|
| 83,094 |
|
|
| 75,109 |
| |
Total non-current assets ($682,068 and $429,810 related to VIEs) |
|
| 2,468,018 |
|
|
| 2,073,352 |
| |||||||||
Total non-current assets ($598,973 and $608,607 related to VIEs) |
|
| 3,247,214 |
|
|
| 3,119,040 |
| |||||||||
TOTAL ASSETS |
| $ | 5,812,369 |
|
| $ | 4,892,943 |
|
| $ | 6,893,487 |
|
| $ | 6,491,280 |
| |
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
| LIABILITIES AND EQUITY |
| |||||||
Current liabilities: |
|
|
|
|
|
|
|
| |||||||||
Current liabilities |
|
|
|
|
|
|
|
| |||||||||
Accounts payable |
| $ | 957,384 |
|
| $ | 876,342 |
| |||||||||
Accrued expenses |
|
| 294,143 |
|
|
| 265,420 |
| |||||||||
Operating lease liabilities |
|
| 238,694 |
|
|
| 225,658 |
| |||||||||
Current installments of long-term borrowings |
| $ | 52,250 |
|
| $ | 66,234 |
|
|
| 103,184 |
|
|
| 76,967 |
| |
Short-term borrowings |
|
| 3,297 |
|
|
| 5,789 |
|
|
| 19,635 |
|
|
| 1,195 |
| |
Accounts payable |
|
| 744,077 |
|
|
| 764,844 |
| |||||||||
Operating lease liabilities |
|
| 204,370 |
|
|
| 191,129 |
| |||||||||
Accrued expenses |
|
| 208,712 |
|
|
| 210,235 |
| |||||||||
Total current liabilities ($526,466 and $494,882 related to VIEs) |
|
| 1,212,706 |
|
|
| 1,238,231 |
| |||||||||
Long-term borrowings, excluding current installments |
|
| 679,415 |
|
|
| 49,183 |
| |||||||||
Total current liabilities ($568,158 and $601,929 related to VIEs) |
|
| 1,613,040 |
|
|
| 1,445,582 |
| |||||||||
Long-term operating lease liabilities |
|
| 1,065,069 |
|
|
| 966,011 |
|
|
| 1,063,672 |
|
|
| 1,094,748 |
| |
Long-term borrowings |
|
| 216,488 |
|
|
| 263,445 |
| |||||||||
Deferred tax liabilities |
|
| 11,439 |
|
|
| 322 |
|
|
| 8,656 |
|
|
| 11,820 |
| |
Other long-term liabilities |
|
| 118,077 |
|
|
| 103,089 |
|
|
| 120,045 |
|
|
| 133,613 |
| |
Total non-current liabilities ($365,235 and $136,912 related to VIEs) |
|
| 1,874,000 |
|
|
| 1,118,605 |
| |||||||||
Total non-current liabilities ($293,726 and $368,994 related to VIEs) |
|
| 1,408,861 |
|
|
| 1,503,626 |
| |||||||||
Total liabilities |
|
| 3,086,706 |
|
|
| 2,356,836 |
|
|
| 3,021,901 |
|
|
| 2,949,208 |
| |
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stockholders’ equity: |
|
|
|
|
|
|
|
| |||||||||
Preferred Stock, $0.001 par value; 10,000 shares authorized; NaN issued and outstanding |
|
| — |
|
|
| — |
| |||||||||
Class A Common Stock, $0.001 par value; 500,000 shares authorized; 133,618 and 131,071 shares issued and outstanding |
|
| 134 |
|
|
| 131 |
| |||||||||
Class B Common Stock, $0.001 par value; 75,000 shares authorized; 21,016 and 22,408 shares issued and outstanding |
|
| 21 |
|
|
| 22 |
| |||||||||
Stockholders’ equity |
|
|
|
|
|
|
|
| |||||||||
Preferred Stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding |
|
| — |
|
|
| — |
| |||||||||
Class A Common Stock, $0.001 par value; 500,000 shares authorized; 134,473 and 135,107 shares issued and outstanding |
|
| 134 |
|
|
| 135 |
| |||||||||
Class B Common Stock, $0.001 par value; 75,000 shares authorized; 20,810 and 20,939 shares issued and outstanding |
|
| 21 |
|
|
| 21 |
| |||||||||
Additional paid-in capital |
|
| 372,165 |
|
|
| 306,669 |
|
|
| 403,799 |
|
|
| 429,608 |
| |
Accumulated other comprehensive loss |
|
| (27,285 | ) |
|
| (29,993 | ) |
|
| (84,897 | ) |
|
| (48,323 | ) | |
Retained earnings |
|
| 2,136,400 |
|
|
| 2,037,836 |
|
|
| 3,250,931 |
|
|
| 2,877,903 |
| |
Skechers U.S.A., Inc. equity |
|
| 2,481,435 |
|
|
| 2,314,665 |
|
|
| 3,569,988 |
|
|
| 3,259,344 |
| |
Noncontrolling interests |
|
| 244,228 |
|
|
| 221,442 |
|
|
| 301,598 |
|
|
| 282,728 |
| |
Total stockholders' equity |
|
| 2,725,663 |
|
|
| 2,536,107 |
|
|
| 3,871,586 |
|
|
| 3,542,072 |
| |
TOTAL LIABILITIES AND EQUITY |
| $ | 5,812,369 |
|
| $ | 4,892,943 |
|
| $ | 6,893,487 |
|
| $ | 6,491,280 |
|
See accompanying notes to consolidated financial statements.
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGSConsolidated Statements of Earnings
| Year Ended December 31, |
| Year Ended December 31, |
| ||||||||||||||||||
(in thousands, except per share data) | 2020 |
|
| 2019 |
|
| 2018 |
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
Sales | $ | 4,597,414 |
|
| $ | 5,220,051 |
|
| $ | 4,642,068 |
| $ | 7,444,550 |
|
| $ | 6,310,187 |
|
| $ | 4,613,430 |
|
Cost of sales |
| 2,407,633 |
|
|
| 2,728,894 |
|
|
| 2,418,463 |
|
| 3,929,193 |
|
|
| 3,185,816 |
|
|
| 2,407,632 |
|
Gross profit |
| 2,189,781 |
|
|
| 2,491,157 |
|
|
| 2,223,605 |
|
| 3,515,357 |
|
|
| 3,124,371 |
|
|
| 2,205,798 |
|
Royalty income |
| 16,017 |
|
|
| 22,493 |
|
|
| 20,582 |
| |||||||||||
|
| 2,205,798 |
|
|
| 2,513,650 |
|
|
| 2,244,187 |
| |||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Selling |
| 318,097 |
|
|
| 369,901 |
|
|
| 350,435 |
|
| 583,626 |
|
|
| 499,532 |
|
|
| 351,471 |
|
General and administrative |
| 1,754,017 |
|
|
| 1,625,306 |
|
|
| 1,455,987 |
|
| 2,385,061 |
|
|
| 2,026,652 |
|
|
| 1,720,643 |
|
Selling, general and administrative |
| 2,072,114 |
|
|
| 1,995,207 |
|
|
| 1,806,422 |
| |||||||||||
Total operating expenses |
| 2,968,687 |
|
|
| 2,526,184 |
|
|
| 2,072,114 |
| |||||||||||
Earnings from operations |
| 133,684 |
|
|
| 518,443 |
|
|
| 437,765 |
|
| 546,670 |
|
|
| 598,187 |
|
|
| 133,684 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Interest income |
| 5,912 |
|
|
| 11,782 |
|
|
| 10,128 |
| |||||||||||
Interest expense |
| (16,327 | ) |
|
| (7,509 | ) |
|
| (5,847 | ) | |||||||||||
Other, net |
| 31,460 |
|
|
| (6,711 | ) |
|
| (10,162 | ) | |||||||||||
Total other income (expense) |
| 21,045 |
|
|
| (2,438 | ) |
|
| (5,881 | ) |
| (24,413 | ) |
|
| (28,430 | ) |
|
| 21,045 |
|
Earnings before income tax expense |
| 154,729 |
|
|
| 516,005 |
|
|
| 431,884 |
| |||||||||||
Income tax expense |
| 8,502 |
|
|
| 88,753 |
|
|
| 60,611 |
| |||||||||||
Earnings before income taxes |
| 522,257 |
|
|
| 569,757 |
|
|
| 154,729 |
| |||||||||||
Income tax expense (benefit) |
| 93,095 |
|
|
| (245,875 | ) |
|
| 8,502 |
| |||||||||||
Net earnings |
| 146,227 |
|
|
| 427,252 |
|
|
| 371,273 |
|
| 429,162 |
|
|
| 815,632 |
|
|
| 146,227 |
|
Less: Net earnings attributable to noncontrolling interests |
| 47,663 |
|
|
| 80,692 |
|
|
| 70,232 |
| |||||||||||
Less: Net earnings attributable to noncontrolling interest |
| 56,134 |
|
|
| 74,129 |
|
|
| 47,663 |
| |||||||||||
Net earnings attributable to Skechers U.S.A., Inc. | $ | 98,564 |
|
| $ | 346,560 |
|
| $ | 301,041 |
| $ | 373,028 |
|
| $ | 741,503 |
|
| $ | 98,564 |
|
Net earnings per share attributable to Skechers U.S.A., Inc.: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Net earnings per share attributable to Skechers U.S.A., Inc. |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Basic | $ | 0.64 |
|
| $ | 2.26 |
|
| $ | 1.93 |
| $ | 2.40 |
|
| $ | 4.77 |
|
| $ | 0.64 |
|
Diluted | $ | 0.64 |
|
| $ | 2.25 |
|
| $ | 1.92 |
| $ | 2.38 |
|
| $ | 4.73 |
|
| $ | 0.64 |
|
Weighted-average shares used in calculating net earnings per share attributable to Skechers U.S.A, Inc.: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted-average shares used in calculating net earnings per share attributable to Skechers U.S.A., Inc. |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Basic |
| 154,184 |
|
|
| 153,392 |
|
|
| 155,815 |
|
| 155,627 |
|
|
| 155,539 |
|
|
| 154,184 |
|
Diluted |
| 154,894 |
|
|
| 154,151 |
|
|
| 156,450 |
|
| 156,608 |
|
|
| 156,794 |
|
|
| 154,894 |
|
See accompanying notes to consolidated financial statements.
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEConsolidated Statements of Comprehensive Income
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
Net earnings |
| $ | 146,227 |
|
| $ | 427,252 |
|
| $ | 371,273 |
|
| $ | 429,162 |
|
| $ | 815,632 |
|
| $ | 146,227 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net unrealized gain (loss) on derivative contract |
|
| 9,787 |
|
|
| 3,372 |
|
|
| (1,649 | ) | ||||||||||||
Gain (loss) on foreign currency translation adjustment |
|
| 11,540 |
|
|
| 1,298 |
|
|
| (24,806 | ) |
|
| (53,552 | ) |
|
| (22,141 | ) |
|
| 11,540 |
|
Comprehensive income |
|
| 157,767 |
|
|
| 428,550 |
|
|
| 346,467 |
|
|
| 385,397 |
|
|
| 796,863 |
|
|
| 156,118 |
|
Less: Comprehensive income attributable to noncontrolling interests |
|
| 56,495 |
|
|
| 80,495 |
|
|
| 62,170 |
|
|
| 48,190 |
|
|
| 76,398 |
|
|
| 54,846 |
|
Comprehensive income attributable to Skechers U.S.A., Inc. |
| $ | 101,272 |
|
| $ | 348,055 |
|
| $ | 284,297 |
|
| $ | 337,207 |
|
| $ | 720,465 |
|
| $ | 101,272 |
|
See accompanying notes to consolidated financial statements.
