10-Q

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 March 31, 2024


☐	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) 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 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 April 26, 2024 132,395,249 shares of the registrant’s Class A Common Stock, $0.001 par value per share, were outstanding.

As of April 26, 2024 20,121,358 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 10-Q

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)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	21

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	23
	Signatures	24

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

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

Condensed Consolidated Balance Sheets

(Unaudited)


	As of			As of
(in thousands, except par value)	March 31, 2024			December 31, 2023
ASSETS
Current assets
Cash and cash equivalents	$	1,020,458		$	1,189,910
Short-term investments		88,564			72,595
Trade accounts receivable, less allowances of $57,021 and $57,867		1,158,384			860,300
Other receivables		76,632			82,253
Inventory		1,360,630			1,525,409
Prepaid expenses and other		225,726			222,137
Total current assets ($1,273,167 and $1,252,372 related to VIEs)		3,930,394			3,952,604
Property, plant and equipment, net		1,519,463			1,506,690
Operating lease right-of-use assets		1,298,349			1,276,171
Deferred tax assets		447,085			450,574
Long-term investments		143,503			123,996
Goodwill		101,230			101,230
Other assets, net		127,416			136,086
Total non-current assets ($642,570 and $641,879 related to VIEs)		3,637,046			3,594,747
TOTAL ASSETS	$	7,567,440		$	7,547,351
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	828,824		$	1,008,001
Accrued expenses		302,213			320,105
Operating lease liabilities		277,733			274,296
Current installments of long-term borrowings		233,756			46,571
Short-term borrowings		—			11,894
Total current liabilities ($690,370 and $600,337 related to VIEs)		1,642,526			1,660,867
Long-term operating lease liabilities		1,122,157			1,108,110
Long-term borrowings		112,536			242,944
Deferred tax liabilities		12,167			12,594
Other long-term liabilities		124,363			122,794
Total non-current liabilities ($201,013 and $329,219 related to VIEs)		1,371,223			1,486,442
Total liabilities		3,013,749			3,147,309
Commitments and contingencies (Note 10)
Stockholders’ equity
Preferred Stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding		—			—
Class A Common Stock, $0.001 par value; 500,000 shares authorized; 132,333 and 132,837 shares issued and outstanding		132			133
Class B Common Stock, $0.001 par value; 75,000 shares authorized; 20,182 and 20,182 shares issued and outstanding		20			20
Additional paid-in capital		228,594			295,847
Accumulated other comprehensive loss		(86,020	)		(73,388	)
Retained earnings		4,003,352			3,796,730
Skechers U.S.A., Inc. equity		4,146,078			4,019,342
Noncontrolling interests		407,613			380,700
Total stockholders' equity		4,553,691			4,400,042
TOTAL LIABILITIES AND EQUITY	$	7,567,440		$	7,547,351

See accompanying notes to unaudited condensed consolidated financial statements.

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

Condensed Consolidated Statements of Earnings

(Unaudited)


	Three Months Ended March 31,
(in thousands, except per share data)	2024			2023
Sales	$	2,251,587		$	2,001,928
Cost of sales		1,069,953			1,023,349
Gross profit		1,181,634			978,579
Operating expenses
Selling		156,501			128,560
General and administrative		726,335			626,442
Total operating expenses		882,836			755,002
Earnings from operations		298,798			223,577
Other (expense) income		(2,050	)		9,923
Earnings before income taxes		296,748			233,500
Income tax expense		56,370			43,216
Net earnings		240,378			190,284
Less: Net earnings attributable to noncontrolling interests		33,756			29,841
Net earnings attributable to Skechers U.S.A., Inc.	$	206,622		$	160,443
Net earnings per share attributable to Skechers U.S.A., Inc.
Basic	$	1.35		$	1.03
Diluted	$	1.33		$	1.02
Weighted-average shares used in calculating net earnings per share attributable to Skechers U.S.A., Inc.
Basic		152,918			155,140
Diluted		155,119			156,755

See accompanying notes to unaudited condensed consolidated financial statements.

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

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2024			2023
Net earnings	$	240,378		$	190,284
Other comprehensive income, net of tax
Net unrealized loss on derivative contract		(639	)		(1,416	)
(Loss) gain on foreign currency translation adjustment		(18,436	)		6,851
Comprehensive income		221,303			195,719
Less: Comprehensive income attributable to noncontrolling interests		27,313			30,596
Comprehensive income attributable to Skechers U.S.A., Inc.	$	193,990		$	165,123

See accompanying notes to unaudited condensed consolidated financial statements.

