Greetings and welcome to the Skechers Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Skechers. Thank you. You may begin.

Thank you, everyone, for joining us on Skechers conference call today. I will now read the Safe Harbor statement. Certain statements contained herein, including, without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements involve known and unknown risks, including, but not limited to, global, national and local economic, business and market conditions, in general and specifically, as they apply to the retail industry and the company. There can be no assurance that the actual future results performance or achievements expressed or implied by such forward-looking statements will occur. Users of forward-looking statements are encouraged to review the company's filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other reports filed with the SEC as required by federal securities laws for a description of all other significant risk factors that may affect the company's business, results of operations and financial conditions. With that, I would like to turn the call over to Skechers' Chief Operating Officer, David Weinberg; and Chief Financial Officer, John Vandemore. David?

Good afternoon and thank you for joining us today. 2019 was a milestone year for Skechers as we surpassed $5 billion in sales and set records in each quarter of the year. We achieved sales of $5.22 billion, a year-over-year increase of 12.5% or $578 million. Typically, the fourth quarter is our smallest quarter of the year, yet it was the second highest in our history with net sales of $1.33 billion, a 23.1% increase. The growth in the quarter was the result of a 13% increase in our domestic business and a 31.2% increase in our international businesses. Every region contributed double-digit growth. This included, as anticipated, our return to double-digit growth in our domestic wholesale business as well as double-digit growth in our direct-to-consumer segment. Importantly, strong increases in our international business resulted in it being 59.3% of our total sales in the quarter and 57.9% for the year. We believe that our international businesses will continue to be our leading growth driver. Our direct-to-consumer business achieved strong sales growth with a quarterly increase of 19.4% which included 9.9% comparable same-store sales worldwide. At the year-end we had 3547 Skechers stores around the world including 800 company outlet stores. Our efforts in 2019 not only resulted in sales improvement, but also more than 25 awards for product, innovation, and design. Most notably were performance shoes featuring our HYPER BURST technology and Company of the Year and Kids Design Excellence award from Footwear Plus magazine. Highlights in the fourth quarter include the addition of Arch Fit to our product offering which also includes Relax, Wide, Plastic and Stretch Fit. The shining star to [indiscernible] ambassador, opening of Skechers flagship store on Rome's Via del Corso and at Disney Town in Shanghai, our first location on a Disney property. A course record win by Skechers Elite golfer Colin Montgomerie at the Invesco Championship in California, being named number one footwear and a power brand on YouGov Top Buzz Brand 2019 and the reduction of plastic in our packaging to 7%, all of which is a 100% recycled. At the core of our global success is our ability to develop a vast range of footwear for active lifestyles that delivers on style, innovation and most importantly comfort. We believe our unique and competitive product offering, along with our pervasive marketing sets us apart from other global brands. Our continued momentum and success throughout 2019 are confirmation of the strength and demand for our products around the world. With our strong backlog and growing direct-to-consumer business, we are extremely optimistic about 2020 and beyond. While we are deeply concerned by the health crisis in China and the well-being of those affected, including our employees, partners and vendors, we remain optimistic about the strength of Skechers in China and committed to our long-term growth strategy in the country. John will address how we have incorporated our current understanding of the situation into our guidance. Now turning to our domestic business in detail. In the fourth quarter our domestic sales increased 13% driven by 60.3% [ph] increase in our direct-to-consumer business with comparable same-store sales increasing 10.3% for the quarter. Our domestic wholesale growth of 10.4% was the result of a 12.9% increase in pairs shipped for the quarter, along with a modest increase in average price per pair of about 1%. With a growing [ph] distribution strategy and best product offering, we are a valuable resource for both our domestic accounts base and consumer resource seeking comfort, style, innovation and quality in their footwear. At quarter end we had 497 company owned Skechers retail stores in the United States. In the fourth quarter we opened nine stores across seven states. We also remodeled one store and extended two locations. To date in the first quarter seven company-owned stores have opened in the United States, three have closed. We are currently planning for another 75 to 85 new stores predominantly in our warehouse format to open before the end of the year. Our men's, women's and kid's domestic business improved in the fourth quarter in the fourth quarter. Specifically the biggest increases came from our sport and work lines for men and women. Our Bars [ph] from Skechers collection, women's Go Walk and our men's Casual and Performance line, as well as our kid's business, returning to growth in the quarter. To keep Skechers top of mind over the holidays and into 2020 we supported our domestic business with several marketing campaigns, from print, outdoor, digital and broadcast. This included television commercials for our kid's footwear as well as thoughts for our new Max Cushioning and Ultimate collection. Based on our domestic direct-to-consumer January sales comping up low double-digits and strong backlogs within our domestic wholesale channel, we believe our domestic business will continue to show positive growth in the first quarter. Now looking in detail our international business, which represented 59.3% of our total sales in the quarter. Sales increased 31.2% or 32.3% on a constant currency basis and reflect a growth in our subsidiary, joint venture and distributor businesses and across each region. For the fourth quarter, the biggest drivers in terms of dollar increases were China, India, the United Kingdom, UAE and Mexico which transitioned to a joint venture in 2019. The only subsidiary or joint venture market that didn't grow were Chile and Hong Kong, both of which faced usual political unrest during the quarter. Specifically, the sales growth was the result of a 32.8% increase in our wholesale business and a 24.7% in our direct-to-consumer business with an 8.8% increase in comparable store sales. At quarter end there were 3050 international retail stores a net increase of 231 in the fourth quarter. Of those stores, 2747 are owned and operated by international distribution partners, joint ventures and a network of franchisees. In the quarter 12 company-owned international stores opened, three in the UK, two each in Poland, Spain and Chile and one each in Peru, India, and Italy which opened on the highly trafficked Via del Corso in Rome. Also a store was remodeled another relocated. We plan to open another 40 to 50 wholly-owned company stores in international markets including 15 in India. In the fourth quarter 259 joint venture or third-party owned stores opened across 35 countries. New store openings included 143 in China, 25 in India, eight in Indonesia, seven in Malaysia, and five in both Mexico and Romania. 40 stores closed in the quarter. In 2020 we anticipate between 550 and 650 Skechers third-party stores to open. To support our global business expansion we utilize television, outdoor, digital and print campaigns to drive consumers to stores where Skechers are available. This included underground campaigns in the UK and France, perimeter boards at sporting events in Canada and Central Eastern Europe, kiosks across turkey, massive billboards in Spain and Chile, fashion weeks in the UAE and Greece, events that engage consumers in India and Mexico, and windows in key avenues and malls across Europe and Asia. Our international business remains the primary growth driver for the Skechers brand. This was reflected in the exceptional performance of our distributions centers in Europe, Japan, India and Latin America, each of which has efficiently handled double-digit increase in pairs shipped in 2019 while simultaneously preparing for the future growth of our business through our infrastructure project. Our backlogs are up across our international segment and we are seeing the benefits of the conversion of India to a subsidiary and Mexico to a joint venture. Now, I'll turn the call over to John to review our financials and discuss our outlook.