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITYConsolidated Statements of Equity
|
| SHARES |
|
| AMOUNT |
|
|
|
|
|
| ACCUMULATED |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
|
| Amount |
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| CLASS A |
|
| CLASS B |
|
| CLASS A |
|
| CLASS B |
|
| ADDITIONAL |
|
| OTHER |
|
|
|
|
|
| SKECHERS |
|
|
|
|
|
|
|
|
|
| Class A |
|
| Class B |
|
| Class A |
|
| Class B |
|
| Additional |
|
| other |
|
|
|
|
|
| Skechers |
|
|
|
|
|
| Total |
| |||||||||||||||
|
| COMMON |
|
| COMMON |
|
| COMMON |
|
| COMMON |
|
| PAID-IN |
|
| COMPREHENSIVE |
|
| RETAINED |
|
| U.S.A., INC. |
|
| NONCONTROLLING |
|
|
|
|
|
| Common |
|
| Common |
|
| Common |
|
| Common |
|
| paid-in |
|
| comprehensive |
|
| Retained |
|
| U.S.A., Inc. |
|
| Noncontrolling |
|
| stockholders' |
| |||||||||||||||||||
(in thousands) |
| STOCK |
|
| STOCK |
|
| STOCK |
|
| STOCK |
|
| CAPITAL |
|
| INCOME (LOSS) |
|
| EARNINGS |
|
| EQUITY |
|
| INTERESTS |
|
| TOTAL |
|
| Stock |
|
| Stock |
|
| Stock |
|
| Stock |
|
| capital |
|
| loss |
|
| earnings |
|
| equity |
|
| interests |
|
| equity |
| ||||||||||||||||||||
Balance at January 1, 2018 |
|
| 131,784 |
|
|
| 24,545 |
|
| $ | 132 |
|
| $ | 24 |
|
| $ | 453,417 |
|
| $ | (14,744 | ) |
| $ | 1,390,235 |
|
| $ | 1,829,064 |
|
| $ | 119,147 |
|
| $ | 1,948,211 |
| ||||||||||||||||||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 301,041 |
|
|
| 301,041 |
|
|
| 70,232 |
|
|
| 371,273 |
| ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,744 | ) |
|
| — |
|
|
| (16,744 | ) |
|
| (8,062 | ) |
|
| (24,806 | ) | ||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27,000 | ) |
|
| (27,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30,468 |
|
|
| — |
|
|
| — |
|
|
| 30,468 |
|
|
| — |
|
|
| 30,468 |
| ||||||||||||||||||||||||||||||||||||||||
Proceeds from the employee stock purchase plan |
|
| 222 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,297 |
|
|
| — |
|
|
| — |
|
|
| 5,297 |
|
|
| — |
|
|
| 5,297 |
| ||||||||||||||||||||||||||||||||||||||||
Shares issued under the incentive award plan |
|
| 1,018 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||
Shares redeemed for employee tax withholdings |
|
| (405 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (14,190 | ) |
|
| — |
|
|
| — |
|
|
| (14,191 | ) |
|
| — |
|
|
| (14,191 | ) | ||||||||||||||||||||||||||||||||||||||||
Conversion of Class B Common Stock into Class A Common Stock |
|
| 562 |
|
|
| (562 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||
Repurchases of Class A Common Stock |
|
| (3,656 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (99,974 | ) |
|
| — |
|
| — |
|
|
| (99,977 | ) |
|
| — |
|
|
| (99,977 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 |
|
| 129,525 |
|
|
| 23,983 |
|
| $ | 129 |
|
| $ | 24 |
|
| $ | 375,017 |
|
| $ | (31,488 | ) |
| $ | 1,691,276 |
|
| $ | 2,034,958 |
|
| $ | 154,317 |
|
| $ | 2,189,275 |
| ||||||||||||||||||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 346,560 |
|
|
| 346,560 |
|
|
| 80,692 |
|
|
| 427,252 |
| ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,495 |
|
|
| — |
|
|
| 1,495 |
|
|
| (197 | ) |
|
| 1,298 |
| ||||||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36,934 |
|
|
| 36,934 |
| ||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38,675 | ) |
|
| (38,675 | ) | ||||||||||||||||||||||||||||||||||||||||
Purchase of noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (71,265 | ) |
|
| — |
|
|
| — |
|
|
| (71,265 | ) |
|
| (11,629 | ) |
|
| (82,894 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 41,076 |
|
|
| — |
|
|
| — |
|
|
| 41,076 |
|
|
| — |
|
|
| 41,076 |
| ||||||||||||||||||||||||||||||||||||||||
Proceeds from the employee stock purchase plan |
|
| 261 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,173 |
|
|
| — |
|
|
| — |
|
|
| 6,173 |
|
|
| — |
|
|
| 6,173 |
| ||||||||||||||||||||||||||||||||||||||||
Shares issued under the incentive award plan |
|
| 1,117 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||
Shares redeemed for employee tax withholdings |
|
| (438 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,313 | ) |
|
| — |
|
|
| — |
|
|
| (14,313 | ) |
|
| — |
|
|
| (14,313 | ) | ||||||||||||||||||||||||||||||||||||||||
Conversion of Class B Common Stock into Class A Common Stock |
|
| 1,575 |
|
|
| (1,575 | ) |
|
| 2 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||
Repurchases of Class A Common Stock |
|
| (969 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (30,018 | ) |
|
| — |
|
|
| — |
|
|
| (30,019 | ) |
|
| — |
|
|
| (30,019 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 |
|
| 131,071 |
|
|
| 22,408 |
|
| $ | 131 |
|
| $ | 22 |
|
| $ | 306,669 |
|
| $ | (29,993 | ) |
| $ | 2,037,836 |
|
| $ | 2,314,665 |
|
| $ | 221,442 |
|
| $ | 2,536,107 |
|
|
| 131,071 |
|
|
| 22,408 |
|
| $ | 131 |
|
| $ | 22 |
|
| $ | 306,669 |
|
| $ | (29,993 | ) |
| $ | 2,037,836 |
|
| $ | 2,314,665 |
|
| $ | 221,442 |
|
| $ | 2,536,107 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 98,564 |
|
|
| 98,564 |
|
|
| 47,663 |
|
|
| 146,227 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 98,564 |
|
|
| 98,564 |
|
|
| 47,663 |
|
|
| 146,227 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,708 |
|
|
| — |
|
|
| 2,708 |
|
|
| 8,832 |
|
|
| 11,540 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,708 |
|
|
| — |
|
|
| 2,708 |
|
|
| 8,832 |
|
|
| 11,540 |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (81,105 | ) |
|
| (81,105 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (81,105 | ) |
|
| (81,105 | ) |
Noncontrolling interests of acquired businesses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49,045 |
|
|
| 49,045 |
| ||||||||||||||||||||||||||||||||||||||||
Noncontrolling interest of acquired businesses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49,045 |
|
|
| 49,045 |
| ||||||||||||||||||||||||||||||||||||||||
Net unrealized loss on derivative contract |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,649 | ) |
|
| (1,649 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,649 | ) |
|
| (1,649 | ) |
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 65,240 |
|
|
| — |
|
|
| — |
|
|
| 65,240 |
|
|
| — |
|
|
| 65,240 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 65,240 |
|
|
| — |
|
|
| — |
|
|
| 65,240 |
|
|
| — |
|
|
| 65,240 |
|
Proceeds from the employee stock purchase plan |
|
| 233 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 5,915 |
|
|
| — |
|
|
| — |
|
|
| 5,916 |
|
|
| — |
|
|
| 5,916 |
|
|
| 233 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 5,915 |
|
|
| — |
|
|
| — |
|
|
| 5,916 |
|
|
| — |
|
|
| 5,916 |
|
Shares issued under the incentive award plan |
|
| 1,094 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,094 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Shares redeemed for employee tax withholdings |
|
| (172 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,658 | ) |
|
| — |
|
|
| — |
|
|
| (5,658 | ) |
|
| — |
|
|
| (5,658 | ) |
|
| (172 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,658 | ) |
|
| — |
|
|
| — |
|
|
| (5,658 | ) |
|
| — |
|
|
| (5,658 | ) |
Conversion of Class B Common Stock into Class A Common Stock |
|
| 1,392 |
|
|
| (1,392 | ) |
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,392 |
|
|
| (1,392 | ) |
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at December 31, 2020 |
|
| 133,618 |
|
|
| 21,016 |
|
| $ | 134 |
|
| $ | 21 |
|
| $ | 372,165 |
|
| $ | (27,285 | ) |
| $ | 2,136,400 |
|
| $ | 2,481,435 |
|
| $ | 244,228 |
|
| $ | 2,725,663 |
|
|
| 133,618 |
|
|
| 21,016 |
|
| $ | 134 |
|
| $ | 21 |
|
| $ | 372,165 |
|
| $ | (27,285 | ) |
| $ | 2,136,400 |
|
| $ | 2,481,435 |
|
| $ | 244,228 |
|
| $ | 2,725,663 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 741,503 |
|
|
| 741,503 |
|
|
| 74,129 |
|
|
| 815,632 |
| ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,038 | ) |
|
| — |
|
|
| (21,038 | ) |
|
| (1,103 | ) |
|
| (22,141 | ) | ||||||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,731 |
|
|
| 6,731 |
| ||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (41,557 | ) |
|
| (41,557 | ) | ||||||||||||||||||||||||||||||||||||||||
Purchase of noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,856 | ) |
|
| — |
|
|
| — |
|
|
| (6,856 | ) |
|
| (3,072 | ) |
|
| (9,928 | ) | ||||||||||||||||||||||||||||||||||||||||
Net unrealized gain on derivative contract |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,372 |
|
|
| 3,372 |
| ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,108 |
|
|
| — |
|
|
| — |
|
|
| 60,108 |
|
|
| — |
|
|
| 60,108 |
| ||||||||||||||||||||||||||||||||||||||||
Proceeds from the employee stock purchase plan |
|
| 226 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,276 |
|
|
| — |
|
|
| — |
|
|
| 7,276 |
|
|
| — |
|
|
| 7,276 |
| ||||||||||||||||||||||||||||||||||||||||
Shares issued under the incentive award plan |
|
| 1,252 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||
Shares redeemed for employee tax withholdings |
|
| (66 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,084 | ) |
|
| — |
|
|
| — |
|
|
| (3,084 | ) |
|
| — |
|
|
| (3,084 | ) | ||||||||||||||||||||||||||||||||||||||||
Conversion of Class B Common Stock into Class A Common Stock |
|
| 77 |
|
|
| (77 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 |
|
| 135,107 |
|
|
| 20,939 |
|
| $ | 135 |
|
| $ | 21 |
|
| $ | 429,608 |
|
| $ | (48,323 | ) |
| $ | 2,877,903 |
|
| $ | 3,259,344 |
|
| $ | 282,728 |
|
| $ | 3,542,072 |
| ||||||||||||||||||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 373,028 |
|
|
| 373,028 |
|
|
| 56,134 |
|
|
| 429,162 |
| ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,574 | ) |
|
| — |
|
|
| (36,574 | ) |
|
| (16,978 | ) |
|
| (53,552 | ) | ||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29,320 | ) |
|
| (29,320 | ) | ||||||||||||||||||||||||||||||||||||||||
Net unrealized gain on derivative contract |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 753 |
|
|
| — |
|
|
| — |
|
|
| 753 |
|
|
| 9,034 |
|
|
| 9,787 |
| ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 59,874 |
|
|
| — |
|
|
| — |
|
|
| 59,874 |
|
|
| — |
|
|
| 59,874 |
| ||||||||||||||||||||||||||||||||||||||||
Proceeds from the employee stock purchase plan |
|
| 243 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,131 |
|
|
| — |
|
|
| — |
|
|
| 8,131 |
|
|
| — |
|
|
| 8,131 |
| ||||||||||||||||||||||||||||||||||||||||
Shares issued under the incentive award plan |
|
| 1,424 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||||||||||||||||||||||
Shares redeemed for employee tax withholdings |
|
| (503 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (20,323 | ) |
|
| — |
|
|
| — |
|
|
| (20,324 | ) |
|
| — |
|
|
| (20,324 | ) | ||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock |
|
| (1,927 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (74,243 | ) |
|
| — |
|
|
| — |
|
|
| (74,245 | ) |
|
| — |
|
|
| (74,245 | ) | ||||||||||||||||||||||||||||||||||||||||
Conversion of Class B Common Stock into Class A Common Stock |
|
| 129 |
|
|
| (129 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 |
|
| 134,473 |
|
|
| 20,810 |
|
| $ | 134 |
|
| $ | 21 |
|
| $ | 403,799 |
|
| $ | (84,897 | ) |
| $ | 3,250,931 |
|
| $ | 3,569,988 |
|
| $ | 301,598 |
|
| $ | 3,871,586 |
|
See accompanying notes to consolidated financial statementsstatements.
SKECHERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSConsolidated Statements of Cash Flows
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net earnings |
| $ | 146,227 |
|
| $ | 427,252 |
|
| $ | 371,273 |
|
| $ | 429,162 |
|
| $ | 815,632 |
|
| $ | 146,227 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Depreciation and amortization |
|
| 142,810 |
|
|
| 111,515 |
|
|
| 109,680 |
|
|
| 153,716 |
|
|
| 139,577 |
|
|
| 142,810 |
|
Provision for bad debts and returns |
|
| 50,696 |
|
|
| 52,456 |
|
|
| 35,730 |
|
|
| 37,806 |
|
|
| 62,771 |
|
|
| 50,696 |
|
Stock compensation |
|
| 65,240 |
|
|
| 41,076 |
|
|
| 30,468 |
|
|
| 59,874 |
|
|
| 60,108 |
|
|
| 65,240 |
|
Deferred income taxes |
|
| (19,568 | ) |
|
| (7,568 | ) |
|
| (9,767 | ) |
|
| (6,489 | ) |
|
| (387,250 | ) |
|
| (19,568 | ) |
Net settlement gain |
|
| (13,877 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,877 | ) |
Other items, net |
|
| — |
|
|
| 334 |
|
|
| 550 |
| ||||||||||||
Net foreign currency adjustments |
|
| (13,854 | ) |
|
| 2,114 |
|
|
| 10,072 |
|
|
| (2,366 | ) |
|
| 2,154 |
|
|
| (13,854 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Receivables |
|
| 13,259 |
|
|
| (118,390 | ) |
|
| (136,188 | ) |
|
| (179,734 | ) |
|
| (154,248 | ) |
|
| 13,259 |
|
Inventory |
|
| 78,632 |
|
|
| (171,903 | ) |
|
| (7,212 | ) |
|
| (389,026 | ) |
|
| (458,002 | ) |
|
| 78,632 |
|
Other assets |
|
| (153,092 | ) |
|
| (69,234 | ) |
|
| (30,069 | ) |
|
| (33,007 | ) |
|
| (110,464 | ) |
|
| (153,092 | ) |
Accounts payable |
|
| (37,714 | ) |
|
| 154,464 |
|
|
| 174,352 |
|
|
| 107,199 |
|
|
| 135,140 |
|
|
| (37,714 | ) |
Other liabilities |
|
| 72,694 |
|
|
| 4,436 |
|
|
| 19,663 |
|
|
| 61,190 |
|
|
| 106,734 |
|
|
| 72,694 |
|
Net cash provided by operating activities |
|
| 331,453 |
|
|
| 426,552 |
|
|
| 568,552 |
|
|
| 238,325 |
|
|
| 212,152 |
|
|
| 331,453 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Capital expenditures |
|
| (309,916 | ) |
|
| (236,111 | ) |
|
| (143,036 | ) |
|
| (358,992 | ) |
|
| (309,674 | ) |
|
| (309,916 | ) |
Acquisitions, net of cash acquired |
|
| — |
|
|
| (100,658 | ) |
|
| — |
| ||||||||||||
Proceeds from sale of property, plant and equipment |
|
| — |
|
|
| 5,547 |
|
|
| — |
| ||||||||||||
Purchases of investments |
|
| (166,614 | ) |
|
| (189,624 | ) |
|
| (446,127 | ) |
|
| (70,837 | ) |
|
| (215,164 | ) |
|
| (166,614 | ) |
Proceeds from sales and maturities of investments |
|
| 164,062 |
|
|
| 176,773 |
|
|
| 269,749 |
|
|
| 142,343 |
|
|
| 180,172 |
|
|
| 164,062 |
|
Net cash used in investing activities |
|
| (312,468 | ) |
|
| (344,073 | ) |
|
| (319,414 | ) |
|
| (287,486 | ) |
|
| (344,666 | ) |
|
| (312,468 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net proceeds from the employee stock purchase plan |
|
| 5,916 |
|
|
| 6,173 |
|
|
| 5,297 |
|
|
| 8,131 |
|
|
| 7,276 |
|
|
| 5,916 |
|
Repayments on long-term borrowings |
|
| (86,357 | ) |
|
| (4,108 | ) |
|
| (1,683 | ) |
|
| (95,410 | ) |
|
| (487,441 | ) |
|
| (86,357 | ) |
Proceeds from long-term borrowings |
|
| 702,998 |
|
|
| 33,296 |
|
|
| 18,626 |
|
|
| 74,670 |
|
|
| 96,187 |
|
|
| 702,998 |
|
Repayments on short-term borrowings, net |
|
| (2,492 | ) |
|
| (1,433 | ) |
|
| (787 | ) | ||||||||||||
Net proceeds from (repayments on) short-term borrowings |
|
| 18,439 |
|
|
| (2,102 | ) |
|
| (2,492 | ) | ||||||||||||
Payments for employee taxes related to stock compensation |
|
| (5,658 | ) |
|
| (14,313 | ) |
|
| (14,191 | ) |
|
| (20,324 | ) |
|
| (3,084 | ) |
|
| (5,658 | ) |
Repurchases of common stock |
|
| — |
|
|
| (30,019 | ) |
|
| (99,977 | ) |
|
| (74,245 | ) |
|
| — |
|
|
| — |
|
Purchase of noncontrolling interest |
|
| — |
|
|
| (82,894 | ) |
|
| — |
|
|
| — |
|
|
| (9,928 | ) |
|
| — |
|
Contributions from noncontrolling interests |
|
| — |
|
|
| 6,731 |
|
|
| — |
| ||||||||||||
Distributions to noncontrolling interests |
|
| (81,105 | ) |
|
| (38,675 | ) |
|
| (27,000 | ) |
|
| (29,320 | ) |
|
| (41,557 | ) |
|
| (81,105 | ) |
Net cash provided by (used in) financing activities |
|
| 533,302 |
|
|
| (131,973 | ) |
|
| (119,715 | ) |
|
| (118,059 | ) |
|
| (433,918 | ) |
|
| 533,302 |
|
Effect of exchange rates on cash and cash equivalents |
|
| (6,337 | ) |
|
| 2,133 |
|
|
| 6,383 |
|
|
| (13,330 | ) |
|
| (8,111 | ) |
|
| (6,337 | ) |
Net change in cash and cash equivalents |
|
| 545,950 |
|
|
| (47,361 | ) |
|
| 135,806 |
|
|
| (180,550 | ) |
|
| (574,543 | ) |
|
| 545,950 |
|
Cash and cash equivalents at beginning of the period |
|
| 824,876 |
|
|
| 872,237 |
|
|
| 736,431 |
|
|
| 796,283 |
|
|
| 1,370,826 |
|
|
| 824,876 |
|
Cash and cash equivalents at end of the period |
| $ | 1,370,826 |
|
| $ | 824,876 |
|
| $ | 872,237 |
|
| $ | 615,733 |
|
| $ | 796,283 |
|
| $ | 1,370,826 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 15,987 |
|
| $ | 7,140 |
|
| $ | 5,568 |
|
| $ | 19,293 |
|
| $ | 14,579 |
|
| $ | 15,987 |
|
Income taxes, net |
|
| 55,825 |
|
|
| 88,753 |
|
|
| 93,041 |
|
|
| 113,933 |
|
|
| 125,082 |
|
|
| 55,825 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and other assets contribution from noncontrolling interests |
|
| — |
|
|
| 36,934 |
|
|
| — |
| ||||||||||||
Note payable contribution from noncontrolling interest |
|
| — |
|
|
| 2,150 |
|
|
| — |
| ||||||||||||
Purchase price adjustment for Skechers Mexico |
|
| 49,045 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49,045 |
|
ROU assets exchanged for lease liabilities |
|
| 327,022 |
|
|
| 356,855 |
|
|
| 318,713 |
|
See accompanying notes to consolidated financial statements.
SKECHERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(1) |
|
BASIS OF PRESENTATION
Skechers U.S.A., Inc. and subsidiaries (the “Company”) designs, develops, markets and distributes footwear. The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the consolidated financial statements in prior years to conform to the current year presentation.