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

Condensed Consolidated Statements of Equity

(Unaudited)



	Shares						Amount									Accumulated
(in thousands)	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, 2023		132,837			20,182		$	133		$	20		$	295,847		$	(73,388	)	$	3,796,730	$	4,019,342		$	380,700		$	4,400,042
Net earnings		—			—			—			—			—			—			206,622		206,622			33,756			240,378
Foreign currency translation adjustment		—			—			—			—			—			(12,632	)		—		(12,632	)		(5,804	)		(18,436	)
Distributions to noncontrolling interests		—			—			—			—			—			—			—		—			(400	)		(400	)
Net unrealized loss on derivative contract		—			—			—			—			—			—			—		—			(639	)		(639	)
Stock compensation expense		—			—			—			—			20,693			—			—		20,693			—			20,693
Shares issued under the incentive award plan		960			—			1			—			(1	)		—			—		—			—			—
Shares redeemed for employee tax withholdings		(470	)		—			(1	)		—			(27,926	)		—			—		(27,927	)		—			(27,927	)
Repurchases of common stock		(994	)		—			(1	)		—			(60,019	)		—			—		(60,020	)		—			(60,020	)
Balance at March 31, 2024		132,333			20,182		$	132		$	20		$	228,594		$	(86,020	)	$	4,003,352	$	4,146,078		$	407,613		$	4,553,691

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		—			—			—			—			—			—			160,443		160,443			29,841			190,284
Foreign currency translation adjustment		—			—			—			—			—			4,680			—		4,680			2,171			6,851
Distributions to noncontrolling interests		—			—			—			—			—			—			—		—			(750	)		(750	)
Net unrealized loss on derivative contract		—			—			—			—			—			—			—		—			(1,416	)		(1,416	)
Stock compensation expense		—			—			—			—			14,252			—			—		14,252			—			14,252
Shares issued under the incentive award plan		225			—			—			—			—			—			—		—			—			—
Shares redeemed for employee tax withholdings		(99	)		—			—			—			(4,498	)		—			—		(4,498	)		—			(4,498	)
Repurchases of common stock		(676	)		—			(1	)		—			(30,013	)		—			—		(30,014	)		—			(30,014	)
Conversion of Class B Common Stock into Class A Common Stock		336			(336	)		1			(1	)		—			—			—		—			—			—
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

See accompanying notes to unaudited condensed consolidated financial statements.

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

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2024			2023
Cash flows from operating activities
Net earnings	$	240,378		$	190,284
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation and amortization		49,325			41,424
Provision for bad debts and returns		12,749			9,792
Stock compensation		20,693			14,252
Deferred income taxes		3,648			(6,146	)
Net foreign currency adjustments		4,929			(9,605	)
Changes in operating assets and liabilities
Receivables		(322,773	)		(185,430	)
Inventory		147,535			325,478
Other assets		(37,635	)		(76,533	)
Accounts payable		(162,862	)		(70,945	)
Other liabilities		6,407			2,549
Net cash provided by (used in) operating activities		(37,606	)		235,120
Cash flows from investing activities
Capital expenditures		(57,087	)		(71,213	)
Purchases of investments		(65,065	)		(37,942	)
Proceeds from sales and maturities of investments		29,589			40,356
Net cash used in investing activities		(92,563	)		(68,799	)
Cash flows from financing activities
Repayments on long-term borrowings		(904	)		(3,875	)
Proceeds from long-term borrowings		57,679			14,947
Net (repayments on) proceeds from short-term borrowings		(11,894	)		10,836
Payments for employee taxes related to stock compensation		(27,927	)		(4,498	)
Repurchases of common stock		(60,020	)		(30,014	)
Distributions to noncontrolling interests		(400	)		(750	)
Net cash used in financing activities		(43,466	)		(13,354	)
Effect of exchange rate changes on cash and cash equivalents		4,183			(8,660	)
Net change in cash and cash equivalents		(169,452	)		144,307
Cash and cash equivalents at beginning of the period		1,189,910			615,733
Cash and cash equivalents at end of the period	$	1,020,458		$	760,040

Supplemental disclosures of cash flow information
Cash paid during the period for
Interest	$	4,630		$	4,910
Income taxes, net		28,295			25,687
Non-cash transactions
Right-of-use assets exchanged for lease liabilities		105,285			86,643

See accompanying notes to unaudited condensed consolidated financial statements.

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

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(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, 2023 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 2023 Annual Report on Form 10-K.

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.

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.

The Company’s Level 1 investments primarily include money market funds, United States (“U.S.”) Treasury securities and actively traded mutual funds; Level 2 investments primarily include corporate notes and bonds, asset-backed securities and U.S. Agency securities; and the Company does not currently have any Level 3 assets or liabilities. The Company has one Level 2 derivative instrument which is an interest rate swap (see Note 4 – Financial Commitments) classified as prepaid expenses and other at March 31, 2024 and as other assets, net at December 31, 2023. The fair value of the interest rate swap was determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipt was based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. Credit valuation adjustments were incorporated to appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

The carrying amount of receivables, payables and other amounts arising out of the normal course of business approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s short-term and long-term borrowings, which are considered Level 2 liabilities, approximates fair value based on current rates and terms available to the Company for similar debt.