Thank you, David. First, I would like to add my sentiments about the crisis in China. Right now we are most concerned with the welfare of our employees, partners and vendors. These are people we work with closely day in and day out and we want them to know that Skechers will be there for them during this critical time. As David said, the Skechers brand is strong in China and we firmly believe the situation, although challenging, will prove transitory. Our record fourth quarter sales totaled $1.33 billion, an increase of $249.9 million or 23.1% and reflects the strength of our brand, product portfolio, and worldwide execution capabilities. On a constant currency basis, sales increased $257 million or 23.8%. As David mentioned earlier, we grew in all segments, in every region, and in nearly every country. The growth continued despite enduring headwinds from foreign exchange rates and the impact of incremental domestic tariffs. International wholesale sales increased 32.8% including a 36% increase from our wholly-owned subsidiary, a 31.4% increase in our joint ventures and a 32.4% increase in our distributor business. Direct-to-consumer sales increased 19.4% the result of a 16.3% increase domestically and a 24.7% increase internationally. Domestic direct-to-consumer sales growth was driven by a 10.3% increase in comparable store sales and the net addition of 27 new stores. International direct-to-consumer sales growth was driven by an 8.8% increase in comparable store sales and the net addition of 20 new stores. Domestic wholesale sales grew 10.4% or $28 million with a double-digit increase in our Men's division and mid-single-digit increases in both Women's and Kid's. We continue to see encouraging signals for the Skechers business among our domestic wholesales into the first half of 2020. Gross profit was $637.7 million up $122.1 million compared to the prior year. Gross margin increased by 20 basis points to 47.9% primarily due to the strength in our direct-to-consumer businesses, joint ventures and distributors, partially offset by lower subsidiary and domestic wholesale gross margin, the latter due to increased domestic duties. Total operating expenses increased by $111.5 million or 25.5% to $548.3 million in the quarter. As a percentage of sales, operating expenses increased by 80 basis points to 41.2% compared to 40.4% in the prior year, largely driven by increased advertising and marketing spending where we chose to strategically invest in the momentum of our global business in order to support both current and future growth. Selling expenses increased by $26.8 million to $88.7 million due to higher advertising expenses in both the domestic and international market. The increased supported both our growth in the quarter as well as opportunities to build on brand and product awareness worldwide as reflected in our backlog and strong comparable store performance. General and administrative expenses increased $84.7 million to $459.7 million, but remained essentially flat as a percentage of sales. The dollar increases reflect both higher than expected sales volumes which increased variable costs like distribution and warehousing, and additional expenses to handle the accelerated arrival of list 4B products which were exposed at the time to incremental tariffs. The increase also included $28.2 million to support the growth of our joint venture businesses primarily in China and Mexico and $32.7 million associated with our direct-to-consumer business and a net increase of 47 new company-owned stores, including 21 that opened in the quarter. We also incurred startup costs related to the new automation in our distribution center in Belgium and operational planning for our new distribution center in China. Earnings from operations increased 12.4% to $94 million versus the prior year and our operating margin was 7.1% compared with 7.7% from the prior year. Net income increased 25.7% to 59.5 million or $0.39 per diluted share on 154.6 million diluted shares outstanding compared to net income of $47.4 million or $0.31 per diluted share on 155 million diluted shares outstanding in the prior year. Our effective income tax rate for the quarter decreased to 14% from 15.5% in the prior year. We expect our effective tax rate for 2020 to be between 16% and 18%. And now turning to our balance sheet. At December 31, 2019 we had over $1 billion in cash, cash equivalent and investments which was a decrease of $34.5 million or 3.2% from December 31, 2018. Recall that earlier this year we invested over 180 million to purchase the minority interest of our former joint venture in India and to form a new joint venture in Mexico. Our cash in investments represented approximately $6.72 per diluted share outstanding at December 31, 2019. Trade accounts receivable at quarter end were $699.2 million, an increase of $141.6 million from December 31, 2018 driven by higher sales particularly in our international wholesale business. Total inventory was approximately $1.1 billion, an increase of 23.9% or $206.6 million from December 31, 2018. The increase was primarily in our international markets where we believe our inventory level [indiscernible] well-positioned to support our growth expectations. Total debt including both current and long-term portion [ph] was $121.2 million compared to $97 million at December 31, 2018. The increased primarily reflects borrowing associated with the construction of our first distribution center in China. during the quarter we also replaced our existing $250 million asset backed credit facility that was due to expire in June 2020 with a new $500 million senior unsecured credit facility to provide additional liquidity support to the continued grow of our business. Working capital decreased $45.5 million to approximately $1.58 billion versus $1.62 billion at December 31, 2018, partially attributable to the inclusion of current operating lease liabilities totaling $191.1 million arising from the adoption of the new lease accounting standard for fiscal year 2019. Capital expenditures for the fourth quarter was $66 million of which $11.8 million was related to the construction of our distribution center in China, $17.1 million related to direct-to-consumer stores and e-commerce investments worldwide and $9.8 million related to our distribution capabilities around the globe as well as general corporate investments. For the full year 2019 our total capital expenditures were $240.7 million. We expect our capital expenditures for 2020 to be in the range of $325 million to $350 million, which includes completing the construction of our China distribution center, the expansion of our U.S. distribution facility, opening 115 to 125 new company-owned Skechers stores and 20 to 30 store remodels, expansions and relocations, the expansion of our corporate headquarters and technology investments, primarily in our direct-to-consumer business. Now turning to guidance; first, let me reiterate that there is much we do not know about the current situation in China. As a result assessing the impact to our business is difficult. What we know is that a meaningful number of Skechers stores in China, both company-owned and franchise have been temporarily closed and those that remain open are seeing significantly below average traffic and comparable store sales pattern. Incorporated into the following guidance is our best estimate of the influence of these factors on the first quarter of 2020. If the severity of the situation in China worsen and impact our businesses outside of China and/or our global supply chain, this guidance may change. We currently expect first quarter 2020 sales to be in the range of $1.4 billion to $1.425 billion and earnings per diluted share to be in the range of $0.70 to $0.75. This guidance incorporates the view based upon current trends, backlog and other indicators that all three of our segments will continue to grow in the first quarter and the impact from the crisis in China aligns with our expectations. And now, I'll turn the call over to David for closing remarks.