EFFECTS OF THE COVID-19 PANDEMIC ON THE COMPANY’S BUSINESS
In March 2020, the Company temporarily closed its stores around the world and temporarily furloughed a meaningful portion of its hourly employees. The Company began reopening its stores in April 2020, and as of December 31, 2020, over 90% of the Company-owned retail stores have reopened. The Company continuespresentation, including but not limited to monitor and react to the COVID-19 pandemic, including conforming to local governments and global health organizations’ guidance, implementing global travel restrictions, and implementing “work from home” measures for many of its employees. The Company is actively monitoring and assessing the rapidly emerging government policies and economic stimulus responses to the COVID-19 pandemic around the world.
Although the Company has reopened the majority of its worldwide retail stores, the economic impact of the COVID-19 pandemic continues to negatively affect the Company’s results of operations. Many of the reopened retail stores continue to have temporarily reduced operating hours and less foot traffic, which has resulted in lowercombining royalty income into sales. Additionally, the reopening of stores and corporate offices required the Company to implement safety protocols, facilitate social distancing, enhance cleaning and sanitation activities, and provide masks and gloves to all employees. These safety processes and procedures have increased our costs to operate for the foreseeable future. Given the unprecedented impact the COVID-19 pandemic has had, the Company is unable to forecast consumer demand and store productivity. Whether and how quickly customers may resume shopping, and the effect of the pandemic on consumer behavior and spending patterns remains highly uncertain. The Company expects customer demand to be suppressed in the near term. In addition, it is possible that there will be an increase in the number of COVID-19 cases in the future, which could require the Company’s stores to close again and negatively impact the Company’s sales.
As the COVID-19 pandemic is complex and rapidly evolving, the Company’s plans as described above may change. The Company expects that the ongoing impact of the COVID-19 pandemic and the resulting economic disruption may have a material adverse effect on its consolidated results of operations, financial position, and cash flows beyond fiscal year 2020.
USE OF ESTIMATES
The Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. Significant areas requiring the use of estimates relate primarily to revenue recognition, allowanceallowances for bad debts, returns sales allowances and customer chargebacks, inventory write-downs, valuation of intangibles and long-lived assets, goodwill,reserves, litigation reserves and valuation of deferred income taxes. Actual results could differ materially from those estimates.
BUSINESS SEGMENT INFORMATION
The Company’s operations and segments are organized along its distribution channels and consist of the following: Domestic Wholesale, International Wholesale, and Direct-to-Consumer. Information regarding these segments is summarized in Note 13 – Segment and Geographic Information.
REVENUE RECOGNITION
The Company derives income from the sale of footwear and apparel and royalties earned from licensing the Skechers brand. The Company recognizes sales revenue, net of estimated returns and excluding sales and value added taxes. Revenue is recognized at point of sale or upon shipment, the point in time where control transfers to the customer.
For North America, goods are shipped free on board (“FOB”) shipping point directly from the Company’s U.S. distribution center. For international wholesale customers, product is shipped FOB shipping point: (i) directly from the Company’s European distribution center; (ii) to third-party distribution centers in Central America, South America and Asia; or (iii) directly from third-party manufacturers to other international customers. For distributor sales, product is generally delivered directly from independent factories to third-party distribution centers or to distributors’ freight forwarders on a free named carrier basis. Wholesale sales are recognized upon shipment. Related costs paid to third-party shipping companies are recorded as cost of sales and are accounted for as a
fulfillment cost. Direct-to-consumer revenues are primarily generated from sales torecognized at the point of sale for transactions with customers at the Company’s retail stores and recognized at the point of sale andupon shipment for sales made through its websites recognized upon shipment.websites.
Sales are reduced by an estimate of customer merchandise returns, which is calculated based on historical experience. The Company reserves for potential disputed amounts or chargebacks from its customers. The Company’s chargeback reserve is based on a collectability percentage calculated using factors such as historical trends, current economic conditions and nature of the chargeback.
The Company earns royalty income from symbolic licensing arrangements in which third parties sell product with the Company’s brand. Upon signing a new licensing agreement, the Company receives up-front fees, which are generally characterized as prepaid royalties. These fees are initially deferred and recognized as revenue is earned (i.e., asbased on sales of licensed sales are reported toproduct when the Company orexpects royalties to exceed the minimum guarantee. For those arrangements in which the Company does not expect royalties to exceed the minimum guarantee, an estimate of the royalties expected to be recouped is recognized on a straight-line basis over the term of the agreement). The Company applies the sales-based royalty exception for the royalty income based on sales and recognizes revenue only when subsequent sales occur. The Company calculates and accrues estimated royalties based on individual agreement terms and correspondence with its licensees regarding actual sales.license term.
ALLOWANCE FOR BAD DEBTS RETURNS, SALES ALLOWANCES AND CUSTOMER CHARGEBACKS
The Company provides a reserve charged against revenue and its receivables, for estimated losses that may result from its customers’ inability to pay. To minimize the likelihood of uncollectibility, customers’ credit-worthiness is reviewed and adjusted periodically in accordance with external credit reporting services, financial statements issued by the customer and the Company’s experience with the customer’s account. The Company determines the amount of the reserve by analyzing known uncollectible accounts, aged receivables, economic conditions in the customers’ countries or industries, historical losses and its customers’ credit-worthiness. Amounts later determined and specifically identified to be uncollectible are charged against this reserve. Allowances for bad debts are recorded to general and administrative expenses. Direct-to-consumer receivables represent amounts due from credit card companies and are generally collected within a few days of the purchase. The Company typically extends credit terms to its wholesale customers based on their creditworthiness and generally does not receive advance payments. Generally, wholesale customers do not have the right to return goods, however, the Company periodically decides to accept returns or provide customers with credits.
Sales and cost of sales are reduced by an estimate of customer merchandise returns, which is calculated based on historical experience. The Company also reserves for potential disputed amounts or chargebacks from its customers. The Company’s chargeback reserve is based on a collectability percentage calculated using factors such as historical trends, current economic conditions and nature of the chargeback.
WAREHOUSE AND DISTRIBUTION COSTS
The Company’s distribution network-related costs are included in general and administrative expenses. Distribution expenses, including the functions of purchasing, receiving, inspecting, allocating, surface transportation, warehousing and packaging product totaled $538.7 million, $376.5 million and $315.8 million $276.4 millionfor 2022, 2021 and $249.6 million for 2020, 2019 and 2018.2020.
PRODUCT DESIGN AND DEVELOPMENT COSTS
The Company charges product design and development costs to general and administrative expenses. Aggregate product design and development costs were approximately $17.9$28.1 million, $16.8$24.6 million, and $18.5$17.9 million during the years ended December 31, 2020, 20192022, 2021 and 2018.2020.
ADVERTISING
Advertising costs are expensed in the period in which an advertisement first runs, or over the life of an endorsement contract. Advertising expense for the years ended December 31, 2020, 20192022, 2021 and 20182020 was approximately $248.7$473.7 million, $297.1$375.0 million and $278.4$248.7 million. Prepaid advertising costs were $3.8$17.2 million and $6.4$9.7 million at December 31, 20202022 and 2019.2021. Prepaid amounts represent the unamortized portion of endorsement contracts, advertising in trade publications and media productions created, but not run.
INCOME TAXES
The Company recognizes deferred tax liabilities for taxable temporary differences and deferred tax assets for deductible temporary differences and operating loss carry‑forwards using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit or expense is recognized as a result of changes in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all of any deferred tax assets will not be realized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include deposits with initial terms of less than three months. For purposes of the consolidated statements of cash flows, the Company considers allshort-term investments, which are highly liquid debt instrumentsinvestments with original maturities of three months or less to be cash equivalents.when purchased.
INVESTMENTS
Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments.
INVENTORY
Inventory principally finished goods, is stated at the lower of cost (based on the first-in, first-out method) or net realizable value. Cost of product includes shipping and handling fees and product cost, which are subsequently expensed to cost of sales.fees. The Company provides for estimatedestimates losses from obsolete or slow-moving inventory and writes downreserves the cost of inventory at the time such determinations are made. ReservesExpense associated with inventory reserves is recognized in cost of sales.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided using the straight-line method over the estimated based on inventory on hand, historical sales activity, industry trends,useful lives of the retail environment,assets. The Company reviews stores for impairment annually or when facts and circumstances indicate that the expected net realizable value.carrying values may be impaired. The net realizable value is determined usingCompany did not record material impairment charges during the years ended December 31, 2022, 2021 or 2020. The principal estimated sales prices of similar inventory through off-price or discount store channels.useful lives are as follows:
BUSINESS COMBINATIONS
Buildings | 20 to 40 years | |
Building improvements | 10 to 20 years | |
Furniture, fixtures and equipment | 5 to 20 years | |
Leasehold improvements | Shorter of useful life or remaining lease term |
GOODWILL
Business acquisitions are accounted for under the acquisition method by assigning the purchase price to tangible and intangible assets acquired and liabilities assumed. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Purchased intangible assets with finite lives are amortized over their estimated useful lives. The purchase price allocation is subject to adjustment until the Company has completed its analysis within the measurement period.
In the first quarter of 2019, we purchased the minority interest in our India joint-venture for $82.9 million, which made our India joint-venture entity a wholly-owned subsidiary.
On April 1, 2019, the Company purchased a 60% interest in Manhattan SKMX, S. de R.L. de C.V. (“Skechers Mexico”), for total cash consideration of $120.6 million, net of cash acquired. Skechers Mexico is a joint venture operating and generating sales in Mexico. As a result of this purchase, Skechers Mexico became a majority-owned subsidiary and its results are consolidated in the consolidated financial statements beginning April 1, 2019. The Company completed its purchase price allocation during the first quarter of 2020. The total purchase consideration was allocated to the assets acquired of $248.7 million and liabilities assumed of $47.3 million based on their estimated fair values. The change to the provisional amounts resulted in a $22.1 million increase to goodwill, a $49.1 million increase to intangible assets and a $17.1 million increase to deferred tax liabilities. Additionally, the change to the provisional amounts resulted in a $13.9 million gain on reacquired rights and an increase in amortization expense and accumulated amortization of $7.0 million, of which $5.2 million relates to the prior year and an $8.0 million increase in inventory, of which $6.0 million relates to the prior year. The prior year amounts were not material to amortization expense or cost of sales within the consolidated statements of earnings for the year ended December 31, 2019. Acquisition-related costs of $0.9 million, associated with the acquisition, were expensed as incurred and included in general and administrative expenses in the condensed consolidated statement of earnings. The pro forma and actual results of operations for this acquisition have not been presented because they are not material.
GOODWILL
As of December 31, 2020,2022, and December 31, 2021, the Company had $93.5 million of goodwill with $91.9 million allocated to Internationalincluded in the Wholesale and $1.6 million to Domestic Wholesale.segment. Goodwill is not amortized but is tested at least annually in the fourth quarter for impairment or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
INTANGIBLE ASSETS
TheWithin other assets, net, the Company has amortizable intangible assets consisting of reacquired rights with a gross carrying value of $49.1 million and accumulated amortization of $12.1$25.9 million and $19.0 million as of December 31, 2020.2022 and 2021. Purchased intangible assets with finite lives are amortized over their estimated useful lives. In addition to purchase price adjustments, amortizationAmortization expense related to amortizable intangible assets was $6.9 million for the yearboth years ended December 31, 2020.2022 and 2021. Future amortization expense related to amortizable intangible assets will be approximately $6.9 million per year for the each of the years 20212023 through 2025.2025, $1.9 million for 2026, $0.3 million for 2027, and $0.4 million thereafter. The weighted-average amortization period for amortizable reacquired rights is 7 years.
NONCONTROLLING INTERESTS
The Company has equity interests inestablished several joint ventures that were established either to exclusively distribute the Company’s products throughout Mexico, Asia and the Middle East or to construct the Company’s domestic distribution facility. These joint ventures are variable interest entities (“VIE”), and the Company is considered the primary beneficiary. This determination is based on the relationships between the Company and the VIE, including management agreements, governance documents and other contractual arrangements. Specifically, the Company has both of the following characteristics: (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance; and (b) the obligation to absorb losses of the entity that could potentially be significant to the VIE, or the right to receive benefits from the entity that could potentially be significant to the VIE. The assets and liabilities and results of operations of these entities are included in the Company’s consolidated financial statements, even though the Company may not hold a majority equity interest.
In March 2021, the minority interest related to the Hong Kong joint venture was purchased for $10.0 million. The change in the Company’s ownership of the Hong Kong entity continues to be included in the Company’s consolidated financial statements. There have been no changes during 20202022 in the accounting treatment or characterization of any previously identified VIE.VIEs. The Company continues to reassess these relationships quarterly.based on events and circumstances. The assets of these joint ventures are restricted, as they are not available for general business use outside the context of such joint ventures. The holders of the liabilities of each joint venture have no recourse to the Company.
FOREIGN CURRENCY TRANSLATION
The Company’s reporting currency is the U.S. dollar. Certain international operations use the respective local currency as their functional currency, while others use the U.S. dollar as their functional currency. Translation adjustments for subsidiaries with non-U.S. dollar functional currencies are included in other comprehensive income. Foreign currency transaction gains (losses), resulting from exchange rate fluctuations, on transactions denominated in a currency other than the functional currency are reported in earnings. Assets and liabilities of subsidiaries with non-U.S. dollar functional currencies are translated at the balance sheet date exchange rate. Net income (loss)earnings and cash flow items are translated at the weighted-average exchange rates during the period. Translations of intercompany loans of a long-term investment nature are included as a component of translation adjustment in other comprehensive income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value hierarchy as defined by applicable accounting standards prioritizes the use of inputs used in valuation techniques into the following three levels:
| • | Level 1: Quoted market prices in active markets for identical assets or liabilities. |
| • | Level 2: Other observable market-based inputs or unobservable inputs that are corroborated by market data. |
| • | Level 3: Unobservable inputs that cannot be corroborated by market data that reflect the reporting entity’s own assumptions. |
The Company’s Level 1 investments primarily include money market funds and U.S. Treasury securities; Level 2 investments primarily include corporate notes and bonds, asset-backed securities, U.S. Agency securities, and actively traded mutual funds; and the Company does not currently have any Level 3 assets or liabilities. The Company has 1one Level 2 derivative instrument which is an interest rate swap related to the refinancing of its U.S. distribution center (see Note 6 – Financial Commitments) classified as other long-term liabilities.assets, net at both December 31, 2022 and 2021. The fair value of the interest rate swap was determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipt was based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. Credit valuation adjustments were incorporated to appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.
The carrying amount of receivables, payables and other amounts arising out of the normal course of business approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s short-term and long-term borrowings, which are considered Level 2 liabilities, approximates fair value based on current rates and terms available to the Company for similar debt.
DERIVATIVE INSTRUMENTS
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, the Company uses an interest rate swap as part of its interest rate risk management strategy. The Company’s interest rate swap, designated as a cash flow hedge, involves the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. By utilizing an interest rate swap, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of December 31, 2020,2022, all counterparties to the interest rate swap had performed in accordance with their contractual obligations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument,” (“ASU 2016-13”) which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments; including, trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses. The Company adopted ASU 2016-03 on January 1, 2020, and the adoption of this ASU did not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”) which modifies the disclosure requirements on fair value measurements, including the consideration of costs and benefits. The Company adopted ASU 2018-13 on January 1, 2020, and the adoption of this ASU did not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15 Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, (“ASU 2018-15”). ASU 2018-15 requires that issuers follow the internal-use software guidance in ASC 350-40 to determine which costs to capitalize as assets or expense as incurred. The guidance in ASC 350-40 requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as they are incurred. The Company adopted ASU 2018-15 on January 1, 2020, and the adoption of this ASU did not have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general income tax accounting methodology including an exception for the recognition of a deferred tax liability when a foreign subsidiary becomes an equity method investment and an exception for interim periods showing operating losses in excess of anticipated operating losses for the year. The amendment also reduces the complexity surrounding franchise tax recognition; the step up in the tax basis of goodwill in conjunction with business combinations; and the accounting for the effect of changes in tax laws enacted during interim periods. The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended and supplemented by subsequent ASUs (collectively, “ASU 2020-04” and “ASU 2022-06”), which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for borrowing instruments, which use LIBOR as a reference rate, and is effective immediately, but is only available through December 31, 2022.2024. The Company has evaluated this ASU and does not expect theits adoption of this ASU to have a material impact on its consolidated financial statements.
