SKX - Earnings call transcript Q2 2018

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Operator

Greetings and welcome to Skechers 2018 Earnings – Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. to conference like to now would turn over the Skechers. I ahead. go Please

Unidentified Company Representative

statements are filed required and the reports or to other Officer, David? Chief Operating of as operations occur. the achievements expressed statements business of like on Certain involve including, but financial of will and to you, federal Act Litigation significant on SEC beliefs, company that current read future within including and Weinberg; affect I’d by conditions a to XXXX company’s will filings over and statement. to industry us the for plans, John the actual statements the apply constitute U.S. risks X-K all global, forward-looking results reports forward-looking encouraged Private Such for forward-looking the the turn results results, contained business, Financial in they the and With all conference of as Skechers’ Harbor Thank Securities with Securities including, assurance Vandemore. and expectations and annual joining or I known objectives, Skechers estimates quarterly the everyone, risk of securities future David addressing may description Reform limitation, of Form without Exchange company. laws not on statements the national factors that call amended. Users conditions. call company’s unknown the or and and Officer, Chief general that, to, or today. Form recent Form Safe can or limited There reports report implied as Commission, no meaning performance statements the XX-Q, review by such may retail on herein the local specifically most the economic, other market be now forward-looking XX-K, statements events with

David Weinberg

review us financial Skechers second thank results. today quarter for and to you afternoon, Good joining XXXX

on results the is Vandemore, call Skechers’ our Officer, John detail. financial Chief in me Financial discuss Joining who will

Second sales segments. sales XX.X% in was double-digit $X.XX wholesale quarter retail global a billion, quarterly of the The increases second result quarter sales company-owned growth to our increased new international record.

growth in wholesale As distributor businesses slight will quarter, our We despite positive back-half year. came domestic believe decreases channels. and of this discussed turn international in the last the these

in sales The follows achievement our billion of quarter the the second six-month $X.XX record in of sales. sales net in resulted record highest a first quarter company’s history, quarterly new which

of record increase gross Second sales our venture a Henderson, joint quarter our of global wholesale third-party $XX key and representing a globally; our total X,XXX D’Lites a and new XX.X% result highlights record; quarterly include in our XX.X%; our wholesale company-owned store increase sales with margins a countries; international XX.X% strong sales sales of increase retail of comp a and quarter in stores subsidiary international the new second continued growth Championship XX.X% retail in business, the X.X% Skechers GO the United stores in elite GOLF; world; worldwide, company-owned resurgence Skechers’ and stores; the Brooke network in at LPGA XX the retail shares States around of winning repurchase Skechers opening the XXX markets stores of million. sales; golfer, of XXX,XXX cost to expanding and including LOTTE of

and first the decreased with to detail. quarter domestic our increased our for X% six expectations, line In business channels second X% for in months. the turning Now our business wholesale

accounts our the Our remain business within quarter. solid during core

XXXX. as chunky men’s sport, to as in the then with product D’Lites benefit came look across and multiple outfit The in this the Skechers golf, sandals, all women’s and energy in been particularly XXXX and well Our well. work women’s States started toward with strength as divisions performing United we has trend

deal and of great an As capturing younger receiving of a attention originator this press of demographic. are coverage a look, we

the second multiple brand, we one women’s footwear the women’s and casual For walking men’s number and men’s media we campaigns. the lifestyle business, one our and ran domestic work, number brand. remain quarter, To support

Skechers women, Skechers GOwalk a Cabello, sandals. D’Lites with and campaign Joy Camila For

casual with starring featuring sports for Tony Fit lightweight For And programming men, kids, ran Romo, slip-on David footwear. working and Ortiz, Toes Fit and on children’s our we sports Relaxed commercials Long. Howie Twinkle Wide footwear for

to Our golf business grow. continues

Irish in second Canadian ambassadors both our Skechers’ LOTTE LPGA And Henderson, Knox, our Championship During won Brooke quarter, golfer, GOLF GO Hawaii. in won and the competed the the Open, Russell recently, footwear. golfer, both

celebrity tournaments GO and Championship football Additionally, last GOLF month, Skechers Wisconsin circuits Championships two legend, in Racine competing in the won Century California. the and Amateur been weekend’s on this Tony amateur in and American has Romo, Tri-Course

year. the single tough remain some from backlogs, remains second and first we XX% our strong in will believe our sales last Based positive face the our we and representing product believe year’s both quarter and on third meetings in channel, distribution and growth, will International we the total point. wholesale our in results While the we months. comparisons largest six are quarter marketing back-half of the for with wholesale of on XX.X% business achieve our accounts core

international and combined first months. the the While quarter six wholesale XX.X% retail and for XX.X% represented for

increase which business. by venture X% of decrease a slightly increased subsidiary our businesses, the Our result our XX% in was XX.X% international in the by offset second a The total was wholesale growth in joint and business quarter. distributor

first XX.X%, of primarily For and XX.X% subsidiary increased by six our international which venture the businesses. business the wholesale joint result our was in growth months,

our a As quarter, our was largest slowdown decrease result international international growth. in first business distributor Further distributor in the Middle in detailing the our East. primarily the with the of

due joint was subsidiary of wholly-owned Spain subsidiaries dominant a grew XXX X,XXX one points by shopping a China June in second dollar approximately million increases venture $X.X sales first All all and in a business base XX.X%. of the sale, international with the our in pairs but second quarter, For our the business Skechers achieved XX. by XX.X% shipped China, subsidiaries of quarter, stores, international generating part the the strong business months. and growth our Germany, and in to grew double-digit and achieved with day UK quarter, online our Canada, the our freestanding remains gains, growth in in highest six largest in quarter of growing e-commerce force approximately the retail

