UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2022~~2023

or


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-14429

SKECHERS U.S.A., INC.

(Exact name of registrant as specified in its charter)

Delaware

95-4376145

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

228 Manhattan Beach Blvd.

Manhattan Beach, California

90266

(Address of principal executive office)

(Zip Code)

~~(310)~~ (310) 318-3100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Trading symbol		Name of each exchange on which registered
Class A Common Stock, par value ~~$0.001~~$0.001 per share		SKX		New York Stock Exchange

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 the 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	☒		Accelerated filer	☐
Non-accelerated filer	☐		Smaller reporting company	☐
			Emerging growth company	☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July ~~29, 2022, 134,844,529~~28, 2023 134,368,462 shares of the registrant’s Class A Common Stock, $0.001 par value per share, were outstanding.

As of July ~~29, 2022, 20,888,571~~28, 2023 20,385,569 shares of the registrant’s Class B Common Stock, $0.001 par value per share, were outstanding.

SKECHERS U.S.A., INC. AND SUBSIDIARIES

~~FORM~~Form 10-Q

~~TABLE OF CONTENTS~~Table of Contents


PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Earnings (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)	5
	Condensed Consolidated Statements of Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1718
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2223
Item 4.	Controls and Procedures	23

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2524
Item 3.	Defaults Upon Senior Securities	2524
Item 4.	Mine Safety Disclosures	2524
Item 5.	Other Information	2524
Item 6.	Exhibits	2524
	Signatures	2625

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SKECHERS U.S.A., INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~Condensed Consolidated Balance Sheets

(Unaudited)

		As of				As of
(in thousands)		June 30, 2022				December 31, 2021
										As of				As of
(in thousands, except par value)										June 30, 2023				December 31, 2022
ASSETS	ASSETS								ASSETS
Current assets
Cash and cash equivalents		$	751,904			$	796,283			$	896,514			$	615,733
Short-term investments			105,099				98,580				80,648				102,166
Trade accounts receivable, less allowances of $53,799 and $62,684			916,784				732,793
Trade accounts receivable, less allowances of $68,501 and $59,472											940,201				848,287
Other receivables			55,039				80,043				69,307				86,036
Inventory			1,563,907				1,470,994				1,486,012				1,818,016
Prepaid expenses and other			177,236				193,547				197,007				176,035
Total current assets ($986,204 and $1,040,765 related to VIEs)			3,569,969				3,372,240
Total current assets ($1,100,137 and $1,014,962 related to VIEs)											3,669,689				3,646,273
Property, plant and equipment, net			1,225,529				1,128,909				1,417,225				1,345,370
Operating lease right-of-use assets			1,168,385				1,224,580				1,230,635				1,200,565
Deferred tax assets			452,747				451,355				461,021				454,190
Long-term investments			89,423				145,590				96,591				70,498
Goodwill			93,497				93,497				101,483				93,497
Other assets, net			77,046				75,109				131,013				83,094
Total non-current assets ($591,827 and $608,607 related to VIEs)			3,106,627				3,119,040
Total non-current assets ($616,850 and $598,973 related to VIEs)											3,437,968				3,247,214
TOTAL ASSETS		$	6,676,596			$	6,491,280			$	7,107,657			$	6,893,487
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY								LIABILITIES AND EQUITY
Current liabilities
Accounts payable		$	972,399			$	876,342			$	802,234			$	957,384
Accrued expenses			258,640				265,420				300,071				294,143
Operating lease liabilities			223,230				225,658				261,954				238,694
Current installments of long-term borrowings			73,414				76,967				76,388				103,184
Short-term borrowings			0				1,195				36,654				19,635
Total current liabilities ($520,979 and $601,929 related to VIEs)			1,527,683				1,445,582
Total current liabilities ($533,807 and $568,158 related to VIEs)											1,477,301				1,613,040
Long-term operating lease liabilities			1,049,330				1,094,748				1,069,384				1,063,672
Long-term borrowings			253,260				263,445				236,763				216,488
Deferred tax liabilities			9,712				11,820				20,224				8,656
Other long-term liabilities			118,507				133,613				112,523				120,045
Total non-current liabilities ($345,658 and $368,994 related to VIEs)			1,430,809				1,503,626
Total non-current liabilities ($313,526 and $293,726 related to VIEs)											1,438,894				1,408,861
Total liabilities			2,958,492				2,949,208				2,916,195				3,021,901
Commitments and contingencies (Note 10)
Stockholders’ equity
Preferred Stock, $0.001 par value; 10,000 shares authorized; NaN issued and outstanding			0				0
Class A Common Stock, $0.001 par value; 500,000 shares authorized; 134,845 and 135,107 shares issued and outstanding			135				135
Class B Common Stock, $0.001 par value; 75,000 shares authorized; 20,889 and 20,939 shares issued and outstanding			21				21
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; 134,291 and 134,473 shares issued and outstanding											134				134
Class B Common Stock, $0.001 par value; 75,000 shares authorized; 20,464 and 20,810 shares issued and outstanding											20				21
Additional paid-in capital			402,360				429,608				362,769				403,799
Accumulated other comprehensive loss			(75,784	)			(48,323	)			(87,707	)			(84,897	)
Retained earnings			3,089,530				2,877,903				3,564,133				3,250,931
Skechers U.S.A., Inc. equity			3,416,262				3,259,344				3,839,349				3,569,988
Noncontrolling interests			301,842				282,728				352,113				301,598
Total stockholders' equity			3,718,104				3,542,072				4,191,462				3,871,586
TOTAL LIABILITIES AND EQUITY		$	6,676,596			$	6,491,280			$	7,107,657			$	6,893,487

See accompanying notes to unaudited condensed consolidated financial statements.

3

SKECHERS U.S.A., INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS~~Condensed Consolidated Statements of Earnings

(Unaudited)


		Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except per share data)		2022				2021				2022				2021				2023				2022				2023				2022
Sales		$	1,867,804			$	1,661,871			$	3,687,398			$	3,096,326			$	2,012,516			$	1,867,804			$	4,014,444			$	3,687,398
Cost of sales			970,225				808,279				1,965,656				1,557,075				951,992				970,225				1,975,341				1,965,656
Gross profit			897,579				853,592				1,721,742				1,539,251				1,060,524				897,579				2,039,103				1,721,742
Operating expenses
Selling			166,609				141,470				274,818				232,795				187,118				166,609				315,678				274,818
General and administrative			576,812				510,912				1,116,862				947,578				655,673				576,812				1,282,115				1,116,862
Total operating expenses			743,421				652,382				1,391,680				1,180,373				842,791				743,421				1,597,793				1,391,680
Earnings from operations			154,158				201,210				330,062				358,878				217,733				154,158				441,310				330,062
Other income (expense)			(19,259	)			2,158				(25,005	)			(12,016	)			2,792				(19,259	)			12,715				(25,005	)
Earnings before income taxes			134,899				203,368				305,057				346,862				220,525				134,899				454,025				305,057
Income tax expense			28,739				41,545				62,731				70,530				38,942				28,739				82,158				62,731
Net earnings			106,160				161,823				242,326				276,332				181,583				106,160				371,867				242,326
Less: Net earnings attributable to noncontrolling interests			15,756				24,454				30,699				40,390				28,824				15,756				58,665				30,699
Net earnings attributable to Skechers U.S.A., Inc.		$	90,404			$	137,369			$	211,627			$	235,942			$	152,759			$	90,404			$	313,202			$	211,627
Net earnings per share attributable to Skechers U.S.A., Inc.
Basic		$	0.58			$	0.88			$	1.36			$	1.52			$	0.99			$	0.58			$	2.02			$	1.36
Diluted		$	0.58			$	0.88			$	1.35			$	1.51			$	0.98			$	0.58			$	2.00			$	1.35
Weighted-average shares used in calculating net earnings per share attributable to Skechers U.S.A., Inc.
Basic			155,941				155,561				155,969				155,196				154,970				155,941				155,055				155,969
Diluted			156,748				156,674				157,074				156,321				156,571				156,748				156,654				157,074

See accompanying notes to unaudited condensed consolidated financial statements.

4

SKECHERS U.S.A., INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


		Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)	(in thousands)	2022				2021				2022				2021			(in thousands)	2023				2022				2023				2022
Net earnings		$	106,160			$	161,823			$	242,326			$	276,332			$	181,583			$	106,160			$	371,867			$	242,326
Other comprehensive income, net of tax
Net unrealized gain (loss) on derivative contract			1,254				(129	)			7,097				1,623				499				1,254				(917	)			7,097
Gain (loss) on foreign currency translation adjustment			(42,229	)			3,012				(40,740	)			(9,493	)
Loss on foreign currency translation adjustment																			(16,144	)			(42,229	)			(9,293	)			(40,740	)
Comprehensive income			65,185				164,706				208,683				268,462				165,938				65,185				361,657				208,683
Less: Comprehensive income attributable to noncontrolling interests			3,743				25,978				23,764				40,225				20,669				3,743				51,265				23,764
Comprehensive income attributable to Skechers U.S.A., Inc.		$	61,442			$	138,728			$	184,919			$	228,237			$	145,269			$	61,442			$	310,392			$	184,919

See accompanying notes to unaudited condensed consolidated financial statements.

5

SKECHERS U.S.A., INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF EQUITY~~Condensed Consolidated Statements of Equity

(Unaudited)

		Shares								Amount												Accumulated
		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				stockholders'				Shares								Amount												Accumulated
(in thousands)		Stock				Stock				Stock				Stock				capital				loss				earnings				equity				interests				equity				Class A Common Stock				Class B Common Stock				Class A Common Stock				Class B Common Stock				Additional paid–in capital				other comprehensive loss				Retained earnings				Skechers U.S.A., Inc. equity				Noncontrolling interests				Total stockholders' equity
Balance at March 31, 2023																																											134,259				20,474			$	134			$	20			$	383,540			$	(80,217	)		$	3,411,374			$	3,714,851			$	331,444			$	4,046,295
Net earnings																																											—				—				—				—				—				—				152,759				152,759				28,824				181,583
Foreign currency translation adjustment																																											—				—				—				—				—				(7,490	)			—				(7,490	)			(8,654	)			(16,144	)
Net unrealized gain on derivative contract																																											—				—				—				—				—				—				—				—				499				499
Stock compensation expense																																											—				—				—				—				17,716				—				—				17,716				—				17,716
Proceeds from the employee stock purchase plan																																											148				—				—				—				5,402				—				—				5,402				—				5,402
Shares issued under the incentive award plan																																											713				—				1				—				(1	)			—				—				—				—				—
Shares redeemed for employee tax withholdings																																											(260	)			—				—				—				(13,877	)			—				—				(13,877	)			—				(13,877	)
Repurchases of common stock																																											(579	)			—				(1	)			—				(30,011	)			—				—				(30,012	)			—				(30,012	)
Conversion of Class B Common Stock into Class A Common Stock																																											10				(10	)			—				—				—				—				—				—				—				—
Balance at June 30, 2023																																											134,291				20,464			$	134			$	20			$	362,769			$	(87,707	)		$	3,564,133			$	3,839,349			$	352,113			$	4,191,462