DERIVATIVE INSTRUMENTS

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, the Company uses an interest rate swap as part of its interest rate risk management strategy. The Company’s interest rate swap, designated as a cash flow hedge, involves the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. By utilizing an interest rate swap, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of March 31, 2024, all counterparties to the interest rate swap had performed in accordance with their contractual obligations.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Among other new disclosure requirements, ASU 2023-07 requires companies to disclose significant segment expenses that are regularly provided to the chief operating decision maker. ASU 2023-07 will be effective for annual periods beginning on January 1, 2024 and interim periods beginning on January 1, 2025. ASU 2023-07 must be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the disclosure impact of ASU 2023-07.

In December 2023, the FASB issued ASU No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid. ASU 2023-09 will be effective for annual periods beginning January 1, 2025 and will be applied on a prospective basis with the option to apply the standard retrospectively. We are currently evaluating the disclosure impact of ASU 2023-09.

RecentLY ADOPTED Accounting Pronouncements

In March 2023, the FASB issued ASU 2023-01 Leases (Topic 842): Common Control Arrangements, which requires all lessees to amortize leasehold improvements associated with common control leases over their useful life to the common control group. The Company adopted ASU 2023-01 on January 1, 2024, and the adoption of this ASU did not have a material impact on its condensed consolidated financial statements.

(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 March 31, 2024
(in thousands)	Adjusted Cost		Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	989,632	$	989,632	$	989,632	$	—	$	—
Level 1
Money market funds		12,646		12,646		12,646		—		—
U.S. Treasury securities		19,301		19,301		4,997		12,833		1,471
Mutual funds	N/A			6,391		—		—		6,391
Total level 1		31,947		38,338		17,643		12,833		7,862
Level 2
Corporate notes and bonds		121,604		121,604		13,183		57,864		50,557
Asset-backed securities		19,853		19,853		—		1,199		18,654
U.S. Agency securities		23,506		23,506		—		16,668		6,838
Total level 2		164,963		164,963		13,183		75,731		76,049
Total	$	1,186,542	$	1,192,933	$	1,020,458	$	88,564	$	83,911


	As of December 31, 2023
(in thousands)	Adjusted Cost		Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	972,278	$	972,278	$	972,278	$	—	$	—
Level 1
Money market funds		176,317		176,317		176,317		—		—
U.S. Treasury securities		39,769		39,769		29,942		9,827		—
Mutual funds	N/A			8,535		—		—		8,535
Total level 1		216,086		224,621		206,259		9,827		8,535
Level 2
Corporate notes and bonds		97,795		97,795		9,374		50,949		37,472
Asset-backed securities		11,159		11,159		—		—		11,159
U.S. Agency securities		27,269		27,269		1,999		11,819		13,451
Total level 2		136,223		136,223		11,373		62,768		62,082
Total	$	1,324,587	$	1,333,122	$	1,189,910	$	72,595	$	70,617

The Company’s investments consist of U.S. Treasury securities, corporate notes and bonds, asset-backed securities and 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. 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 $59.6 million and $53.4 million at March 31, 2024 and December 31, 2023. Interest income was $8.5 million and $2.6 million for three months ended March 31, 2024 and 2023.

When evaluating an investment for its current expected credit losses, the Company reviews factors such as historical experience with defaults, losses, credit ratings, term and macroeconomic trends, including current conditions and forecasts to the extent they are reasonable and supportable.

(3)

Accrued Expenses

Accrued expenses were as follows:


	As of		As of
(in thousands)	March 31, 2024		December 31, 2023
Accrued payroll, taxes, and other	$	177,694	$	166,132
Return reserve liability		90,038		80,968
Accrued inventory purchases		34,481		73,005
Accrued expenses	$	302,213	$	320,105

(4)

Financial Commitments

The Company had $32.4 million and $32.5 million letters of credit at March 31, 2024 and December 31, 2023, and $11.9 million in short-term borrowings at December 31, 2023. Interest expense was $4.7 million and $5.1 million for the three months ended March 31, 2024 and 2023.

Long-term borrowings were as follows:


	As of		As of
(in thousands)	March 31, 2024		December 31, 2023
HF-T1 Distribution Center Loan	$	129,505	$	129,505
HF-T2 Distribution Center Construction Loan		73,017		73,017
China Distribution Center Expansion Construction Loan		39,496		40,330
China Operational Loans		103,908		46,228
Other		366		435
Subtotal		346,292		289,515
Less: Current installments		233,756		46,571
Total long-term borrowings	$	112,536	$	242,944

Revolving Credit Facility

The Company maintains a revolving credit facility which allows for a senior unsecured credit facility of $750.0 million, which may be increased by up to $250.0 million under certain conditions and provides for the issuance of letters of credit up to a maximum of $100.0 million and swingline loans up to a maximum of $50.0 million. The expiration date is December 15, 2026. At March 31, 2024 and December 31, 2023, there was no outstanding balance under the revolving credit facility. The unused credit capacity was $746.9 million at March 31, 2024 and December 31, 2023.