second each each the Saudi Israel, China; South Morocco, stores Singapore, South In in pressure Czech percentage Indonesia Uzbekistan Kuwait, the robust the we opened addition, our India, Taiwan; experiencing first quarter. distributor in in South and Korea business, the all third our Switzerland second quarter and Singapore, Taiwan, to India; Latvia, XX UAE; in Malaysia, Scandinavia, in and closed gains considerable our the Arabia, Despite XX Hungary, international and including one with are Turkey, sales Denmark, stores growth Japan, partners in Russia, dollar and third-party-owned had there and second in date, Africa, owned our stores distribution closed. each and XX In ventures first in partners, numerous five [indiscernible]; XXX Republic, opened, England, quarter-end, as by Skechers Italy; store Korea well two international third-party XX Cambodia, were the Indonesia have Spain, and quarter. in a one as quarter, store operated third-party X,XXX including branded Iraq, three joint in of others. and franchisees. Turkey; the Australia, Armenia, and in owned At Algeria, stores in Skechers in network

international third-party-owned remainder in international the XXX XXXX. We our branded biggest resulting be remains XXX our retail open XX.X% will We X.X% of worldwide in Skechers increased business believe was the in international another stores comp which XX.X% retail to stores the in for positive This the and included positive sales our third internationally. we expect the the low company. XX.X% increase business, the double-digit total to X.X% opportunity in sales for growth store our believe growth company-owned In quarter, international of distributor second sales of global stores. a and of a X.X% quarter, domestically result business, including quarter, in in and domestic our

XXX an retail stores, our X.X% of locations including concept For which XX.X% Skechers our the one second the outside six stores were quarter, XX the and of first quarter-end, six In was had international we XX.X%, domestic we stores. international company-owned United increased sales of store. increase retail States. closed result stores, in domestic the and At in months, opened XXX which

and the this third in flagship on stores and California Third Peru, Beach downtown To in our Peru. one to we’ve Monica. another open also the expanded Manhattan opened date in Santa quarter, store with We Street weekend in one remodeled planned Promenade in and in Canada

anime and now, Skechers D’Lites to XX stores. for series already top the stores. XX relocate open one additional the grew month additional retail remainder XX growth in launch the looking styles company-owned September. a Further with introduced the selling piece, success the three company-owned domestic our with in direct-to-consumer its of of Skechers we to and is the remodel, For fourth the of existing was we six by XX three business, our to quarter available collaboration an or launch XX.X% majority stores domestic forward colorways expand which series in June, expect we’re in quarter. to to With Adding our first in the this e-commerce of XXXX,

in company-owned e-commerce have operated UK, Germany, sites also and Chile, Canada. and the We Spain

financials. the over to turn John I’ll call our Now, review to

John Vandemore

brand. with our our once Thank which you, of again potential to share illustrate David. I’m second you, results growth quarter and pleased the strategy

second in in quarter our expected the prior-year and In increase XX.X%, by of was Middle increase growth decline sales our billion in increases by to a This contributed in wholesale quarter in XX.X% due This growth in sales, stores. to in XX.X% Second the a decline new domestic East. quarter an venture due part to joint our our an sales and driven increasing over significantly company-owned distributor offset the X% record. wholesale partially global increase subsidiary business, to increased business, previously our increase XX.X% a sales $X.XX in and weakness discussed in X.X% retail represented XX.X% China business the of international was our a particular, XX.X%. in

XX% wholesale business increased XX strength our gross was basis rates. million $XXX our to XX.X%. prior sales year. distributor support to year million, Excluding basis million, business in favorable increased sales, to point growth. expenses margin due increase quarter. This our exchange attributable points improvement the was to advertising profit $XX.X to in The expenses XXX up to sales to was $XXX overseas margin the $XX.X XX% or the compared higher foreign prior of from was international Gross in up and international accretive X.X% due million international Selling in of part gross

which of from domestic quarter domestic the related which costs and stores, million related domestic in XX costs. China. administrative period. year X.X%. decline prior to general to the expenses expenses million to $XXX.X were decreased were and XX.X% million distribution million, sales, and certain selling million, corporate in of and in second It our operations the percentage versus representing reflects Total $XX.X $XX.X and basis included represented XXX to Earnings with of included up increase $X the from investment associated to Skechers quarter. long-term opened million of compared year XX.X% $XX.X legal related $X.X to our X.X% company-owned down increased an sales and Our continued a increase in slightly sales expenses, to also initiatives to point and year million additional million growth of in This of X.X% warehouse as XX a prior growth continued prior support $XX.X in global $XX.X double-digit the

rate Net higher was diluted international costs. compared Our or million second share minority earnings the operating share shares leverage million to as the on $X.XX million, $X.XX and per exchange The was advertising than diluted a expenses, XXX.X interest. was due adverse share due million, mentioned, foreign for operating as including per outstanding impacts, elevated XX.X% quarter effective or costs on to of distribution-related higher tax to lower outstanding, XXX.X year previously shares in year $XX.X decline $XX.X higher income period. per well prior prior the legal and

enacted the XX.X% Our impact updates tax rate year income recently reform period. of tax the rate reflects understanding in This compared of with our legislation. to XX.X%, quarter prior was for the the