(2) |
|
The following tables show the Company’s cash, cash equivalents, short-term and long-term investments by significant investment category:
|
| As of December 31, 2020 |
|
| As of December 31, 2022 |
| ||||||||||||||||||||||||||||||||||
(in thousands) |
| Adjusted Cost |
|
| Fair Value |
|
| Cash and Cash Equivalents |
|
| Short-Term Investments |
|
| Long-Term Investments |
|
| Adjusted Cost |
|
| Fair Value |
|
| Cash and Cash Equivalents |
|
| Short-Term Investments |
|
| Long-Term Investments |
| ||||||||||
Cash |
| $ | 946,961 |
|
| $ | 946,961 |
|
| $ | 946,961 |
|
| $ | — |
|
| $ | — |
|
| $ | 539,730 |
|
| $ | 539,730 |
|
| $ | 539,730 |
|
| $ | — |
|
| $ | — |
|
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Money market funds |
|
| 423,865 |
|
|
| 423,865 |
|
|
| 423,865 |
|
|
| — |
|
|
| — |
|
|
| 71,503 |
|
|
| 71,503 |
|
|
| 71,503 |
|
|
| — |
|
|
| — |
|
U.S. Treasury securities |
|
| 21,146 |
|
|
| 21,146 |
|
|
| — |
|
|
| 8,067 |
|
|
| 13,079 |
|
|
| 18,201 |
|
|
| 18,201 |
|
|
| 2,000 |
|
|
| 16,201 |
|
|
| — |
|
Total level 1 |
|
| 445,011 |
|
|
| 445,011 |
|
|
| 423,865 |
|
|
| 8,067 |
|
|
| 13,079 |
|
|
| 89,704 |
|
|
| 89,704 |
|
|
| 73,503 |
|
|
| 16,201 |
|
|
| — |
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Corporate notes and bonds |
|
| 117,253 |
|
|
| 117,253 |
|
|
| — |
|
|
| 83,521 |
|
|
| 33,732 |
|
|
| 101,959 |
|
|
| 101,959 |
|
|
| 2,500 |
|
|
| 85,731 |
|
|
| 13,728 |
|
Asset-backed securities |
|
| 28,253 |
|
|
| 28,253 |
|
|
| — |
|
|
| 5,498 |
|
|
| 22,755 |
|
|
| 4,641 |
|
|
| 4,641 |
|
|
| — |
|
|
| 234 |
|
|
| 4,407 |
|
U.S. Agency securities |
|
| 3,681 |
|
|
| 3,681 |
|
|
| — |
|
|
| 3,681 |
|
|
| — |
| ||||||||||||||||||||
Mutual funds |
|
| 38,846 |
|
|
| 38,846 |
|
|
| — |
|
|
| — |
|
|
| 38,846 |
|
| N/A |
|
|
| 5,893 |
|
|
| — |
|
|
| — |
|
|
| 5,893 |
| |
Total level 2 |
|
| 188,033 |
|
|
| 188,033 |
|
|
| — |
|
|
| 92,700 |
|
|
| 95,333 |
|
|
| 106,600 |
|
|
| 112,493 |
|
|
| 2,500 |
|
|
| 85,965 |
|
|
| 24,028 |
|
TOTAL |
| $ | 1,580,005 |
|
| $ | 1,580,005 |
|
| $ | 1,370,826 |
|
| $ | 100,767 |
|
| $ | 108,412 |
| ||||||||||||||||||||
Total |
| $ | 736,034 |
|
| $ | 741,927 |
|
| $ | 615,733 |
|
| $ | 102,166 |
|
| $ | 24,028 |
|
|
| As of December 31, 2019 |
|
| As of December 31, 2021 |
| ||||||||||||||||||||||||||||||||||
(in thousands) |
| Adjusted Cost |
|
| Fair Value |
|
| Cash and Cash Equivalents |
|
| Short-Term Investments |
|
| Long-Term Investments |
|
| Adjusted Cost |
|
| Fair Value |
|
| Cash and Cash Equivalents |
|
| Short-Term Investments |
|
| Long-Term Investments |
| ||||||||||
Cash |
| $ | 662,355 |
|
| $ | 662,355 |
|
| $ | 662,355 |
|
| $ | — |
|
| $ | — |
|
| $ | 664,220 |
|
| $ | 664,220 |
|
| $ | 664,220 |
|
| $ | — |
|
| $ | — |
|
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Money market funds |
|
| 162,521 |
|
|
| 162,521 |
|
|
| 162,521 |
|
|
| — |
|
|
| — |
|
|
| 132,063 |
|
|
| 132,063 |
|
|
| 132,063 |
|
|
| — |
|
|
| — |
|
U.S. Treasury securities |
|
| 9,686 |
|
|
| 9,686 |
|
|
| — |
|
|
| 1,679 |
|
|
| 8,007 |
|
|
| 25,437 |
|
|
| 25,437 |
|
|
| — |
|
|
| 8,896 |
|
|
| 16,541 |
|
Total level 1 |
|
| 172,207 |
|
|
| 172,207 |
|
|
| 162,521 |
|
|
| 1,679 |
|
|
| 8,007 |
|
|
| 157,500 |
|
|
| 157,500 |
|
|
| 132,063 |
|
|
| 8,896 |
|
|
| 16,541 |
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Corporate notes and bonds |
|
| 132,431 |
|
|
| 132,431 |
|
|
| — |
|
|
| 104,130 |
|
|
| 28,301 |
|
|
| 148,373 |
|
|
| 148,373 |
|
|
| — |
|
|
| 84,783 |
|
|
| 63,590 |
|
Asset-backed securities |
|
| 23,614 |
|
|
| 23,614 |
|
|
| — |
|
|
| 263 |
|
|
| 23,351 |
|
|
| 17,180 |
|
|
| 17,180 |
|
|
| — |
|
|
| 4,901 |
|
|
| 12,279 |
|
U.S. Agency securities |
|
| 12,352 |
|
|
| 12,352 |
|
|
| — |
|
|
| 5,965 |
|
|
| 6,387 |
| ||||||||||||||||||||
Mutual funds |
|
| 28,543 |
|
|
| 28,543 |
|
|
| — |
|
|
| — |
|
|
| 28,543 |
|
| N/A |
|
|
| 4,301 |
|
|
| — |
|
|
| — |
|
|
| 4,301 |
| |
Total level 2 |
|
| 196,940 |
|
|
| 196,940 |
|
|
| - |
|
|
| 110,358 |
|
|
| 86,582 |
|
|
| 165,553 |
|
|
| 169,854 |
|
|
| — |
|
|
| 89,684 |
|
|
| 80,170 |
|
TOTAL |
| $ | 1,031,502 |
|
| $ | 1,031,502 |
|
| $ | 824,876 |
|
| $ | 112,037 |
|
| $ | 94,589 |
| ||||||||||||||||||||
Total |
| $ | 987,273 |
|
| $ | 991,574 |
|
| $ | 796,283 |
|
| $ | 98,580 |
|
| $ | 96,711 |
|
The Company’s investments consist of U.S. Treasury securities, corporate notes and bonds, asset-backed securities and U.S. Agencyasset-backed securities, which the Company has the intent and ability to hold to maturity and therefore are classified as held-to-maturity. The Company holds mutual funds in its deferred compensation plan which are classified as trading securities.
less than two years. The Company minimizes the potential risk of principal loss by investing in highly-rated securities and limiting the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio. Included in long-term investments are company owned life insurance contracts of $46.5 million and $48.9 million as of December 31, 2022, and December 31, 2021. Interest income was $6.0 million, $3.3 million, and $5.9 million for the years ended December 31, 2022, 2021 and 2020.
When evaluating an investment for its current expected credit losses, the Company reviews factors such as historical experience with defaults, losses, credit ratings, term market sector and macroeconomic trends, including current conditions and forecasts to the extent they are reasonable and supportable.
(3) |
|
The Company regularly enters into non-cancellable operating leases for retail stores, distribution facilities, offices, showrooms and automobiles. Retail stores typically have initial terms ranging from 5 to 10 years and other real estate or facility leases may have initial lease terms of up to 20 years. In connection with the adoption of ASC 842, Leases, beginning with the first quarter of 2019, theThe Company’s leases are recorded as operating lease right-of-use (“ROU”) assets and operating leases liabilities. Operating lease liabilities are recognized based on the present value of the fixed portion of lease payments over the lease term at the commencement date. Net present value is calculated using an incremental borrowing rate based on a combination of market-based factors, such as market quoted forward yield curves and Company specific factors, such as lease size and duration. Many of the Company’s real estate leases include options to extend and are included in the lease obligations when considered reasonably certain. ROU assets are recognized based on operating lease liabilities reduced by lease incentives and initial direct costs incurred. Fixed lease cost is recognized on a straight-line basis over the lease term.
The Company’s real estate leases may also require additional payments for percentage rent, real estate taxes, or other occupancy-related costs. Percentage rent, a variable cost, is recognized in the consolidated financial statements when incurred and is based on the specific terms in the lease agreement. Real estate taxes and other occupancy-related costs are non-lease components.
Operating lease cost and other information:
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| ||||
Fixed lease cost |
| $ | 266,105 |
|
| $ | 246,296 |
|
| $ | 307,265 |
|
| $ | 290,509 |
|
Variable lease cost |
|
| 3,455 |
|
|
| 13,104 |
|
|
| 10,803 |
|
|
| 5,354 |
|
Operating cash flows used for leases |
|
| 257,775 |
|
|
| 264,424 |
|
|
| 303,721 |
|
|
| 286,411 |
|
ROU assets exchanged for lease liabilities upon adoption of ASC 842 |
|
| — |
|
|
| 1,035,062 |
| ||||||||
ROU assets exchanged for lease liabilities |
|
| 318,713 |
|
|
| 122,078 |
| ||||||||
Weighted-average remaining lease term |
| 4.31 years |
|
| 4.66 years |
|
| 5.52 years |
|
| 5.95 years |
| ||||
Weighted-average discount rate |
|
| 3.67 | % |
|
| 4.20 | % |
|
| 3.12 | % |
|
| 3.07 | % |
The following table presents future lease payments as of December 31, 2020:2022:
Year (in thousands) |
| Operating Leases |
|
| Operating Leases |
| ||
2021 |
| $ | 254,674 |
| ||||
2022 |
|
| 226,841 |
| ||||
2023 |
|
| 202,515 |
|
| $ | 283,449 |
|
2024 |
|
| 186,135 |
|
|
| 261,098 |
|
2025 |
|
| 167,501 |
|
|
| 232,949 |
|
2026 |
|
| 191,370 |
| ||||
2027 |
|
| 158,529 |
| ||||
Thereafter |
|
| 400,261 |
|
|
| 329,775 |
|
Total lease payments |
| $ | 1,437,927 |
|
|
| 1,457,170 |
|
Less: Imputed interest |
|
| (168,488 | ) |
|
| (154,804 | ) |
Operating lease liabilities |
| $ | 1,269,439 |
|
| $ | 1,302,366 |
|
As of December 31, 2020,2022, the Company has operating leases, primarily for new retail stores, that have not yet commenced which will generate additional ROU assets of $14.9 million. Rent expense for the year ended 2018 was $257.6 $35.0 million.
(4) |
|
Property, plant and equipment is summarized as follows:
|
| As of December 31, |
|
| As of December 31, |
| ||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| ||||
Land |
| $ | 95,712 |
|
| $ | 90,862 |
|
| $ | 122,433 |
|
| $ | 111,212 |
|
Buildings and improvements |
|
| 531,059 |
|
|
| 349,066 |
|
|
| 634,683 |
|
|
| 658,910 |
|
Furniture, fixtures and equipment |
|
| 485,349 |
|
|
| 454,837 |
|
|
| 803,043 |
|
|
| 584,059 |
|
Leasehold improvements |
|
| 506,459 |
|
|
| 453,805 |
|
|
| 612,610 |
|
|
| 497,646 |
|
Total property, plant and equipment |
|
| 1,618,579 |
|
|
| 1,348,570 |
|
|
| 2,172,769 |
|
|
| 1,851,827 |
|
Less accumulated depreciation and amortization |
|
| 683,138 |
|
|
| 609,645 |
|
|
| 827,399 |
|
|
| 722,918 |
|
Property, plant and equipment, net |
| $ | 935,441 |
|
| $ | 738,925 |
|
| $ | 1,345,370 |
|
| $ | 1,128,909 |
|
Depreciation expense was $131.3 million, $122.2 million and $115.5 million for the yearyears ended December 31, 2022, 2021 and 2020 was $115.5 million as calculated using the straight-line method, which is based on the following estimated useful lives:
method.
|
| |
|
| |
|
| |
|
|
The Company reviews all stores for impairment annually or when facts and circumstances indicate that the carrying values may be impaired. The Company performs an evaluation of recoverability by comparing the carrying values of the net assets to their related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses. The Company did not record material impairment charges during the years ended December 31, 2020, 2019 or 2018.
(5) |
|
Accrued expenses at December 31, 20202022 and 20192021 are summarized as follows:
|
| As of December 31, |
|
| As of December 31, |
| ||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| ||||
Accrued payroll, taxes, and other |
| $ | 104,004 |
|
| $ | 92,264 |
|
| $ | 143,664 |
|
| $ | 143,295 |
|
Return reserve liability |
|
| 77,219 |
|
|
| 69,048 |
|
|
| 60,482 |
|
|
| 68,944 |
|
Accrued inventory purchases |
|
| 27,489 |
|
|
| 48,923 |
|
|
| 89,997 |
|
|
| 53,181 |
|
Accrued expenses |
| $ | 208,712 |
|
| $ | 210,235 |
|
| $ | 294,143 |
|
| $ | 265,420 |
|
(6) |
|
The Company had $38.7$2.7 million and $3.8$17.2 million of outstanding letters of credit as of December 31, 20202022 and December 31, 2019,2021, and approximately $3.3$19.6 million and $5.8$1.2 million in short-term borrowings as of December 31, 20202022 and December 31, 2019.2021. Interest expense for the years ended December 31, 2022, 2021 and 2020 was $19.7 million, $14.9 million and $16.3 million.
Long-term borrowings were as follows:
|
| As of December 31, |
|
| As of December 31, |
| ||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
|
| 2022 |
|
|
| 2021 |
| ||
Revolving Credit Facility |
| $ | 452,500 |
|
| $ | — |
| ||||||||
HF-T1 Distribution Center Loan |
|
| 129,505 |
|
|
| 63,692 |
|
| $ | 129,505 |
|
| $ | 129,505 |
|
HF-T2 Distribution Center Construction Loan |
|
| 22,169 |
|
|
| — |
|
|
| 72,098 |
|
|
| 57,227 |
|
China Distribution Center Construction Loan |
|
| 77,501 |
|
|
| 48,791 |
|
|
| 41,329 |
|
|
| 75,621 |
|
China Distribution Center Expansion Construction Loan |
|
| 14,507 |
|
|
| — |
| ||||||||
China Operational Loans |
|
| 48,743 |
|
|
| 2,541 |
|
|
| 54,361 |
|
|
| 69,796 |
|
Other |
|
| 1,247 |
|
|
| 393 |
|
|
| 7,872 |
|
|
| 8,263 |
|
Subtotal |
|
| 731,665 |
|
|
| 115,417 |
|
|
| 319,672 |
|
|
| 340,412 |
|
Less: Current installments |
|
| (52,250 | ) |
|
| (66,234 | ) |
|
| 103,184 |
|
|
| 76,967 |
|
Total long-term borrowings |
| $ | 679,415 |
|
| $ | 49,183 |
|
| $ | 216,488 |
|
| $ | 263,445 |
|
Revolving Credit Facility
The Company maintains a revolving credit facility to manage liquidity; including working capital and capital expenditures. On November 21, 2019,December 15, 2021, the Company entered into aamended its $500.0 million senior, unsecured revolving credit facility, which matures onagreement dated November 21, 20242019 (the “2019“Amended Credit Agreement”), with Bank of America, N.A., as administrative agent and joint lead arranger,
HSBC Bank USA, N.A. and JPMorgan Chase Bank, N.A., as joint lead arrangers, and other lenders. The 2019Amended Credit Agreement expands its senior, unsecured credit facility to $750.0 million, which may be increased by up to $250.0 million under certain conditions and provides for the issuance of letters of credit up to a maximum of $100.0 million and swingline loans up to a maximum of $100.0 million and $25.0$50.0 million. The Amended Credit Agreement extends the maturity date of the credit agreement, which was due to expire on November 21, 2024, to December 15, 2026. The Company may use the proceeds from the 2019Amended Credit Agreement for working capital and other lawful corporate purposes. Borrowings on the 2019Amended Credit Agreement’s revolving credit facility and letters of credit bear interest, at the Company’s option, at a rate equal to (a) LIBORTerm SOFR plus an applicable margin between 1.125%1.000% and 1.625%1.500% based upon the Company’s Total Adjusted Net Leverage Ratio (as defined in the 2019Amended Credit Agreement) or (b) a base rate (defined as the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the Bank of America prime rate, (iii) Term SOFR plus 1.00%, and (iii) LIBOR plus(iv) 1.00%) plus an applicable margin between 0.125%0% and 0.625%0.500% based upon the Company’s Total Adjusted Net Leverage Ratio. The weighted-average annual interest rate on borrowings under the 2019 Credit Agreementrevolving credit facility was approximately 1.53%3.21% during the year ended December 31, 2020.2022. The 2019Amended Credit Agreement contains certain customary affirmative and negative covenants and events of default for credit facilities of this type.
