10-K: Skechers Reports Record Sales for 2024, Driven by International Growth

Skechers U.S.A., Inc. announces a 12.1% increase in sales, reaching a new annual record of $8.97 billion for the year ended December 31, 2024, fueled by growth in both international and domestic markets.

Summary

• Skechers U.S.A., Inc. reported a 12.1% increase in sales, reaching $8.97 billion for the year ended December 31, 2024.
• This growth was driven by a 12.1% increase in both international and domestic sales.
• Wholesale sales increased by 13.2%, while Direct-to-Consumer sales increased by 10.7%.
• Gross margin improved to 53.2%, and operating margin improved to 10.1% for the year ended December 31, 2024.
• The company repurchased 5.2 million shares of its Class A common stock.
• Sales increased overall due to higher sales volume, partially offset by lower average selling prices.
• Operating expenses increased $495.6 million, or 14.7%, to $3.9 billion, and as a percentage of sales increased 100 basis points to 43.1%.
• The company expects capital expenditures for 2025 to be approximately $600 million to $700 million, primarily related to expanding distribution capacity in key markets, new stores and the completion of our corporate offices.
• For fiscal 2025, the company expects its tax rate to be between 22% and 23%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with record sales and improved margins, but also acknowledges risks and challenges, resulting in a moderately positive sentiment.

Positives

• Sales increased 12.1% to $8.97 billion, a new annual record.
• Gross margin improved to 53.2% and operating margin improved to 10.1%.
• Wholesale sales increased 13.2% due to increases in the Americas, Europe, Middle East & Africa and Asia Pacific.
• Direct-to-Consumer sales increased 10.7% due to increases in Europe, Middle East & Africa, the Americas and Asia Pacific.
• The company has unused credit capacity of $745.4 million on its corporate revolving credit facility, with an additional $250.0 million available through an accordion feature.
• The company has a share repurchase program in place, with $789.9 million remaining available as of December 31, 2024.

Negatives

• Operating expenses increased $495.6 million, or 14.7%, to $3.9 billion.
• Other expense was $26.5 million compared to other income of $16.1 million in the prior year, primarily due to unfavorable foreign currency exchange rates in Europe, Middle East & Africa.
• Net earnings attributable to noncontrolling interests and redeemable noncontrolling interest decreased $14.0 million to $90.1 million, primarily due to lower earnings by our joint ventures, predominantly in China.
• Net cash provided by operating activities decreased $543.8 million in 2024 due to working capital, primarily higher inventory levels due to elevated merchandise-in-transit, resultant from the Red Sea crisis and growth in our business.

Risks

• The company's future success depends on its ability to maintain its brand name and image with consumers.
• The company faces intense competition from other companies in the footwear industry.
• The company's international sales and manufacturing operations are subject to the risks of doing business abroad, particularly in China and Vietnam.
• The company relies on independent contract manufacturers and, as a result, is exposed to disruptions in product supply.
• The uncertainty of global market conditions may negatively impact the company's business.
• The company's business could be adversely affected by changes in the business or financial condition of its customers due to global economic conditions.
• The company's sales are influenced by economic conditions and uncertainty that impact consumer spending and consumer confidence.
• Natural disasters, the effects of climate change, pandemics, and other events beyond the company's control could disrupt its operations.
• The company's environmental, social and governance commitments and disclosures may expose it to reputational risks and legal liability.
• Changes in tax laws or the potential imposition of additional duties, quotas, tariffs and other trade restrictions could adversely affect the company.
• The company's business could be harmed if its contract manufacturers, suppliers or licensees violate labor, trade or other laws.
• The disruption, expense and potential liability associated with existing and unanticipated future litigation against the company could harm its business.
• The company's ability to compete could be jeopardized if it is unable to protect its intellectual property rights or if it is sued for intellectual property infringement.
• Breaches or compromises of the company's information security systems, information technology systems and its infrastructure to support its business could result in disruption of its business and damage to its reputation.
• A material delay or disruption in the company's information technology systems or e-commerce websites or its failure or inability to upgrade its information technology systems precisely and efficiently could negatively affect its business.
• The company's quarterly sales and operating results fluctuate as a result of a variety of factors, including fluctuations in demand for footwear, delivery delays and potential fluctuations in its estimated annualized tax rate, which may result in volatility of its stock price.
• One principal stockholder is able to control substantially all matters requiring approval by the company's stockholders and his interests may differ from the interests of its other stockholders.
• The company's charter documents and Delaware law may inhibit a takeover, which may adversely affect the value of its stock.

Future Outlook

The company expects capital expenditures for 2025 to be approximately $600 million to $700 million, primarily related to expanding distribution capacity in key markets, new stores and the completion of our corporate offices. For fiscal 2025, the company expects its tax rate to be between 22% and 23%.

Management Comments

• Through the efforts of our dedicated teams globally, our strong partner relationships and loyal consumers, we believe we will continue to achieve well-managed profitable growth and ensure the longevity of both the Company and the Skechers brand.
• Our financial results reflect the significant market demand for our product offerings and the value that we provide.
• Our core product philosophy of comfort, style, innovation, and quality at the right price continues to resonate with consumers, and we remain focused on delivering our comfort technology footwear as efficiently as possible to meet consumer demand.
• We are committed to the following investments to execute our long-term global growth strategy: Continue to develop new comfort innovations and deliver more value in our products; Expand our distribution infrastructure to support growth; Open new stores and extend our digital capabilities to drive Direct-to-Consumer growth; and Implement market strategies to broaden our reach globally and attract new partners and consumers.

Industry Context

The global footwear industry is competitive, with Skechers competing with other branded products and private label products. The company believes it has competitive advantages due to its brand recognition, quality comfort technology products, and pricing and distribution strategies.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or comparable companies.
• However, it mentions that some competitors have greater financial, technological, engineering, manufacturing, marketing and distribution resources.
• The document mentions that Skechers is the third largest athletic footwear company in the world.

Legal Proceedings

• Michael Conte v. Robert Greenberg, et al. was concluded with the Delaware Supreme Court affirming the Chancery Courts dismissal of the matter with prejudice.
• Nike, Inc. v. Skechers USA, Inc. is ongoing, with the District Court staying the case pending PTAB's decision on Skechers' petitions.

Related Party Transactions

• The Company made cash contributions of $2.0 million to the Skechers Foundation in each of the years ended December 31, 2024, 2023 and 2022.
• The Company had receivables from officers and employees of $0.7 million and $0.6 million at December 31, 2024 and 2023.

Stakeholder Impact

• Shareholders: Positive impact due to increased sales, improved margins, and share repurchase program.
• Employees: Positive impact due to market-competitive compensation and benefits, training and development, and a compelling work environment.
• Customers: Positive impact due to the company's focus on delivering stylish, comfortable, innovative and high-quality products at a reasonable price.
• Suppliers: The company's suppliers are integral partners in delivering stylish, high-quality footwear and apparel to consumers worldwide.
• Communities: Skechers encourages active participation in the greater community, with annual charity walks for children near our corporate offices and in select global markets.

Next Steps

• Continue to develop new comfort innovations and deliver more value in our products.
• Expand our distribution infrastructure to support growth.
• Open new stores and extend our digital capabilities to drive Direct-to-Consumer growth.
• Implement market strategies to broaden our reach globally and attract new partners and consumers.

Key Dates