Balance at March 31, 2022			134,829				20,939			$	135			$	21			$	415,357			$	(46,822	)		$	2,999,126			$	3,367,817			$	298,099			$	3,665,916				134,829				20,939			$	135			$	21			$	415,357			$	(46,822	)		$	2,999,126			$	3,367,817			$	298,099			$	3,665,916
Net earnings			—				—				—				—				—				—				90,404				90,404				15,756				106,160				—				—				—				—				—				—				90,404				90,404				15,756				106,160
Foreign currency translation adjustment			—				—				—				—				—				(28,962	)			—				(28,962	)			(13,267	)			(42,229	)			—				—				—				—				—				(28,962	)			—				(28,962	)			(13,267	)			(42,229	)
Net unrealized gain on derivative contract			—				—				—				—				—				—				—				—				1,254				1,254				—				—				—				—				—				—				—				—				1,254				1,254
Stock compensation expense			—				—				—				—				15,828				—				—				15,828				—				15,828				—				—				—				—				15,828				—				—				15,828				—				15,828
Proceeds from the employee stock purchase plan			144				—				—				—				4,836				—				—				4,836				—				4,836				144				—				—				—				4,836				—				—				4,836				—				4,836
Shares issued under the incentive award plan			692				—				1				—				(1	)			—				—				—				—				—				692				—				1				—				(1	)			—				—				—				—				—
Shares redeemed for employee tax withholdings			(234	)			—				—				—				(9,429	)			—				—				(9,429	)			—				(9,429	)			(234	)			—				—				—				(9,429	)			—				—				(9,429	)			—				(9,429	)
Repurchases of common stock			(636	)			—				(1	)			—				(24,231	)			—				—				(24,232	)			—				(24,232	)			(636	)			—				(1	)			—				(24,231	)			—				—				(24,232	)			—				(24,232	)
Conversion of Class B Common Stock into Class A Common Stock			50				(50	)			—				—				—				—				—				—				—				—				50				(50	)			—				—				—				—				—				—				—				—
Balance at June 30, 2022			134,845				20,889			$	135			$	21			$	402,360			$	(75,784	)		$	3,089,530			$	3,416,262			$	301,842			$	3,718,104				134,845				20,889			$	135			$	21			$	402,360			$	(75,784	)		$	3,089,530			$	3,416,262			$	301,842			$	3,718,104

Balance at March 31, 2021			134,172				20,949			$	134			$	21			$	377,350			$	(36,349	)		$	2,234,973			$	2,576,129			$	255,417			$	2,831,546
Net earnings			—				—				—				—				—				—				137,369				137,369				24,454				161,823
Foreign currency translation adjustment			—				—				—				—				—				1,359				—				1,359				1,653				3,012
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				(750	)			(750	)
Net unrealized loss on derivative contract			—				—				—				—				—				—				—				—				(129	)			(129	)
Stock compensation expense			—				—				—				—				14,645				—				—				14,645				—				14,645
Proceeds from the employee stock purchase plan			141				—				—				—				4,027				—				—				4,027				—				4,027
Shares issued under the incentive award plan			572				—				1				—				(1	)			—				—				—				—				—
Shares redeemed for employee tax withholdings			(1	)			—				—				—				(70	)			—				—				(70	)			—				(70	)
Balance at June 30, 2021			134,884				20,949			$	135			$	21			$	395,951			$	(34,990	)		$	2,372,342			$	2,733,459			$	280,645			$	3,014,104

See accompanying notes to unaudited condensed consolidated financial statements.

6

SKECHERS U.S.A., INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF EQUITY~~Condensed Consolidated Statements of Equity

(Unaudited)

		Shares								Amount												Accumulated
		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				stockholders'				Shares								Amount												Accumulated
(in thousands)		Stock				Stock				Stock				Stock				capital				loss				earnings				equity				interests				equity				Class A Common Stock				Class B Common Stock				Class A Common Stock				Class B Common Stock				Additional paid–in capital				other comprehensive loss				Retained earnings				Skechers U.S.A., Inc. equity				Noncontrolling interests				Total stockholders' equity
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
Net earnings																																											—				—				—				—				—				—				313,202				313,202				58,665				371,867
Foreign currency translation adjustment																																											—				—				—				—				—				(2,810	)			—				(2,810	)			(6,483	)			(9,293	)
Distributions to noncontrolling interests																																											—				—				—				—				—				—				—				—				(750	)			(750	)
Net unrealized loss on derivative contract																																											—				—				—				—				—				—				—				—				(917	)			(917	)
Stock compensation expense																																											—				—				—				—				31,968				—				—				31,968				—				31,968
Proceeds from the employee stock purchase plan																																											148				—				—				—				5,402				—				—				5,402				—				5,402
Shares issued under the incentive award plan																																											938				—				1				—				(1	)			—				—				—				—				—
Shares redeemed for employee tax withholdings																																											(358	)			—				—				—				(18,375	)			—				—				(18,375	)			—				(18,375	)
Repurchases of common stock																																											(1,256	)			—				(2	)			—				(60,024	)			—				—				(60,026	)			—				(60,026	)
Conversion of Class B Common Stock into Class A Common Stock																																											346				(346	)			1				(1	)			—				—				—				—				—				—
Balance at June 30, 2023																																											134,291				20,464			$	134			$	20			$	362,769			$	(87,707	)		$	3,564,133			$	3,839,349			$	352,113			$	4,191,462

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				135,107				20,939			$	135			$	21			$	429,608			$	(48,323	)		$	2,877,903			$	3,259,344			$	282,728			$	3,542,072
Net earnings			—				—				—				—				—				—				211,627				211,627				30,699				242,326				—				—				—				—				—				—				211,627				211,627				30,699				242,326
Foreign currency translation adjustment			—				—				—				—				—				(27,461	)			—				(27,461	)			(13,279	)			(40,740	)			—				—				—				—				—				(27,461	)			—				(27,461	)			(13,279	)			(40,740	)
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				(4,650	)			(4,650	)			—				—				—				—				—				—				—				—				(4,650	)			(4,650	)
Net unrealized gain on derivative contract			—				—				—				—				753				—				—				753				6,344				7,097				—				—				—				—				753				—				—				753				6,344				7,097
Stock compensation expense			—				—				—				—				33,796				—				—				33,796				—				33,796				—				—				—				—				33,796				—				—				33,796				—				33,796
Proceeds from the employee stock purchase plan			144				—				—				—				4,836				—				—				4,836				—				4,836				144				—				—				—				4,836				—				—				4,836				—				4,836
Shares issued under the incentive award plan			1,258				—				1				—				(1	)			—				—				—				—				—				1,258				—				1				—				(1	)			—				—				—				—				—
Shares redeemed for employee tax withholdings			(427	)			—				—				—				(17,401	)			—				—				(17,401	)			—				(17,401	)			(427	)			—				—				—				(17,401	)			—				—				(17,401	)			—				(17,401	)
Repurchases of common stock			(1,287	)			—				(1	)			—				(49,231	)			—				—				(49,232	)			—				(49,232	)			(1,287	)			—				(1	)			—				(49,231	)			—				—				(49,232	)			—				(49,232	)
Conversion of Class B Common Stock into Class A Common Stock			50				(50	)			—				—				—				—				—				—				—				—				50				(50	)			—				—				—				—				—				—				—				—
Balance at June 30, 2022			134,845				20,889			$	135			$	21			$	402,360			$	(75,784	)		$	3,089,530			$	3,416,262			$	301,842			$	3,718,104				134,845				20,889			$	135			$	21			$	402,360			$	(75,784	)		$	3,089,530			$	3,416,262			$	301,842			$	3,718,104

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
Net earnings			—				—				—				—				—				—				235,942				235,942				40,390				276,332
Foreign currency translation adjustment			—				—				—				—				—				(7,705	)			—				(7,705	)			(1,788	)			(9,493	)
Contributions from noncontrolling interests			—				—				—				—				—				—				—				—				14				14
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				(750	)			(750	)
Purchase of noncontrolling interest			—				—				—				—				(6,856	)			—				—				(6,856	)			(3,072	)			(9,928	)
Net unrealized gain on derivative contract			—				—				—				—				—				—				—				—				1,623				1,623
Stock compensation expense			—				—				—				—				26,686				—				—				26,686				—				26,686
Proceeds from the employee stock purchase plan			141				—				—				—				4,027				—				—				4,027				—				4,027
Shares issued under the incentive award plan			1,059				—				1				—				(1	)			—				—				—				—				—
Shares redeemed for employee tax withholdings			(1	)			—				—				—				(70	)			—				—				(70	)			—				(70	)
Conversion of Class B Common Stock into Class A Common Stock			67				(67	)			—				—				—				—				—				—				—				—
Balance at June 30, 2021			134,884				20,949			$	135			$	21			$	395,951			$	(34,990	)		$	2,372,342			$	2,733,459			$	280,645			$	3,014,104

See accompanying notes to unaudited condensed consolidated financial statements.

7

SKECHERS U.S.A., INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~Condensed Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,

(in thousands)

2022

2021

Cash flows from operating activities

Net earnings

$
242,326

$
276,332

Adjustments to reconcile net earnings to net cash provided by operating activities

Depreciation and amortization

72,032

66,649

Provision for bad debts and returns

9,542

12,563

Stock compensation

33,796

26,686

Deferred income taxes

(4,110
)

1,764

Net foreign currency adjustments

12,336

(6,148
)
Changes in operating assets and liabilities

Receivables

(210,229
)

(156,551
)
Inventory

(125,485
)

(41,866
)
Other assets

10,766

49,108

Accounts payable

118,667

87,345

Other liabilities

(4,932
)

1,279

Net cash provided by operating activities

154,709

317,161

Cash flows from investing activities

Capital expenditures

(163,511
)

(146,219
)
Purchases of investments

(32,770
)

(122,748
)
Proceeds from sales and maturities of investments

82,418

101,759

Net cash used in investing activities

(113,863
)

(167,208
)
Cash flows from financing activities

Net proceeds from the employee stock purchase plan

4,836

4,027

Repayments on long-term borrowings

(29,777
)

(477,835
)
Proceeds from long-term borrowings

16,040

57,629

Net repayments on short-term borrowings

(1,195
)

(2,722
)
Payments for employee taxes related to stock compensation

(17,401
)

(70
)
Repurchases of common stock

(49,232
)

0

Purchase of noncontrolling interests

0

(9,928
)
Contributions from noncontrolling interests

0

14

Distributions to noncontrolling interests

(4,650
)

(750
)
Net cash used in financing activities

(81,379
)

(429,635
)
Effect of exchange rate changes on cash and cash equivalents

(3,846
)

211

Net change in cash and cash equivalents

(44,379
)