The Company is required to maintain a maximum total adjusted net leverage ratio of 3.75:1, except in the event of an acquisition in which case the ratio may be increased at the Company’s election to 4.25:1 for the quarter in which such acquisition occurs and for the next three quarters thereafter. The Company was in compliance with the financial covenants at March 31, 2024.

Additionally, the Company maintains various credit facilities within our international market with an aggregate capacity of approximately $117.3 million that is available for working capital needs and issuance of letters of credit. At March 31, 2024, there were no borrowings outstanding under these credit facilities. At December 31, 2023, we had $11.9 million of borrowings outstanding under these credit facilities included in short-term borrowings.

HF-T1 Distribution Center Loan

To finance construction and improvements to the Company’s North American distribution center, the Company’s joint venture with HF Logistics I, LLC (“HF”), HF Logistics-SKX, LLC (the “JV”), through a wholly-owned subsidiary of the JV (“HF-T1”), entered into a $129.5 million construction loan agreement which matures on March 18, 2025 (the “HF-T1 2020 Loan”) with interest of SOFR Daily Floating Rate plus a margin of 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. with a maturity date of March 18, 2025. The Swap Agreement Amendment fixes the effective interest rate on the HF-T1 2020 Loan at 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. At March 31, 2024 and December 31, 2023, 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 0.778% on the notional amount and receive payments from the counterparty based on the 30-day SOFR rate, effectively modifying the Company’s exposure to interest rate risk by converting floating-rate debt to a fixed rate of 2.63%. At March 31, 2024, the outstanding balance under the HF-T1 2020 Loan is classified as current installments of long-term borrowings.

HF-T2 Distribution Center Construction Loan

On April 3, 2020, the JV, through HF Logistics-SKX T2, LLC, a wholly-owned subsidiary of the JV (“HF-T2”), entered into a construction loan agreement of up to $73.0 million with Bank of America, N.A. to expand the North American distribution center. The maturity date is April 3, 2025. The interest rate is based on the Bloomberg Short-Term Bank Yield Index Daily Floating Rate 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 was 7.12% during the three months ended March 31, 2024. The obligations of the JV under this loan are guaranteed by TGD Holdings I, LLC, which is an affiliate of HF.

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 March 31, 2024 was 3.3% 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 Taicang Subsidiary are jointly and severally guaranteed by the Company’s China joint venture.

China Operational Loans

The Company has certain secured credit facilities to support the operations of its China joint venture. The interest rate was 2.60% per annum at March 31, 2024 and had interest rates ranging from 2.75% to 2.90% per annum at December 31, 2023. The outstanding balances under these working capital loans are classified as current installments of long-term borrowings.

(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 million. The Share Repurchase Program expires on January 31, 2025 and does not obligate the Company to acquire any particular amount of shares. At March 31, 2024, there was $205.7 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 March 31,
	2024		2023
Shares repurchased		994,215		676,190
Average cost per share	$	60.37	$	44.39
Total cost of shares repurchased (in thousands)	$	60,020	$	30,014

INCENTIVE AWARD PLAN

In the three months ended March 31, 2024, 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 (“TSR”) 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 zero to 200% based on actual results. At March 31, 2024, there were 5,457,960 shares available for grant as equity awards under the 2023 Incentive Award Plan if target levels are achieved for performance-based awards and 4,873,510 if maximum levels are achieved.

The Company issued the following stock-based instruments:


	Three Months Ended March 31,
	2024				2023
	Granted		Weighted-Average Grant-Date Fair Value		Granted		Weighted-Average Grant-Date Fair Value
Restricted stock		1,136,710	$	58.56		300,970	$	43.77
Performance-based restricted stock		93,500	$	60.64		121,225	$	43.34
Market-based restricted stock		93,500	$	78.80		121,225	$	59.71

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.

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, 2023		3,462,705		$	43.54
Granted		1,323,710			60.14
Vested		(960,016	)		44.35
Cancelled		(11,600	)		44.42
Performance Adjustment		224,809			46.87
Unvested at March 31, 2024		4,039,608		$	48.97

For the three months ended March 31, 2024, shares were issued based on achievement of certain EPS and TSR metrics.

A summary of the payout for EPS and TSR grants is presented below:


	Three Months Ended March 31, 2024
	Target Shares		Payout Factor			Performance Adjustment
December 2020 EPS Grant		125,000		133	%		41,665
December 2020 TSR Grant		125,000		162	%		77,250
March 2021 EPS Grant		108,750		133	%		36,250
March 2021 TSR Grant		108,750		164	%		69,644
Total Performance Adjustments							224,809

For the three months ended March 31, 2024 and 2023, the Company recognized $19.7 million and $13.5 million of incentive stock compensation expense. At March 31, 2024, the unamortized stock compensation of $142.4 million is expected to be recognized over a weighted-average period of 1.66 years.