Thank you, John. As mentioned, we believe our business, product, distribution, marketing and infrastructure is extremely strong. In 2019 we surpassed a milestone of $5 billion in annual sales, our international business to 57.9% of our total sales at year-end and achieved double-digit growth in our domestic and international businesses in the fourth quarter. We now have more than 3500 Skechers stores around the world and a strong ecommerce business that we believe will improve greatly with upgrades we are completing in the first half of 2020. We believe this momentum will continue in 2020 given our strong backlog and the strength of our direct-to-consumer channel which had low double-digit comps for January. We will continue to assess the potential impact of the health crisis on our business in Asia as well as elsewhere and provide support to our teams in China. And with that, I'd like to now turn the call over to the operator to begin the question-and-answer portion of the conference call.

Thank you. [Operator Instructions] Our first question comes from the line of Jay Sole with UBS. Please proceed with your question.

Great, thanks so much. The 9.9% comp was one of the strongest numbers in what was a very strong topline in the quarter. Can you talk about ecommerce growth within the retail business? And David you just mentioned some upgrades you are making, can you give us an idea of where you think that business can go from here?

Well, I don’t think there is a limit to where that business can grow. It is still relatively small, although growing very, very significantly. We don’t even measure that anymore in single digits or double-digits. Well into the double and for some months even triple digits. However, it is still only now made – it is about low double-digits of our complete direct-to-consumer sales, so there is plenty of room to go. We have invested a lot of money that we've - over the past couple of years and are re-platforming and getting things ready for new major launch including our lead program. On top of that, we are going to use that as a prototype to take around the world. We don’t have direct-to-consumer online ecommerce in every subsidiary in the world, but we plan on it in the next year to be online and direct-to-consumer in every country in the world. So when you put it all together, it can be very, very significant. But we shouldn’t take away from the fact that even in this difficult time our brick and mortar is comping up significantly as well, which shows what we have to offer as the destination and direct to our consumer. And when we put them altogether in the coming years and our version of the omnichannel, we think it is going to be with the great product we have even that much better.

Got it. And then if I can just ask about the guidance and obviously China is such a big topic and the Coronavirus for every company. Can you maybe sort of split out what impact that you're incorporating from that situation into the sales guidance you have given [indiscernible]?

Well, we don't want to get overly precise because what we're awaiting is probability of a lot of different outcomes. But what I would reiterate from the guidance is we still expect every segment to grow. We are planning China down for this quarter. We've taken a fairly severe look at February and parts of March. How that unfolds really is to be determined. But it's really the strength of all of our other business segments that aren't being directly impacted by the situation right now, which is powering that guidance. So I'll tell you, I think we've taken an appropriately conservative view about China, will impact our first quarter results. I think we'll learn more as the situation unfolds. But every other segment, every other piece of the business, our expectation is that will continue to contribute at roughly similar levels to what we've seen which is very strong performance as David highlighted.

Okay. And then maybe one more from me if I could. You mentioned that India was one of the strongest growers in terms of dollars within the international business. In fact, India is still a probably a pretty small piece of the overall business. So can you give us an idea what percentage type of growth rates you're seeing in India, and what the prospects are for rest of that market?