(279,471
)
Cash and cash equivalents at beginning of the period

796,283

1,370,826

Cash and cash equivalents at end of the period

$
751,904

$
1,091,355

Supplemental disclosures of cash flow information

Cash paid during the period for

Interest

$
8,855

$
7,354

Income taxes, net

50,817

53,610

Non-cash transactions

ROU assets exchanged for lease liabilities

154,448

72,833


		Six Months Ended June 30,
(in thousands)		2023				2022
Cash flows from operating activities
Net earnings		$	371,867			$	242,326
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization			85,395				72,032
Provision for bad debts and returns			35,169				9,542
Stock compensation			31,968				33,796
Deferred income taxes			(5,381	)			(4,110	)
Net foreign currency adjustments			(16,211	)			12,336
Changes in operating assets and liabilities
Receivables			(61,318	)			(210,229	)
Inventory			353,102				(125,485	)
Other assets			(27,440	)			10,766
Accounts payable			(164,224	)			118,667
Other liabilities			(27,668	)			(4,932	)
Net cash provided by operating activities			575,259				154,709
Cash flows from investing activities
Capital expenditures			(147,425	)			(163,511	)
Acquisitions, net of cash acquired			(70,369	)			—
Purchases of investments			(73,034	)			(32,770	)
Proceeds from sales and maturities of investments			68,458				82,418
Net cash used in investing activities			(222,370	)			(113,863	)
Cash flows from financing activities
Net proceeds from the employee stock purchase plan			5,402				4,836
Repayments on long-term borrowings			(28,031	)			(29,777	)
Proceeds from long-term borrowings			21,510				16,040
Net proceeds from (repayments on) short-term borrowings			17,019				(1,195	)
Payments for employee taxes related to stock compensation			(18,375	)			(17,401	)
Repurchases of common stock			(60,026	)			(49,232	)
Distributions to noncontrolling interests			(750	)			(4,650	)
Net cash used in financing activities			(63,251	)			(81,379	)
Effect of exchange rate changes on cash and cash equivalents			(8,857	)			(3,846	)
Net change in cash and cash equivalents			280,781				(44,379	)
Cash and cash equivalents at beginning of the period			615,733				796,283
Cash and cash equivalents at end of the period		$	896,514			$	751,904

Supplemental disclosures of cash flow information
Cash paid during the period for
Interest		$	10,770			$	8,855
Income taxes, net			66,782				50,817
Non-cash transactions
Right-of-use assets exchanged for lease liabilities			143,941				154,448
Non-cash consideration for acquired business			9,180				—

See accompanying notes to unaudited condensed consolidated financial statements.

8

SKECHERS U.S.A., INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1)

General

~~(1)~~

~~General~~

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Skechers U.S.A., Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S‑X. In the opinion of management, all normal adjustments and accruals considered necessary to provide a fair statement of the results of operations for the interim periods presented have been included. The December 31, ~~2021~~2022 balance sheet data was derived from audited financial statements; however, the accompanying notes to condensed consolidated financial statements do not include all of the annual disclosures required under GAAP and should be read in conjunction with the Company’s ~~2021~~2022 Annual Report on Form 10-K. Certain reclassifications have been made to the condensed consolidated financial statements in prior years to conform to the current year ~~presentation, including but not limited to combining royalty income into sales.~~presentation.

Noncontrolling Interests

The Company has equity interests in 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 condensed 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 Hong Kong entity continues to be~~ ~~included in the Company’s condensed consolidated financial statements. There have been no changes during 2022 in the accounting treatment or characterization of any previously identified VIEs.~~ The Company continues to reassess these relationships quarterly. 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.

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.

•

~~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~~ United States (“U.S.”) Treasury ~~securities;~~securities and actively traded mutual funds; Level 2 investments primarily include corporate notes and bonds, asset-backed securities and ~~actively traded mutual funds;~~U.S. Agency securities; 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 4 – Financial Commitments) classified as other assets, ~~net~~.net. 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

9

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 June 30, ~~2022,~~2023, all counterparties to the interest rate swap had performed in accordance with their contractual obligations.

~~Recent~~RecentLY ADOPTED Accounting Pronouncements

~~In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 loss in excess of anticipated operating loss 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 Company adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact on its condensed 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~~London Interbank Offered Rate ("LIBOR") as a reference rate, and is ~~effective immediately, but is only~~ available through December 31, ~~2022.~~2024. During the second quarter of 2023, the Company amended certain terms of our loan agreement with Bank of America and the related interest rate swap to replace the LIBOR with the daily Secured Overnight Financing Rate ("SOFR") as part of our planned reference rate reform activities, as discussed in Note 4 - Financial Commitments. The Company ~~has evaluated this ASU~~elected to apply the practical expedient which allows us to account for the modification of the amended agreements as if the modifications were not substantial. These amendments did not result in any change to our application of hedge accounting or and ~~does~~did not ~~expect its adoption to~~ have a material impact ~~on its condensed~~to our consolidated financial statements.

(2)

Cash, Cash Equivalents, Short-term and Long-term Investments

~~(2)~~

~~Cash, Cash Equivalents, Short-term and Long-term Investments~~

The following tables show the Company’s cash, cash equivalents, short-term and long-term investments by significant investment category:

As of June 30, 2022

(in thousands)

Adjusted Cost

Fair Value

Cash and Cash Equivalents

Short-Term Investments

Long-Term Investments

Cash

$
633,767

$
633,767

$
633,767

$
—

$
—

Level 1

Money market funds

118,137

118,137

118,137

0

—

U.S. Treasury securities

20,132

20,132

—

11,419

8,713

Total level 1

138,269

138,269

118,137

11,419

8,713

Level 2

Corporate notes and bonds

109,172

109,172

—

89,335

19,837

Asset-backed securities

14,495

14,495

—

4,345

10,150

Mutual funds

50,723

50,723

—

0

50,723

Total level 2

174,390

174,390

—

93,680

80,710

Total

$
946,426

$
946,426

$
751,904

$
105,099

$
89,423


		As of June 30, 2023
(in thousands)		Adjusted Cost				Fair Value				Cash and Cash Equivalents				Short-Term Investments				Long-Term Investments
Cash		$	789,496			$	789,496			$	789,496			$	—			$	—
Level 1
Money market funds			98,033				98,033				98,033				—				—
U.S. Treasury securities			14,119				14,119				2,999				11,120				—
Mutual funds		N/A					11,355				—				—				11,355
Total level 1			112,152				123,507				101,032				11,120				11,355
Level 2
Corporate notes and bonds			98,921				98,921				5,986				66,526				26,409
Asset-backed securities			8,547				8,547				—				—				8,547
U.S. Agency securities			4,710				4,710				—				3,002				1,708
Total level 2			112,178				112,178				5,986				69,528				36,664
Total		$	1,013,826			$	1,025,181			$	896,514			$	80,648			$	48,019


		As of December 31, 2022
(in thousands)		Adjusted Cost				Fair Value				Cash and Cash Equivalents				Short-Term Investments				Long-Term Investments
Cash		$	539,730			$	539,730			$	539,730			$	—			$	—
Level 1
Money market funds			71,503				71,503				71,503				—				—
U.S. Treasury securities			18,201				18,201				2,000				16,201				—
Mutual funds		N/A					5,893				—				—				5,893
Total level 1			89,704				95,597				73,503				16,201				5,893
Level 2
Corporate notes and bonds			101,959				101,959				2,500				85,731				13,728
Asset-backed securities			4,641				4,641				—				234				4,407
Total level 2			106,600				106,600				2,500				85,965				18,135
Total		$	736,034			$	741,927			$	615,733			$	102,166			$	24,028

10

As of December 31, 2021

(in thousands)

Adjusted Cost

Fair Value

Cash and Cash Equivalents

Short-Term Investments

Long-Term Investments

Cash

$
664,220

$
664,220

$
664,220

$
—

$
—

Level 1

Money market funds

132,063

132,063

132,063

0

—

U.S. Treasury securities

25,437

25,437

—

8,896

16,541

Total level 1

157,500

157,500

132,063

8,896

16,541

Level 2

Corporate notes and bonds

148,373

148,373

—

84,783

63,590

Asset-backed securities

17,180

17,180

—

4,901

12,279

Mutual funds

53,180

53,180

—

0

53,180

Total level 2

218,733

218,733

—

89,684

129,049

Total

$
1,040,453

$
1,040,453

$
796,283

$
98,580

$
145,590

The Company’s investments consist of U.S. Treasury securities, corporate notes and bonds, asset-backed securities and ~~asset-backed~~U.S. agency 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. The Company may sell certain of its investments prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management. The maturities of the Company’s long-term investments are less than two ~~years.~~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 on the Condensed Consolidated Balance Sheets are company owned life insurance contracts of $48.6 million and $46.5 million as of June 30, 2023 and December 31, 2022. Interest income was $5.2 million and $1.6 million for three months ended June 30, 2023 and 2022, and $7.9 million and $2.7 million for six months ended June 30, 2023 and 2022.

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)

Accrued Expenses

~~(3)~~

~~Accrued Expenses~~

Accrued expenses were as follows:


		As of				As of
(in thousands)		June 30, 2023				December 31, 2022
Accrued payroll, taxes, and other		$	147,217			$	143,664
Return reserve liability			80,072				60,482
Accrued inventory purchases			72,782				89,997
Accrued expenses		$	300,071			$	294,143

As of

As of

(in thousands)

June 30, 2022

December 31, 2021

Accrued payroll, taxes, and other

$
137,248

$
143,295

Return reserve liability

63,452

68,944

Accrued inventory purchases

57,940

53,181

Accrued expenses

$
258,640

$
265,420

(4)

Financial Commitments

~~(4)~~

~~Financial Commitments~~

The Company had ~~$3.0~~$3.1 million and $2.7 ~~and $17.2~~ million ~~of outstanding~~ letters of credit as of June 30, ~~2022~~2023 and December 31, ~~2021, 0~~2022, and approximately $36.7 million and $19.6 million in short-term borrowings as of June 30, ~~2022,~~2023 and ~~$1.2 million in short-term borrowings as of~~ December 31, ~~2021.~~2022. Interest expense was ~~$4.6~~$6.0 million and ~~$3.4~~$4.6 million for the three months ended June 30, ~~2022~~2023 and ~~2021~~ 2022,and ~~$9.1~~$11.1 million and ~~$7.5~~$9.1 million for six months ended June 30, ~~2022~~2023 and ~~2021.~~2022.

Long-term borrowings were as follows:

As of

As of

(in thousands)

June 30, 2022

December 31, 2021

HF-T1 Distribution Center Loan

$
129,505

$
129,505

HF-T2 Distribution Center Construction Loan

65,722

57,227

China Distribution Center Construction Loan

66,352

75,621

China Operational Loans

57,108

69,796

Other

7,987

8,263

Subtotal

326,674

340,412

Less: Current installments

73,414

76,967

Total long-term borrowings

$
253,260

$
263,445


		As of				As of
(in thousands)		June 30, 2023				December 31, 2022
HF-T1 Distribution Center Loan		$	129,505			$	129,505
HF-T2 Distribution Center Construction Loan			73,017				72,098
China Distribution Center Construction Loan			19,255				41,329
China Distribution Center Expansion Construction Loan			34,015				14,507
China Operational Loans			53,051				54,361
Other			4,308				7,872
Subtotal			313,151				319,672
Less: Current installments			76,388				103,184
Total long-term borrowings		$	236,763			$	216,488

Revolving Credit Facility

The Company maintains a revolving credit facility to manage ~~liquidity;~~liquidity, including working capital and capital expenditures. On December 15, 2021, the Company amended its ~~$500.0~~$500.0 million senior, unsecured revolving credit agreement dated November 21, 2019 (the “Amended Credit Agreement”). The Amended Credit Agreement expands its senior, unsecured credit facility to ~~$750.0~~$750.0 million, which may be increased by up to ~~$250.0~~$250.0 million under certain conditions and provides for the issuance of letters of credit up to a maximum of ~~$100.0~~$100.0 million and swingline loans up to a maximum of ~~$50.0~~$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 had approximately $50.2 million in short-term borrowings as~~As of ~~March 31, 2022 on its~~ June 30, 2023, there was no outstanding balance under the revolving credit ~~facility which it fully repaid during the second quarter of 2022. The weighted-average annual interest rate on borrowings was approximately 1.70% during the six months ended~~ ~~June 30, 2022~~.facility. The unused credit capacity was ~~$747.0~~$746.9 million and ~~$732.8~~$747.3 million as of June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

The Company is required to maintain a maximum total adjusted net leverage ratio of ~~3.75:~~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:~~4.25:1 for the quarter in which such acquisition occurs and for the next three quarters thereafter. The Company was in compliance with the financial covenants as of June 30, ~~2022~~2023.