The 2019Amended Credit Agreement requires the Company to maintain a maximum Total Adjusted Net Leverage Ratio of 3.75:1, except in the event of an acquisition in which case the ratio may be increased at the Company’s election to 4.25:1 for the quarter in which such acquisition occurs and for the next three quarters thereafter.
As of December 31, 2020,2022, there was $47.5$747.3 million available under the Company’s 2019Amended Credit Agreement. As of December 31, 2019,2021, the entire $500 millionunused credit capacity of the revolving credit facility was available, and the Company had not utilized the 2019 Credit Agreement for letters of credit.$732.8 million. The Company was in compliance with the financial covenants under the 2019Amended Credit Agreement as of December 31, 2020.2022.
HF-T1 Distribution Center Loan
On August 11, 2015,To finance construction and improvements to the Company’s North American distribution center, the Company’s joint venture with HF Logistics I, LLC (“HF”), HF Logistics-SKX, LLC (the “JV”), through a wholly-owned subsidiary of the JV (“HF-T1”), entered into an amended and restated construction loan agreement with Bank of America, N.A., as administrative agent and as a lender, and CIT Bank, N.A. and Raymond James Bank, N.A., as lenders (collectively, the “Amended Construction Loan Agreement”). Under the Amended Construction Loan Agreement, the parties agreed that the lenders would loan $70 million to HF-T1 (the “2015 Loan”) at an interest rate per annum of LIBOR Daily Floating Rate (as defined therein) plus a margin of 2%. On March 18, 2020, HF-T1 entered into an amendment to the 2015 Loan (the “2020 Amendment”) that increased the borrowings under the 2015 Loan to $129.5 million and extended the maturity date of the 2015 Loan to March 18, 2025 (the “HF-T1 2020 Loan”). The proceeds of the 2020 Amendment were used by the JV to (i) refinance all amounts owed on the 2015 Loan, (ii) pay $1.0 million in accrued interest, loan fees and other closing costs associated with the 2020 Amendment and (iii) make a distribution of $64.4 million to HF. Pursuant to the 2020 Amendment, the interest rate per annum on the HF-T1 2020 Loan is the LIBOR Daily Floating Rate (as defined therein) plus a margin of 1.75%.
On August 11, 2015, HF-T1 and Bank of America, N.A. also entered into an ISDA master agreement (together with the schedule related thereto, the “Swap Agreement”) with Bank of America, N.A. to govern derivative and/or hedging transactions that HF-T1 concurrently entered into with Bank of America, N.A. The Company’s objective in using the Swap Agreement is to stabilize interest expense and manage exposure to interest rate volatility. Pursuant to the Swap Agreement, on August 14, 2015, HF-T1 entered into a confirmation of swap transactions (the “Interest Rate Swap”) with Bank of America, N.A. The Interest Rate Swap had an effective date of August 12, 2015 and a maturity date of August 12, 2022, subject to early termination at the option of HF-T1, commencing on August 1, 2020. On March 18, 2020, HF-T1 and Bank of America, N.A. executed an amendment to the Swap Agreementas amended (the “Swap Agreement Amendment”) to extend theon March 18, 2020 with Bank of America, N.A with a maturity date of the Interest Rate Swap to March 18, 2025.2025. The Swap Agreement Amendment fixes the effective interest rate on the HF-T1 2020 Loan at 2.55%2.55% per annum. The HF-T1 2020 AmendmentLoan and the Swap Agreement Amendment are subject to customary covenants and events of default. Bank of America, N.A. also acts as a lender and syndication agent under the Company’s 2019 Credit Agreement.revolving credit facility.
The Interest Rate Swap involves the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of December 31, 2020,2022, the Interest Rate Swap had an aggregate notional amount of $129.5 million. Under the terms of the Swap Agreement Amendment, the Company will pay a weighted-average fixed rate of 0.795% on the notional amount and receive payments from the counterparty based on the 30-day LIBOR rate, effectively modifying the Company’s exposure to interest rate risk by converting floating-rate debt to a fixed rate of 4.08%. By using a derivative instrument, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of December 31, 2020, all counterparties to the Interest Rate Swap had performed in accordance with their contractual obligations.
HF-T2 Distribution Center Construction Loan
On April 3, 2020, the JV, through HF Logistics-SKX T2, LLC, a wholly-owned subsidiary of the JV (“HF-T2”), entered into a construction loan agreement with Bank of America, N.A. as administrative agent and lender (collectively, the “2020 Construction Loan Agreement”), pursuant to which the JV obtained a loan of up to $73.0 million used to expand the U.S.North American distribution center (the “HF-T2 2020 Construction Loan”). Under the 2020 Construction Loan Agreement, the interest rate per annum on the HF-T2 2020 Construction Loan is LIBORbased on the Bloomberg Short-Term Bank Yield Index (“BSBY”) Daily Floating Rate (as defined therein) plus a margin of 190 basis points, reducing to 175 basis points
upon substantial completion of the construction and certain other conditions being satisfied. The weighted-average annual interest rate on borrowings under the 2020 Construction Loan Agreement was approximately 2.05%4.22% during the year ended December 31, 2020. 2022. The maturity date of the HF-T2 2020 Construction Loan is April 3, 2025. The obligations of the JV under the 2020 Construction Loan Agreement are guaranteed by TGD Holdings I, LLC, which is an affiliate of HF.
China Distribution Center Construction Loan
On September 29, 2018, through its Taicang subsidiary (“TC Subsidiary”), the Company entered into a 700700.0 million yuan loan agreement with China Construction Bank Corporation (“the China DC Loan”) to finance the construction of the Company’s distribution center in China. Interest is paid quarterly. The interest rate floats and is calculated at a reference rate provided by the People’s Bank of China. The interest rate at December 31, 20202022 was 4.28%4.00% and may increase or decrease over the life of the loan, and will beis evaluated every 12 months. TheBeginning in 2021, the principal of the loan will beis repaid in semi-annual installments beginning in 2021, of variable amounts as specified in the China DC Loan.amounts. The China DC Loan contains customary affirmative and negative covenants for secured credit facilities of this type. The China DC Loan matures on September 28, 2023. The obligations of the TC Subsidiary under the China DC Loan are jointly and severally guaranteed by the Company’s ChineseChina joint venture. As of December 31, 2022 and 2021, the outstanding balance under this loan included approximately $41.3 million and $28.2 million classified as current borrowings in the Company’s consolidated balance sheets.
China Distribution Center Expansion Construction Loan
On October 18, 2022, the Company entered into a loan agreement for 1.1 billion yuan with Bank of China Co., Ltd to finance the construction of its distribution center expansion in China. Interest is paid quarterly. The interest rate at December 31, 2022 was 3.4% and may increase or decrease over the life of the loan, and is evaluated every 12 months. This loan matures 10 years from the initial receipt of funds. Beginning in 2026, the principal of the loan will be repaid in semi-annual installments of variable amounts. The obligations of this loan entered through the Company’s Taicang Subsidiary are jointly and severally guaranteed by the Company’s China joint venture.
China Operational Loans
The Company has entered certain secured credit facilities to support the operations of its ChineseChina joint venture. The balance of working capital loans at December 31, 20202022 was approximately $30.1$54.4 million with interest rates ranging from 1.75%2.90% to 3.92%3.41% per annum, payable at terms agreed by the lender.The balance of working capital loans as of December 31, 2021 was approximately $52.6 million with interest rates ranging from 1.00% to 3.70% per annum. The balance of loans related to a corporate office building in Shanghai was zero as of December 31, 2022 and approximately $18.6$17.2 million as of December 31, 2021 with interest at 4.28% per annum, payable at terms agreed by the lender. There was 0 amount outstanding on these credit facilities at As of December 31, 2019.2022, the outstanding balances classified as current borrowings in the Company’s consolidated balance sheets included $54.4 million related to the working capital loans.
The following table presents the future principal payments required under the Company’s debt obligations, discussed above:
Year (in thousands) |
| Maturities |
|
| Maturities |
| ||
2021 |
| $ | 52,250 |
| ||||
2022 |
|
| 29,026 |
| ||||
2023 |
|
| 33,962 |
|
| $ | 103,184 |
|
2024 |
|
| 452,500 |
|
|
| — |
|
2025 |
|
| 163,927 |
|
|
| 201,981 |
|
2026 |
|
| 1,846 |
| ||||
2027 |
|
| 1,846 |
| ||||
Thereafter |
|
| 10,815 |
| ||||
|
| $ | 731,665 |
|
| $ | 319,672 |
|
(7) |
|
PRODUCT AND OTHER FINANCING
The Company finances production activities in part through the use of interest-bearing open purchase arrangements with certain of its international manufacturers. These arrangements currently bear interest at rates between 0.0% and 0.4% for 30- to 60-day financing. The amounts included in accounts payable and outstanding under these arrangements were $210.1$345.4 million and $214.7$337.0 million at December 31, 20202022 and 2019.2021. Interest expense incurred by the Company under these arrangements totaled $6.1 million in 2022, $6.5 million in 2021, and $7.4 million in 2020, $7.9 million in 2019, and $3.3 million in 2018.2020. The Company has open purchase commitments with its foreign manufacturers of $1.1 billion and warehouse and equipment and corporate construction contracts of $583.2$252.1 million for the expansion of its distribution centers and corporate headquarters, which are not included in the consolidated balance sheets at December 31, 2020.2022.
LITIGATION
The Company recognizes legal expense in connection with loss contingencies as incurred.
In accordance with GAAP, the Company records a liability in its consolidated financial statements for loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded. Estimates of probable losses resulting from litigation and governmental proceedings are inherently difficult to predict, particularly when the matters are in the procedural stages or with unspecified or indeterminate claims for damages, potential penalties, or fines. Accordingly, the Company cannot determine the final amount, if any, of its liability beyond the amount accrued in the consolidated financial statements as of December 31, 2020,2022, nor is it possible to estimate what litigation-related costs will be in the future; however, the Company believes that the likelihood that claims related to litigation would result in a material loss to the Company, either individually or in the aggregate, is remote. The Company recognizes legal expense in connection with loss contingencies as incurred.
(8) |
|
COMMON STOCK
The authorized capital stock of the Company consists of 500 million shares of Class A Common Stock, par value $0.001 per share (“Class A Common Stock”), 75 million shares of Class B Common Stock, par value $0.001 per share (“Class B Common Stock”), and 10 million shares of Preferred Stock, par value $0.001 per share.
The Company has two classes of issued and outstanding common stock: Class A Common Stock and Class B Common Stock. Holders of Class A Common Stock and holders of Class B Common Stock have substantially identical rights, including rights with respect to any declared dividends or distributions of cash or property, and the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness. The two classes have different voting rights, with holders of Class A Common Stock entitled to one vote per share while holders of Class B Common Stock are entitled to ten votes per share on all matters submitted to a vote of stockholders. The Company uses the two-class method for calculating net earnings per share (EPS). Basic and diluted net EPS of Class A Common Stock and Class B Common Stock are identical. The shares of Class B Common Stock are convertible at any time at the option of the holder into shares of Class A Common Stock on a share-for-share basis. In addition, shares of Class B Common Stock will be automatically converted into a like number of shares of Class A Common Stock upon transfer to any person or entity who is not a permitted transferee.
During the years ended December 31, 2020, 20192022, 2021 and 20182020 certain Class B stockholders converted 1,391,670, 1,575,509128,530, 77,562 and 561,8761,391,670 shares, respectively, of Class B Common Stock to Class A Common Stock.
SHARE REPURCHASE PROGRAM
On February 6, 2018,January 31, 2022, the Company’sCompany's Board of Directors authorized a new share repurchase program (the “Share Repurchase Program”), pursuant to which the Company couldmay, from time to time, purchase shares of its Class A Common Stock, for an aggregate repurchase price not to exceed $150.0$500 million. The Share Repurchase Program expiredexpires on February 6, 2021 at which time share repurchase authorizationsJanuary 31, 2025 and does not obligate the Company to acquire any particular amount of $20.0 million had not been executed.shares.
The following table provides a summary of the Company’s Class A Common Stockstock repurchase activities:
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
| |||||
Shares repurchased |
|
| — |
|
|
| 968,724 |
|
|
| 3,656,277 |
|
|
| 1,926,781 |
|
|
| — |
|
Average cost per share |
| $ | — |
|
| $ | 30.99 |
|
| $ | 27.34 |
|
| $ | 38.53 |
|
| $ | — |
|
Total cost of shares repurchased (in thousands): |
| $ | — |
|
| $ | 30,019 |
|
| $ | 99,977 |
| ||||||||
Total cost of shares repurchased (in thousands) |
| $ | 74,245 |
|
| $ | — |
|
INCENTIVE AWARD PLAN
As approved by the Company’s stockholders on May 23, 2017, the 2017 Incentive Award Plan (the “2017 Plan”), replaced and superseded the 2007 Incentive Award Plan adopted on May 24, 2007 (the “2007 Plan,” together with the 2017 Plan, the “Plans”). A total of 10,000,000 shares of Class A Common Stock were reserved for issuance under the 2017 Incentive Award Plan which(the “Plan”). The Plan provides for grants of ISOs, non-qualified stock options, restricted stock and various other types of equity awards as described in the planPlan to the employees, consultants and directors of the Company. The 2017 Plan is administered by the Company’s Board of Directors with respect to awards to non-employee directors and by the Company’s Compensation Committee with respect to other eligible participants.
For the year ended December 31, 2022, the Company granted restricted stock with time-based vesting as well as performance-based awards. The performance-based awards include a market condition tied to the Company’s total shareholder return in relation to its peer companies as well as a financial performance condition tied to annual EPS growth. The vesting and ultimate payout of performance awards is determined at the end of the three-year performance period and can vary from zero to 200% based on actual results. As of December 31, 2020,2022, a total of 5,737,0502,749,532 shares remain available for grant as equity awards under the 2017 Plan.Plan if target levels are achieved for performance-based awards and 2,049,532 available if maximum levels are achieved.
