UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive office) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading symbol |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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
As of April 26, 2024
As of April 26, 2024
SKECHERS U.S.A., INC. AND SUBSIDIARIES
Form 10-Q
Table of Contents
PART I – FINANCIAL INFORMATION
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Item 1. |
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3 |
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4 |
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Condensed Consolidated Statements of Comprehensive Income (Unaudited) |
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7 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
SKECHERS U.S.A., INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
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As of |
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As of |
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(in thousands, except par value) |
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March 31, 2024 |
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December 31, 2023 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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Short-term investments |
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Trade accounts receivable, less allowances of $ |
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Other receivables |
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Inventory |
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Prepaid expenses and other |
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Total current assets ($ |
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
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Deferred tax assets |
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Long-term investments |
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Goodwill |
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Other assets, net |
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Total non-current assets ($ |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Operating lease liabilities |
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Current installments of long-term borrowings |
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Short-term borrowings |
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Total current liabilities ($ |
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Long-term operating lease liabilities |
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Long-term borrowings |
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Deferred tax liabilities |
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Other long-term liabilities |
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Total non-current liabilities ($ |
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Total liabilities |
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Stockholders’ equity |
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Preferred Stock, $ |
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Class A Common Stock, $ |
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Class B Common Stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Retained earnings |
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Skechers U.S.A., Inc. equity |
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Noncontrolling interests |
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Total stockholders' equity |
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TOTAL LIABILITIES AND EQUITY |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
SKECHERS U.S.A., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
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Three Months Ended March 31, |
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(in thousands, except per share data) |
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2024 |
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2023 |
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Sales |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses |
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Selling |
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General and administrative |
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Total operating expenses |
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Earnings from operations |
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Other (expense) income |
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Earnings before income taxes |
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Income tax expense |
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Net earnings |
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Less: Net earnings attributable to noncontrolling interests |
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Net earnings attributable to Skechers U.S.A., Inc. |
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$ |
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$ |
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Net earnings per share attributable to Skechers U.S.A., Inc. |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average shares used in calculating net earnings per share attributable to Skechers U.S.A., Inc. |
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Basic |
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Diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
SKECHERS U.S.A., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
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Three Months Ended March 31, |
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(in thousands) |
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2024 |
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2023 |
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Net earnings |
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$ |
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$ |
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Other comprehensive income, net of tax |
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Net unrealized loss on derivative contract |
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(Loss) gain on foreign currency translation adjustment |
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Comprehensive income |
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Less: Comprehensive income attributable to noncontrolling interests |
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Comprehensive income attributable to Skechers U.S.A., Inc. |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
SKECHERS U.S.A., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited)
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Shares |
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Amount |
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Accumulated |
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(in thousands) |
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Class A Common Stock |
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Class B Common Stock |
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Class A Common Stock |
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Class B Common Stock |
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Additional paid–in capital |
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other comprehensive loss |
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Retained earnings |
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Skechers U.S.A., Inc. equity |
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Noncontrolling interests |
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Total stockholders' equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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Net earnings |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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( |
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Distributions to noncontrolling interests |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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Net unrealized loss on derivative contract |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued under the incentive award plan |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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— |
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Shares redeemed for employee tax withholdings |
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( |
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— |
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( |
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— |
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( |
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— |
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— |
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( |
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— |
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( |
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Repurchases of common stock |
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( |
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— |
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( |
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— |
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( |
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— |
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— |
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( |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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Net earnings |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributions to noncontrolling interests |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Net unrealized loss on derivative contract |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued under the incentive award plan |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares redeemed for employee tax withholdings |
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( |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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— |
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( |
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Repurchases of common stock |
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( |
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— |
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( |
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— |
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( |
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— |
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— |
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( |
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— |
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Conversion of Class B Common Stock into Class A Common Stock |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
6
SKECHERS U.S.A., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended March 31, |
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(in thousands) |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net earnings |
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$ |
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$ |
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Adjustments to reconcile net earnings to net cash provided by (used in) operating activities |
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Depreciation and amortization |
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Provision for bad debts and returns |
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Stock compensation |
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Deferred income taxes |
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( |
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Net foreign currency adjustments |
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( |
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Changes in operating assets and liabilities |
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Receivables |
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( |
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( |
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Inventory |
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Other assets |
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( |
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( |
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Accounts payable |
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( |
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( |
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Other liabilities |
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Net cash provided by (used in) operating activities |
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( |
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Cash flows from investing activities |
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Capital expenditures |
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( |
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( |
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Purchases of investments |
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( |
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( |
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Proceeds from sales and maturities of investments |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities |
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Repayments on long-term borrowings |
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( |
) |
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( |
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Proceeds from long-term borrowings |
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Net (repayments on) proceeds from short-term borrowings |
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( |
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Payments for employee taxes related to stock compensation |
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( |
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( |
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Repurchases of common stock |
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( |
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( |
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Distributions to noncontrolling interests |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net change in cash and cash equivalents |
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( |
) |
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Cash and cash equivalents at beginning of the period |
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Cash and cash equivalents at end of the period |
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$ |
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$ |
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Supplemental disclosures of cash flow information |
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Cash paid during the period for |
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Interest |
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$ |
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$ |
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Income taxes, net |
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Non-cash transactions |
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Right-of-use assets exchanged for lease liabilities |
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See accompanying notes to unaudited condensed consolidated financial statements.