11

In addition, the Company had $36.7 million and $19.6 million outstanding under short-term borrowings as of June 30, 2023 and December 31, 2022. Included in these amounts are $30.8 million and $14.5 million as of June 30, 2023 and December 31, 2022, related to our subsidiary in India, which has a line of credit of $42.9 million and $34.1 million as of June 30, 2023 and December 31, 2022, and a weighted average interest rate of 8.7% for the six months ended June 30, 2023.

HF-T1 Distribution Center Loan

To finance construction and improvements to the Company’s North American distribution center, thethe 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 a ~~$129.5~~$129.5 million construction loan agreement which matures on March 18, 2025 (the “HF-T1 2020 Loan”) with interest of ~~LIBOR~~SOFR Daily Floating Rate plus a margin of ~~1.75%~~1.75% per annum.

HF-T1 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. Pursuant to the Swap Agreement, on August 14, 2015, HF-T1 entered into a confirmation of swap transactions (the “Interest Rate Swap”) as amended (the “Swap Agreement Amendment”) on March 18, 2020 with Bank of America, ~~N.A~~N.A. with a maturity date of 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 Loan and 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 revolving credit facility. The obligations of the JV under this loan are guaranteed by HF.

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. During the second quarter of 2023, the Company amended certain terms of our loan agreement with Bank of America and the related interest rate swap to replace the LIBOR with the daily SOFR as part of our planned reference rate reform activities. As of both June 30, ~~2022~~2023 and December 31, ~~2021,~~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%~~0.778% on the notional amount and receive payments from the counterparty based on the 30-day ~~LIBOR~~SOFR rate, effectively modifying the Company’s exposure to interest rate risk by converting floating-rate debt to a fixed rate of ~~4.08%~~2.63%.

HF-T2 Distribution Center Construction Loan

To finance the expansion of the Company’s North American distribution center, the JV, through HF Logistics-SKX T2, LLC, a wholly-owned subsidiary of the JV (“HF-T2”) entered into a construction loan agreement of up to ~~$73.0~~$73.0 million which matures on April 3, ~~2025.~~ 2025. Under the 2020 Construction Loan Agreement, the interest rate per annum on the HF-T2 2020 Construction Loan ~~is BSBY~~ based 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 HF-T2 Distribution Center Construction Loan was approximately ~~2.40%~~6.63% during the six months ended June 30, ~~2022~~2023. The obligations of the JV under this loan are guaranteed by TGD Holdings I, LLC, which is an affiliate of HF.

China Distribution Center Construction Loan

TheThe Company entered into a 700.0 million yuan loan agreement to finance the construction of its distribution center in China which matures on September 28, ~~2023.~~ 2023. The interest rate at June 30, ~~2022~~2023 was ~~4.00%~~4.00% and may increase or decrease over the life of the loan, and will be evaluated every 12 months. Beginning in 2021, the principal of the loan is repaid in semi-annual installments of variable amounts. The obligations of the China distribution center construction loan, entered through the Company’s Taicang Subsidiary are jointly and severally guaranteed by the Company’s China joint venture. As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the outstanding balance under this loan included approximately ~~$33.3~~$19.3 million and ~~$28.2~~$41.3 million classified as current installments of long-term ~~borrowings~~borrowings.

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 June 30, 2023 was 3.4% and may increase or decrease over the life of the loan, and will be 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 ~~condensed consolidated balance sheets.~~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 China joint venture. The balance of working capital loans was approximately ~~$42.6~~$53.1 million with interest rates ranging from ~~1.63%~~2.90% to ~~2.83%~~3.00% per annum as of June 30, ~~2022.~~2023. The balance of working capital loans as of December 31, ~~2021~~2022 was approximately ~~$52.6~~$54.4 million with interest rates ranging from ~~1.00%~~2.90% to ~~3.70%~~3.41% per annum. The ~~balance of loans related to a corporate office building in Shanghai was approximately $14.5million, with interest at 4.13% per annum, as of June 30, 2022 and $17.2 million as of December 31, 2021, with interest at~~

~~4.28% per annum, payable at terms agreed by the lender. As of June 30, 2022 the~~ outstanding balances under these working capital loans are classified as current ~~borrowings in the Company’s condensed consolidated balance sheets included $28.4 million related to the working capital loans~~installments of long-term borrowings.

12

(5)

Stockholders Equity and ~~$4.2 million related to the office building loans.~~ As of December 31, 2021, the outstanding balances classified as current borrowings in the Company’s condensed consolidated balance sheets included $37.6 million related to the working capital loans and $4.0 million related to the office building loans.

Stock Compensation

~~(5)~~

~~Stockholders Equity and Stock Compensation~~

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, for an aggregate repurchase price not to exceed ~~$500~~$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 June 30, ~~2022~~,2023, there was ~~$450.8~~$365.7 million remaining to repurchase shares under the Share Repurchase Program.

The following table provides a summary the Company’s stock repurchase activities:

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Shares repurchased

635,712

0

1,287,486

0

Average cost per share

$
38.12

$
0

$
38.24

$
0

Total cost of shares repurchased (in thousands):

$
24,232

$
0

$
49,232

$
0


		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Shares repurchased			579,475				635,712				1,255,665				1,287,486
Average cost per share		$	51.79			$	38.12			$	47.80			$	38.24
Total cost of shares repurchased (in thousands)		$	30,012			$	24,232			$	60,026			$	49,232

INCENTIVE AWARD PLAN

On April 6, 2023, the Company's Board of Directors adopted the 2023 Incentive Award Plan (the "2023 Plan"), which became effective upon approval by the Company's stockholders on June 12, 2023. The 2023 Plan replaced and superseded in its entirety the 2017 Plan. A total of 7,500,000 shares of Class A Common Stock are reserved for issuance under the 2023 Plan, which provides for the grants of ISOs, non-qualified stock options, restricted stock and various other types of equity awards as described in the plan to the employees, consultants, and directors of the Company. The 2023 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.

In the six months ended June 30, ~~2022~~,2023, 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 earnings per share (“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 0zero to ~~200%~~200% based on actual results. As of June 30, ~~2022,~~2023, there were ~~2,835,299~~6,768,539 shares available for grant as equity awards under the ~~2017~~2023 Incentive Award Plan if target levels are achieved for performance-based awards and ~~2,135,299~~6,292,756 if maximum levels are achieved.

The Company issued the following stock-based instruments:


		Six Months Ended June 30,
		2023								2022
		Granted				Weighted-Average Grant-Date Fair Value				Granted				Weighted-Average Grant-Date Fair Value
Restricted stock			885,490			$	45.83				1,314,850			$	38.57
Performance-based restricted stock			121,225			$	43.34				116,250			$	42.46
Market-based restricted stock			121,225			$	59.71				116,250			$	58.85

Six Months Ended June 30,

2022

2021

Granted

Weighted-Average Grant-Date Fair Value

Granted

Weighted-Average Grant-Date Fair Value

Restricted stock

1,314,850

$
38.57

699,300

$
43.40

Performance-based restricted stock

116,250

$
42.46

108,750

$
38.95

Market-based restricted stock

116,250

$
58.85

108,750

$
54.34

A summary of the status and changes of the Company’s unvested shares is presented below:

Shares

Weighted-Average Grant-Date Fair Value

Unvested at December 31, 2021

3,253,316

$
38.97

Granted

1,547,350

40.39

Vested

(1,256,281
)

36.09

Cancelled

(41,000
)

41.18

Unvested at June 30, 2022

3,503,385

$
40.60


		Shares				Weighted-Average Grant-Date Fair Value
Unvested at December 31, 2022			3,423,902			$	40.62
Granted			1,127,940				47.06
Vested			(938,237	)			38.96
Cancelled			(37,000	)			40.63
Unvested at June 30, 2023			3,576,605			$	43.08

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.

For the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized $~~$15.1~~16.9 million and ~~$13.9~~$15.1 million of incentive stock compensation expense. For the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized ~~$32.3~~$30.4 million and ~~$25.5~~$32.3 million of incentive stock compensation expense. As of June 30, ~~2022,~~2023, the unamortized stock compensation of $~~$114.9~~111.6 million is expected to be recognized over a weighted-average period of ~~2.24~~1.93 ~~years~~. years.

13

STOCK PURCHASE PLAN

A total of 5,000,000 shares of Class A Common Stock are available for sale under the 2018 Employee Stock Purchase Plan (“2018 ESPP”). 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%~~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%~~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 ~~each of~~ the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized ~~$0.7~~$0.8 million and $0.7 million of ESPP stock compensation expense. For the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized ~~$1.5 million and $1.2~~$1.5 million of ESPP stock compensation expense. As of June 30, ~~2022,~~2023, there were ~~3,914,503~~3,667,869 shares available for sale under the 2018 ESPP.

(6)

Earnings Per Share

~~(6)~~

~~Earnings Per Share~~

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~~.method.

The calculation of EPS is as follows:


		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except per share data)		2023				2022				2023				2022
Net earnings attributable to Skechers U.S.A., Inc.		$	152,759			$	90,404			$	313,202			$	211,627

Weighted-average common shares outstanding, basic			154,970				155,941				155,055				155,969
Dilutive effect of nonvested shares			1,601				807				1,599				1,105
Weighted-average common shares outstanding, diluted			156,571				156,748				156,654				157,074
Anti-dilutive common shares excluded above			12				67				14				37
Net earnings per share attributable to Skechers U.S.A., Inc.
Basic		$	0.99			$	0.58			$	2.02			$	1.36
Diluted		$	0.98			$	0.58			$	2.00			$	1.35

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except per share data)

2022

2021

2022

2021

Net earnings attributable to Skechers U.S.A., Inc.

$
90,404

$
137,369

$
211,627

$
235,942

Weighted-average common shares outstanding, basic

155,941

155,561

155,969

155,196

Dilutive effect of nonvested shares

807

1,113

1,105

1,125

Weighted-average common shares outstanding, diluted

156,748

156,674

157,074

156,321

Anti-dilutive common shares excluded above

67

10

37

35

Net earnings per share attributable to Skechers U.S.A., Inc.