The Company issued the following stock-based instruments:
|
| Year Ended December 31, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||
|
| Granted |
|
| Weighted-Average Grant-Date Fair Value |
|
| Granted |
|
| Weighted-Average Grant-Date Fair Value |
|
| Granted |
|
| Weighted-Average Grant-Date Fair Value |
| ||||||
Restricted stock |
|
| 1,446,550 |
|
| $ | 38.27 |
|
|
| 1,201,600 |
|
| $ | 42.88 |
|
|
| 1,319,300 |
|
| $ | 36.42 |
|
Performance-based restricted stock |
|
| 116,250 |
|
| $ | 42.46 |
|
|
| 108,750 |
|
| $ | 38.95 |
|
|
| 125,000 |
|
| $ | 36.02 |
|
Market-based restricted stock |
|
| 116,250 |
|
| $ | 58.85 |
|
|
| 108,750 |
|
| $ | 54.34 |
|
|
| 125,000 |
|
| $ | 49.78 |
|
A summary of the status and changes of nonvestedthe Company’s unvested shares related to the PlansPlan is presented below:
|
| Shares |
|
| Weighted-Average Grant-Date Fair Value |
|
| Shares |
|
| Weighted-Average Grant-Date Fair Value |
| ||||
Unvested at January 1, 2018 |
|
| 2,303,557 |
|
|
| 26.25 |
| ||||||||
Granted |
|
| 1,811,000 |
|
|
| 38.05 |
| ||||||||
Vested/Released |
|
| (1,018,283 | ) |
|
| 21.91 |
| ||||||||
Cancelled |
|
| (127,333 | ) |
|
| 29.71 |
| ||||||||
Unvested at December 31, 2018 |
|
| 2,968,941 |
|
|
| 34.79 |
| ||||||||
Granted |
|
| 1,603,000 |
|
|
| 28.45 |
| ||||||||
Vested/Released |
|
| (1,116,868 | ) |
|
| 32.46 |
| ||||||||
Cancelled |
|
| (28,250 | ) |
|
| 39.40 |
| ||||||||
Unvested at December 31, 2019 |
|
| 3,426,823 |
|
|
| 32.55 |
| ||||||||
Unvested at January 1, 2020 |
|
| 3,426,823 |
|
|
| 32.55 |
| ||||||||
Granted |
|
| 1,569,300 |
|
|
| 37.45 |
|
|
| 1,569,300 |
|
|
| 37.45 |
|
Vested/Released |
|
| (1,093,500 | ) |
|
| 32.64 |
|
|
| (1,093,500 | ) |
|
| 32.64 |
|
Cancelled |
|
| (790,600 | ) |
|
| 32.23 |
|
|
| (790,600 | ) |
|
| 32.23 |
|
Unvested at December 31, 2020 |
|
| 3,112,023 |
|
|
| 35.06 |
|
|
| 3,112,023 |
|
|
| 35.06 |
|
Granted |
|
| 1,419,100 |
|
|
| 43.46 |
| ||||||||
Vested/Released |
|
| (1,252,108 | ) |
|
| 34.36 |
| ||||||||
Cancelled |
|
| (25,699 | ) |
|
| 39.01 |
| ||||||||
Unvested at December 31, 2021 |
|
| 3,253,316 |
|
|
| 38.97 |
| ||||||||
Granted |
|
| 1,679,050 |
|
|
| 39.98 |
| ||||||||
Vested/Released |
|
| (1,423,531 | ) |
|
| 36.13 |
| ||||||||
Cancelled |
|
| (84,933 | ) |
|
| 39.72 |
| ||||||||
Unvested at December 31, 2022 |
|
| 3,423,902 |
|
|
| 40.62 |
|
The Company determines the fair value of restricted stock awards and any performance-related components based on the closing market price of the Company’s common stock on the date of grant. For share-based awards with a performance-based vesting requirement, the Company evaluates the probability of achieving the performance criteria throughout the performance period and will adjust stock compensation expense up or down based on its estimated probable outcome. Certain performance-based awards contain market condition components which are valued on the date of grant using a Monte Carlo simulation model. The fair value of such awards is expensed ratably over the performance period and is not adjusted for actual achievement.
The Company recognized, as part of general and administrative, compensation expense of $65.2$57.3 million, $41.1$57.9 million and $30.5$62.9 million for grants under the PlansPlan for the years ended December 31, 2020, 2019,2022, 2021, and 2018.2020. Related excess income tax benefits (expenses),expenses, recorded in the consolidated statements of earnings, for the years ended December 31, 2022, 2021 and 2020, 2019 and 2018, were $(0.7)$(1.3) million, $0.3$(1.0) million, and $1.6$(0.7) million. Included in compensation expense recognized in 2020 is an $18.2 million non-cash charge related to the cancellation of 750,000 unvested shares as a result of a legal settlement. Nonvested shares generally vest over a graded vesting schedule from one to four years from the date of grant. For grants that have a service requirement, the Company accounts for forfeitures upon occurrence, rather than estimating the probability of forfeiture at the date of grant. Accordingly, the Company recognizes the full grant-date fair value of these awards on a straight-line basis throughout the requisite service period, reversing any expense if, and only if, there is a forfeiture. There was $75.6$88.7 million of unrecognized compensation cost related to nonvested common shares as of December 31, 2020,2022, which is expected to be recognized over a weighted-average period of 1.91.81 years. The total fair value of shares vested during the years ended December 31, 2022, 2021 and 2020 2019 and 2018 was $41.6$51.4 million, $36.3$43.1 million and $22.3$41.6 million.
The Company determines the fair value of restricted stock awards and any performance-related components based on the closing market price of the Company’s common stock on the date of grant. For share-based awards that have a performance-based vesting requirement, the Company evaluates the probability of achieving the performance criteria throughout the performance period and will adjust share-based compensation expense if it estimates that the achievement of the performance criteria is not probable. Certain performance-based awards contain market condition components which are valued on the date of grant using a Monte Carlo simulation model. The fair value of such awards is expensed ratably over the performance period and is not adjusted for actual achievement. Included in the table above are two tranches of performance-based awards granted on December 30, 2020 which vest at the end of a three-year performance period. The first tranche includes 125,000 shares with a market condition tied to the Company’s total shareholder return in relation to its peer companies, valued at $49.78 per share, and the second tranche includes 125,000 shares with a performance condition tied to annual EPS growth, valued at $36.02 per share. The ultimate payout of performance awards is determined at the end of the performance period and can vary from 0 to 200% based on actual results.
STOCK PURCHASE PLAN
As approved by the Company’s stockholders on May 23, 2017, the 2018 Employee Stock Purchase Plan (the “2018 ESPP”), replaced the Company’s previous employee stock purchase plan, the Skechers U.S.A., Inc. 2008 Employee Stock Purchase Plan (the “2008 ESPP”), which expired pursuant to its terms on January 1, 2018. A provides a total of 5,000,000 shares of Class A Common Stock are available for sale under the 2018 ESPP.sale. The 2018 ESPP provides eligible employees of the Company and its subsidiaries the opportunity to purchase shares of the Company’s Class A Common Stock at a purchase price equal to 85% of the fair market value on the first trading day or last trading day of each purchase period, whichever is lower. Eligible employees can invest up to 15% of their compensation through payroll deductions during each purchase period. The purchase price discount and the look-back feature cause the 2018 ESPP to be compensatory and the Company recognizes compensation expense, which is computed using the Black-Scholes valuation model.
For theyears ended December 31, 2022, 2021 and 2020, the Company recognized $2.6 million, $2.2 million, and $2.3 million of ESPP stock compensation expense. Under the 2018 ESPP, the Company received approximately $5.9$8.1 million, $6.2$7.3 million and $5.3$5.9 million, and issued 232,904, 260,630243,166, 225,665 and 221,889232,904 shares, respectively, for the years ended December 31, 2020, 20192022, 2021 and 2018.2020. As ofDecember 31, 2022, there were 3,815,746 shares available for sale under the 2018 ESPP.
(9) |
|
Basic EPS and diluted EPS are calculated by dividing net earnings by the following: for basic EPS, the weighted-average number of common shares outstanding for the period; and for diluted EPS, the sum of the weighted-average number of both outstanding common shares and potentially dilutive common shares using the treasury stock method.
The calculation of EPS is as follows:
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
(in thousands, except per share data) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
Net earnings attributable to Skechers U.S.A., Inc. |
| $ | 98,564 |
|
| $ | 346,560 |
|
| $ | 301,041 |
|
| $ | 373,028 |
|
| $ | 741,503 |
|
| $ | 98,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic |
|
| 154,184 |
|
|
| 153,392 |
|
|
| 155,815 |
|
|
| 155,627 |
|
|
| 155,539 |
|
|
| 154,184 |
|
Dilutive effect of nonvested shares |
|
| 710 |
|
|
| 759 |
|
|
| 635 |
|
|
| 981 |
|
|
| 1,255 |
|
|
| 710 |
|
Weighted-average common shares outstanding, diluted |
|
| 154,894 |
|
|
| 154,151 |
|
|
| 156,450 |
|
|
| 156,608 |
|
|
| 156,794 |
|
|
| 154,894 |
|
Anti-dilutive common shares excluded above |
|
| 69,060 |
|
|
| 10,838 |
|
|
| 352,169 |
|
|
| 37 |
|
|
| 5 |
|
|
| 69 |
|
Net earnings attributable to Skechers U.S.A., Inc. per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.64 |
|
| $ | 2.26 |
|
| $ | 1.93 |
|
| $ | 2.40 |
|
| $ | 4.77 |
|
| $ | 0.64 |
|
Diluted |
| $ | 0.64 |
|
| $ | 2.25 |
|
| $ | 1.92 |
|
| $ | 2.38 |
|
| $ | 4.73 |
|
| $ | 0.64 |
|
(10) |
|
The Company’s earnings (loss) before income tax expense consists of the following:
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
U.S. operations |
|
| (112,671 | ) |
|
| 4,999 |
|
|
| 16,597 |
|
| $ | (48,311 | ) |
| $ | 71,900 |
|
| $ | (112,671 | ) |
Foreign operations |
|
| 267,400 |
|
|
| 511,006 |
|
|
| 415,287 |
|
|
| 570,568 |
|
|
| 497,857 |
|
|
| 267,400 |
|
Earnings before income taxes |
|
| 154,729 |
|
|
| 516,005 |
|
|
| 431,884 |
|
| $ | 522,257 |
|
| $ | 569,757 |
|
| $ | 154,729 |
|
The provision for incomeIncome tax consists of the following:
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
Federal: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Current |
| $ | (30,094 | ) |
| $ | 22,899 |
|
| $ | 11,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 256 |
|
| $ | 34,288 |
|
| $ | (30,094 | ) | ||||||||||||
State |
|
| 9,564 |
|
|
| 7,268 |
|
|
| 3,841 |
| ||||||||||||
Foreign |
|
| 84,904 |
|
|
| 102,062 |
|
|
| 56,530 |
| ||||||||||||
|
|
| 94,724 |
|
|
| 143,618 |
|
|
| 30,277 |
| ||||||||||||
Deferred |
|
| (2,208 | ) |
|
| (3,583 | ) |
|
| (3,971 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Total federal |
|
| (32,302 | ) |
|
| 19,316 |
|
|
| 7,408 |
| ||||||||||||
State: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Current |
|
| 3,841 |
|
|
| 6,384 |
|
|
| 5,408 |
| ||||||||||||
Deferred |
|
| (3,070 | ) |
|
| (813 | ) |
|
| (1,316 | ) | ||||||||||||
Total state |
|
| 771 |
|
|
| 5,571 |
|
|
| 4,092 |
| ||||||||||||
Foreign: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Current |
|
| 56,530 |
|
|
| 66,656 |
|
|
| 53,071 |
| ||||||||||||
Deferred |
|
| (16,497 | ) |
|
| (2,790 | ) |
|
| (3,960 | ) | ||||||||||||
Total foreign |
|
| 40,033 |
|
|
| 63,866 |
|
|
| 49,111 |
| ||||||||||||
Total income tax expense |
| $ | 8,502 |
|
| $ | 88,753 |
|
| $ | 60,611 |
| ||||||||||||
Federal |
|
| 7,043 |
|
|
| (27,074 | ) |
|
| (2,208 | ) | ||||||||||||
State |
|
| (1,287 | ) |
|
| (4,481 | ) |
|
| (3,070 | ) | ||||||||||||
Foreign |
|
| (7,385 | ) |
|
| (357,938 | ) |
|
| (16,497 | ) | ||||||||||||
|
|
| (1,629 | ) |
|
| (389,493 | ) |
|
| (21,775 | ) | ||||||||||||
Income tax expense (benefit) |
| $ | 93,095 |
|
| $ | (245,875 | ) |
| $ | 8,502 |
|
Income taxes differ from the statutory tax rates as applied to earnings before income taxes as follows:
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
Expected income tax expense |
| $ | 32,493 |
|
| $ | 108,361 |
|
| $ | 90,696 |
|
| $ | 109,674 |
|
| $ | 119,649 |
|
| $ | 32,493 |
|
State income tax, net of federal benefit |
|
| (2,394 | ) |
|
| 1,278 |
|
|
| 3,051 |
|
|
| (1,597 | ) |
|
| (172 | ) |
|
| (2,394 | ) |
Rate differential on foreign income |
|
| (27,426 | ) |
|
| (43,327 | ) |
|
| (40,065 | ) |
|
| (49,175 | ) |
|
| (24,615 | ) |
|
| (27,426 | ) |
Change in unrecognized tax benefits |
|
| 6,084 |
|
|
| 2,739 |
|
|
| 820 |
|
|
| 12,310 |
|
|
| 11,538 |
|
|
| 6,084 |
|
Intra-entity intellectual property transfer |
|
| (3,232 | ) |
|
| (346,776 | ) |
|
| — |
| ||||||||||||
FDII deduction |
|
| — |
|
|
| (10,695 | ) |
|
| — |
| ||||||||||||
Non-deductible compensation |
|
| 7,119 |
|
|
| 7,126 |
|
|
| 6,269 |
|
|
| 13,668 |
|
|
| 8,693 |
|
|
| 7,119 |
|
Tax credits |
|
| (6,312 | ) |
|
| (3,264 | ) |
|
| (2,539 | ) |
|
| (7,544 | ) |
|
| (7,547 | ) |
|
| (6,312 | ) |
Excess tax (benefit) on stock compensation |
|
| 703 |
|
|
| (251 | ) |
|
| (1,557 | ) | ||||||||||||
Benefits provided by the CARES Act |
|
| (15,863 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Excess tax on stock compensation |
|
| 1,305 |
|
|
| 976 |
|
|
| 703 |
| ||||||||||||
Benefits provided by the Coronavirus Aid, Relief, and Economic Security Act |
|
| — |
|
|
| (905 | ) |
|
| (15,863 | ) | ||||||||||||
Non-deductible share cancellation |
|
| 4,048 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,048 |
|
U.S. transition tax |
|
| — |
|
|
| — |
|
|
| (10,963 | ) | ||||||||||||
U.S. tax on foreign earnings |
|
| — |
|
|
| 9,786 |
|
|
| 9,956 |
|
|
| 7,611 |
|
|
| — |
|
|
| — |
|
Other |
|
| (463 | ) |
|
| 3,440 |
|
|
| 2,077 |
|
|
| 217 |
|
|
| (927 | ) |
|
| (463 | ) |
Change in valuation allowance |
|
| 10,513 |
|
|
| 2,865 |
|
|
| 2,866 |
|
|
| 9,858 |
|
|
| 4,906 |
|
|
| 10,513 |
|
Income tax expense |
| $ | 8,502 |
|
| $ | 88,753 |
|
| $ | 60,611 |
| ||||||||||||
Income tax expense (benefit) |
| $ | 93,095 |
|
| $ | (245,875 | ) |
| $ | 8,502 |
| ||||||||||||
Effective tax rate |
|
| 5.5 | % |
|
| 17.2 | % |
|
| 14.0 | % |
|
| 17.8 | % |
|
| (43.2 | )% |
|
| 5.5 | % |
The Company’s provision for income tax expense (benefit) and effective income tax rate are significantly impacted by the mix of the Company’s domestic and foreign earnings (loss) before income taxes. In the non-U.S. jurisdictions in which the Company has operations, the applicable statutory rates are generally lower than in the U.S., ranging from 0.0% to 34.0%. The Company’s provision for income tax expense (benefit) was calculated using the applicable rate for each jurisdiction applied to the Company’s pre-tax earnings (loss) with application of transfer pricing considerations in each jurisdiction, while the Company’s effective tax rate is calculated by dividing income tax expense (benefit) by earnings before income taxes. For 2020,2022, the effective tax rate was lower than the U.S. federal and state combined statutory rate of approximately 25%, primarily because ofdue to tax benefits related to earnings from foreign operations in jurisdictions imposing either lower tax rates on corporate earnings or no corporate income tax. Additionally, the 2020 effective tax rate reflects the favorable impact of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted on March 27, 2020. Due to changes in the ownership structure of the Company’s international operations that took effect in December 2020, the Company realized a $15.9 million tax benefit related to the net operating loss carryback provisions of the CARES Act. The Company also received a $4.8 million reduction in payroll taxes as a result of the Employee Retention Credit provisions of the CARES Act.
The Company is subject to a tax on global intangible low-taxed income (“GILTI”). GILTI taxes foreign income in excess of a deemed return on tangible assets of foreign corporations and is treated as a period cost.