7
SKECHERS U.S.A., INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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:
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
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.
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market funds |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Mutual funds |
|
N/A |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Total level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Corporate notes and bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Asset-backed securities |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
U.S. Agency securities |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Total level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
9
|
|
As of December 31, 2023 |
|
|||||||||||||||||
(in thousands) |
|
Adjusted Cost |
|
|
Fair Value |
|
|
Cash and Cash Equivalents |
|
|
Short-Term Investments |
|
|
Long-Term Investments |
|
|||||
Cash |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market funds |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Mutual funds |
|
N/A |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Total level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Corporate notes and bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Asset-backed securities |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
U.S. Agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
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
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.
Accrued expenses were as follows:
|
|
As of |
|
|
As of |
|
||
(in thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Accrued payroll, taxes, and other |
|
$ |
|
|
$ |
|
||
Return reserve liability |
|
|
|
|
|
|
||
Accrued inventory purchases |
|
|
|
|
|
|
||
Accrued expenses |
|
$ |
|
|
$ |
|
||
The Company had $
Long-term borrowings were as follows:
|
|
As of |
|
|
As of |
|
||
(in thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
HF-T1 Distribution Center Loan |
|
$ |
|
|
$ |
|
||
HF-T2 Distribution Center Construction Loan |
|
|
|
|
|
|
||
China Distribution Center Expansion Construction Loan |
|
|
|
|
|
|
||
China Operational Loans |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Subtotal |
|
|
|
|
|
|
||
Less: Current installments |
|
|
|
|
|
|
||
Total long-term borrowings |
|
$ |
|
|
$ |
|
||
10
Revolving Credit Facility
The Company maintains a revolving credit facility which allows for a senior unsecured credit facility of $
The Company is required to maintain a maximum total adjusted net leverage ratio of
Additionally, the Company maintains various credit facilities within our international market with an aggregate capacity of approximately $
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 $
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
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 $
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 $
China Distribution Center Expansion Construction Loan
On October 18, 2022, the Company entered into a loan agreement for
China Operational Loans
The Company has certain secured credit facilities to support the operations of its China joint venture. The interest rate was
11
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 $
The following table provides a summary the Company’s stock repurchase activities:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Shares repurchased |
|
|
|
|
|
|
||
Average cost per share |
|
$ |
|
|
$ |
|
||
Total cost of shares repurchased (in thousands) |
|
$ |
|
|
$ |
|
||
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
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 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Performance-based restricted stock |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Market-based restricted stock |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
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 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Cancelled |
|
|
( |
) |
|
|
|
|
Performance Adjustment |
|
|
|
|
|
|
||
Unvested at March 31, 2024 |
|
|
|
|
$ |
|
||
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 |
|
|
|
|
|
% |
|
|
|
|||
December 2020 TSR Grant |
|
|
|
|
|
% |
|
|
|
|||
March 2021 EPS Grant |
|
|
|
|
|
% |
|
|
|
|||
March 2021 TSR Grant |
|
|
|
|
|
% |
|
|
|
|||
Total Performance Adjustments |
|
|
|
|
|
|
|
|
|
|||
12
For the three months ended March 31, 2024 and 2023, the Company recognized $
STOCK PURCHASE PLAN
A total of
For the three months ended March 31, 2024 and 2023, the Company recognized $
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. |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Weighted-average common shares outstanding, basic |
|
|
|
|
|
|
||
Dilutive effect of nonvested shares |
|
|
|
|
|
|
||
Weighted-average common shares outstanding, diluted |
|
|
|
|
|
|
||
Anti-dilutive common shares excluded above |
|
|
|
|
|
|
||
Net earnings per share attributable to Skechers U.S.A., Inc. |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
|
||
Diluted |
|
$ |
|
|
$ |
|
||
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
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.