Well, I'll start with the prospects because we think the prospects for Skechers in India are extraordinarily bright, especially over the long term, it's an incredible market where you've seen incredible traction for the brand. It continuously ranks in the market as one of the most recognized and loved brands by consumers. I would tell you, this quarter the rate was fantastic. It was over 50% growth. For the full year, the rate was also near that level. It's starting to become a very meaningful contributor to the overall economics of our international subsidiary business. So it's a significant driver, and we have very high expectations for the continued growth of the market even in what are somewhat difficult times right now from a consumer discretionary spend environment. And we've seen the brand thus far, tower through that which is extraordinarily encouraging.

Okay, got it. Thanks so much.

Our next question comes from the line of Chris Svezia with Wedbush Securities. Please proceed with your question.

Good afternoon, guys. Thanks for taking my question, congratulations. I guess first one clarification on China, are you anticipating it to get worse, stays the same, and any thoughts about supply chain? I know what the inventories looks like currently. But where you stand right now, as you think about first half product deliveries?

So January for China was very good right up until about the 23rd, when we saw the travel restrictions go into place. So, performance through the early part of January was actually very encouraging. While we are seeing depressed traffic and comp store trends at the moment, in our physical stores, and in our franchise stores, e-commerce continues to do well. What we've assumed as a result of this quarter is that February is very difficult, partly because of the travel restrictions, partly because of the unknowns of how consumer discretionary spend patterns are going to be revitalized and when. We've taken a similar view of March, though not as a steer assuming at the moment that this situation begins to dissipate. But we've also attempted to incorporate enough leeway that will give us latitude in the guidance we have.

And as far as the supply chain is concerned, it's obviously an issue, but it's not a short-term issue for us in fulfilling what we have available outside of China. We took a lot of stuff early around the world for various reasons. We have capacity and raw materials in those factories that are working and have already gone to work outside of China obviously have somewhat of a decreased demand for the parts of our supply chain that have to supply China since sales will be down. So while we're watching it closely and there certainly is significant potential somewhere down the road. We don't think there can be real impacted for Q1. So, we have time to monitor and see what happens as we go through the year.

Okay, thank you. I am switching gears U.S. wholesale for a moment just 10% growth Q4, Q1, you've got much [indiscernible] - you hit double digits, congratulations. By the way anyway just Q1 just you have an easier compare, it seems like there is some momentum here. How do we think about Q1 U.S. wholesale and if any color you want to give just some of the other segments? DTC comp or anything along those lines pertains to the revenue guidance?

Well, I'm going to hold back from saying I told you so on domestic wholesale, although I will note that we are actually very happy with the resurgence we've seen in domestic wholesale and it's gotten stronger every quarter. The product is clearly resonating. I would tell you at the moment we view next quarter as likely to be around where we were this quarter. We see great backlog traffic. We see good order flow, good shipping trends. So we are very optimistic that we will see a similar performance or potentially even better relative to Q1. Again, the only asterisk I put on that is assessing the global impact of what's happening in China to the extent that has a knock-on effect elsewhere in the world. But right now we're seeing - you're seeing very good trends in first and even indications in the second quarter, although we're not as fully booked there yet. And I would tell you that general guide outside of international wholesale, which obviously is going to be impacted by China, is somewhat of the [indiscernible] we're using this quarter because we are seeing similar trends. David mentioned that January comparable store sales are up low-double digits, which is fantastic. So we're looking for somewhat similar patterns of growth plus or minus a bit in each of the segments and outside of China, the international wholesale business continues to do resoundingly well, the backlogs there are phenomenal. So again, what we are to see in the quarter ahead, we believe is strength across the portfolio, offsetting the challenge that exists in China, which again we are planning down for the quarter at the moment. But it's really the strength of the brand everywhere else that is going to carry us through this quarter, which again I think is a testament to the resonance of the product right now.

Okay sounds good. And one final thing, something near and dear to your heart, John, but just on SG&A, I know you took an opportunity here to invest on the selling line in Q4. Is it still the general thought that SG&A or have we want to look at G&A grows in line with revenues as we move forward or is it still opportunistic based on investments you want to make or how should we look at that?

Well, I'm so glad you asked, first thank you. So, generally speaking that remains our target. Now, let me take a moment to point out a few things this year that are going to be different. As we mentioned with the onset of the opening of our distribution center in China, there will be cost throughout the year that we incur startup costs. This will most likely be concentrated over the first three quarters. After the full year, we expect them to approximate about $15 million to $20 million U.S., so that will have a natural deleveraging effect because they are one-time type costs. I will just also point out, we are finalizing the purchase accounting of our investment in Mexico. There is likely to be quite frankly - a few cents on the full year related to the purchase accounting. It's really just accounting adjustments, but when we have that finalized, which should be at the end of the first quarter, we will give you some guidance there. So, I do want to point this too out because they are anomalies. Outside of that, though I would continue to point to our revenue growth as our upper bound probably, again the global caveat there being China, we've again - we've incorporated some latitude throughout our P&L. It may be that we need to spend some money in China to reignite operations. It wouldn't surprise me if there is a quarter or two where we need to deleverage in China, specifically. But quite frankly until we get better informed about how that is going to unfold, it would be difficult to really project with specificity when or how much that's going to be. So carving out those unique items, that's still the guidance I would point you to is SG&A growing in line, it's at the high end with revenue, obviously with us targeting to do better. I would also emphasize that this quarter was definitely an opportunistic quarter. We've had great strength in the brand. We saw an opportunity to put that into the sales and marketing related expenses, G&A itself was actually in line. So yes, I would think of those largely as investments for the future of the brand.

