Thank you for standing by. This is the conference operator. Welcome to Skechers’ First Quarter 2021 Earnings Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] Skechers requests that analysts limit themselves to one question and one follow-up question only to allow all analysts to have the opportunity to ask their question. [Operator Instructions] I would now like to turn the conference over to Skechers. Please go ahead.

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 that involve risks and uncertainties. Specifically, the COVID-19 pandemic has had and is currently having a significant impact on the company’s business, financial conditions, cash flow, and results of operations. Such forward-looking statements with respect to the COVID-19 pandemic include, without limitation, the company’s plans in response to the pandemic. At this time, there is significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic. The dynamic nature of these circumstances means that what is said on this call could change at any time and as a result, actual results could differ materially from those contemplated by such forward-looking statements. Additional 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 any of our 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, financial conditions, cash flows and results of operations. With that, I would like to turn the call over to Skechers’ Chief Operating Officer, David Weinberg and Chief Financial Officer, John Vandemore. David?

Thank you for joining us today for our first quarter conference call. I hope you, your colleagues, and loved ones are staying safe and healthy. As the COVID-19 pandemic continues to be a global challenge, we remain dedicated to the safety of everyone in the entire Skechers organization and appreciate their ongoing efforts and resiliency during this difficult period. While many countries restrictions are easing, our thoughts are with those regions facing another coronavirus wave. As is the case with most businesses, the pandemic continue to impact Skechers, but the high demand for our comfort technology product resulted in a strong beginning to 2021 and it feels reminiscent of 2019. In the first quarter, we achieved revenue growth of 15% over the same period last year, which resulted in our first quarterly sales of more than 1.4 billion. This was done while parts of the world remained closed due to the pandemic. The 1.43 billion first quarter sales were also an 11.9% increase over first quarter 2019, which was then a record for the period. Driving the record sales was a 20.2% increase in our international business and an 8.5% increase in our domestic business. This double-digit growth drove international sales to 57.8% of total sales in the first quarter. Throughout the quarter, we focused on delivering our footwear and apparel to meet the needs of both our consumers and customers. Our sell-throughs across customer types and categories exceeded expectations in many markets, and we were able to deliver double-digit growth. Skechers mission of delivering comfort, style, and quality and innovation at a value resonated with consumers prior to the onset of the COVID-19 pandemic, and the same is true now. Consumers are returning to a new normalcy, one that involves more walking, more comfort on the job, and a casual lifestyle mindset. We are a natural choice for any demographic worldwide with comfort technology at our core. The record sales are a testament to the fact that consumers appreciate our product offerings, which was seen by the success across many divisions. Our international wholesale business grew 23.8% for the first quarter last year, and 13% from 2019. The quarterly sales growth was driven by an increase of 174% in China, which was severely impacted by the pandemic in the prior year. However, even as compared to 2019, China grew 45.5%. International wholesale growth was partially offset by decreases in our subsidiary and distributor businesses. Subsidiary sales decreased 4.8% from 2020, but improved 4.2% from 2019. The first quarter 2021 decrease was due to temporary closures and reduced operating hours in Spain and Italy, and especially in the United Kingdom, where businesses were closed for the entire quarter. Where markets were open, sales were strong, including in Germany, India, and Canada. Our distributor business was down 6.5% from last year, yet several markets experienced growth in the quarter, specifically Russia, Taiwan, Turkey, and Ukraine. We believe we will continue to see improvements in our distributor business in the second quarter, and the remainder of the year. Sales in our domestic wholesale business decreased less than 1% in the first quarter, compared to the same period in 2020, but improved 8.1%, compared to the first quarter of 2019. We believe sales in our domestic wholesale business were negatively impacted by logistical challenges, which caused slower replenishment and product shipments to some accounts. Key sales drivers came from multiple categories with the largest gains in our women's sports, kids, work, and men's performance. Additionally, the average selling price per pair increased 2.7%, reflecting the strength and appeal of new comfort products and technologies. Skechers direct-to-consumer business increased 18.1% over 2020 and 13.1% over 2019, despite the fact that domestic operating hours were reduced by approximately 50% during January and February, and 7% in March. In our international company-owned stores, we lost 37% of the days available to sell during the quarter. Our domestic direct-to-consumer sales increased 28.4%, compared to the first quarter of 2020 and 18% compared to 2019. This improvement came from our domestic e-commerce channel, which grew by 143%, and our brick-and-mortar stores, which grew by 13.6%. Our domestic direct-to-consumer average selling price per unit rose 10.9%, which speaks to the strength of our current product offering. While we expected our e-commerce business to continue to perform exceptionally well, we were pleased with the increased traffic and sales in our domestic retail stores, especially in March, which we believe improved as more people became comfortable shopping and we ramped up our marketing efforts. We have now completed the update of our point of sale system, which further optimizes our domestic direct-to-consumer channels and will continue to improve our omni-channel capabilities. We are now focused on rolling out this same platform worldwide. Our e-commerce channel remains a meaningful growth opportunity as sales increased significantly across the globe. We plan to expand our e-commerce reach across Europe, beginning with a new site in Ireland and the revamp of our UK site this summer. Our international direct-to-consumer business increased 1.9% over the first quarter of 2020, and 4.4% over 2019. The growth was largely attributable to our company-owned e-commerce sites and the strength of our sales in Korea, India, and Thailand, partially offset by ongoing temporary store closures due to stay at home guidelines across many markets, most notably in the United Kingdom. While we are seeing some markets reopening this month, including England last week, other countries have extended or reinstated their lockdowns. Given the unpredictability of the coronavirus and its impact on many markets, we remain cautious about our return to normal traffic and sales in many international stores. In the first quarter, we opened 12 company-owned Skechers stores, 6 of which are in international location, including our largest store in India. We have opened 7 stores to date in the second quarter, including our first in Antwerp. We closed 20 locations in the first quarter as we opted not to renew expiring leases and we expect to close one additional store at the end of this month. An additional net 106 third-party Skechers stores opened in the first quarter, bringing our total store count at quarter-end to 3,989. The stores that opened were across 16 countries, with most located in China and India. To support the open regions during the first quarter, we ramped up our marketing efforts to drive home our comfort message. This included former professional quarterback and lead NFL commentator Tony Romo, in our Max Cushioning commercial during the Superbowl, and NFL Coach, Jon Gruden and sports analyst Howie Long in new commercials for Skechers Arch Fit, as well as Brooke Burke featured in Arch Fit and Skechers apparel commercials during the quarter. Our new campaign ran on television, as well as digital platforms to support key initiatives for men, women, and kids. In the first quarter, we were awarded company of the year by leading industry publications, Footwear Plus for the ninth time in 15 years. This was due to our efforts during the challenging 2020 year and our ability to deliver to consumers the comfort they wanted. We are pleased with our performance in the first quarter and think this was a solid beginning, especially given the ongoing pandemic related difficulties most recently impacting our international business, which now represents 58% of our total sales. While many markets continue to face challenges, we are seeing strong signs of recovery and remain focused on delivering our comfort technology and managing the flow of our inventory to fulfill demand where we are open and drive sales where possible. Now, I'd like to turn the call over to John.