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 $
13
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 |
|
$ |
|
|
$ |
|
||
Gross profit |
|
|
|
|
|
|
||
Gross margin |
|
|
% |
|
|
% |
||
|
|
|
|
|
|
|
||
Direct-to-Consumer sales |
|
$ |
|
|
$ |
|
||
Gross profit |
|
|
|
|
|
|
||
Gross margin |
|
|
% |
|
|
% |
||
|
|
|
|
|
|
|
||
Total sales |
|
$ |
|
|
$ |
|
||
Gross profit |
|
|
|
|
|
|
||
Gross margin |
|
|
% |
|
|
% |
||
(in thousands) |
|
As of |
|
|
As of |
|
||
Identifiable assets |
|
|
|
|
|
|
||
Wholesale |
|
$ |
|
|
$ |
|
||
Direct-to-Consumer |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Additions to property, plant and equipment |
|
|
|
|
|
|
||
Wholesale |
|
$ |
|
|
$ |
|
||
Direct-to-Consumer |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Geographic Information
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Geographic sales |
|
|
|
|
|
|
||
Domestic Wholesale |
|
$ |
|
|
$ |
|
||
Domestic Direct-to-Consumer |
|
|
|
|
|
|
||
Total domestic sales |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
International Wholesale |
|
|
|
|
|
|
||
International Direct-to-Consumer |
|
|
|
|
|
|
||
Total international sales |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Total sales |
|
$ |
|
|
$ |
|
||
Regional Sales |
|
|
|
|
|
|
||
Americas (AMER) |
|
$ |
|
|
$ |
|
||
Europe, Middle East & Africa (EMEA) |
|
|
|
|
|
|
||
Asia Pacific (APAC) |
|
|
|
|
|
|
||
Total sales |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
China sales |
|
$ |
|
|
$ |
|
||
14
(in thousands) |
|
As of |
|
|
As of |
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Domestic |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
China property plant and equipment, net |
|
$ |
|
|
$ |
|
||
The Company’s sales to its
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 $
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 $
The Company’s accounts receivables, excluding allowances for bad debts and chargebacks, by geography are summarized as follows:
(in thousands) |
|
As of |
|
|
As of |
|
||
Domestic Accounts Receivable |
|
$ |
|
|
$ |
|
||
International Accounts Receivable |
|
|
|
|
|
|
||
The Company’s top five manufacturers produced the following:
|
|
Three Months Ended March 31, |
|
|||||
(percentage of total production) |
|
2024 |
|
|
2023 |
|
||
Manufacturer #1 |
|
|
|
|
|
|
||
Manufacturer #2 |
|
|
|
|
|
|
||
Manufacturer #3 |
|
|
|
|
|
|
||
Manufacturer #4 |
|
|
|
|
|
|
||
Manufacturer #5 |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
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.
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.
15
On May 31, 2023, the Company acquired
The contingent consideration was paid in February 2024, for $
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 $
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.
16
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:
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.
17
Key highlights for the first quarter of 2024 include:
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.
18
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.
19
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.
20
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:
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.
21
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 |
|
||||
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
22
Item 6. Exhibits
Exhibit Number |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.1(a) |
|
|
|
|
|
3.1(b) |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.2(a) |
|
|
|
|
|
3.2(b) |
|
|
|
|
|
3.2(c) |
|
|
|
|
|
3.2(d) |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1* |
|
|
|
|
|
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.
23
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) |
24