The tax effects of temporary differences giving rise to deferred tax assets and liabilities are presented below:
|
| As of December 31, |
|
| As of December 31, |
| ||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| ||||
Deferred tax assets: |
|
|
|
|
|
|
|
| ||||||||
Deferred tax assets |
|
|
|
|
|
|
|
| ||||||||
Inventory adjustments |
| $ | 5,788 |
|
| $ | 6,954 |
|
| $ | 10,810 |
|
| $ | 9,099 |
|
Accrued expenses |
|
| 59,266 |
|
|
| 50,847 |
|
|
| 92,215 |
|
|
| 76,412 |
|
Allowances for bad debts and chargebacks |
|
| 5,820 |
|
|
| 4,809 |
|
|
| 4,728 |
|
|
| 4,667 |
|
Advance payment |
|
| 6,339 |
|
|
| 27,594 |
| ||||||||
Intra-entity IP transfer |
|
| 343,106 |
|
|
| 346,776 |
| ||||||||
Section 174 Capitalized Costs |
|
| 15,721 |
|
|
| — |
| ||||||||
Loss carryforwards |
|
| 34,396 |
|
|
| 28,605 |
|
|
| 50,558 |
|
|
| 38,273 |
|
Business credit carryforward |
|
| 13,130 |
|
|
| 8,262 |
|
|
| 25,289 |
|
|
| 15,537 |
|
Share-based compensation |
|
| 5,194 |
|
|
| 4,521 |
|
|
| 7,725 |
|
|
| 6,479 |
|
Operating lease liabilities |
|
| 305,261 |
|
|
| 261,984 |
|
|
| 317,449 |
|
|
| 337,399 |
|
Valuation allowance |
|
| (43,557 | ) |
|
| (33,044 | ) |
|
| (58,321 | ) |
|
| (48,463 | ) |
Total deferred tax assets |
|
| 385,298 |
|
|
| 332,938 |
|
|
| 815,619 |
|
|
| 813,773 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
| ||||||||
Deferred tax liabilities |
|
|
|
|
|
|
|
| ||||||||
Prepaid expenses |
|
| 8,076 |
|
|
| 5,586 |
|
|
| 5,073 |
|
|
| 4,116 |
|
Right-of-use assets |
|
| 305,231 |
|
|
| 261,984 |
|
|
| 317,449 |
|
|
| 337,371 |
|
Depreciation on property, plant and equipment |
|
| 19,546 |
|
|
| 16,602 |
|
|
| 47,563 |
|
|
| 32,751 |
|
Total deferred tax liabilities |
|
| 332,853 |
|
|
| 284,172 |
|
|
| 370,085 |
|
|
| 374,238 |
|
Net deferred tax assets |
| $ | 52,445 |
|
| $ | 48,766 |
|
| $ | 445,534 |
|
| $ | 439,535 |
|
At December 31, 2020,2022, combined foreign net operating loss carry-forwards were approximately $109.5$176.7 million of which $0.1$3.7 million expire in 20212023 and $27.4$34.3 million can be carried forward indefinitely. A valuation allowance of $26.5$58.3 million is recorded for the amount of deferred tax assets which is not likely to be fully utilized. The $10.5$9.9 million increase in the valuation allowance primarily relates to increases in deferred tax assets in certain foreign non-benefited loss jurisdictions.
In December 2021, the Company completed an intra-entity transfer of certain intellectual property rights to Switzerland primarily to align with current and future international operations. The transfer resulted in a step-up in the Swiss tax basis of intellectual property rights and a correlated increase in foreign deferred tax assets, based on the estimated fair value of the transferred intellectual property rights to be amortized. As a result, the Company recorded a tax benefit of $346.8 million, net of uncertain tax positions of $25.2 million. In 2022, the company obtained a tax ruling on the fair value of the transferred intellectual property rights, resulting in a settlement of the uncertain tax position and an adjusted recorded tax benefit of $349.6 million.
U.S. federal and net operating loss carry-forwards at December 31, 2022 was $35.0 million which can be carried forward indefinitely. U.S. federal tax credit carry-forward at December 31, 2022 was 12.6 million. State tax credit and net operating loss carry-forwards at December 31, 20202022 were $10.8$15.4 million and $53.4$43.4 million. These tax credit and net operating loss carry-forward amounts begin to expire in 2024 and 20262030. NaNNo valuation allowance has been recorded, as the Company believes they will be fully utilized.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
| As of December 31, |
|
| As of December 31, |
| ||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2022 |
|
| 2021 |
| ||||
Beginning balance |
| $ | 10,566 |
|
| $ | 7,975 |
|
| $ | 66,951 |
|
| $ | 21,511 |
|
Additions for current year tax positions |
|
| 9,804 |
|
|
| 1,795 |
|
|
| 5,345 |
|
|
| 34,975 |
|
Additions for prior year tax positions |
|
| 2,735 |
|
|
| 1,638 |
|
|
| 4,616 |
|
|
| 15,256 |
|
Reductions for prior year tax positions |
|
| (674 | ) |
|
| (361 | ) | ||||||||
Settlement of uncertain tax positions |
|
| (32,954 | ) |
|
| (812 | ) | ||||||||
Reductions related to lapse of statute of limitations |
|
| (1,594 | ) |
|
| (842 | ) |
|
| (2,037 | ) |
|
| (3,618 | ) |
Ending balance |
| $ | 21,511 |
|
| $ | 10,566 |
|
| $ | 41,247 |
|
| $ | 66,951 |
|
Current unrecognized tax benefits are recorded as a reduction in prepaid expense and included in tax expense when recorded. Long-term unrecognized tax benefits are recorded as an increase in long-term taxes payable with a portion included in tax expense and a portion recorded as a reduction in deferred tax liabilities when recorded. If recognized, $17.9$29.4 million of unrecognized tax benefits would be recorded as a reduction in income tax expense, and $3.6$11.8 million would be recorded as an increase in deferred tax liabilities.
The amount of income taxes the Company pays is subject to ongoing audits by taxing jurisdictions around the world. The Company’s estimate of the potential outcome of any uncertain tax position is subject to its assessment of relevant risks, facts, and circumstances existing at that time. The Company believes that it has adequately provided for these matters. However, the Company’s future results may include favorable or unfavorable adjustments to its estimates in the period the audits are resolved, which may impact the Company’s effective tax rate.
The Company estimates interest and penalties related to income tax matters which are included in income tax expense.expense (benefits). Amounts were $0.3$(1.9) million, $0.43.6 million, and $0.20.3 million for the years ended December 31, 2020, 2019,2022, 2021, and 2018.2020. Accrued interest and penalties were $2.4$4.2 million and $2.1$6.2 million as of December 31, 20202022 and 2019.2021.
As of December 31, 2020,2022, the Company’s tax filings are generally subject to examination in the U.S. and most foreign jurisdictions for years ending on or after December 31, 2016,2018, and in several Asian and European tax jurisdictions for years ending on or after December 31, 2010.2012. During the year, the Company reduced the balance of unrecognized tax benefits by $1.6$2.0 million as a result of expiring statutes and there was 0 reduction in the balance of unrecognized tax benefits$33.0 million from the settlement of domesticsettlements and decision on a foreign audits.tax ruling. The Company also released $2.3 million in interest during the year. It is reasonably possible that certain domestic and foreign statutes will expire and certain domestic and foreign audits will be settled during the next twelve months which would reduce the balance of 20202022 and prior year unrecognized tax benefits by $1.3$1.2 million and $2.6$2.3 million.
The Company’s cash and cash equivalents held in the U.S. and cash provided from operations are sufficient to meet the Company’s liquidity needs in the U.S. for the next twelve months. However, the Company may repatriate certain funds held outside the U.S. for which all applicable U.S. and non-U.S. tax has been fully provided as of December 31, 2020.2022. The Company has provided for the tax impact of expected distributions from its joint venture in China as well as from its subsidiary in Chile to its intermediate parent company in Switzerland. Otherwise, because of the need for cash for operating capital and continued overseas expansion, the Company does not foresee the need for any of its other foreign subsidiaries to distribute funds up to an intermediate foreign parent company in any form of taxable dividend. Under current applicable tax laws, if the Company chooses to repatriate some or all of the funds the Company has designated as indefinitely reinvested outside the U.S., the amount repatriated would not be subject to federal income tax but may be subject to applicable non-U.S. income and withholding taxes, and to certain state income taxes. In addition to certain tax restrictions, our joint venture in China has limitations on its distribution of earnings, as local law currently requires it to maintain $18.8$25.9 million of its earnings in a statutory reserve.
(11) |
|
The Company has a 401(k) profit sharing plan covering U.S. employees who are 21 years of age and have completed six months of service. The Company’s contribution is based on a non-discretionary match as defined by the plan which vests immediately. Company contributions to the plan arefor 2020 were discretionary and vestvested over a six year period.years. The Company made contributions of $2.8$4.2 million, $2.4$4.7 million, and $2.3$2.8 million to the plan for the years ended December 31, 2020, 2019,2022, 2021, and 2018.2020.
The Skechers U.S.A., Inc. Deferred Compensation Plan (the “Plan”) allows eligible employees to defer compensation up to a maximum amount to a future date on a nonqualified basis. The Plan provides for the Company to make discretionary contributions to participating employees as determined by the Company’s Compensation Committee. Contributions were zero, $0.1 million, and $0.3 million for the year ended December 31, 2020, and $0.1 million for each of the years ended December 31, 20192022, 2021 and 2018.2020. Deferred compensation is recognized based on the fair value of the participants’ accounts.
(12) |
|
The Skechers Foundation (the “Foundation”) is a 501(c)(3) non-profit entity and not a subsidiary or otherwise affiliated with the Company. The Company does not have a financial interest in the Foundation. However, two officers and directors of the Company, Michael Greenberg, the Company’s President, and David Weinberg, the Company’s Chief Operating Officer, are also officers and directors of the Foundation. During the years ended December 31, 2020, 2019,2022, 2021, and 2018,2020, the Company made contributions of $2.3$2.0 million, $1.0$3.0 million, and $1.0$2.3 million to the Foundation in each year.Foundation.
The Company had receivables from officers and employees of $1.0$1.9 million and $0.8$1.3 million at December 31, 20202022 and 2019.2021. These amounts relate to travel advances, incidental personal purchases on Company-issued credit cards and employee loans. These receivables are short-term and are expected to be repaid within a reasonable period of time. In March 2021, the Company purchased two properties for $2.7 million, from an entity controlled by its President, Michael Greenberg, to facilitate future expansion of the Company’s corporate office buildings in Manhattan Beach, California. The terms of the sale were no less favorable than could be obtained from an unrelated third party.The Company had 0no other significant transactions with or payables to officers, directors or significant stockholders of the Company.
(13) |
|
TheDuring the first quarter of 2022, the Company has 3refined the way in which management assesses performance and allocates resources and now presents its reportable segments – Domestic Wholesale, Internationalsegment results as Wholesale and Direct-to-Consumer. Comparative periods have been recast to reflect these changes. Management evaluatescontinues to evaluate segment performance based primarily on sales and gross margin. All otherOther costs and expenses of the Company are analyzed on an aggregate basis and not allocated to the segments. Sales, gross profit and identifiable assets for the Company’s segments were as follows:
|
| Year Ended December 31, |
| |||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Wholesale |
| $ | 1,126,564 |
|
| $ | 1,247,550 |
|
| $ | 1,259,615 |
|
International Wholesale |
|
| 2,257,846 |
|
|
| 2,462,632 |
|
|
| 2,054,770 |
|
Direct-to-Consumer |
|
| 1,213,004 |
|
|
| 1,509,869 |
|
|
| 1,327,683 |
|
Total |
| $ | 4,597,414 |
|
| $ | 5,220,051 |
|
| $ | 4,642,068 |
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Wholesale |
| $ | 431,603 |
|
| $ | 457,944 |
|
| $ | 468,340 |
|
International Wholesale |
|
| 1,023,183 |
|
|
| 1,133,573 |
|
|
| 976,739 |
|
Direct-to-Consumer |
|
| 734,995 |
|
|
| 899,640 |
|
|
| 778,526 |
|
Total |
| $ | 2,189,781 |
|
| $ | 2,491,157 |
|
| $ | 2,223,605 |
|
Additions to property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Wholesale |
| $ | 129,165 |
|
| $ | 75,037 |
|
| $ | 29,717 |
|
International Wholesale |
|
| 120,983 |
|
|
| 109,205 |
|
|
| 63,316 |
|
Direct-to-Consumer |
|
| 59,768 |
|
|
| 51,869 |
|
|
| 50,003 |
|
Total |
| $ | 309,916 |
|
| $ | 236,111 |
|
| $ | 143,036 |
|
|
| As of December 31, |
| |||||
(in thousands) |
| 2020 |
|
| 2019 |
| ||
Identifiable assets |
|
|
|
|
|
|
|
|
Domestic Wholesale |
| $ | 1,945,681 |
|
| $ | 1,472,323 |
|
International Wholesale |
|
| 2,436,568 |
|
|
| 2,100,042 |
|
Direct-to-Consumer |
|
| 1,430,120 |
|
|
| 1,320,578 |
|
Total |
| $ | 5,812,369 |
|
| $ | 4,892,943 |
|
The following summarizes the Company’s operations in differentby segment and geographic areas:area:
Segment Information
|
| Year Ended December 31, |
| |||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Wholesale sales |
| $ | 4,632,429 |
|
| $ | 3,758,640 |
|
| $ | 2,835,010 |
|
Gross profit |
|
| 1,669,276 |
|
|
| 1,437,517 |
|
|
| 1,112,558 |
|
Gross margin |
|
| 36.0 | % |
|
| 38.2 | % |
|
| 39.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer sales |
| $ | 2,812,121 |
|
| $ | 2,551,547 |
|
| $ | 1,778,420 |
|
Gross profit |
|
| 1,846,081 |
|
|
| 1,686,854 |
|
|
| 1,093,240 |
|
Gross margin |
|
| 65.6 | % |
|
| 66.1 | % |
|
| 61.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
| $ | 7,444,550 |
|
| $ | 6,310,187 |
|
| $ | 4,613,430 |
|
Gross profit |
|
| 3,515,357 |
|
|
| 3,124,371 |
|
|
| 2,205,798 |
|
Gross margin |
|
| 47.2 | % |
|
| 49.5 | % |
|
| 47.8 | % |
|
| Year Ended December 31, |
| |||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Sales (1) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 1,913,409 |
|
| $ | 2,197,391 |
|
| $ | 2,128,100 |
|
International |
|
| 2,684,005 |
|
|
| 3,022,660 |
|
|
| 2,513,968 |
|
Total |
| $ | 4,597,414 |
|
| $ | 5,220,051 |
|
| $ | 4,642,068 |
|
|
| As of December 31, |
| |||||
(in thousands) |
|
| 2022 |
|
|
| 2021 |
|
Identifiable assets |
|
|
|
|
|
|
|
|
Wholesale |
| $ | 3,682,860 |
|
| $ | 3,816,513 |
|
Direct-to-Consumer |
|
| 3,210,627 |
|
|
| 2,674,767 |
|
Total |
| $ | 6,893,487 |
|
| $ | 6,491,280 |
|
|
| As of December 31, |
| |||||
(in thousands) |
| 2020 |
|
| 2019 |
| ||
Property, plant and equipment, net (1) |
|
|
|
|
|
|
|
|
United States |
| $ | 535,648 |
|
| $ | 439,132 |
|
International |
|
| 399,793 |
|
|
| 299,793 |
|
Total |
| $ | 935,441 |
|
| $ | 738,925 |
|
|
| Year Ended December 31, |
| |||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Additions to property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
| $ | 255,311 |
|
| $ | 245,008 |
|
| $ | 228,448 |
|
Direct-to-Consumer |
|
| 103,681 |
|
|
| 64,666 |
|
|
| 81,468 |
|
Total |
| $ | 358,992 |
|
| $ | 309,674 |
|
| $ | 309,916 |
|
Geographic Information
|
| Year Ended December 31, |
| |||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Geographic sales |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Wholesale |
| $ | 1,831,642 |
|
| $ | 1,448,339 |
|
| $ | 1,132,425 |
|
Domestic Direct-to-Consumer |
|
| 1,243,511 |
|
|
| 1,115,018 |
|
|
| 786,844 |
|
Total domestic sales |
|
| 3,075,153 |
|
|
| 2,563,357 |
|
|
| 1,919,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Wholesale |
|
| 2,800,787 |
|
|
| 2,310,302 |
|
|
| 1,702,585 |
|
International Direct-to-Consumer |
|
| 1,568,610 |
|
|
| 1,436,528 |
|
|
| 991,576 |
|
Total international sales |
|
| 4,369,397 |
|
|
| 3,746,830 |
|
|
| 2,694,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
| $ | 7,444,550 |
|
| $ | 6,310,187 |
|
| $ | 4,613,430 |
|
|
|
Regional Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Americas (AMER) |
| $ | 3,854,392 |
|
| $ | 3,152,304 |
|
| $ | 2,292,540 |
|
Europe, Middle East & Africa (EMEA) |
|
| 1,699,215 |
|
|
| 1,282,902 |
|
|
| 899,590 |
|
Asia Pacific (APAC) |
|
| 1,890,943 |
|
|
| 1,874,981 |
|
|
| 1,421,300 |
|
Total sales |
| $ | 7,444,550 |
|
| $ | 6,310,187 |
|
| $ | 4,613,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China sales |
| $ | 1,062,724 |
|
| $ | 1,247,949 |
|
| $ | 924,482 |
|
During
|
| As of December 31, |
| |||||
(in thousands) |
|
| 2022 |
|
|
| 2021 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
Domestic |
| $ | 870,924 |
|
| $ | 708,763 |
|
International |
|
| 474,446 |
|
|
| 420,146 |
|
Total |
| $ | 1,345,370 |
|
| $ | 1,128,909 |
|
|
|
|
|
|
|
|
|
|
China property plant and equipment, net |
| $ | 264,422 |
|
| $ | 255,421 |
|
The Company’s sales to its five largest customers accounted for approximately 9.6%, 8.6%, and 8.8% of total sales for the years ended December 31, 2020, 20192022, 2021 and 2018, sales to the 5 largest customers were approximately 8.8%, 9.6% and 10.4%.