Thank you, David and good afternoon everyone. The Skechers brand performed exceptionally well this quarter, despite ongoing challenges posed by the pandemic, including continuing store closures and operating restrictions in many markets across the world. The quarter began as expected with the pandemic continuing to influence tepid consumer trends worldwide, especially as many markets re-instituted lockdowns. However, mid-quarter, we began seeing signs of consumer engagement and optimism domestically that we have not seen in over a year. That led to the results in March that even exceeded our own internal expectations reflecting high demand for the Skechers brand. Although we remain cautious given the nature of government responses to COVID-19 globally, we are optimistic that our first quarter results are indicative of the power of our brand as the world begins to recover from the pandemic. Now, let's turn to our first quarter results where you will note that due to the unusual nature of last year, we will occasionally compare to both 2020 and 2019, where we feel the added measure is beneficial to evaluating the performance of our business. Sales in the quarter achieved a new record totaling 1.43 billion, an increase of 186.1 million or 15% from the prior year, and an impressive 11.9% increase over the first quarter of 2019. On a constant currency basis, sales increased 145.9 million or 11.7%. International wholesale sales increased 23.8% in the quarter, compared with the first quarter of 2020 and 13.4%, compared with the first quarter of 2019. Our joint ventures grew an impressive 120% in the quarter led by China, which grew 174% against prior year results, which contained the most severe impacts of the COVID-19 outbreak. As compared to the first quarter of 2019, China grew 45.5%, driven by strong e-commerce performance. Subsidiary sales declined slightly in the quarter by 4.8%, primarily as a result of continuing closures in Europe and Latin America. However, as compared to 2019, our subsidiary sales grew an impressive 4.2%, despite the current year operational restrictions. As expected, our distributor business continued to face pandemic headwinds in the first quarter, decreasing 6.5%, but saw a marked improvement as compared to the second half of 2020. Although we continue to expect this portion of our business to recover more slowly than the overall international wholesale segment, we remain optimistic that we will ultimately see a full recovery of sales in this important channel. Domestic wholesale sales decreased slightly in the quarter by less than 1%, primarily due to the unfavorable timing of shipments to customers, which we now expect to occur in the second quarter. Compared to the first quarter of 2019, sales increased 8.1%, which we believe is more reflective of the positive underlying trends we are seeing with the majority of our domestic wholesale partners, particularly based on sell-through we observed in the back half of the quarter. Direct-to-consumer sales returned to growth in the quarter increasing 18.1%. The result of a 28.4% increase domestically, and a 1.9% increase internationally. The results reflect a slight benefit from the pandemic store closures in the prior year, but more importantly also reflect a notable 143% increase in our domestic e-commerce business and a significant increase in store traffic and sales in March, a trend that has continued. Gross profit was 679.6 million, up 24.1% or 131.9 million, compared to the prior year. Gross margin was 47.6%, an increase of 350 basis points versus the prior year, primarily driven by increases in our average selling price across all segments, as well as a favorable mix of online sales. Total operating expenses increased by 19.9 million or 3.9% to 528 million in the quarter. Selling expenses increased by 11.2 million, or 15.2% to 85.3 million, which was flat, as a percentage of sales versus last year. The dollar increase was primarily due to higher domestic digital demand creation spending, as well as the reopening of certain markets internationally. General and administrative expenses increased slightly by 8.6 million or 2% to 442.7 million, which was primarily the result of volume driven expenses in warehouse and distribution for both our international and domestic e-commerce businesses. This was partially offset by lower retail labor costs. Earnings from operations was 157.7 million versus prior year earnings of 44.8 million. This represents an increase of 252% or 112.9 million. Operating margin was 11%, compared with 3.6% a year ago, and 13% in 2019, reflecting strong combination of top line performance and operating expense leverage despite ongoing pandemic related challenges. Net earnings were 98.6 million or $0.63 per diluted share on 155.9 million diluted shares outstanding. This compares to prior year net income of 49.1 million or $0.32 per diluted share on 154.7 million diluted shares outstanding. Our effective income tax rate for the quarter was 20.2% versus 15.3% in the same period last year. The increase was predominantly due to an unfavorable mix of earnings from higher tax jurisdictions. And now turning to our balance sheet, we ended the quarter with 1.51 billion in cash, cash equivalents, and investments, which was an increase of 148.2 million or 10.8% from March 31, 2020. Trade accounts receivable at quarter-end were 798.8 million, an increase of 2.6 million from March 31, 2020. Total inventory was 1.07 billion, an increase of 8.3% or 81.8 million from March 31, 2020. The increase is largely attributable to higher inventories to support growth in China and government closures in Europe. Total debt, including both current and long-term portions was 779.7 million at March 31, 2021, compared to 699.8 million at March 31, 2020. Capital expenditures for the first quarter were 84.2 million, of which 42.9 million related to the expansion of our joint venture owned domestic distribution center, 13.8 million related to investments in our new corporate offices in Southern California, 12.4 million related to investments in our direct-to-consumer technology and retail stores, and 3.6 million related to our new distribution center in China. Our capital investments remain focused on supporting our strategic growth priorities, growing our direct-to-consumer relationships and business, as well as expanding the presence of our brand, internationally. For the remainder of 2021, we expect total capital expenditures to be between 200 million and 250 million. Now, turning to guidance. First, let me preface by saying that we remain in a dynamic situation where conditions can change materially at any point in time. As a result, assessing the ongoing impact of the pandemic to our business is difficult. Incorporated into the following guidance is our best estimate of the influence of these factors on our expected results for 2021. However, if the situation deteriorates and closures continue longer than anticipated, our expected results may differ materially from this guidance. That being said, we are providing a perspective today for our second quarter and full-year 2021 results based upon current trends, backlogs, and other indicators. We expect second quarter 2021 sales to be in the range of between 1.45 billion and 1.5 billion and net earnings per diluted share to be in the range of between $0.40 and $0.50. For fiscal year 2021, we expect sales to be in the range of between 5.8 billion and 5.9 billion and net earnings per diluted share to be in the range of between $1.80 and $2. We also anticipate that gross margins for the full-year will be flat or up slightly, compared to 2020 and that our effective tax rate for the year will be approximately 20%. And now, I'll turn the call over to David for closing remarks.