Basic

$
0.58

$
0.88

$
1.36

$
1.52

Diluted

$
0.58

$
0.88

$
1.35

$
1.51

(7)

Income Taxes

~~(7)~~

~~Income Taxes~~

The tax provisions for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022, were computed using the estimated effective tax rates applicable to each of the domestic and international taxable jurisdictions for the full year. The Company’s tax rate is subject to management’s quarterly review and revision, as necessary. The Company’s provision for income tax expense 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 foreign jurisdictions in which the Company has operations, the applicable statutory rates range from ~~0.0%~~0% to ~~34.0%~~35%, which is on average significantly lower than the U.S. federal and state combined statutory rate of approximately ~~25%~~25%. The Company’s effective tax rate was ~~21.3%~~17.7% and ~~20.4%~~21.3% for the three months ended June 30, ~~2022~~2023 and ~~2021~~2022, and ~~20.6%~~18.1% and ~~20.3%~~20.6% for the six months ended June 30, ~~2022~~2023 and ~~2021~~2022. The ~~minor increases~~decrease for ~~both~~ the ~~three and six month~~quarterly rates ~~are~~ is primarily due to the ~~result~~positive impact of ~~additional withholding taxes on certain foreign distributions~~discrete items..

(8)

Related Party Transactions

~~(8)~~

~~Related Party Transactions~~

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 officers and directors of the Foundation. During ~~each of~~ the three months ended June 30, ~~2022~~2023 and ~~2021,~~June 30, 2022, the Company made contributions of ~~$0.5~~$1.0 million and $0.5 million, and contributions of ~~$1.0~~$1.0 million for each of the six-month periods ended June 30, ~~2022~~2023 and ~~2021. In March 2021, the~~June 30, 2022.

14

(9)

Segment and Geographic Information

The Company purchased 2 properties for $2.7 million, from an entity controlled by its President, Michael Greenberg, to facilitate future expansion of our 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.~~

~~(9)~~

~~Segment and Geographic Information~~

~~During the first quarter of 2022,~~ ~~the Company refined the way in which management assesses performance and allocates resources and now presents its~~has two reportable ~~segment results as~~segments, Wholesale and Direct-to-Consumer. ~~Comparative periods have been recast to reflect these changes.~~ Management ~~continues to evaluate~~evaluates segment performance based primarily on sales and gross margin. Other costs and expenses of the Company are analyzed on an aggregate basis and not allocated to the segments. The following summarizes the Company’s operations by segment and geographic area:

Segment Information


		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2023				2022				2023				2022
Wholesale sales		$	1,073,019			$	1,140,325			$	2,367,576			$	2,391,631
Gross profit			431,551				414,479				943,550				869,439
Gross margin			40.2	%			36.3	%			39.9	%			36.4	%

Direct-to-Consumer sales		$	939,497			$	727,479			$	1,646,868			$	1,295,767
Gross profit			628,973				483,100				1,095,553				852,303
Gross margin			66.9	%			66.4	%			66.5	%			65.8	%

Total sales		$	2,012,516			$	1,867,804			$	4,014,444			$	3,687,398
Gross profit			1,060,524				897,579				2,039,103				1,721,742
Gross margin			52.7	%			48.1	%			50.8	%			46.7	%


(in thousands)		As of June 30, 2023				As of December 31, 2022
Identifiable assets
Wholesale		$	3,575,560			$	3,682,860
Direct-to-Consumer			3,532,097				3,210,627
Total		$	7,107,657			$	6,893,487


		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2023				2022				2023				2022
Additions to property, plant and equipment
Wholesale		$	55,916			$	49,965			$	107,432			$	114,663
Direct-to-Consumer			20,296				24,148				39,993				48,848
Total		$	76,212			$	74,113			$	147,425			$	163,511

15

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2022

2021

2022

2021

Wholesale sales

$
1,140,325

$
964,228

$
2,391,631

$
1,907,338

Gross profit

414,479

379,426

869,439

748,992

Gross margin

36.3
%

39.4
%

36.4
%

39.3
%

Direct-to-Consumer sales

$
727,479

$
697,643

$
1,295,767

$
1,188,988

Gross profit

483,100

474,166

852,303

790,259

Gross margin

66.4
%

68.0
%

65.8
%

66.5
%

Total sales

$
1,867,804

$
1,661,871

$
3,687,398

$
3,096,326

Gross profit

897,579

853,592

1,721,742

1,539,251

Gross margin

48.1
%

51.4
%

46.7
%

49.7
%

(in thousands)

As of
June 30, 2022

As of
December 31, 2021

Identifiable assets

Wholesale

$
3,813,653

$
3,816,513

Direct-to-Consumer

2,862,943

2,674,767

Total

$
6,676,596

$
6,491,280

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2022

2021

2022

2021

Additions to property, plant and equipment

Wholesale

$
49,965

$
51,059

$
114,663

$
125,193

Direct-to-Consumer

24,148

10,923

48,848

21,026

Total

$
74,113

$
61,982

$
163,511

$
146,219

Geographic Information

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2022

2021

2022

2021

Geographic sales

Domestic Wholesale

$
521,041

$
401,277

$
1,059,610

$
778,515

Domestic Direct-to-Consumer

319,508

326,981

558,956

554,433

Total domestic sales

840,549

728,258

1,618,566

1,332,948

International Wholesale

619,284

562,951

1,332,021

1,128,823

International Direct-to-Consumer

407,971

370,662

736,811

634,555

Total international sales

1,027,255

933,613

2,068,832

1,763,378

Total sales

$
1,867,804

$
1,661,871

$
3,687,398

$
3,096,326


		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2023				2022				2023				2022
Geographic sales
Domestic Wholesale		$	390,783			$	521,041			$	832,685			$	1,059,610
Domestic Direct-to-Consumer			411,063				319,508				710,027				558,956
Total domestic sales			801,846				840,549				1,542,712				1,618,566

International Wholesale			682,236				619,284				1,534,891				1,332,021
International Direct-to-Consumer			528,434				407,971				936,841				736,811
Total international sales			1,210,670				1,027,255				2,471,732				2,068,832

Total sales		$	2,012,516			$	1,867,804			$	4,014,444			$	3,687,398


Regional Sales
Americas (AMER)		$	1,027,006			$	1,033,879			$	1,972,936			$	1,980,765
Europe, Middle East & Africa (EMEA)			433,351				374,566				967,845				815,767
Asia Pacific (APAC)			552,159				459,359				1,073,663				890,866
Total sales		$	2,012,516			$	1,867,804			$	4,014,444			$	3,687,398

China sales		$	302,401			$	254,917			$	584,354			$	527,948


(in thousands)		As of June 30, 2023				As of December 31, 2022
Property, plant and equipment, net
Domestic		$	901,797			$	870,924
International			515,428				474,446
Total		$	1,417,225			$	1,345,370

China property plant and equipment, net		$	280,463			$	264,422

Regional Sales

Americas (AMER)

$
1,033,879

$
855,240

$
1,980,765

$
1,580,858

Europe, Middle East & Africa (EMEA)

374,566

348,080

815,767

643,566

Asia Pacific (APAC)

459,359

458,551

890,866

871,902

Total

$
1,867,804

$
1,661,871

$
3,687,398

$
3,096,326

China sales

$
254,917

$
316,872

$
527,948

$
567,474

(in thousands)

As of
June 30, 2022

As of
December 31, 2021

Property, plant and equipment, net

Domestic

$
780,329

$
708,763

International

445,200

420,146

Total

$
1,225,529

$
1,128,909

China property plant and equipment, net

$
250,529

$
255,421

The Company’s sales to its 5five largest customers accounted for approximately ~~11.1%~~8.0% and ~~9.0%~~11.1% of total sales for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, and for the six months ended June 30, 2023 and 2022 were 7.8% and ~~2021 were 10.2% and 8.3%~~10.2%.

Assets located outside the U.S. consist primarily of cash, accounts receivable, inventory, property, plant and equipment, and other assets. Net assets held outside the U.S. were ~~$4.1~~$4.8 billion and ~~$4.2~~$4.4 billion at June 30, ~~2022~~2023 and December 31, ~~2021.~~2022. Goodwill of ~~$93.5~~$101.5 million and $93.5 million is included in the Wholesale segment as of June 30, 2023 and December 31, 2022.

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 for the three months ended June 30, 2023 and 2022 ~~and 2021~~ were ~~$0.7~~$0.4 million and ~~$0.3~~$0.7 million, and for the~~the~~ six months ended June 30, 2023 and 2022 ~~and~~ ~~2021~~were ~~$1.0~~$1.1 million and ~~$0.3 million~~$.1.0 million.

The Company’s accounts receivables, excluding allowances for bad debts ~~allowances~~ and chargebacks, by geography are summarized as follows:


(in thousands)		As of June 30, 2023				As of December 31, 2022
Domestic Accounts Receivable		$	331,663			$	310,138
International Accounts Receivable			677,039				597,621

(in thousands)

As of
June 30, 2022

As of
December 31, 2021

Domestic Accounts Receivable

$
393,644

$
270,404

International Accounts Receivable

576,939

525,073

The Company’s top five manufacturers produced the following:


		Three Months Ended June 30,								Six Months Ended June 30,
(percentage of total production)		2023				2022				2023					2022
Manufacturer #1			17.1				16.1				19.8				16.9
Manufacturer #2			7.1				6.3				6.5				5.6
Manufacturer #3			6.8				6.1				6.5				5.6
Manufacturer #4			6.1				6.0				5.7				5.1
Manufacturer #5			5.5				5.0				5.2				4.7
Total			42.6				39.5				43.7				37.9

16

Three Months Ended June 30,

Six Months Ended June 30,

(percentage of total production)

2022

2021

2022

2021

Manufacturer #1

16.1

17.0

16.9

17.9

Manufacturer #2

6.3

7.3

5.6

6.1

Manufacturer #3

6.1

5.0

5.6

4.9

Manufacturer #4

6.0

4.8

5.1

4.8

Manufacturer #5

5.0

4.6

4.7

4.3

39.5

38.7

37.9

38.0

(10)

Commitments and Contingencies

~~(10)~~

~~Commitments and Contingencies~~

In accordance with GAAP, the Company records a liability in its condensed 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 condensed consolidated financial statements as of June 30, ~~2022,~~2023, 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.

(11)

Business Combinations

Business acquisitions are accounted for under the acquisition method by assigning the purchase consideration to tangible and intangible assets acquired and liabilities assumed. The results of businesses acquired in a business combination are included in the consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase consideration over the amounts assigned is recorded as goodwill. Purchased intangible assets with finite lives are amortized over their estimated useful lives. Fair value determinations require judgment and may involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items.

On May 31, 2023, the Company acquired 100% of the equity interests of Sports Connection Holdings ApS ("Sports Connection"), a Denmark-based company and a former distributor, to further broaden our reach in Europe. The total consideration is approximately $84.0 million and consisted of an initial cash payment of $74.8 million, the settlement of pre-existing receivables of $1.7 million and a contingent consideration payable of up to $7.5 million, subject to the acquiree achieving certain 2023 financial results. On the acquisition date, we recorded intangible assets of $54.4 million, goodwill of $8.0 million and other net assets of $21.6 million. The intangible assets have an estimated life of 7 years and are primarily related to reacquired rights. The acquisition is a non-taxable business combination and goodwill is not deductible for tax purposes.