And Chris, I would add in there as well. That, as we mentioned, fourth quarter is usually our smallest of the year. This year it wasn't and it showed a reacceleration in many places around the world that includes Europe and usually when we have an acceleration in the fourth quarter from a small quarter like that, it shows in significant growth in the following year. So when we talk about opportunistic, we have to see what that growth pattern is, because it can be significant. And I would tell you along with having such a strong fourth quarter, our booking trends for all the subsidiaries in the first quarter were extremely good and significantly higher than last year, which leads us to an acceleration certainly coming into this year. And had China have seen any significant growth, we would have even seen some outside growth in Q1 that we still think is available throughout the year. So we'll be getting ready for that kind of growth as well.

Got it understood. Thank you and all the best. I appreciate it.

Our next question comes from the line of John Kernan with Cowen & Company. Please proceed with your question.

Hey, good afternoon David and John, thanks for taking my question. Congrats on the very strong fourth quarter and good start to this year.

Thank you.

Yes, John you and David were both pretty enthusiastic about Europe when we met with you at Fannie. Clearly the fourth quarter numbers internationals, they are extremely robust. I'm just wondering what your thoughts are on Europe for 2020. What regions you're most excited about and maybe some of the strength you're seeing in Europe can help to really offset some of the - one-time type challenges in China this year?

Yes, John, that I mean, that pretty much describes it. To be honest with you, we were excited about what we saw in Europe, both in developing and developed markets. Europe as a region grew significantly. It actually grew above the average for international wholesale in the quarter. So we've seen really good continuing trends in that market. As David mentioned, the backlogs are fantastic right now for both the first quarter and we're seeing very encouraging early indications on second quarter. I think the product is resonating - it's across our stores, it's across our wholesale accounts, it's in our e-commerce channels where we have them in the international markets, and it's going to be those markets and others. Again, the pull the business through the headwind that that's going to be our results in China in Q1 as we anticipate them at the moment. So that market continues to be very robust for us from a growth standpoint. And it could be quite frankly more optimistic about the long-term potential of the brand there. And quite frankly, in South America, in the other parts of Asia that aren’t currently facing the challenge, we mentioned that it was every region every segment and nearly every country and that's right on. In fact, in many instances, the only instances I could think of is where we have a subsidiary or joint venture partner that didn't grow in the country, it was largely because of some sort of extraordinary political strife. So the business and the product is resonating in a lot of different markets all at once, which again I think is a testament to the design and the marketing behind it.

Right, got it. Why don’t we shift gears maybe just to the company-owned comps, obviously impressive both in domestic and international, can you just talk to the drivers of this, is there an ASP story to this, is it just traffic, are you converting more with some of the omnichannel initiatives you put in place? Obviously the strength has continued into January. I think you said comps are up running up low double digits, I wonder if you could give us a little bit more color on the overall drivers of this comp?

Yes, well, what we said was up low double digits domestically, it's up as well around the world. The drivers for us were always about product and what we develop and the brand, the acceptance as we go around certainly in a competitive environment. So I think what you see as you go through is, it is a little bit of everything. We have many categories, many of them resonate. We advertise them well. We get traffic through the stores. It is not so much traffic because I don't know that traffic per se is different for us than anybody else, especially in those places we share, but we do have better conversion. We have customers that come in knowing what they're looking for, which leads to a better conversion and they are always there to purchase. So it's a little bit of everything. A little bit of pricing and ASP, but nothing significant. It is all about acceptance and conversion, and the product we have to offer.

Excellent, okay, thank you.

Thank you, John.

Our next question comes from the line of Gabby Carbone with Deutsche Bank. Please proceed with your question.

Hi, good afternoon and thanks for taking our question. I wanted to ask about category Performance. I was wondering if you can dig a little bit deeper and discuss by categories and styles are driving such strong growth? And then I was wondering if you could speak to the kids business, I mean what's kind of aiding that categories return back to growth? Thanks so much.

Yes, again I hate to sound like a broken record. We saw a lot of very broad strength across the divisions as we refer to them. I think most encouraging this quarter is as we mentioned all genders grew; women's grew, men's grew fantastically. Kids returned to growth. It's been battling some difficult comparisons from our lighted product, as well as I would describe kind of a general malaise in kids across all brands and seeing that come back to life in this quarter was fantastic. I think it's probably the broad appeal of the general casual look and feel at the moment that is aiding a lot of different divisions, but obviously bringing go back in a big way has helped us, our street product has done very well. Our work products, which is definitely a completely different category than most, has grown exceedingly well. David mentioned the awards we have won in our Performance category. That's helping the Performance category as well. So, to be honest with you, it's a lot of different divisions performing very well. I think it's again the casual atmosphere, but also the fact that we have comfort features that many don't. We prize comfort unlike anywhere else and bringing products to market like Arch Fit in combination with our other products like Relaxed and I mean it is the whole thing that customers are looking for right now.

I think this year actually, this Performance anyway follows through what we've been saying all along. We no longer are in search of – well we are in search of but no longer need a hero shoe or a hero division or a hero territory to carry it. When you look at the amount of growth in the double digits in all the categories, so that's a lot of product in all those geographies. It really is spread out and it has to do with the broad offering and brand identity and brand awareness and brand acceptance.

Yes, yes, I left out the BOBs Group too, they would be offended if I didn’t, they’ve done phenomenally well this year too, so I want to make sure I call up the BOBs team.

Got it, thanks. And then just a follow-up on gross margin, you obviously did a nice job managing that this quarter. I believe in the past you've said there could be some tariff pressure still in the first quarter - is there an update on how that situation is going?