The majority of the Company’s products are produced in China and Vietnam. The Company diversifies manufacturing among various factories to reduce risk.
The Company’s top five manufacturers produced the following:
|
| Percentage of Total Production Year Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Manufacturer #1 |
|
| 21.0 | % |
|
| 16.0 | % |
|
| 12.8 | % |
Manufacturer #2 |
|
| 6.2 | % |
|
| 7.3 | % |
|
| 10.1 | % |
Manufacturer #3 |
|
| 5.8 | % |
|
| 7.2 | % |
|
| 8.6 | % |
Manufacturer #4 |
|
| 4.9 | % |
|
| 5.1 | % |
|
| 5.4 | % |
Manufacturer #5 |
|
| 4.2 | % |
|
| 5.0 | % |
|
| 5.0 | % |
|
|
| 42.1 | % |
|
| 40.6 | % |
|
| 41.9 | % |
2020.
Assets located outside the U.S. consist primarily of cash, accounts receivable, inventory, property, plant and equipment, and operating lease ROUother assets. Net assets held outside the U.S. were $3.1$4.4 billion and $2.6$4.2 billion at December 31, 20202022 and 2019, respectively.December 31, 2021.
The Company performs regular evaluations concerning the ability of customers to satisfy their obligations and provides for estimated doubtful accounts. Domestic accounts receivable generally do not require collateral. Foreign accounts receivable are generally collateralized by letters of credit. The Company’s additions to the provision for expected credit losses charged to expense for the yearsyear ended December 31, 2022, 2021, and 2020 2019 and 2018 were $19.0$5.3 million, $31.6$3.3 million, and $8.0$18.7 million.
The Company’s accounts receivables, excluding the allowanceallowances for bad debts sales returns and chargebacks, in different geographic areasby geography are summarized as follows:
|
| As of December 31, |
| |||||
(in thousands) |
| 2020 |
|
| 2019 |
| ||
Domestic Accounts Receivable |
| $ | 230,546 |
|
| $ | 228,533 |
|
Foreign Accounts Receivable |
|
| 437,816 |
|
|
| 440,876 |
|
|
|
The operating results for any quarter are not necessarily indicative of results for any future period. Summarized financial data are as follows:
Year Ended December 31, 2020 |
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
(in thousands, except per share data) |
| Quarter |
|
| Quarter |
|
| Quarter |
|
| Quarter |
| ||||
Sales |
| $ | 1,242,345 |
|
| $ | 729,472 |
|
| $ | 1,300,886 |
|
| $ | 1,324,711 |
|
Gross profit |
|
| 547,668 |
|
|
| 368,566 |
|
|
| 625,121 |
|
|
| 648,426 |
|
Net earnings (loss) |
|
| 41,160 |
|
|
| (55,217 | ) |
|
| 82,110 |
|
|
| 78,172 |
|
Net earnings (loss) attributable to Skechers U.S.A., Inc. |
|
| 49,101 |
|
|
| (68,097 | ) |
|
| 64,278 |
|
|
| 53,282 |
|
Net earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.32 |
|
| $ | (0.44 | ) |
| $ | 0.42 |
|
| $ | 0.34 |
|
Diluted |
| $ | 0.32 |
|
| $ | (0.44 | ) |
| $ | 0.41 |
|
| $ | 0.34 |
|
Year Ended December 31, 2019 |
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
(in thousands, except per share data) |
| Quarter |
|
| Quarter |
|
| Quarter |
|
| Quarter |
| ||||
Sales |
| $ | 1,276,756 |
|
| $ | 1,258,565 |
|
| $ | 1,353,998 |
|
| $ | 1,330,732 |
|
Gross profit |
|
| 590,509 |
|
|
| 609,835 |
|
|
| 653,064 |
|
|
| 637,748 |
|
Net earnings |
|
| 131,019 |
|
|
| 91,998 |
|
|
| 121,734 |
|
|
| 82,501 |
|
Net earnings attributable to Skechers U.S.A., Inc. |
|
| 108,758 |
|
|
| 75,180 |
|
|
| 103,090 |
|
|
| 59,532 |
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.71 |
|
| $ | 0.49 |
|
| $ | 0.67 |
|
| $ | 0.39 |
|
Diluted |
| $ | 0.71 |
|
| $ | 0.49 |
|
| $ | 0.67 |
|
| $ | 0.39 |
|
|
| As of December 31, |
| |||||
(in thousands) |
|
| 2022 |
|
|
| 2021 |
|
Domestic Accounts Receivable |
| $ | 310,138 |
|
| $ | 270,404 |
|
International Accounts Receivable |
|
| 597,621 |
|
|
| 525,073 |
|
The Company’s top five manufacturers produced the following:
|
| Year Ended December 31, |
| |||||||||
(percentage of total production) |
| 2022 |
|
|
| 2021 |
|
|
| 2020 |
| |
Manufacturer #1 |
|
| 16.5 |
|
|
| 18.0 |
|
|
| 21.0 |
|
Manufacturer #2 |
|
| 7.0 |
|
|
| 5.3 |
|
|
| 6.2 |
|
Manufacturer #3 |
|
| 5.2 |
|
|
| 4.8 |
|
|
| 5.8 |
|
Manufacturer #4 |
|
| 5.2 |
|
|
| 4.6 |
|
|
| 4.9 |
|
Manufacturer #5 |
|
| 5.1 |
|
|
| 4.4 |
|
|
| 4.2 |
|
Total |
|
| 39.0 |
|
|
| 37.1 |
|
|
| 42.1 |
|
|
|
None.
|
|
Attached as exhibits to this annual report on Form 10-K are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Exchange Act. This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications.
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods and that such information is accumulated and communicated to allow timely decisions regarding required disclosures. As of the end of the period covered by this annual report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective, at the reasonable assurance level as of such time.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that:
| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
With the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020,2022, based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation under the framework in Internal Control – Integrated Framework (2013), our management has concluded that our internal control over financial reporting is effective as of December 31, 2020.2022.
Our independent registered public accountants, BDO USA, LLP, audited the consolidated financial statements included in this annual report on Form 10-K and have issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2020,2022, which is set forth below.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive OfficerCEO and Chief Financial Officer,CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Assessments of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements as a result of error or fraud may occur and not be detected.
Changes in internal control over financial reporting
There were no changes to our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the fourth quarter of 2020.
2022.
Report of Independent Registered Public Accounting Firm
StockholdersShareholders and Board of Directors
Skechers U.S.A., Inc.
Manhattan Beach, California
Opinion on Internal Control over Financial Reporting
We have audited Skechers U.S.A., Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 20202022 and 2019,2021, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes and financial statement schedule listed in the accompanying index and our report dated February 26, 2021,28, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Los Angeles, California
February 26, 202128, 2023
|
|
None.
Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
Not applicable.
PART III
|
|
The information required by this Item 10 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of our 20202022 fiscal year.
|
|
The information required by this Item 11 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of our 20202022 fiscal year.
|
|
The information required by this Item 12 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of our 20202022 fiscal year.
|
|
The information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of our 20202022 fiscal year.
|
|
The information required by this Item 14 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of our 20202022 fiscal year.
PART IV
|
|
1. | Financial |
2. | Financial Statement |
Schedule II - Valuation and Qualifying Account
(in thousands) |
| Balance at Beginning of Year |
|
| Costs Charged to Expenses |
|
| Deductions and Write-offs |
|
| Balance at End of Year |
| ||||
Year-ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for chargebacks |
| $ | 17,413 |
|
| $ | 12,734 |
|
| $ | (3,473 | ) |
| $ | 26,674 |
|
Allowance for doubtful accounts |
|
| 6,693 |
|
|
| 19,940 |
|
|
| (4,745 | ) |
|
| 21,888 |
|
Liability for sales returns and allowances |
|
| 69,048 |
|
|
| 18,023 |
|
|
| (9,852 | ) |
|
| 77,219 |
|
Reserve for inventory |
|
| 6,728 |
|
|
| 15,920 |
|
|
| (14,428 | ) |
|
| 8,220 |
|
Year-ended December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for chargebacks |
| $ | 26,674 |
|
| $ | 45,957 |
|
| $ | (32,497 | ) |
| $ | 40,134 |
|
Allowance for doubtful accounts |
|
| 21,888 |
|
|
| 10,551 |
|
|
| (9,889 | ) |
|
| 22,550 |
|
Liability for sales returns and allowances |
|
| 77,219 |
|
|
| 6,263 |
|
|
| (14,538 | ) |
|
| 68,944 |
|
Reserve for inventory |
|
| 8,220 |
|
|
| 24,899 |
|
|
| (25,608 | ) |
|
| 7,511 |
|
Year-ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for chargebacks |
| $ | 40,134 |
|
| $ | 25,558 |
|
| $ | (29,275 | ) |
| $ | 36,417 |
|
Allowance for doubtful accounts |
|
| 22,550 |
|
|
| 6,804 |
|
|
| (6,299 | ) |
|
| 23,055 |
|
Liability for sales returns and allowances |
|
| 68,944 |
|
|
| 5,444 |
|
|
| (13,906 | ) |
|
| 60,482 |
|
Reserve for inventory |
|
| 7,511 |
|
|
| 31,825 |
|
|
| (21,606 | ) |
|
| 17,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying report of independent registered public accounting firm
Index to Exhibits
Exhibit Number | Description | ||
3.1 | |||
3.1(a) | |||
3.2 | |||
3.2(a) | |||
3.2(b) | |||
3.2(c) | |||
4.1 | |||
4.2 | |||
10.1* | |||
10.1(a)* | |||
10.2* | |||
10.2(a)* | |||
10.3* | |||
10.4* | |||
10.5* | |||
10.6* | |||
10.7 | |||
10.8 | |||
10.9* | |||
10.10* | |||
10.11 |
Exhibit Number | Description | ||
10.12 | |||
10.12(a) | |||
10.12(b) | |||
10.12(c) | |||
10.13 | |||
10.13(a)** | |||
10.14 | |||
10.15 | |||
10.16** | |||
10.17 | |||
10.18 |
Exhibit Number | Description | ||
10.18(a) | |||
10.18(b) | |||
10.19 | |||
10.20 | |||
10.21 | |||
21.1 | |||
23.1 | |||
31.1 | |||
31.2 | |||
32.1*** | |||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||
101.LAB | Inline Taxonomy Extension Label Linkbase Document. | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Management contract or compensatory plan or arrangement required to be filed as an exhibit. |
** | Confidential treatment has been granted by the SEC with respect to certain information in the exhibit pursuant to Rule 24b-2 of the Exchange Act. Such information was omitted from the filing and filed separately with the Secretary of the SEC. |
*** | In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act. |
|
|
None.
SCHEDULE II
SKECHERS U.S.A., INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands) |
| Balance at Beginning of Year |
|
| Costs Charged to Expenses |
|
| Deductions and Write-offs |
|
| Balance at End of Year |
| ||||
Year-ended December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for chargebacks |
| $ | 12,807 |
|
| $ | 12,629 |
|
| $ | (6,663 | ) |
| $ | 18,773 |
|
Allowance for doubtful accounts |
|
| 7,709 |
|
|
| 2,856 |
|
|
| (3,722 | ) |
|
| 6,843 |
|
Liability for sales returns and allowances |
|
| 30,664 |
|
|
| 20,245 |
|
|
| (2,443 | ) |
|
| 48,466 |
|
Reserve for shrinkage |
|
| 1,737 |
|
|
| 5,771 |
|
|
| (5,891 | ) |
|
| 1,617 |
|
Reserve for obsolescence |
|
| 7,019 |
|
|
| 6,461 |
|
|
| (2,344 | ) |
|
| 11,136 |
|
Year-ended December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for chargebacks |
| $ | 18,773 |
|
| $ | 3,931 |
|
| $ | (5,291 | ) |
| $ | 17,413 |
|
Allowance for doubtful accounts |
|
| 6,843 |
|
|
| 2,471 |
|
|
| (2,621 | ) |
|
| 6,693 |
|
Liability for sales returns and allowances |
|
| 48,466 |
|
|
| 46,054 |
|
|
| (25,472 | ) |
|
| 69,048 |
|
Reserve for shrinkage |
|
| 1,617 |
|
|
| 5,149 |
|
|
| (5,802 | ) |
|
| 964 |
|
Reserve for obsolescence |
|
| 11,136 |
|
|
| 9,444 |
|
|
| (14,816 | ) |
|
| 5,764 |
|
Year-ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for chargebacks |
| $ | 17,413 |
|
| $ | 12,734 |
|
| $ | (3,473 | ) |
| $ | 26,674 |
|
Allowance for doubtful accounts |
|
| 6,693 |
|
|
| 19,940 |
|
|
| (4,745 | ) |
|
| 21,888 |
|
Liability for sales returns and allowances |
|
| 69,048 |
|
|
| 18,023 |
|
|
| (9,852 | ) |
|
| 77,219 |
|
Reserve for shrinkage |
|
| 964 |
|
|
| 5,348 |
|
|
| (5,217 | ) |
|
| 1,095 |
|
Reserve for obsolescence |
|
| 5,764 |
|
|
| 10,572 |
|
|
| (9,211 | ) |
|
| 7,125 |
|
See accompanying report of independent registered public accounting firm
INDEX TO EXHIBITS
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Manhattan Beach, State of California on the 26th28th day of February 2021.2023.
|
| SKECHERS U.S.A., INC. |
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By: |
| /s/ Robert Greenberg |
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| Robert Greenberg |
|
| Chairman of the Board and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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/s/ Robert Greenberg |
| Chairman of the Board and Chief Executive Officer |
| February | |||
Robert Greenberg |
| (Principal Executive Officer) |
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/s/ Michael Greenberg |
| President and Director |
| February | |||
Michael Greenberg |
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/s/ David Weinberg |
| Executive Vice President, Chief Operating Officer, |
| February | |||
David Weinberg |
| and Director |
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/s/ John Vandemore |
| Chief Financial Officer |
| February | |||
John Vandemore |
| (Principal Financial and Accounting Officer) |
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/s/ Katherine Blair |
| Director |
| February | |||
Katherine Blair |
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/s/ Morton D. Erlich |
| Director |
| February | |||
Morton D. Erlich |
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/s/ |
| Director |
| February | |||
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/s/ |
| Director |
| February | |||
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/s/ Richard Siskind |
| Director |
| February | |||
Richard Siskind |
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54
63