The results of Sports Connection's operations have been included in, but are not material to, the Company's consolidated results of operations since the date of acquisition. Unaudited supplemental pro forma results of operations have not been presented because the effect of the acquisition was not material to the Company's condensed consolidated financial statements. One-time acquisition related costs of $1.4 million were expensed as general and administrative expenses as incurred.

The purchase accounting for the Sports Connection acquisition remains preliminary. Although the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, as well as any contingent consideration, the estimates are inherently uncertain and subject to refinement. As a result, any adjustments will be recognized in the reporting period in which the amounts are determined, but not to exceed twelve months from the acquisition date.

17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and ~~Notes~~notes thereto in Item 1 of this report and our annual report on Form 10-K for the year ended December 31, ~~2021.~~2022 and our quarterly report on Form 10-Q for the quarter ended March 31, 2023.

We intend for this discussion to provide the reader with information that will assist in understanding our condensed 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 condensed 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.

This quarterly report on Form 10-Q contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 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,” “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:

•

our ability to manage the impact from delays and disruptions in our supply chain;

•

our ability to sustain, manage and forecast our costs and proper inventory levels;

•

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;

•

our ability to maintain our brand image and to anticipate, forecast, identify, and respond to changes in fashion trends, consumer demand for the products and other market factors;

•

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 highly competitive performance footwear market; and

•

global economic, political and market conditions including the effects of inflation and foreign currency exchange rate fluctuations around the world, the challenging consumer retail market in the United States and the impact of Russia’s war with Ukraine; and

•

other factors referenced or incorporated by reference in our annual report on Form 10-K for the year ended December 31, 2022 and our quarterly report on Form 10-Q for the quarter ended March 31, 2023 under the captions “Item 1A: Risk Factors” and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

•

~~the COVID-19 pandemic and its adverse impact on our operations and our business, sales and results of operations around the world;~~

•

~~our ability to manage the impact from delays and disruptions in our supply chain;~~

•

~~our ability to sustain, manage and forecast our costs and proper inventory levels;~~

•

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 or trade conditions, or a natural disaster in China or Vietnam;

•

~~our ability to maintain our brand image and to anticipate, forecast, identify, and respond to changes in fashion trends, consumer demand for the products and other market factors;~~

•

~~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 highly competitive performance footwear market;~~

•

global economic, political and market conditions including the effects of inflation around the world, challenging consumer retail market in the United States (“U.S.”) and the impact of Russia’s war with Ukraine; and

•

other factors referenced or incorporated by reference in our annual report on Form 10-K for the year ended December 31, 2021 under the captions “Item 1A: Risk Factors” and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The risks included herein 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 quarterly 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 states securities laws.

OVERVIEW

Sales ~~exceeded $1.8~~of $2.0 billion in the second ~~quarter. This is~~quarter set a new quarterly ~~sales~~ record, reflecting the ~~continued broad-based~~robust global demand for our product. ~~Sales increased across both~~Gross margins improved year-over-year to 52.7% and inventory was reduced by 18.3% from December 31, 2022. Our record sales, expanded gross margins and meaningfully improved inventory levels are an indication of the strength of our ~~segments compared to the same period in 2021. This global growth came despite ongoing challenges, including COVID-related temporary store closures~~comfort technology products and ~~operating restrictions, shipping delays, and macroeconomic volatility.~~impactful marketing worldwide.

Our core product philosophy of comfort, style, innovation, and quality at ~~the right~~a reasonable price continues to resonate with consumers, and we remain focused on delivering our comfort technology footwear ~~as quickly as possible~~ to meet ~~the~~ consumer demand.

~~We remain confident in the strength of our brand and the relevance of our distinct product offering.~~ We continue to ~~invest for~~build efficiencies and expand our distribution capabilities around the world. We remain focused on executing against our long-term growth ~~with a focus on enhancing~~strategies and believe we are well positioned to meet our ~~global infrastructure, direct-to-consumer technologies and developing innovative footwear. Current global infrastructure investments, technology projects and activities include:~~sales goal of $10 billion by 2026.

On April 22, 2023, we released our first Impact Report. With one of America’s largest LEED Gold Certified facilities and our environmentally minded European Distribution Center, we are committed to reducing our impact on the world through green building design, operational efficiencies, and waste and water use reduction.

18

•

~~Expanding our e-commerce presence internationally.~~

•

~~Completing the expansion, in July, of our North American LEED Gold Certified distribution center to increase capacity.~~

•

~~Continuing development on our LEED Gold Certified corporate headquarters expansion, which we expect to be completed in 2024.~~

•

~~Expanding our international distribution and supply chain footprint.~~

•

~~Exploring new recycled materials to expand our sustainable product offering.~~

RESULTS OF OPERATIONS – SECOND QUARTER

~~During the first quarter of 2022, the Company realigned its reporting structure to~~We have 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.

Selected information from our results of operations follows:


		Three Months Ended June 30,								Change								Three Months Ended June 30,								Change
(in thousands)		2022				2021				$				%				2023				2022				$				%
Sales		$	1,867,804			$	1,661,871				205,933				12.4			$	2,012,516			$	1,867,804				144,712				7.7
Cost of sales			970,225				808,279				161,946				20.0				951,992				970,225				(18,233	)			(1.9	)
Gross profit			897,579				853,592				43,987				5.2				1,060,524				897,579				162,945				18.2
Gross margin			48.1		%		51.4		%						(330	)bps			52.7		%		48.1		%						460 bps
Operating expenses
Selling			166,609				141,470				25,139				17.8				187,118				166,609				20,509				12.3
General and administrative			576,812				510,912				65,900				12.9				655,673				576,812				78,861				13.7
Total operating expenses			743,421				652,382				91,039				14.0				842,791				743,421				99,370				13.4
As a % of sales			39.8		%		39.3		%						50	bps			41.9		%		39.8		%						210 bps
Earnings from operations			154,158				201,210				(47,052	)			(23.4	)			217,733				154,158				63,575				41.2
Operating margin			8.3		%		12.1		%						(390	)bps			10.8		%		8.3		%						260 bps
Other income (expense)			(19,259	)			2,158				(21,417	)		n/m					2,792				(19,259	)			22,051			n/m
Earnings before income taxes			134,899				203,368				(68,469	)			(33.7	)			220,525				134,899				85,626				63.5
Income tax expense			28,739				41,545				(12,806	)			(30.8	)			38,942				28,739				10,203				35.5
Net earnings			106,160				161,823				(55,663	)			(34.4	)			181,583				106,160				75,423				71.0
Net earnings attributable to noncontrolling interests			15,756				24,454				(8,698	)			(35.6	)			28,824				15,756				13,068				82.9
Net earnings attributable to Skechers U.S.A., Inc.		$	90,404			$	137,369				(46,965	)			(34.2	)		$	152,759			$	90,404				62,355				69.0

~~Sales~~

Sales

Sales increased ~~$205.9~~$144.7 million, or ~~12.4%~~7.7%, to ~~$1.9~~$2.0 billion as compared to ~~$1.7~~$1.9 billion as a result of a ~~15.4%~~17.9% increase ~~in domestic sales~~internationally and a ~~10.0% increase in international sales, primarily driven by strength in wholesale sales. Sales~~4.6% decrease domestically. Direct-to-Consumer increased ~~across both segments including~~29.1% and Wholesale ~~growth of 18.3% and Direct-to-Consumer growth of 4.3%~~declined 5.9%. Sales increased overall due to ~~improved~~higher sales volume in Direct-to-Consumer and higher average selling ~~prices.~~prices in Wholesale.

Gross margin

Gross margin ~~decreased 330~~increased 460 basis points to ~~48.1%~~52.7% compared to ~~51.4%~~48.1%, ~~primarily~~ ~~driven by higher per unit freight costs and~~due to a higher proportion of ~~wholesale~~Direct-to-Consumer sales ~~partially offset by~~and higher average selling ~~price increases.~~prices.

Operating expenses

Operating expenses increased ~~$91.0~~$99.4 million, or ~~14.0%~~13.4%, to ~~$743.4~~$842.8 million, and as a percentage of sales increased 50210 basis points to ~~39.8%~~41.9% compared to ~~39.3%~~39.8% in the prior year. Selling expenses increased ~~$25.1~~$20.5 million, or ~~17.8%~~12.3%, to ~~$166.6~~$187.1 million, primarily due to higher brand demand creation expenditures. General and administrative expenses increased ~~$65.9~~$78.9 million, or ~~12.9%~~13.7%, to ~~$576.8 million,~~$655.7 million. The increased expenses were primarily due to ~~volume-driven increases~~increase in labor costs of $35.7 million, facility related costs of $23.2 million, including rent and depreciation, and warehouse and distribution ~~expenses of $25.4 million, as well as higher rent and store operating~~ costs of ~~$10.8~~$10.2 million.

Other income (expense)

Other income was $2.8 million for the three months ended June 30, 2023, as compared to an expense of $19.3 million ~~changed $21.4~~for the three months ended June 30, 2022. The increase of $22.1 million ~~from other income of $2.2 million,~~was primarily due to ~~unfavorable losses~~favorable gains on foreign currency exchange ~~rates, largely in Europe.~~rates.

Income taxes

Income tax expense and the effective tax rate were as follows:


		Three Months Ended June 30,								Three Months Ended June 30,
(in thousands)		2022				2021				2023				2022
Income tax expense		$	28,739			$	41,545			$	38,942			$	28,739
Effective tax rate			21.3	%			20.4	%			17.7	%			21.3	%

19

Our income tax expense and effective income tax rate are significantly impacted by the mix of our domestic and foreign earnings before income taxes. In the foreign jurisdictions in which we have operations, the applicable statutory rates range from ~~0.0%~~0% to ~~34%~~35%, which on average is significantly lower than the U.S. federal and state combined statutory rate of approximately 25%. For the quarter, the ~~increase~~decrease in the effective tax rate is primarily ~~reflects~~ due to the positive impact of discrete items.~~additional withholding taxes on certain foreign distributions~~.

Noncontrolling interests in net ~~income~~earnings of consolidated ~~joint ventures~~subsidiaries

Noncontrolling interests represents the share of net earnings that is attributable to our joint venture partners. Net earnings attributable to noncontrolling interests ~~decreased $8.7~~increased $13.1 million to $28.8 million compared to $15.8 million ~~as compared to $24.5 million, primarily~~in the prior year, due to ~~lower~~higher earnings by our joint ventures, predominantly in China, due to impacts of COVID-related ~~restrictions.~~restrictions in the prior year.

RESULTS OF SEGMENT OPERATIONS – SECOND QUARTER

Wholesale

Three Months Ended June 30,

2022 vs 2021 Change

2021 vs 2020 Change

(in thousands)

2022

2021

2020

$

%

$

%

Sales

$
1,140,325

$
964,228

$
385,862

176,097

18.3

578,366

149.9

Gross profit

414,479

379,426

154,574

35,053

9.2

224,852

145.5

Gross margin

36.3
%

39.4
%

40.1
%

(300
)bps

(70
)bps

~~2022 to 2021 Comparison~~


		Three Months Ended June 30,								Change
(in thousands)		2023				2022				$				%
Sales		$	1,073,019			$	1,140,325				(67,306	)			(5.9	)
Gross profit			431,551				414,479				17,072				4.1
Gross margin			40.2	%			36.3	%							390 bps

Wholesale sales ~~increased $176.1~~declined $67.3 million, or ~~18.3%~~5.9%, to $1.1 billion, ~~led by growth of 34.9%~~which includes a decrease in the ~~Americas.~~ ~~Volume~~Americas of 18.7%, partially offset by increases in Asia Pacific of 14.3% and Europe, Middle East & Africa of 7.4%. Wholesale volume decreased 13.1% and average selling price increased ~~14.8%~~8.0%.