Yes, we definitely saw the impacts or the beginning impacts of the tariffs this quarter. And let me just point out in our release this quarter, we have actually included the segment level gross margin breakdowns for you all, so that you can have them before the 10-Q. In that you'll see the domestic wholesale margins certainly took a bit of a hit because of the tariffs. What we have said all along, though is, while we have mitigation and strategies to address the tariff increases, we didn't feel the need to recoup that all in the domestic wholesale segment. And so, we took a little bit of a hit there, but you saw our margins accrete elsewhere to offset that and that drove kind of the overall margin accretion for this quarter. I should also let you know that the pricing that we had talked about taking earlier was something that we deferred until the first part of 2020. So, that wasn't even actually in the mix to help offset some of that cost. The only - the pricing that we are able to see flow through within our own retail has more on brand strength. So, we expect there to be a continuing impact in the first quarter at least the way the tariff reductions were put into place, everything that had arrived prior to the signing of the first phase agreement, still board, the higher tariff cost, we would still need to work through some of that higher tariff inventory over the first quarter, maybe a little bit into the second quarter. So we expect a little bit of that pressure coming into - coming into Q1. And in fact I would just in concert with that because I know somebody will ask, we do expect there to be some gross margin pressures in the first quarter because of that fact as well as what we anticipate in China is probably being an impact on some ASPs for already delivered product.

Great, thank you so much for all the color.

Thanks Gabby.

Our next question comes from the line of Omar Saad with Evercore ISI. Please proceed with your question.

Thanks for taking my question. Great quarter, guys, thanks for all the information. I wanted to ask my first question on pricing AURs, do you have any sense of what your trends are - retail, it feels like the brand has a lot of pricing power right now, whether it's kind of mixing the customer up from Good-Better-Best, or just like-for-like pricing, maybe you can give us your thoughts on that? And then I have one follow-up?

Yes, pricing was a growth driver in the quarter for us at retail. Again, I would attribute that largely to the strength of the brands, it pulling through in the pricing line. We didn't enact any price changes, any major price changes in the wholesale segment this quarter, if you recall, when we are contemplating our action path for – in response to the tariffs, we mentioned pricing, but we also consciously deferred that action until the early part of 2020 we didn't want to reset any pricing that was already for booked orders. So we didn't see as much of that in the domestic wholesale, you did see kind of a leveling off on the pricing, I think it was up about 1%. So actually in the domestic wholesale we got volume and a little bit of price as well. But again, I think your interpretation is correct. It is the strength of the brand and the quality of the product that we're bringing forward that is driving that price relationship.

Got you. Okay and then my one follow-up, kind of thinking about the e-commerce, your commentary around e-commerce, your commentary around ecommerce and the digital initiatives and the investments you're making, if I think back a few years ago, you guys were still a little bit skeptical and not sure about how the profitability would work in that segment. Maybe you could share with us how some of your views on that channel as a business model how they've evolved and – given how much you're kind of gearing your investment towards that channel now?

Well as David mentioned, it's certainly a source of pretty significant investments both in people and in technology. This year, you will see the next evolution of that investment. We will re-platform our site in the U.S. and then we will take that out across the globe. We're also likely to be re-launching at least in a beta phase our loyalty program, which obviously had some significant technology investment behind it. We're also going to completely revamp our POS system for our existing store base so that it will have greater functionality and interoperability with our online account. So, I very much agree with David's earlier statement. It's very early stage for us in the e-commerce business. The economics are still very attractive to us. They look very good to us relative to our overall retail performance. It's something obviously we watch carefully, but we think the runway for both e-commerce as a standalone element of our offering, but also in concert with the stores, which is where as Dave mentioned the omnichannel solution for Skechers will come. We think that has great upside opportunity.

Around the world.

Understood, thanks, good luck.

Thanks Omar.

Our next question comes from the line of Sam Poser with Susquehanna Financial Group. Please proceed with your question.

Good afternoon and thanks for taking my questions. Can you – you've talked in the past about how big your China sales were in the prior year. So how big were the China sales last year?

So I'm going to get overly precise [ph] and I would just ask you to keep in mind, China was also dealing with a pretty significant headwind from Forex last year. It was in the – we saw a reasonable increase from the prior year, so within that kind of mid 800 million range.

And that's – I mean, could we assume that Q1 is a products that you're up against approximately $200 million then give or take and when you're knocking it and when you're planning it down, you might be planning, there might be a $100 million or it was. Can you give us some idea of what that dollar amount, is that is within their so we because we're going to get some of that back next year it should spring? So we should, could you give us some idea what the number is? I mean other companies have been fairly specific about it. Within your number I know it may change, but you've given us this revenue guidance. And you know what the number was that you took out of China, so it will be greatly helpful?

You’re dealing a whole quarter Sam, I can get $200 million or $100 million or 150 million. They were actually up in January. So the quarter can't be as catastrophic unless it goes really down significantly. So we've taken a significant haircut by a month but we still keep.

Right of course, right, of course. Okay, what percent of your production is now in China what percent of overall production is in China?

It hasn’t changed significantly from the last time. It's about half, maybe a little less than half.

But remember a big deal of that production is China, for China which doesn’t have as much pressure.

Because the sales are not there so they don't need a big step and what percent of your, let's say first half product is either on the water or sitting in warehouses right now as far as you can see?

Well, there's a couple of things that are going on. So we have taken a significant piece. I don't know that we'll talk about the first half, because the first half also goes through June and we still have capacity there and that obviously nothing from June is on the water today, although they may have raw materials and things like that. As I said before, we are set pretty much for the first quarter with the production that's available with what we took early with what on the water and even some things that we pushed our – some of our factories to make before Chinese New Year. They didn't have a chance to ship that and that will not be shipping soon again for the quarter. I don't think there is a significant amount that's at risk. For the first quarter April is not a big month for us, so we're waiting to see what happens. We certainly would need more production. If we get all the way out to June, but it's kind of early to go through that whole scenario again.

