Skechers(SKX) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved a record annual sales of $8 billion, an increase of$ 556 million compared to the previous year, with fourth-quarter sales reaching $1.96 billion, up 4.4% year-over-year [5][15] - Gross margin for the year was a record 51.9%, with fourth-quarter gross margins at 53.1%, an increase of 470 basis points from the prior year [5][18] - Earnings per share for the year were$ 3.49, marking a significant achievement for the brand [14] Business Line Data and Key Metrics Changes - Direct-to-consumer sales grew 20% year-over-year, exceeding 50% of total sales for the first time, driven by a 27% increase internationally and a 12% increase domestically [9][15] - Wholesale sales decreased 8.3% year-over-year to $962.6 million, with domestic wholesale down 10% and international wholesale down 7.1% [16][10] - The company opened 67 company-owned stores in the quarter, bringing the total to 1,648 locations, and plans to open 140 to 160 stores worldwide in 2024 [12][21] Market Data and Key Metrics Changes - International sales increased 7%, representing approximately 64% of total sales in the fourth quarter, with notable growth in Asia Pacific, where sales rose 15% year-over-year [9][17] - In China, sales grew 22%, driven by strong performance during key holiday periods, while EMEA sales decreased 7.3% year-over-year [17][10] Company Strategy and Development Direction - The company is focused on expanding its product categories, including the introduction of football and basketball lines, and enhancing its direct-to-consumer and wholesale businesses [6][8] - Strategic partnerships with athletes and celebrities are being leveraged to enhance brand visibility and consumer engagement [7][8] - The company aims to maintain a strong inventory position while managing supply chain challenges and investing in logistics capabilities [13][20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic challenges, including inflation and rising interest rates, but expressed optimism about returning to growth in the wholesale segment in 2024 [14][22] - The company expects sales for 2024 to range between$ 8.6 billion and $8.8 billion, with net earnings per share projected between$ 3.65 and $3.85 [22][23] - Management remains confident in the strength of the brand and ongoing consumer demand for its products [25] Other Important Information - The company reported a 16% year-over-year reduction in inventory levels, indicating improved inventory management [13][20] - Capital expenditures for the quarter were$ 85 million, with plans to invest between $350 million and$ 400 million in 2024 to support strategic priorities [21][23] Q&A Session Summary Question: U.S. wholesale business performance - Management clarified that domestic wholesale was down 10%, not 14%, and noted a cautious optimism for growth in 2024 based on improved order trends [28][29] Question: Performance in China - Management expressed satisfaction with the 22% growth in China and indicated early January performance was encouraging, suggesting a recovery trend [30][31] Question: Guidance for EBIT margins - Management indicated expectations for favorable gross margins in Q1, with a continued focus on achieving double-digit operating margins [37][38] Question: Store openings and productivity - Management emphasized the importance of opening the right type of stores globally and indicated plans for continued expansion beyond the current store count [42][44] Question: Impact of inventory congestion - Management described inventory congestion as temporary and specific to certain customers, with expectations for recovery in 2024 [46][48] Question: Consumer trends and gross margins - Management noted that consumers continue to trade up within the product portfolio, which may not significantly impact gross margins year-over-year [50][51] Question: Shipping and freight costs - Management reported that current shipping conditions are manageable, with early inventory purchases mitigating potential delays [53][54] Question: Growth opportunities in new categories - Management highlighted significant growth opportunities in football and basketball, with a cautious approach to market entry [57][58] Question: Direct-to-consumer growth outlook - Management expects continued growth in the direct-to-consumer segment, albeit at a slower pace than the previous year [60][62]