Wholesale gross margin increased 390 basis points to 40.2% driven by average selling price increases.

Direct-to-Consumer


		Three Months Ended June 30,								Change
(in thousands)		2023				2022				$				%
Sales		$	939,497			$	727,479				212,018				29.1
Gross profit			628,973				483,100				145,873				30.2
Gross margin			66.9	%			66.4	%							50 bps

Direct-to-Consumer sales increased $212.0 million, or 29.1%, to $939.5 million, which includes increases in the ~~number~~Americas of ~~units sold~~28.2%, Asia Pacific of 25.1% and Europe, Middle East & Africa of 47.2%. Direct-to-Consumer volume increased 23.8% and average selling price per unit increased ~~3.1%~~4.4%.

~~Wholesale gross margin decreased 300 basis points to 36.3% due to higher average cost per unit, driven by increased freight costs, partially offset by average selling price increases.~~

~~2021 to 2020 Comparison~~

Wholesale sales increased $578.4 million, or 149.9% to $964.2 million, as a result of growth across all regions which experienced COVID restrictions in 2020. Growth was 207.5% in the Americas, 148.7% in Europe, Middle East & Africa, and 77.6% in Asia Pacific. Volume increased 143.1% in the number of units sold and average selling price per unit increased 3.1%.

~~Wholesale gross margin decreased 70 basis points to 39.4% primarily due to higher average per unit costs, partially offset by average selling price increases.~~

~~Direct-to-Consumer~~

Three Months Ended June 30,

2022 vs 2021 Change

2021 vs 2020 Change

(in thousands)

2022

2021

2020

$

%

$

%

Sales

$
727,479

$
697,643

$
346,209

29,836

4.3

351,434

101.5

Gross profit

483,100

474,166

216,590

8,934

1.9

257,576

118.9

Gross margin

66.4
%

68.0
%

62.6
%

(160
)bps

540
bps

~~2022 to 2021 Comparison~~

Direct-to-Consumer sales increased $29.8 million, or 4.3%, to $727.5 million, led by increases in the Americas of 3.7%, Europe, Middle East & Africa of 13.5%, and Asia Pacific of 2.7%. Volume was essentially flat with a decrease of 1.0% in the number of units sold and average selling price per unit increased 5.3%.

~~Direct-to-Consumer gross margin decreased 160 basis points to 66.4%, primarily due to higher average per unit costs, partially offset by average selling price increases.~~

~~2021 to 2020 Comparison~~

Direct-to-Consumer sales increased $351.4 million, or 101.5%, to $697.6 million, driven by increases across all regions which experienced COVID restrictions in 2020. Growth was 127.6% in the Americas, 439.7% in Europe, Middle East & Africa, and 48.6% in Asia Pacific. Volume increased 66.2% in the number of units sold and average selling price per unit increased 21.1%.

Direct-to-Consumer gross margin increased ~~540~~50 basis points to ~~68.0%~~66.9%, primarily driven by ~~higher~~ average selling prices increases, partially offset by ~~higher average per unit~~increased costs.

RESULTS OF OPERATIONS – SIX MONTHS

Selected information from our results of operations follows:


		Six Months Ended June 30,								Change								Six Months Ended June 30,								Change
(in thousands)		2022				2021				$				%				2023				2022				$				%
Sales		$	3,687,398			$	3,096,326				591,072				19.1			$	4,014,444			$	3,687,398				327,046				8.9
Cost of sales			1,965,656				1,557,075				408,581				26.2				1,975,341				1,965,656				9,685				0.5
Gross profit			1,721,742				1,539,251				182,491				11.9				2,039,103				1,721,742				317,361				18.4
Gross margin			46.7		%		49.7		%						(300	)bps			50.8		%		46.7		%						410 bps
Operating expenses
Selling			274,818				232,795				42,023				18.1				315,678				274,818				40,860				14.9
General and administrative			1,116,862				947,578				169,284				17.9				1,282,115				1,116,862				165,253				14.8
Total operating expenses			1,391,680				1,180,373				211,307				17.9				1,597,793				1,391,680				206,113				14.8
As a % of sales			37.7		%		38.1		%						(40	)bps			39.8		%		37.7		%						210 bps
Earnings from operations			330,062				358,878				(28,816	)			(8.0	)			441,310				330,062				111,248				33.7
Operating margin			9.0		%		11.6		%						(260	)bps			11.0		%		9.0		%						200 bps
Other expense			(25,005	)			(12,016	)			(12,989	)			108.1
Other income (expense)																			12,715				(25,005	)			37,720			n/m
Earnings before income taxes			305,057				346,862				(41,805	)			(12.1	)			454,025				305,057				148,968				48.8
Income tax expense			62,731				70,530				(7,799	)			(11.1	)			82,158				62,731				19,427				31.0
Net earnings			242,326				276,332				(34,006	)			(12.3	)			371,867				242,326				129,541				53.5
Net earnings attributable to noncontrolling interests			30,699				40,390				(9,691	)			(24.0	)
Less: Net earnings attributable to noncontrolling interests																			58,665				30,699				27,966				91.1
Net earnings attributable to Skechers U.S.A., Inc.		$	211,627			$	235,942				(24,315	)			(10.3	)		$	313,202			$	211,627				101,575				48.0

~~Sales~~

20

Sales

Sales increased ~~$0.6~~$0.3 billion, or ~~19.1%~~8.9%, to ~~$3.7~~$4.0 billion as compared to ~~$3.1~~$3.7 billion as a result of a ~~21.4%~~19.5% increase ~~in domestic sales~~internationally and a ~~17.3% increase in international sales, primarily driven by strength in wholesale sales. Sales grew across both segments with increases to~~4.7% decrease domestically. Direct-to-Consumer increased 27.1% and Wholesale ~~of 25.4% and Direct-to-Consumer of 9.0%~~declined 1.0%. Sales increased overall due to ~~improved~~higher sales volume in Direct-to-Consumer and higher average selling ~~prices.~~prices in Wholesale.

Gross margin

Gross margin ~~decreased 300~~increased 410 basis points to ~~46.7%~~50.8% compared to ~~49.7%~~46.7%, ~~primarily~~ ~~driven by~~due to higher ~~per unit freight costs~~average selling prices in Wholesale and a ~~higher proportion~~greater mix of w~~holesale sales, partially offset by average selling price increases.~~Direct-to-Consumer sales.

Operating expenses

Operating expenses increased ~~$211.3~~$206.1 million, or ~~17.9%~~14.8%, to ~~$1.4~~$1.6 billion, and as a percentage of sales ~~improved 40~~increased 210 basis points to ~~37.7%~~39.8% compared to ~~38.1%~~37.7% in the prior year. Selling expenses increased ~~$42.0~~$40.9 million, or ~~18.1%~~14.9%, to ~~$274.8~~$315.7 million, ~~from $232.8 million~~ primarily due to higher brand demand creation ~~expenditures.~~expenditures. General and administrative expenses increased ~~$169.3~~$165.3 million, or ~~17.9%~~14.8%, to ~~$1.1 billion,~~$1.3 billion. The increased expenses were primarily due to ~~higher~~increase in labor ~~and incentive compensation~~ costs of ~~$82.8~~$65.5 million, facility related costs of $38.7 million, including rent ~~of $15.6 million,~~ and ~~volume-driven~~depreciation, and warehouse and distribution ~~expenses~~costs of ~~$14.9~~$28.3 million.

Other income (expense)

Other ~~expense increased $13.0~~income was $12.7 million ~~to $25.0 million~~for the six months ended June 30, 2023, as compared to ~~$12.0~~an expense of $25.0 million for the six months ended June 30, 2022. The increase of $37.7 million was primarily due to ~~unfavorable losses~~favorable gains on foreign currency exchange ~~rates in Europe, Middle East & Africa.~~rates.

~~Income taxes~~

Income tax expense and the effective tax rate were as follows:


		Six Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2022				2021				2023				2022
Income tax expense		$	62,731			$	70,530			$	82,158			$	62,731
Effective tax rate			20.6	%			20.3	%			18.1	%			20.6	%

Our provision for income tax expense and effective income tax rate are significantly impacted by the mix of our domestic and foreign earnings (loss) before income taxes. In the foreign jurisdictions in which we have operations, the applicable statutory rates range from ~~0.0%~~0% to ~~34.0%~~35%, which on average are generally significantly lower than the U.S. federal and state combined statutory rate of approximately 25%. Year-to-date, the decrease in the effective tax rate ~~was essentially flat.~~is primarily due to the positive impact of discrete items.

Noncontrolling interest in net income of consolidated joint ventures

Noncontrolling ~~interest~~interests represents the share of net earnings that is attributable to our joint venture partners. Net earnings attributable to noncontrolling ~~interest decreased $9.7~~interests increased $28.0 million to $58.7 million compared to $30.7 million ~~as compared to $40.4 million, primarily~~in the prior year, due to ~~lower~~higher earnings by our joint ventures, predominantly in China, due to impacts of COVID-related ~~restrictions.~~restrictions in the prior year.

RESULTS OF SEGMENT OPERATIONS – SIX MONTHS

Wholesale


		Six Months Ended June 30,												2022 vs 2021 Change								2021 vs 2020 Change								Six Months Ended June 30,								Change
(in thousands)		2022				2021				2020				$				%				$				%				2023				2022				$				%
Sales		$	2,391,631			$	1,907,338			$	1,272,007				484,293				25.4				635,331				49.9			$	2,367,576			$	2,391,631				(24,055	)			(1.0	)
Gross profit			869,439				748,992				487,966				120,447				16.1				261,026				53.5				943,550				869,439				74,111				8.5
Gross margin			36.4	%			39.3	%			38.4	%							(290	)bps							90	bps			39.9	%			36.4	%							350 bps

~~2022 to 2021 Comparison~~

Wholesale sales ~~increased $0.5 billion,~~declined $24.1 million, or ~~25.4%~~1.0%, to $2.4 billion, ~~driven primarily~~led by ~~growth of 38.2%~~a decrease in the Americas of 15.9%, partially offset by increases in Europe, Middle East & Africa of 14.6% and in Asia Pacific of 19.2%. Wholesale volume decreased 7.3% and average selling price increased 6.6%.

Wholesale gross margin increased 350 basis points to 39.9% driven by average selling price increases.

Direct-to-Consumer


		Six Months Ended June 30,								Change
(in thousands)		2023				2022				$				%
Sales		$	1,646,868			$	1,295,767				351,101				27.1
Gross profit			1,095,553				852,303				243,250				28.5
Gross margin			66.5	%			65.8	%							70 bps

Direct-to-Consumer sales increased $351.1 million, or 27.1%, to $1.6 billion, which includes increases in the Americas of 28.4%, Asia Pacific of 21.7% and Europe, Middle East & Africa of ~~24.0%~~40.4%. ~~Volume~~Direct-to-Consumer volume increased ~~18.8% in the number of units sold~~25.2% and average selling price per unit increased ~~5.9%~~1.5%..