an was in XXXX, had XX.X% million, our top or above balance of $XXX.X effective XX% we of million, $XXX.X be of for to XX, which expect previously to the June And and December over our our cash $XXX.X and June now increase to range XX, At XX%. XXXX, at sheet. or or we tax now investments, this, Given XXXX XXXX. short-term rate announced slightly turning million equivalents XX.X% of from an increase XX, cash, guidance

approximately and share cash per at Our XXXX. represented investments June $X.XX diluted XX,

aforementioned higher at and June are alone. million, of openings our growth and $XX.X domestic million prospects approximately million. and increase was primarily including and common accounts A this $XX.X XXXX, were execute $X.X balance expansion growth We million, repurchase the as approximately was XX.X% compared an fund million, $XX merchandise was ability our distribution store to expectations of XX domestic and balances. $X.X Class During remain continuing June the new June million, compared global capital quarter-end million We a to inventory inventory wholesale operations, program. believe levels, at XXX,XXX cash eight Total our of to $XX second inventory, versus cost XX XX, and for Capital $XX.X our XXXX, of quarter, quarter XX, $XX.X shares at million days to we $XXX.X our our and in XX strength of an stock the as line million confident included business. of of at were well to working $XXX.X for support while receivable levels Long-term receivable billion at the center. reflecting international acquired to our the in same with international that increase XX, expenditures million, XXXX, for remodels, our which an sheet $X.X in the XX, in increase June billion in million year. $XX which related China to were second of XXXX, from accounts company-owned our our $X.X increased transit DSOs store period $XXX.X days debt last million Trade

estimate expect later remodel remainder XXXX, $XX headquarters, XX This openings, additional on we retail we to to store expect to $XX the renovation. our capital ongoing distribution corporate our ground this million expansion China, to million, office which XX year. capital company-owned as which be our expenditures includes office expenditures as and including related expansions For of an approximately XX to centers relocation, or well store excludes to at projects, break worldwide, XX

$X.XXX will our to of of range sales third turning second-half share Underpinning to positive. range the be expected businesses that and and international guidance domestic the distributor guidance. this is and return earnings belief in wholesale quarter net billion, We retail the will growth XXXX remain our to be billion currently $X.XX that $X.XX. Now of in to comps diluted will per the our will $X.X in

be venture than continued tax expect our growth for also We to rate effective our total of sales. top that the of the And continue our to guidance higher previously or range double-digit will the announced our more slightly year interest minority joint than XX%. businesses, will at XX% to grow due in

potential I note on we back U.S. the we of we for as call do remarks. the that although Lastly, the continue of approach closing back-half speculate the currencies, of the to now to impact strengthening turn foreign will could into headwind dollar not David translate XXXX. earnings recent will

David Weinberg

you, Thank John.

and $X.XX highest new sales wholesale ever combined double-digit for marked international when record a result quarterly brand, a marketing. billion. the our sales with to quarter was the we growth our the six-month first quarter quarter, of in of company-owned the from is and Essential period strength and achieved gains our retail success of record second stores. The The product new our

Golf Go and D’Lites like core be as Our well continue Sport Skechers to collection. Skechers and in Skechers as demand, newer Skechers heritage product life Work to our

have work, great and shares with will Cabello and team product in casual marketing categories. a a campaigns and we our remain lifestyle a of and Camila rich. have creative in both marketing footwear campaigns, marketing sports We other With in legends leader additional gained of pool appearing walking along

brands our break expect the backlog, infrastructure. we well-positioned are continuing in to levels to strong of on and our and second-half growth. With year, the for In in corporate in offices line, center and healthy position China. new cash distribution ground we our a for We new inventory invest the are

growth question-and-answer I call potential. market that, global the operator to our the call. conference that the would poses portion the with turn of to over now to We believe continue the strongest like to And begin

Operator

[Operator a Sinderen proceed Our your first Riley. session. conducting line Jeff B. time, comes question from with Instructions] Please question-and-answer the Van this we’ll with of At be question.

Jeff Van Sinderen

Hi, everybody.

is end second-half. pulled near the you kind to quarter as domestic and of at of give the can in quarter, to we’re things it kind like looking and looks one how look of us QX? anymore being So of expect wholesale return you the what – in product was progressing like wondering, you the there Is look that, July? near the order color then an the maybe how on of of growth bit looked you’re progression there or Just domestic wholesale that’s the like a shipments of end little in uptick it flow

David Weinberg

as anticipate it It last forwards to discussed that to didn’t and plan the I year’s shipped on pretty our year. for came $XX any quarterly Well, anticipate beginning. strong We of Basically, according pull biggest the call. conference much one million for the of up think shifted was be making didn’t June. our we “month we should shift and we certainly at quarter” far biggest significant by the still in last

solid So both and it international – a that’s basis. continue be domestic on continued to

changes, no shifts very So or but consistent. major there were

Jeff Van Sinderen

fair Okay, enough.

back-to-school business thinking about should as will up we this think your back-to-school, we’re So mean, probably I that domestic year? be

David Weinberg

anticipate core we up. business our As said before, will we be

Jeff Van Sinderen

Okay.