And then when you talked about the factories at least last I've heard they were opening again, you know may be opening next Monday. But I mean, what are you hearing about when these Chinese factories right now are potentially going to reopen?

Sam, we don't hear anything more than what’s official for you. We have most of them are planning to go back to work Monday. We're not sure what the retention piece is or how long will it take them to get started. There are some regions that will open the following week. So it's a mix and match around the country. So, we do anticipate that it will take some time to get started. Like I said, I don't know what that means right at this minute, until we see the retention of workers and what's available as they come out.

Okay and then lastly, just back to the gross margin, given the strength of your DTC business and both in-store and e-commerce, despite the fact that it grows. From a gross margin perspective, I mean that is additive, especially with the number of stores you're planning on opening this year, I would think that that is – from a mix of where you're getting your sales the bigger that gets the better that is for gross margin?

Well, that's true, but that's always as a percentage. So, we have so many moving pieces and when you concentrate on one, you tend to get lost and remember FX still has more impact depending on what it is and how this plays out in China and how the foreign exchanges around the world move against the dollar as much as a direct-to-consumer. Europe has some, we have some pricing. So there are a number of pieces in a number of things you have to throw into the pot. And on an average basis, China is higher than the United States. So the fact that we're giving up some and the aggregators there although depending on how expenses are – and we tried to be very careful with that in the guidance, there could be impact certainly have short-term but not necessarily that flow through the bottom line depending on currencies, et cetera.

All right, thank you very much continued success.

Thanks Sam.

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. Please proceed with your question.

Oh great, thank you so much. I just wanted to clarify, if I could. Starting with Sam's question, did you say that on the gross margin line FX can in some cases fully offset the benefits of B2C on the gross margin. So FX has been a downward pressure point on gross margin B2C has been a good news story on gross margin but often times one can offset the other?

Yes, I mean, what you saw this quarter, is there were kind of two simultaneous positive impacts. One was just general mix which lifted gross margin and that comes from more DTC. And then there was also improvement within DTC of the margin, but there was also an offsetting impact from FX. We continue to experience FX headwinds in the quarter. So they almost offset not totally and that's why you saw a little bit of accretion. Like to David's point, we certainly have seen situations in the past year where that FX impact has been even more severe and has washed away some of the benefits that you get from improved mix overall. Again, the long-term strategy though is to continue to advance in our direct-to-consumer and international businesses, both of which are accretive to our overall gross margin.

Great, okay that clarification is super helpful. And then just looking out to 2020 based on current exchange rate, do you have a view of what you think the FX impact on gross margin will be if any? And then I just wanted to ask about China, if - I'm not sure what the mix between e-commerce and brick-and-mortar revenue is in China, but if you have an estimate as to what portion of lost store sales you think could be replaced by enhanced e-commerce sales I'd certainly be interested in hearing that?

On the gross margin question relative to FX, we know what we know based on where we sit today. It looks like at the moment there may be some modest pressure on gross margin from FX in the first quarter. We think it will probably and if this is already baked into the guidance probably dampens our growth by about 100 basis points in the quarter. So there'll be some flow-through of that in the gross margin. That being said, the nature of foreign exchange rates as they are fairly dynamic, so we'll have to wait until the end of the quarter to be certain on that. Relative to China, I just – it would be very hard for us to guess at this point how the situation unfolds. What I would tell you is, about a third of the revenue overall is e-commerce driven, that changes by quarter though. There is obviously some rather significant selling events in June and then in the fourth quarter with single day and now 12:12. So what we're seeing right now is continued strength in e-commerce, but I don't know if that will endure. What we've attempted to do is assume that we have a fairly steady performance in e-commerce and then obviously the significant challenge comes through the owned retail stores in our franchise business, but this is a fast evolving situation, so it's difficult to be fairly precise on that at this point.

Understood. Thank you. That was helpful.

Sure.

Our next question comes from the line of Susan Anderson with B. Riley FBR. Please proceed with your question.

Hi, good evening. Nice job on the quarter. I guess a couple of follow up questions. When you look at the tariff situation, I think you said that the pricing doesn't necessarily flow through this quarter. So should we expect the gross margin pressure to be a little bit less in the first quarter and then also as we kind of go into the back half or when those tariffs get rolled back, will you continue to keep the pricing higher? Thanks.

Well, I do. I think the actual cost impact is going to be a little bit higher in the next quarter, simply because we're going to continue to roll through that fully tariff product, we don't get the benefit yet rolling through and absorbing the product that was exempt or reduced – at the reduced 4B or 4A rate. So we expect at the moment at least that we'll continue to see pressure throughout the first quarter. The combination of our reallocation of resources, our vendor pricing strategies, and then the pricing we put in place should begin to offset that, but the timing of that is uncertain and will have to play out over the first two quarters. It's really that plus the potential drag from FX and how we planned the situation in China at the moment that gives us some caution on the gross margin line and that's something we're going to watch carefully obviously in the quarter.

Got it. Okay, great. And then I guess just a follow up on the kids business nice to see that return to growth. I think you talked about maybe some better marketing. But I guess also is there any - are there new products that I guess is driving the growth or is it more cycling the easy compares or how should we think about that?