~~Wholesale~~Direct-to-Consumer gross margin ~~decreased 290~~increased 70 basis points to ~~36.4% due to higher average cost per unit,~~66.5%, primarily driven by ~~increased freight costs, partially offset by average selling price increases.~~

~~2021 to 2020 Comparison~~

Wholesale sales increased $0.6 billion, or 49.9% to $1.9 billion, as a result of growth across the Americas of 51.4%, Europe, Middle East & Africa of 35.4% and Asia Pacific of 70.5% which were impacted by 2020 COVID-related market closures. Volume increased 43.6% in the number of units soldproduct mix and average selling price ~~per unit increased 4.5%.~~increases.

~~Wholesale gross margin increased 90 basis points to 39.3% primarily due to higher average selling prices.~~21

~~Direct-to-Consumer~~

Six Months Ended June 30,

2022 vs 2021 Change

2021 vs 2020 Change

(in thousands)

2022

2021

2020

$

%

$

%

Sales

$
1,295,767

$
1,188,988

$
707,656

106,779

9.0

481,332

68.0

Gross profit

852,303

790,259

436,113

62,044

7.9

354,146

81.2

Gross margin

65.8
%

66.5
%

61.6
%

(70
)bps

480
bps

~~2022 to 2021 Comparison~~

Direct-to-Consumer sales increased $106.8 million, or 9.0%, to $1.3 billion, led by increases in the Americas of 6.8%, Europe, Middle East & Africa of 44.2%, and Asia Pacific of 5.3%. Volume decreased 0.4% in the number of units sold and average selling price per unit increased 9.4%.

~~Direct-to-Consumer gross margin decreased 70 basis points to 65.8%, driven by increased freight costs, partially offset by average selling price increases.~~

~~2021 to 2020 Comparison~~

Direct-to-Consumer sales increased $0.5 billion, or 68.0%, to $1.2 billion, driven by increases of 68.8% in the Americas, and 61.8% in Asia Pacific, and 100.6% in Europe, Middle East & Africa which experienced COVID restrictions in 2020. Volume increased 47.0% in the number of units sold and average selling price per unit increased 14.2%.

~~Direct-to-Consumer gross margin increased 480 basis points to 61.6% primarily driven by higher average selling prices and lower average per unit costs.~~

LIQUIDITY AND CAPITAL RESOURCES

Liquidity outlook

We have cash and cash equivalents of ~~$751.9~~$896.5 million at June 30, ~~2022.~~2023. Amounts held outside the U.S. were ~~$587.3~~$778.4 million, or ~~78.1%,~~86.8% and approximately ~~$232.4~~$288.5 million was available for repatriation to the U.S. as of June 30, ~~2022~~2023, without incurring additional U.S. federal income taxes and applicable non-U.S. income and withholding taxes.

~~In the second quarter~~As of ~~2022,~~June 30, 2023, we ~~fully repaid the $50.2~~have unused credit capacity of $746.9 million ~~balance~~ on our revolving credit facility, ~~that had been drawn down during the first quarter.~~ ~~As of June 30, 2022, our~~ ~~unused credit capacity under this agreement was $747.0 million~~ with an additional $250.0 million available through an accordion feature.We believe that anticipated cash flows from operations, existing cash and investments balances, available borrowings under our revolving credit 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.

Cash Flows

Our working capital at June 30, ~~2022~~2023 was ~~$2.0~~$2.2 billion, an increase of ~~$0.1~~$0.2 billion from working capital of ~~$1.9~~$2.0 billion at December 31, ~~2021.~~2022. Our cash and cash equivalents at June 30, ~~2022~~2023 were ~~$751.9~~$896.5 million, compared to ~~$796.3~~$615.7 million at December 31, ~~2021.~~2022. Capital expenditures were $147.4 million and we repurchased $60.0 million of common stock during the period ended June 30, 2023. Our primary sources of operating cash are collections from customers. Our primary uses of cash are ~~inventory purchases,~~working capital, selling, general and administrative expenses and capital expenditures.

Operating Activities

For the six months ended June 30, ~~2022,~~2023, net cash provided by operating activities was ~~$154.7~~$575.3 million as compared to ~~$317.2~~$154.7 million for the six months ended June 30, ~~2021.~~2022. The ~~$162.5~~$420.6 million ~~decrease~~increase in ~~net~~operating cash ~~provided by operating activities~~flows primarily resulted from ~~increased~~decreased inventory ~~purchases~~levels and changes in receivables balances, ~~on wholesale sales.~~partially offset by changes in payable balances.

Investing Activities

Net cash used in investing activities was $222.4 million for the six months ended June 30, 2023, compared to $113.9 million for the six months ended June 30, ~~2022 as compared to $167.2~~2022. The $108.5 million ~~for the six months ended June 30, 2021. The $53.3 million decrease~~increase was due to ~~reduced~~net cash used in the acquisition of our Scandinavian distributor of $70.4 million and increased net investment activity of ~~$70.6~~$54.2 million, offset by ~~increased~~decreased capital expenditures of ~~$17.3~~$16.1 million.

Our capital investments remain focused on supporting our strategic growth priorities, growing our Direct-to-Consumer business, as well as expanding the presence of our brand internationally. Capital expenditures for the six months ended June 30, ~~2022~~2023 were ~~$163.5~~$147.4 million, which included ~~$50.7 million of investments in our expanded corporate offices domestically and in India; $49.9~~$60.0 million related to the expansion of our global distribution infrastructure; ~~and $49.1~~$40.5 million related to investments in our retail stores and direct-to-consumer ~~technologies.~~technologies; and $20.4 million of investments in our new corporate offices. We expect our ~~ongoing~~annual capital expenditures for ~~the remainder of 2022~~2023 to be approximately ~~$100.0~~$300.0 million to ~~$150.0~~$350.0 million, which is primarily related to the expansion of our worldwide distribution capabilities, continued investments in retail and e-commerce technologies and stores, and our corporate offices in Southern California. We expect to fund ongoing capital expenses through a combination of ~~borrowings~~available cash and ~~available cash~~borrowings..

Financing Activities

Net cash used in financing activities was $63.3 million during the six months ended June 30, 2023, compared to $81.4 million during the six months ended June 30, ~~2022 compared to$429.6 million during the six months ended June 30, 2021.~~2022. The decrease is primarily the result of ~~lower repayments on~~net increased proceeds from short-term borrowings and increased proceeds from long-term borrowings of ~~$448.1~~$23.7 million, partially offset by ~~repurchasing $49.2 million~~increased repurchases of common ~~stock.~~stock of $10.8 million.

22

Capital Resources and Prospective Capital Requirements

Financing Arrangements

As of June 30, ~~2022,~~2023, outstanding short-term and long-term borrowings were ~~$326.7~~$349.8 million, of which ~~$261.6~~$255.8 million relates to loans for our domestic and China distribution centers, ~~$57.1~~$53.1 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 quarterly report. See Note 4 – Financial Commitments of the Condensed Consolidated Financial Statements for additional ~~information~~information..

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the United States of ~~America~~.America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and estimates did not change materially during the quarter ended June 30, ~~2022~~.2023.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes from the information previously reported under Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022.

Item 4. Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, we performed an evaluation under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the design and effectiveness of our disclosure controls and procedures, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our CEO and CFO also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting during the three months ended June 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

23

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

~~Michael Conte v. Robert Greenberg, et al.~~ – On July 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 in the Chancery Court of the State of Delaware, Case No. 2022-0633, alleging breach of fiduciary duty, waste of corporate assets, breach of duty of candor and breach of contract in connection with certain executive officers’ personal use of two company-owned aircraft. The complaint seeks actual damages in favor of Skechers sustained as the alleged result of defendants’ alleged breaches of fiduciary duties, judgment directing our company to take 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 company-owned aircraft and attorneys’, accountants’ and experts’ fees, costs and expenses. We believe that we have meritorious defenses and intend to defend this matter vigorously. Notwithstanding, given the early stages of these proceedings and the limited information available, we cannot predict the outcome of this legal proceeding or whether an adverse result in this case would have a material adverse impact on our results of operations or financial 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. WeThere have been 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,~~developments 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 our company in the same reporting period for amounts in excessinformation previously reported under Part I, Item 3 of our ~~expectations, our consolidated financial statements of a particular reporting period could be materially adversely affected.~~Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Item 1A. Risk Factors

~~Except as described below, there~~ There have been no material developments with respect to the information previously reported under Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022.

~~Risks Related to Economic, Political and External Factors~~

~~The Uncertainty Of Global Market Conditions May Continue To Have A Negative Impact On Our Business, Results Of Operations Or Financial Condition.~~

The uncertain state of global economic and political conditions, including the impact of inflation and challenging consumer retail market, may negatively impact our business, which depends on the general economic environment and levels of consumers’ discretionary 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. Furthermore, Russia’s war with Ukraine and the subsequent economic sanctions imposed by the U.S., NATO and other countries may impact the economic conditions or our ability to sell products to customers in the affected region. The conflict could also have broader implications on economies outside the region, such as the global inflationary impact of a potential boycott of Russian oil and gas by other countries. 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. If the uncertain global market conditions continue for a significant period or worsen, our results of operations, financial condition, and cash flows could be materially adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In January 2022, the Board of Directors approved a $500 million share repurchase program. The program allows the Company to repurchase shares of Class A common stock from time to time and does not obligate the Company to acquire any particular amount. The following table summarizes the share repurchase activity during the quarter ended June 30, ~~2022.~~2023.

Month Ended

Total Number of
Shares Purchased

Average Price
Paid Per Share

Maximum Dollar Value of Shares that May Yet Be Purchased under the Program
(in thousands)

April 30, 2022

—

$
—

$
475,000

May 31, 2022

252,787

36.54

465,762

June 30, 2022

382,925

39.16

450,768

Total

635,712

$
38.12


Month Ended		Total Number of Shares Purchased				Average Price Paid Per Share				Maximum Dollar Value of Shares that May Yet Be Purchased under the Program (in thousands)
April 30, 2023			—			$	—			$	395,742
May 31, 2023			97,476				51.29				390,742
June 30, 2023			481,999				51.89				365,730
Total			579,475			$	51.79

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

~~None.~~During the quarter ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as each such term is defined in Item 408 of Regulation S-K.

Item 6. Exhibits


Exhibit Number		Description

~~31.1~~ 3.1		Second Amendment to Amended and Restated Certificate of Incorporation dated June 12, 2023.

10.1		2023 Incentive Award Plan (Incorporated by reference to Appendix A of the Registrant’s Definitive Proxy Statement filed on May 1, 2023).

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101
~~101~~		Financial statements from the quarterly report on Form 10-Q of Skechers U.S.A., Inc. for the quarter ended June 30, ~~2022~~2023 formatted in inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to the Condensed Consolidated Financial Statements

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

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 of 1933, as amended, or the Exchange Act.

~~SIGNATURES~~* 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 of 1933, as amended, or the Exchange Act.

24

SIGNATURES

Pursuant to the requirements 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.


Date: August ~~5, 2022~~4, 2023	SKECHERS U.S.A., INC.

	By:	/s/ John Vandemore
		John Vandemore
		Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)

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