David Weinberg

we we as it will don’t make up as tested pressure, be speed non-core and under will we and new as we even it to some go as it nice grow be along. in which I a into because will at up But and orders these move our perceived, get it we quickly. is business and this more as might fill QX won’t continue of call, grow, should it It have, what get strong core still our pick business, that know product level

and in significant anticipate an up So somewhat the quarter up an more in up – a the third we quarter. of fourth

Jeff Van Sinderen

the Okay, fair then strong. margin And gross really just gross on as were follow-up, enough. margins your a

we gross think how going should about wondering forward? Just margins

John Vandemore

QX margin was in to improvement the predominantly Yes, the gross to related business. shift international the

you look margin businesses. was the year versus of last, a shift revenue composition towards at positive the this If there accretive

continue currencies There So think points point XX given the about basis which improvement. the to we FX, going way pickup an about of don’t basis was recently. XX that to XXX was from have trended is

in moment. prior But consistent at of ultimately looking mix will the that think on revenue with year QX, the slight I from. at where improvements we’re depend the comes

Jeff Van Sinderen

Got it.

Okay, I’ll the back best very of queue. Thanks in and much, jump luck.

John Vandemore

Thanks, Jeff.

Operator

next Our question. your Sole Jay with from Please line question UBS. with comes the proceed of

Jay Sole

Great. XQ then gave number with today? and what you from you. guidance that between change SG&A, Thank April, you to published just David, the in regarding the

David Weinberg

Well, had changed John biggest that million on that his settled prepared had We in XXX lawsuit think, that we we we a anticipated higher had – costs foreign well that target. rate the I mentioned us and really for was million, things by $X than considerations about FX points. basis $X over wasn’t tax comments, that

altogether, pretty we and So much QX put target if good the we’re had on we pretty said think that we we call, to a on conference quarter. what had

of we’re of mean, that the we’ve I of issued. the things our closer. probably and last with about are than imagine, more little or in distributors this months. business be really new at rate come we – then trading And can did was the you currency like our you month-to-month talking changing a little think, back. take do thought, done trying But things last have over foreign better dollar international a back-end we if look wherever two the that strength since were had studying. been I tax business to currencies, rate has to learn a been the back done significant partners They’ll them lot going year-over-year, about we as a to came quarter. we recognize and came and as the tougher the been more tax if U.S. pretty what week And but had

Jay Sole

Got it. besides… And then

John Vandemore

driver and in selling, on China was significant were most as the the driven side. right, the markets, came by domestics we came in that’s retail, G&A increases the most Yes, actually And international significant lower. mentioned,

we’re business. aligned the investment the G&A of is So the where in with growing composition

Jay Sole

maybe So on point. just follow-up a that

in was of could can to of you there the drive future growth how quarter, sort done maybe divide due to the was If extra point, to move this if advertising would much where drive to helpful? be maybe to SG&A growth of in that some talk you done clear spending inventory articulate that U.S., how product was or versus much that

John Vandemore

G&A out. beyond. drives point bifurcate that’s don’t the but in QX brand I building – the know spend, will Advertising that for and I and we extra how sales advertising just QX

that, in selling in the So And point on. and I again, don’t growing markets can in particular. significantly the that was know there’s in would line we a direct-to-consumer we’re fine concentrated China which the within investment put I say

Jay Sole

Got of much it. United a talk such is much how And and to then how production maybe just, the big because obviously in about just you China States? shipped now trade right Can is made of your issue. is product

David Weinberg

we States make certainly. now the of United outside product United production between in States the Northern XX% it’s The China. I China is of XX% to or still the of about about believe Right China our and South XX%

Jay Sole

about And can talk it. then the you got maybe if just wholesale. within Okay, domestic

seen and As speed like or sell-through channel June through department up store any you kind the like have July, overall and went channels or particular of you slowdown?

David Weinberg

business the United we you’ll No, channel checks it’s well that do performing margins pretty holding core we’re quite in well. been our up find When and quite our for are States, consistent.

in the I states price so So we only made in hits time. some – time from inventory big to that have perceive there. issue past is takes from any that the The business, the much don’t our alternatives we’ve non-core products lower issues

has closeout a has So they the take. and product of environment marketplace been lot that changed, that in that’s changed and there that

don’t closeout have some since of curtailed and it’s So significantly a them haven’t historically things we we business. the large for would had make

are grow. to it. things and with can just We anticipate most I marketplace, and margins where next forward should increase available on continue to our depending in we way business core business to year. the I back that year And this given certainly the the higher we’re developing. situation, looking come start we’ll But what’s certainly So think, that’s sell think, the next do

Jay Sole

Okay, got it. Thanks so much.

David Weinberg

Jeff. Thanks,

Operator

from Kernan of line & Company. Please John proceed Our of the your Cowen comes with next question question.

John Kernan

Hi, taking guys. good afternoon, Thanks question. my for

David Weinberg

Hi, John.

John Kernan

Just wanted was to John, go I It’s much quantified back think of was inventory. consolidated above growth you of year to still basis a pretty far inventory every on out how China. sales growth.