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% of the fair market value on the first trading day or last trading day of each purchase period, whichever is lower. Eligible employees can invest up to 15% of their compensation through payroll deductions during each purchase period. The purchase price discount and the look-back feature cause the 2018 ESPP to be compensatory and the Company recognizes compensation expense, which is computed using the Black-Scholes valuation model.

For the three months ended March 31, 2024 and 2023, the Company recognized $1.0 million and $0.7 million ESPP stock compensation expense. At March 31, 2024, there were 3,573,580 shares available for sale under the 2018 ESPP.

(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.

The calculation of EPS is as follows:


	Three Months Ended March 31,
(in thousands, except per share data)	2024		2023
Net earnings attributable to Skechers U.S.A., Inc.	$	206,622	$	160,443

Weighted-average common shares outstanding, basic		152,918		155,140
Dilutive effect of nonvested shares		2,201		1,615
Weighted-average common shares outstanding, diluted		155,119		156,755
Anti-dilutive common shares excluded above		5		10
Net earnings per share attributable to Skechers U.S.A., Inc.
Basic	$	1.35	$	1.03
Diluted	$	1.33	$	1.02

(7)

Income Taxes

The tax provisions for the three months ended March 31, 2024 and 2023, 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 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% to 35%, which is on average significantly lower than the U.S. federal and state combined statutory rate of 25%. The Company’s effective tax rate was 19.0% and 18.5% for the three months ended March 31, 2024 and 2023. For the quarter, the increase in the effective tax rate is the result of the mix of earnings across foreign jurisdictions.

Our U.S. federal tax returns are under examination by the Internal Revenue Service for fiscal years ended December 31, 2015 through December 31, 2022. We are unable to determine the impact of this examination due to the audit process having not been completed.

(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. On January 30, 2024, the Company's Audit Committee approved contributions of $2.0 million to the Foundation in 2024.

(9)

Segment and Geographic Information

The Company has two reportable segments, Wholesale and Direct-to-Consumer. Management 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 March 31,
(in thousands)	2024			2023
Wholesale sales	$	1,421,698		$	1,294,558
Gross profit		636,040			511,999
Gross margin		44.7	%		39.6	%

Direct-to-Consumer sales	$	829,889		$	707,370
Gross profit		545,594			466,580
Gross margin		65.7	%		66.0	%

Total sales	$	2,251,587		$	2,001,928
Gross profit		1,181,634			978,579
Gross margin		52.5	%		48.9	%


(in thousands)	As of March 31, 2024		As of December 31, 2023
Identifiable assets
Wholesale	$	3,750,122	$	3,607,537
Direct-to-Consumer		3,817,318		3,939,814
Total	$	7,567,440	$	7,547,351


	Three Months Ended March 31,
(in thousands)	2024		2023
Additions to property, plant and equipment
Wholesale	$	32,763	$	51,516
Direct-to-Consumer		24,324		19,697
Total	$	57,087	$	71,213

Geographic Information


	Three Months Ended March 31,
(in thousands)	2024		2023
Geographic sales
Domestic Wholesale	$	475,950	$	441,903
Domestic Direct-to-Consumer		322,854		298,963
Total domestic sales		798,804		740,866

International Wholesale		945,748		852,655
International Direct-to-Consumer		507,035		408,407
Total international sales		1,452,783		1,261,062

Total sales	$	2,251,587	$	2,001,928


Regional Sales
Americas (AMER)	$	1,019,467	$	945,931
Europe, Middle East & Africa (EMEA)		627,652		534,494
Asia Pacific (APAC)		604,468		521,503
Total sales	$	2,251,587	$	2,001,928

China sales	$	319,514	$	281,953


(in thousands)	As of March 31, 2024		As of December 31, 2023
Property, plant and equipment, net
Domestic	$	969,810	$	957,569
International		549,653		549,121
Total	$	1,519,463	$	1,506,690

China property plant and equipment, net	$	285,337	$	286,854

The Company’s sales to its five largest customers accounted for 8.5% and 8.0% of total sales for the three months ended March 31, 2024 and 2023.

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 $5.2 billion and $5.1 billion at March 31, 2024 and December 31, 2023.

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 March 31, 2024 and 2023 were $1.3 million and $0.7 million.

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


(in thousands)	As of March 31, 2024		As of December 31, 2023
Domestic Accounts Receivable	$	396,278	$	276,918
International Accounts Receivable		819,126		641,249

The Company’s top five manufacturers produced the following:


	Three Months Ended March 31,
(percentage of total production)	2024		2023
Manufacturer #1		20.0		23.2
Manufacturer #2		8.9		6.1
Manufacturer #3		5.4		5.8
Manufacturer #4		5.1		5.8
Manufacturer #5		3.7		5.3
Total		43.1		46.2

(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 at March 31, 2024, 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 was $83.7 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, and reduced by a working capital adjustment of $0.3 million. On the acquisition date, we recorded intangible assets of $54.4 million, goodwill of $7.7 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 contingent consideration was paid in February 2024, for $7.1 million based on the acquiree achieving certain financial results in 2023.

