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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

or

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

Commission File Number 001-14429

SKECHERS U.S.A., INC.

(Exact name of registrant as specified in its charter)

 

Delaware

95-4376145

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

228 Manhattan Beach Blvd.

Manhattan Beach, California

90266

(Address of principal executive office)

(Zip Code)

 

(310) 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

 

2


 

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.

3


 

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.

4


 

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.

5


 

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.

6


 

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.

7


 

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.

8


 

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

 

 

9


 

 

 

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

 

 

10


 

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