So you I’m where are confident feel the direction you remain Do are just comfortable that giving up? like outside China? margin what’s from you perspective can you markdown of gross of with a

John Vandemore

almost Yes, composition of absolutely. with growth the inventory additional XX% the expectations the China, and of pretty for concentrated, back-half sizable the obviously international pretty the then new year of retail, of which is in growth markets is either build-out have stores. I mean, it that significantly again, fluctuates

for like the mean, in I mind, in It’s are Day was slight. number China, events sell-through rate growth quite of ultimately, – building domestic sizable day pretty which keep Singles now and in Our themselves. we’re really China, in

is So that start really the or markdown giving in comfort. comfortable pending, no us there’s we inventory it significant inventory to line grow but issue issue feel and

John Kernan

Okay.

cash could quarter pretty be the start on potentially fourth in last give growth up in seems pretty were Is detail to inventory flattish back-half that quarter. you year, Can inventory and where inventory the ultimately It third XX% the of to So in start it it cycle – year? some us year the significant mean you year-over-year safe at might to flow. significant a end you by XX% some to year-end? you be would say think last from

David Weinberg

pretty long don’t come we’re most think, talk on places and in in a not sitting good, We It’s that impact the overall larger a one. one think tough we world. I as of and feel year-over-year a significantly That’s about back I to builds margins the but inventory well. none inventory has

that our I growth store think since China we including rate it’s dependent necessary more stores America, would other be the how I franchise there. in open change growing some would that for the in China tell your them But it significant in is, our anticipate India as growth even we’re keep in in year-over-year. I question to predominately you marketplaces. will rate, inventory there answer we and and level buy growth United be anticipate in store and on continue States it in South quickly I third-party in no and to Europe, do the would to until major

and as always as stores pace of the that. even – will are QX. step So to doing is some for increase more inventory hard maybe it’s we early possibility marketplaces and are say a a our and up retail that the positive But too

will grow. to inventory So continue

think, growth you we see the the China the quite China, I for our size inventory, and you of have was and piece can also, got finally production understand of doing has to biggest shaping their standard. been catch-up growth been inventory for awhile. They’ve

a and big very building now very building a also now we’re business, big So online we’re franchise business. for for

absorbed catch-up anticipate got and comp So them next together, some we of when all China two year. don’t you rate this to same at will to you grow put at the start has I the what do.

John Kernan

final over is well $X much EBIT. There has there my of I billion bigger line a So has guess, question. in been been couple question growth. growth total picture of The top not past years,

will expenses, think think pullback the line growth point top rate. you G&A you you do at growing you if top ability line So with line trade Do I’m you a decelerate to just significant do think line more on significantly in in start would the wondering top what for that?

David Weinberg

We’ve just don’t think necessarily way. that

transition we close growth saturation are us begin point. for tell EBIT that will top now, to growth. sacrificing to We line built the grow. for happen to We’re marketplace going think a when it Right

as areas anything as the of capital significant And contribute to by year. such and we is such penetrated, the wouldn’t grow such we’re like back-half growth to will said South the for America, have very table. Japan, and nicely still have where EBITDA We this which on we as leave under India, starting

a lot So of there’s positive happened. things

from something next distribution will because a results China the – EBITDA center benefit through lot will basis into do of better aligned benefit year have China, be lifting think, We more be of on done. efficient. which if we’ll and you in we the the as them with and the a in end an still year, get make have to the I EBITDA which – look heavy will

go. to big some invest couple start to year, we still into should do end the that in. So to leverage some averages this we there’s got have territories we year get think a unless as next ways in of through we of But growth we outgrowth

John Kernan

Okay. Thanks, guys.

David Weinberg

John. Thanks,

Operator

Our next your with Group. Laurent with question. from Please proceed of is Vasilescu question line the Macquarie

Laurent Vasilescu

Good afternoon. for taking my Thanks question.

think I back-half noted to quarter? think that just prepared – think the should know about how on I third was remarks, low curious the should it after double we the in international grow digits. was you should

John Vandemore

I think Yes, for replicate low I quarter. is significant well. the hard other a little mean, it’s in of I China third any mix mean, Obviously, appropriate just that’s to as a quarter number in quarters the QX, double-digit bit. is

QX, certainly that low But performance. we’re looking definitely So for and international I’d drives say, that, QX QX double digits.

Laurent Vasilescu

still something how And digits single date think, comps stuff, I far? I mid And so positive. running in large regards still think John. were had you, with is last to running Any on year, Thank last preparing you comp positive July year. are to Okay. color comps running

John Vandemore

have some the I shift July mean, in to activity. promotional Yes, date we

going of it’s domestic, of in not anything timing else on relatively down. whole. at again, in So than a on first occur July now are half that promotional International that’s flattish the owing previously July. years the activities of little or back-half bit moment some to the But more they’re the prior the

Laurent Vasilescu

to helpful very And was like very G&A? or implies was million. G&A out that then just spend. tell that the the us the rate majority run XXXX, China – of G&A that it $XX of break Okay, full-year for number It XQ China for looks Can for anticipation helpful. what of a you for the that international

John Vandemore

the the was spend, it. was dynamic temporal the little – I’d The a we those want distribution mentioned, be and some advertising that we to our side. and there’s online quarter, look some the the was we’re able in bring make growth that as expect. business it really China know I on There to And say, probably outsized to efficient don’t side, side. I in G&A of pressures. Yes, bit as balance to own be fundamental in we center, we what about precise possible. there working But cost particularly meantime, think, normally In obviate a distribution pretty for shift e-comm of as we’ll David this

normally say, So we line. than would slightly to growing in the the at line expect or be I’d outset, slower top

case, but some and elements. admittedly, the the guess we work in This quarter, I to to time on the that. temporal are putting some particular we’re And on again, wasn’t side e-com, things attention but there need distribution, that and efficiency

top I more again growth, line of outcome. China think, though XX% is out which the is plus significant number a fantastic

Laurent Vasilescu

costs domestic domestic legal the Okay, was think expense there last very next wholesale warehouse the running then been helpful. the two some one-time, How million. It’s understood then G&A rate I the the of that overall about my in on million two high-teen spend. And $X quarters. do question for quarters? we but for last – G&A domestic

David Weinberg

We Yes, I I of be bit saw not just a little in volume think, of more, since little year. also doesn’t the back-half a as bit thought. But into that than the down of zero, as there of mean, the slows back-half bit slows that slow growth in the quarter QX. it we a the faster down – some this sound increasing that the as seen in is of we’ve but a still robust back bit better QX, expect capacity down like that. what little will think we a on that little dependent, on in I hangover the hangover I late. talked a we QX in was about we think, quarter There’s much

Laurent Vasilescu

of you. Thank Best luck.