The results of Sports Connection's operations have been included in, but are not material to, the Company's condensed 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 $1.6 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.

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 thereto in Item 1 of this report and our annual report on Form 10-K for the year ended December 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 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;

•

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

•

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 and foreign currency exchange rate fluctuations around the world, the challenging consumer retail market in the United States (“U.S.”) and the impact of war and other conflicts around the world;

•

the loss of any significant customers, decreased demand by industry retailers and the cancellation of order commitments;

•

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; and

•

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

•

other factors referenced or incorporated by reference in our annual report on Form 10-K for the year ended December 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 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

Skechers began 2024 by setting a new sales record, delivering results above expectations, and further expanding the Skechers brand globally. The broad-based growth is the result of the company’s dedication to delivering exceptional product for consumers of all ages and interests and supporting our initiatives with targeted and effective demand creation. In the quarter ending March 31, 2024, we broadcasted our first Skechers Basketball campaigns starring NBA players, entered the world of cricket by sponsoring one of the leading men’s and women’s teams in India, and grew our roster of Premier League footballers. Our brand and product initiatives are supported by impactful marketing campaigns, all highlighting Skechers’ technology. We expanded our footprint with new store openings and experienced growth in all regions and in both segments. Our extensive product offering, best-in-class partnerships with our distribution network and strong global demand provide us confidence as we move toward our goal of $10 billion in annual sales by 2026.

Key highlights for the first quarter of 2024 include:

•

Record sales of $2.25 billion, an increase of 12.5%

•

Gross margins improved to 52.5%

•

Increased sales in both segments and across all regions

•

Diluted earnings per share of $1.33

RESULTS OF OPERATIONS – FIRST QUARTER

We have two reportable segments, Wholesale and Direct-to-Consumer. 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 March 31,								Change
(in thousands)		2024				2023			$			%
Sales		$	2,251,587			$	2,001,928			249,659			12.5
Cost of sales			1,069,953				1,023,349			46,604			4.6
Gross profit			1,181,634				978,579			203,055			20.7
Gross margin			52.5		%		48.9	%				360 bps
Operating expenses
Selling			156,501				128,560			27,941			21.7
General and administrative			726,335				626,442			99,893			15.9
Total operating expenses			882,836				755,002			127,834			16.9
As a % of sales			39.2		%		37.7	%				150 bps
Earnings from operations			298,798				223,577			75,221			33.6
Operating margin			13.3		%		11.2	%				210 bps
Other (expense) income			(2,050	)			9,923			(11,973	)	n/m
Earnings before income taxes			296,748				233,500			63,248			27.1
Income tax expense			56,370				43,216			13,154			30.4
Net earnings			240,378				190,284			50,094			26.3
Less: Net earnings attributable to noncontrolling interests			33,756				29,841			3,915			13.1
Net earnings attributable to Skechers U.S.A., Inc.		$	206,622			$	160,443			46,179			28.8

Sales

Sales increased $249.7 million, or 12.5%, to $2.3 billion compared to $2.0 billion as a result of a 15.2% increase internationally and a 7.8% increase domestically. Wholesale increased 9.8% and Direct-to-Consumer increased 17.3%. Sales increased overall due to higher sales volume and higher average selling prices in Direct-to-Consumer.

Gross margin

Gross margin increased 360 basis points to 52.5% compared to 48.9%, due to lower costs per unit, driven by lower freight costs, and higher average selling prices in Direct-to-Consumer.

Operating expenses

Operating expenses increased $127.8 million, or 16.9%, to $882.8 million, and as a percentage of sales increased 150 basis points to 39.2% compared to 37.7% in the prior year. Selling expenses increased $27.9 million, or 21.7%, to $156.5 million, primarily due to higher brand demand creation expenditures. General and administrative expenses increased $99.9 million, or 15.9%, to $726.3 million. The increased expenses were primarily due to increases in labor costs of $52.7 million and facility related costs of $17.8 million, including rent, depreciation and utilities.

Other (expense) income

Other expense was $2.1 million for the three months ended March 31, 2024, as compared to an income of $9.9 million for the three months ended March 31, 2023. The decrease of $12.0 million was primarily due to unfavorable loss on foreign currency exchange rates, partially offset by an increase in interest income.

Income taxes

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


	Three Months Ended March 31,
(in thousands)	2024			2023
Income tax expense	$	56,370		$	43,216
Effective tax rate		19.0	%		18.5	%

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% to 35%, and on average is significantly lower than the U.S. federal and state combined statutory rate of 25%. For the quarter, the increase in the effective tax rate is the result of the mix of earnings across foreign jurisdictions.