It's always new product. So we never really stagnate with that. I think what you see is what we've talked about over the last few quarters when John has mentioned that we were up against tougher comps and it was some product in there that not necessarily comes along with our lightened features and now we're back to more normal setting. And in the environment in the U.S. and now we're starting to grow again within what's our core business group rather than looking for these outside one time wonders.

Great. Okay, and then lastly, the pressure in Hong Kong, I guess how should we think about that for this year? Are you starting to see that ease out or should we expect continued pressure there as we go throughout this year?

Well, a year is a long time. So we don’t know that – that we will see continued pressure because of tourism and some of those will seem close, but it's not a significantly large market for us, and it's certainly not as impacted as China just yet. So, the effect on an overall basis was probably significant for Hong Kong it's not significant to the overall.

Got it. Okay, great, that's helpful, thanks so much. Good luck next quarter.

Thank you.

Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

Thanks, good afternoon. For a moment I want to focus on green pasture opportunities in China just setting the Coronavirus decide if we can. Can you guys comment on the reception that you're seeing to the brand as you expand to Tier 3 plus cities, as you learn more, are there any differences in these cities that makes growth here more challenging?

Well, I mean again, we mentioned, we - both David and I, that our long-term view on China hasn't changed. We view this as a temporary situation and that is informed by both the success that we saw coming out of Q4, Q4 in China was a very solid growth quarter. The business did well – a singles day did well on 12/12. So we're still seeing the brand resonate and grow with consumers. Part of our strategy over the next few years will certainly be incorporating more Tier 3, 4 and 5 cities into the mix, but the reception we've seen so far has been extremely strong. I think this is probably at worst a temporary setback and we will continue to grow the brand that way. It's a little bit difficult to say today how the timing of some of those entries is going to play out. I would also point out that obviously one of the more significant drivers in the country has been e-commerce, which is and has bounded by the location of the consumer that's obviously the big benefit of the solution. And that continues to be a very resonant platform for us with Chinese consumers, who are - if not the world-leading most digitally savvy and I don't know who is because they've really embraced both mobile commerce and online commerce.

That's great. That's a good segue to my next question. I wanted to ask where you guys feel you are in terms of leveraging Timall as it relates to growth in China and particularly growth in these new regions, and I'm curious does the new distribution center simplify logistics to support e-commerce growth?

So Timall is a fantastic partner for Skechers and has been for a very long time. If you look at our Timall rankings by category, they were very strong, especially for an international brand. We value those highly and we continue to work very closely with Timall to advance the brand, but on the important selling days of the year like singles day, but also around every other day it came out of the year. In terms of the distribution center, I think that's probably more a benefit from a Skechers perspective for both operational efficiency and quite frankly ensuring that long-term we have the availability and the reliance on systems that we know across the globe worked very, very well for us. It doesn't really change how we interface with key platforms because the interface today is largely through the third parties. So I think net-net is probably long-term a benefit for Skechers. I think if anything, because of the reliability factor will enhance our ability to interface with Timall and others, but it's not really going to be a major change in that relationship from kind of a strategic standpoint.

Very good, thank you.

Thanks Jim.

We have time for one last question. Our last question comes from the line of Tom Nikic with Wells Fargo. Please proceed with your question.

Hey, John. Hey, David. Thanks for squeezing me in here. Just want to ask, it seems like based on your guidance, you are really accelerating the pace of U.S. store openings this year. I think you said 75 to 85 stores in the U.S., which is a pretty significant increase from what you've done in recent years. I realize you're comping pretty strongly domestically, but I'm just kind of wondering what drove that decision to sort of step on the gas at all as far as physical store openings go and if there's anything, I don't know from an expense standpoint or deleverage standpoint we should think about in terms of the extent of new store openings? Thanks.

Yes, thanks. I mean, I think the first and foremost, we are cautious about how and where we open stores. We don't keep unprofitable stores by and large. So we're opening profitable stores. The stores we're opening right now are big box format. So there are family solutions and offers, the whole range of the product. We are seeing very advantageous rates in some very attractive locations where we believe there is an opportunity to grow the business. We're obviously cautious about cannibalizing any presence in market, but even with 800 stores as a company we feel there is a lot of opportunity across the globe to continue to grow out our store count. We also think as David mentioned earlier and I think it's important, it's a complement to the online capability. Right? Our ability to deliver an omni-channel solution needs a physical presence as well as an online presence and a mobile presence. So, it's really a complementary delivery system and presence for consumers, you know whether it's online, predominantly in the supplement on the retail footprint or vice versa. So, as part of the strategy, most importantly to get closer to consumers and again, I'd just probably would state the obvious. We don't feel like we're fully penetrated in the United States. We feel like there is significant room to run and again with the advantageous rates we're seeing lease rates, these will be profitable locations.

You know, it is good to keep in mind also that we're not chasing what seems to be a deteriorating marketplace here in the United States. We're going to smaller cities. We're not conflicted with our own stores, some of them are the first ones in the city or are the first ones in that neighborhood and it will like John says going together with our online presence to be able to see them and because there are larger motif stores there outside of malls and economics work very well and are not required - you don't require the same sort of turnover as you do in some of the malls we've been in. So when you put the economics together with the isolation in some of these territories it has worked very, very well for us.

Got it, that's helpful. Thanks guys and best of luck [indiscernible].

Thanks Tom.

I'd like to hand the call back to management for closing remarks. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation, you may disconnect your lines at this time and have a wonderful day.

Thank you again for joining us on the call today. We would just like to note that today's call may have contained forwards-looking statements. As a result of various risk factors actual results could differ materially from those projected in such statements. These risk factors are detailed in Skechers filings with the SEC. Again, thank you and have a great day.