David Weinberg

Thanks.

Operator

Sam comes next with question with Please Susquehanna. Poser line from the proceed Our your question. of

Sam Poser

of all. got Thanks what were I’ve few. afternoon. Good question. those costs a first Dave, taking for legal my

David Weinberg

be precise about going not it. to too We’re

continuing Let’s unusual litigation. call settlement we little out. call of it It and that’s was and them what a

we So spend for you a and one-time litigation. issues had – to going settlement thought than better we Litigation even a the than make starts though deemed – get expensive. money continue fee forward had to we good to have very rather

month a the depending of to million court a a scope the on depending date of can somewhere on closer up As you between and it. get up run $XXX $X.X to maybe even size you million it, complexity

of the sometimes part just So a better it’s settlement and that was one-time a was value to and take biggest that settlement. piece

Sam Poser

not given to like a – there inventory held. that of got then what domestic now today, basically the inventory What probably is us ship inventory were the Could year-over-year levels look little? quarter, now total to back as And what the bunch going to your those wholesale end at you idea that that on of start give orders some you. the like like? Thank basis looked of you a

David Weinberg

but obviously, having show in stuff selling with it, where a here year, Certainly, the kicks a month. never some two off a season, we good because in weeks shipping increases first Well, state had of do to that ship shipping a June. question very good we we we even made the of Europe, dent whole it’s only there’s will last July very more and we’ve June. are predominant in not in And

the other the So we’re they franchise major being. July where shift a hand doesn’t And the the go as to growing than franchises we China shipping anticipated through period. is but much pretty bigger on they’re June. piece, have

continue solid. and to very call But you buy inventory we the given is if inventory. like collateral we made progress the we’ve move So

those We increases impactful. of shipment are of have delays on shipments, no all so certainly

Sam Poser

the the for in of in right. All back we deceleration year back-half the seeing international. And the Why and QX you low the talked then are such increase year? back-half a of double-digit – about

David Weinberg

on talked QX one relative another that Well, with highly QX, performance. double-digit, measure about in can particular. I we’re think, how we we’ve low think way relatively or been. where to it Again, at I looking influence we single But day

Robert Greenberg

in that double We very increase line. up difficult we to had a major that’s last QX, have in year understand Europe to

business mature But that they we China QX, as make a show year. continue but grow. have John that business. only much obviously We And winter more and to as so up we Europe, mentioned, will are growth stronger in not last is getting then ground into in significant as the

the those the are think be positive the and I So piece quarter. big in third But two distributors are initiatives. the would think will we coming growth back biggest

will be that but saw the Europe we of year. comps in anywhere somewhat So enhancement, very difficult match to last near

back distribution a us remember to a you season with growth piece new large network. getting major very If a for

Sam Poser

low it’s that, rather in could define – give – to Let the a you Could far XX% way XX%, is XXs, for because David. still what – low what double-digit low me triple-digit? means on us or just we you than because follow-up mean, look double-digit been it

John Vandemore

that consistent we’re basis, we high-teens Yes, something when about we’ve the segment in ventures the talk joint on subsidiaries the the we looking when I at of high-end include think, – XXs. again where been at digits, low-end, a double distributors and where low That’s you pretty together.

Sam Poser

because then what of – long your out started headquarters your lot Europe. And it to that the doing build plans. – did you’re about to be built some kick it past there’ll the they’re But that’s sort buy now you’re – time in in took else those a And to Could China out you and the build you how and but to good in take sort the you and you thing you of over of going idea I through get you idea you talking to job mean your that period it magnitude your foundation anything in give same make time magnitude expensive. investments? a of – what I distributions mean when really though up, do you of longer-term think of so of way. Gotcha. long-term then And and place and the set for the until and with get center Could you where by sort us some – did you states efficiency? to your give need of investments spend over the those actually some foresee of us of and then distribution

David Weinberg

Okay.

a that’s So question. twofold

we final no that numbers. think we I mentioned have

China. working on for still We’re the automation

I I think Although ready set. and million and the on number to and ground are we’re to street XX-month and the somewhere period we in would delivery items guesstimate two-year of break China of on is an building the it’s probably neighborhood put ordered. the to seems construction depending over $XXX spend on the that to before

the would as is far rest United rest, the the which As obviously, Europe. be States,

in may third-party have we people – We’re America. we building some some convert South

We have Chile that now. we run

big distribution is compared and would wholesale. in own I to distribution grow a how tell We volume as quickly Japan. that center you for piece unit on would how have depend and we our retail our that

expand growth than ask told there’s to years three were or me growth. Valley have ago, anticipated, you capacity but yet, no I in if certainly Moreno have way would unit So higher you our I that has two been would to our

got dollar on choices, but come of some. stores have increases consumers pricing wholesale Some these down with domestic comp terms. real so It’s

dollars. So growth growth than is is in higher significantly our our – units in

shelf space get to store continue we So of do continue to well.