The Organization for Economic Cooperation and Development ("OECD") has issued various proposals that would change long-standing global tax principles, namely its Pillar Two framework, which imposes a global minimum corporate tax rate of 15% for large companies. The European Union (“EU”) member states formally adopted the EU’s Pillar Two Directive, which generally provides for a 15% minimum effective tax rate for multinational enterprises, in every jurisdiction in which they operate. We do not anticipate that this will have a material impact on our tax provision or effective tax rate in 2024. We will continue to evaluate the potential impact of the Pillar Two framework on future periods, pending legislative adoption by individual countries.

Noncontrolling interests in net earnings of consolidated subsidiaries

Noncontrolling interests represents the share of net earnings that is attributable to our joint venture partners. Net earnings attributable to noncontrolling interests increased $3.9 million to $33.8 million compared to $29.8 million in the prior year, due to higher earnings by our joint ventures, predominantly in China.

RESULTS OF SEGMENT OPERATIONS – FIRST QUARTER

Wholesale


	Three Months Ended March 31,							Change
(in thousands)		2024			2023			$		%
Sales		$	1,421,698		$	1,294,558			127,140		9.8
Gross profit			636,040			511,999			124,041		24.2
Gross margin			44.7	%		39.6	%			520 bps

Wholesale sales increased $127.1 million, or 9.8%, to $1.4 billion, which includes increases in Europe, Middle East & Africa of 11.5%, Asia Pacific of 15.3%, and the Americas of 5.9%. Wholesale volume increased 9.9% and average selling price was flat.

Wholesale gross margin increased 520 basis points to 44.7% due to a decrease in unit cost driven by lower freight.

Direct-to-Consumer


	Three Months Ended March 31,							Change
(in thousands)		2024			2023			$		%
Sales		$	829,889		$	707,370			122,519		17.3
Gross profit			545,594			466,580			79,014		16.9
Gross margin			65.7	%		66.0	%			(20) bps

Direct-to-Consumer sales increased $122.5 million, or 17.3%, to $829.9 million, which includes increases in Asia Pacific of 16.5%, the Americas of 10.5%, and Europe, Middle East & Africa of 62.4%. Direct-to-Consumer volume increased 15.5% and average selling price increased 1.6%.

Direct-to-Consumer gross margin decreased 20 basis points to 65.7%, primarily driven by increased unit costs, partially offset by increased average selling prices.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity outlook

We have cash and cash equivalents of $1,020.5 million at March 31, 2024. Amounts held outside the U.S. were $970.1 million, or 95.1% and $433.5 million was available for repatriation to the U.S. at March 31, 2024, without incurring additional U.S. federal income taxes and applicable non-U.S. income and withholding taxes.

At March 31, 2024, we have unused credit capacity of $746.9 million on our revolving credit facility, 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 March 31, 2024 and December 31, 2023 was $2.3 billion. Our cash and cash equivalents at March 31, 2024 were $1,020.5 million, compared to $1,189.9 million at December 31, 2023. Capital expenditures were $57.1 million and we repurchased $60.0 million of common stock for the three months ended March 31, 2024. Our primary sources of operating cash are collections from customers. Our primary uses of cash are working capital, selling, general and administrative expenses and capital expenditures.

Operating Activities

For the three months ended March 31, 2024, net cash used in operating activities was $37.6 million compared to net cash provided of $235.1 million for the three months ended March 31, 2023. The $272.7 million decrease in operating cash flows primarily resulted from a lower decrease of inventory levels in the current year and changes in receivable and payable balances, partially offset by an increase in net earnings.

Investing Activities

Net cash used in investing activities was $92.6 million for the three months ended March 31, 2024, compared to $68.8 million for the three months ended March 31, 2023. The $23.8 million increase was due to increased net investment activity of $37.9 million, partially offset by decreased capital expenditures of $14.1 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 three months ended March 31, 2024 were $57.1 million, which included $24.3 million related to investments in our retail stores and direct-to-consumer technologies; $15.6 million related to the expansion of our global distribution infrastructure; and $7.4 million of investments in our new corporate offices. We expect our annual capital expenditures for 2024 to be approximately $325.0 to $375.0 million, which is primarily related to new stores, added omnichannel capabilities and incremental distribution capacity in key markets. We expect to fund ongoing capital expenses through a combination of available cash and borrowings.

Financing Activities

Net cash used in financing activities was $43.5 million during the three months ended March 31, 2024, compared to $13.4 million during the three months ended March 31, 2023. The increase is the result of increased repurchases of common stock of $30.0 million, increased payments for employee taxes related to stock compensation of $23.4 million and net increased repayments from short-term borrowings of $22.7 million, partially offset by increased proceeds and decreased repayment from long-term borrowing of $45.7 million.

Capital Resources and Prospective Capital Requirements

Financing Arrangements

At March 31, 2024, outstanding short-term and long-term borrowings were $346.3 million, of which $242.0 million relates to loans for our domestic and China distribution centers, $103.9 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.