The and we expansion in So to plan growth distribution we year-and-a-half or not expansion take center. for to opened that an a facility second some need complete. our it’s a unit fast will is year stores that how probably quite Europe we many can the California, consider we current how and calls as use In a intense.

be some increase completed space, that rent will We and we should it.

the million somewhere real smooth our there’s that because than any well. our maybe next to year retail So rental. in end Europe will no year as and our process business the closer the out million anticipating automation to move By somewhat in the $XX and that as additional wholesale and we’re of business we range, franchise more in we our in add through $XX business growth own of

John Vandemore

again here to is XXX months. And then previously it office XX said over to that’s XXX, we’ve probably we’ve done that just top off, campus work and the and XX to

Operator

Please Our next Nikic Wells with question your comes proceed Tom from Fargo. question. of the with line

Tom Nikic

everybody. Hey,

Can – your that wholesale comps. compare and both or QX. in mean a Does on in I also you. QX, would remarks tough there of in a retail tough when difficult help sort is you you more David, the But through compare in quarter? Can mentioned lot in QX about wholesale us quarters international mentioned, compare So, well? U.S. in mean made being Thank having QX, be a China result both navigates in through comment help and your positive domestic look does prepared a sort one Any you you And back-half. at QX, how that understand your in wholesale great? QX. of only as it you navigate

David Weinberg

Okay.

think, more you just I I other. up in somewhere that which know, Sam’s that QX big anyway, mentioned start have think such We – can’t or was I that. We get Europe the difficult don’t question more to a way a compare is

of single-family at part very I that about almost don’t growth is China there. same even company units in and the over talking when overall that’s dollars increase the positive. last that same anticipate also because So QX, in the a have in believe the rate you’re will year, more grow QX so

around of move be are So for which increasing the do our easier. that – in And that Singles to and in anticipated is some makes business easier will we June, first Europe it is believe Day shipments than piece quarter that makes our core it it. business one already up of those come promotions quarter mentioned, fluctuation we’ve our we non-core that that the for big the and more as one fourth And business. domestically, booked moves

that power QX. the through domestic for So and of piece in itself will

Tom Nikic

as positive should be So U.S. QX does in well? that mean wholesale

David Weinberg

it core QX or their business as we continue and the this our customer because loan they QX will one from Yes, run receipts. group anticipate overall, and up will make will shortfall

Robert Greenberg

the we I we that in the the on QX. mentioned. domestic mean, much Tom, I QX, reason just and The shift were moment we to with at us generally then about think slightly QX positive for in back QX being – growth as stronger side would David see told what a

Tom Nikic

All right. Thanks.

David Weinberg

Thanks.

Operator

with Our Chris with question. next the line Please your proceed question from of comes Wedbush. Svezia

Chris Svezia

how guess, as color any Easter the or questions. comp QX, was or quarter as a on what it about like. up I – would just helpful? why for X.X% was taking first, my little Is this it color be color domestic to comp that just thanks for the the maybe or shed to domestic any on Hey, – progressed

David Weinberg

definitely environment. sizable Easter which drag really year, out coming is That Yes, got more comp of I was first month a in the retail Each April and was mean, better, because obviously it the the so of was comp weak issue. month of thereafter an holiday. the

averaged is So comp. a May May, than of June, low single-digit and that it to saw weaker what was you the out weaker April effect than net

Chris Svezia

I Okay. how know about FX your in And just a on base year UK, international – markets, and I’m in a curious guys whether you pricing ago. your think you the took about

this face thinking going early you at of are what’s the in about to on, point? think that about you’re how Just because just too

John Vandemore

I given currently market us. that think stand, volatility FX see Yes, I – three and to headwind when a It’s probably celebrate trade happens things the significant in Those into in you today to QX you it that QX. when factor in pricing. we in look what us. moment, a hard out have a much our foreign part mean, what as just to being it’s and least biggest think the on two things where return a in going If similar Based of in continue vigilant have significant it’s But the are headwind was change, this I more the of tough behaving a environment, matter particular, if we what may And significant markets we’ve slight see are literally months. of the if the continues at euro as to at we’re being tensions the six fashion. for particular seen four. And then actually volatility. from we things becoming to currency to tailwind have tell – – don’t weaken, dollar yuan at over just last

Chris Svezia

substantial or last the that? that then payers. expense moving So big this you there or should just for for you’re Singles shipping to as it’s go that, into about preparing And Day productivity year, you lot are know do for How Okay. a think fourth cost and if because direct-to-consumer on you advantage quarter or and of growth. how the think a I it’s year? And e-commerce prepare the efficiencies it our quarter. China related fourth you have you payers were some about elevated we How and

David Weinberg

be had on base, is big system I and year those peak that no do you the significant it’s other outside of that and close that very day can’t last think to year. things build because to would automation day of year. off every one you a XX% have a this We of automation

there’s So plan. always a

to for increase a easier But product there pre-organizing mix now. plan think and will just it’s and the single payers. move that a piece. deterioration number We to EBIT anticipate G&A better it’s I magnitude the day. be of product strain of a have do so ship. going It put the certainly the time given no in promotional the we particular of that’s line order for do the that I will But understand this

and So somewhat pressure you be don’t it get But put somewhat less last I than year. EBIT on margins line. different does think it’ll significantly the

Chris Svezia

had somewhat for as expense Okay. QX. question you’ve in I higher at think QX all items was And you G&A some than But expense, I maybe what is that out. in had what know Last there’s we given or just you fairness, you selling unusual the thought. called thought least guidance about

just plan higher how and that either potentially how our for guidance think can about gave, As costs shipping that up. you marketing many or you think the unusual these of or went you to items costs variables crop about QX did or some

So more given? protection the guidance you’ve bottom like on even that’s

John Vandemore

forward normally not [indiscernible] legal going we I just that’s won’t outcome, that’s items unusual not that’s – mean, with we Yes, forecast this and betting wouldn’t like just truthful.

over account of We to pressures the some couple we’ve on side into of of the distribution of take things. have the quarters particular, the first what year, in seen attempted

in on thought in a we that where basis. it attempting Obviously, was have system factor the prudent. any we regular we’re address inefficiencies we So to

unwarranted by I’d QX increases. QX middle focus either the to that’s P&L. to how the our you because But expecting business. have an incremental We brand. wouldn’t away there’s and basis, China protect – in key a of we going I irritating we’re don’t one not and driven attention in the people be that’s bit say a try or of saw also of we to this the get on that’s the even if margin – of order significant brand So the operating turned at sales year-over-year are brand. little component e-comm moment, they unanticipated the of in $X against in the leverage the build get the our any in into

in So goal our as is the in we direct-to-consumer brand international always grow business and the channels. the say, and it’s – grow particular primary here the markets to

So from those think to present come. the investments. will the make wide that at opportunity to will we’re those prove near-term. that not opportunities will themselves of and our they away themselves But We definitely day end going the continue shy incremental in leverage

Chris Svezia

third very you and all gentlemen, quarter. in Thank much best Okay. the the

John Vandemore

Thanks, Chris.

Operator

comes question MCH. of line with Our proceed Chartier Jim with next from the your question. Please

Jimmy Chartier

question. my taking for thanks Yes,

David Weinberg

Hi, Jim.

Jimmy Chartier

quarter, items in second unexpected non the and expense of legal rate. the some – the bridge of kind to helpful tax It’s

In on the much how on versus ago? terms maybe of it that – a months what might three going been have months of thought how three having quarter much tax impact third the or ago? higher versus rate have to an quarter EPS EPS then FX, you is impact guidance is three And where third weeks thought you

John Vandemore

say, would to terms, tax probably we was the XX% or year range the Yes, be to XX% suffice gave at in anticipation midpoint I on begin guidance XX%. to XX% the of but with EPS our won’t in that of put we more to

apparent As legislation the slightly that’s even going more or we’ve they is new a range. to to significant us pushing come to And understand are higher-end key impact. above aspects what’s of that the have that

QX. that coming a as that anticipating for range few currently mature. of above in again, the bit at rate. that’s obviously because the to QX implications basis points top-end So happens, or of lot is has update we’re that in above a range. of QX and we’ll a that catch-up there, being little And But just understanding continue our

impact only impact you if pronounced At you and most significant we don’t in is dollar. in know at look early markets FX, at we we QX. have, of year-over-year QX, it’s QX. U.S. expect the relative today anything look of to pretty have moment, swing pronounced deteriorate to it, translational actually if And terms the the the a in that continued In but as the it’s that

at depending we X, put to guess to it’s to don’t look not you a hard speculate. But attention and want on as we what that’s the on did to call become been in that on for it’s serious XXXX. up, start why going So in has and the definitely QX and could goes to And where QX us. particular, headwind headwind end be as starting more year it rates

Jimmy Chartier

And quarter think, wholesale last on you $XX the business just talked million Okay. quarters. to I then between domestic about, the shifting close

Is sales of So then to by think in third that’s the quarter, you right benefit that $XX offset are the this back, shifted million business. to getting about some them? but way loss non-core

John Vandemore

Yes.

point it. way think, think that’s asked. you that I line that about to out in constructive a of I’d

back last from in OP bit flat – to some But quarter shift us in to David year. flat that QX. definitely little fits out it comes a giving take mentioned category essentially you the QX. If us year, and last more in we’re price last

at QX in is is QX. a looking again, a the obviously, domestic to So and, out pronounced matter, it course, be has up what up QX been Where that timing falls QX in more be going wholesale we’re we’re that’s might flat in with better saying, but positive looking or what at year-to-date. back-half than slightly of and

Jimmy Chartier

On the down? it to last what – is is the still price, to year, it’s OP at for year be or was to going similar be it that level going

John Vandemore

below be last year. it’ll No,

Jimmy Chartier

have. I all my questions. for that’s taking Okay, Thanks

John Vandemore

Thank you.

Operator

time from last Sam Please that with Poser And of question. the comes question. one for We question with Susquehanna. proceed your have line

Sam Poser

questions questions. my answered from other been have Well, I all think, the

thank So you luck. good and

David Weinberg

Thanks, Sam.

Operator

Ladies concludes our this and gentlemen, conference.

Thank for disconnect You lines. now your may you participation. your

Unidentified Company Representative

note joining for statements. today. like call have on We forward-looking just that us today’s call again, would you, may to the Thank contained

of factors, detailed day. projected Skechers’ a results factors from statements. risk the could in and thank are risk actual As those have result great SEC. various These Again, you in materially such differ a filings with

Skechers U.S.A. (SKX) 19 Jul 182018 Q2 Earnings call transcript