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. 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 March 31, 2024.

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, 2023.

Item 4. Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods and that such information is accumulated and communicated to allow timely decisions regarding required disclosures. As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, management concluded that our disclosure controls and procedures are not effective due to the un-remediated material weakness in internal controls over financial reporting described below. Notwithstanding the material weakness, our management has concluded that the condensed consolidated financial statements fairly present, in all material respects, its financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.

As previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, management identified a material weakness in our internal control over financial reporting related to the information technology general controls related to segregation of duties within an information system relevant to the preparation of the Company’s consolidated financial statements.

Under the direction of the Audit Committee, our management has begun the process of designing and implementing effective internal control measures to remediate the material weakness. These efforts will include:

•

Rationalizing user access roles and privileges;

•

Implementing user activity monitoring; and

•

Formalizing additional compensating control activities over the completeness and accuracy of data provided by the affected system.

The material weakness will not be considered remediated until the enhanced controls operate for a sufficient period of time and management has concluded, through testing, that the related controls are effective. We will monitor the effectiveness of the remediation plan and refine the remediation plan as appropriate.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Other than the ongoing remediation efforts described above, there were no changes to our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the quarter ended March 31, 2024.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

Our management, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Assessments of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements as a result of error or fraud may occur and not be detected.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Nike, Inc. v. Skechers USA, Inc. – On November 6, 2023, Nike filed an action against our company in the United States District Court for the Central District of California, Case No. 2:23-CV-09346, alleging that certain Skechers shoe designs infringe the claims of six Nike utility patents that purportedly cover Nike’s Flyknit technologies. Nike seeks injunctive relief, damages (including treble damages), pre-judgment and post-judgment interest, and costs. On January 12, 2024, we answered Nike’s complaint, denying the allegations, and filed counterclaims seeking declarations of invalidity of the asserted patents, and non-infringement. The District Court has scheduled a claim construction hearing for July 12, 2024, and set a deadline of December 20, 2024 for the filing of summary judgment motions. The Court has also set trial to begin on May 5, 2025. While it is too early to predict the outcome of the District Court proceedings or whether an adverse result would have a material adverse impact on our operations or financial position, we believe we have meritorious defenses and intend to defend this matter vigorously.

Other than the Nike, Inc. v. Skechers USA, Inc. matter as described above, 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, 2023.

Item 1A. Risk Factors

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, 2023.

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

The following table summarizes the share repurchase activity during the quarter ended March 31, 2024.


Month Ended	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased under the Share Repurchase Program		Maximum Dollar Value of Shares that May Yet Be Purchased under the Program (in thousands)
January 31, 2024		—	$	—		—	$	265,692
February 29, 2024		470,772		59.50		470,772		237,682
March 31, 2024		523,443		61.15		523,443		205,672
Total		994,215	$	60.37		994,215	$	205,672

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

(a)

During the three months ended March 31, 2023 and 2024, our Audit Committee approved personnel support services of up to $200,000 and $250,000 to be provided to the Skechers Foundation in 2023 and 2024, respectively.

(b)

None.

(c)

During the quarter ended March 31, 2024, 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(a) of Regulation S-K.

Item 6. Exhibits


Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation dated April 29, 1999 (incorporated by reference to exhibit number 3.1 of the Registrant’s Form 10-Q for the quarter ended September 30, 2015).

3.1(a)		Amendment to Amended and Restated Certificate of Incorporation dated September 24, 2015 (incorporated by reference to exhibit number 3.2 of the Registrant’s Form 10-Q for the quarter ended September 30, 2015).

3.1(b)		Second Amendment to Amended and Restated Certificate of Incorporation dated June 12, 2023 (incorporated by reference to exhibit number 3.1 of the Registrant’s Form 10-Q for the quarter ended June 30, 2023).

3.2		Bylaws dated May 28, 1998 (incorporated by reference to exhibit number 3.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-60065) filed on July 29, 1998).

3.2(a)		Amendment to Bylaws dated as of April 8, 1999 (incorporated by reference to exhibit number 3.2(a) of the Registrant’s Form 10-K for the year ended December 31, 2005).

3.2(b)		Second Amendment to Bylaws dated as of December 18, 2007 (incorporated by reference to exhibit number 3.1 of the Registrant’s Form 8-K filed on December 20, 2007).

3.2(c)		Third Amendment to Bylaws dated as of May 15, 2019 (incorporated by reference to exhibit number 3.1 of the Registrant’s Form 8-K filed on May 17, 2019).

3.2(d)		Fourth Amendment to Bylaws dated as of March 9, 2023 (incorporated by reference to exhibit number 3.1 of the Registrant’s Form 8-K filed on March 15, 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		Financial statements from the quarterly report on Form 10-Q of Skechers U.S.A., Inc. for the quarter ended March 31, 2024 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

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: May 3, 2024	SKECHERS U.S.A., INC.

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