Thank you, John. We achieved the new quarterly sales record over 1.4 billion, due to the strong demand for our comfort technology footwear in markets where we are open. International, which is approximately 58% of our total sales, was the biggest driver. But we saw strong improvements in our domestic business with increasing traffic in March and now in April. The achievement came despite ongoing pandemic related issues. We drove sales through strong marketing campaigns across multiple platforms; continue to roll out our BOPIS and BOPACK initiative in the United States and plan for additional ecommerce sites in 2021. To further support our business in the coming years, we are in the process of enhancing our infrastructure with new distribution centers in Peru, the UK, and Japan. In addition, our new 1.5 million square foot China distribution center remains on track for full implementation by mid-year. Given today's Earth Day, I'd like to note that we are continuing to work on the expansion of our LEED Gold certified North American distribution center, which will bring our facility in Southern California to 2.6 million square feet in 2022. We are also completing construction on Phase 1 of our new LEED Gold certified office buildings, and we are increasing efficiencies in our existing corporate office buildings including the addition of solar panels. Although we remain cautious given the ongoing temporary closures in many countries, we are seeing the improved traffic that we experienced in March continue in April where markets are open. The demand for our product is strong as consumers want [familiarity], comfort, quality and value, all of which the Skechers brands delivers together with innovation and style. Now, I'd like to turn the call over to the operator for questions.

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

Great, thank you so much. So my question is first about the domestic comp, you know, 25.7%? Can you give us a sense of what the contribution was from online versus stores and give us maybe a little bit more color about how the business trended from January to February and into March?

Yeah, I would say, you know, in the early part of the quarter of January, probably through about mid-February, e-commerce continued to demonstrably outperform the business. Traffic patterns were still somewhat depressed both domestically and obviously with closed markets internationally, significantly. What we saw in March – and really as the last part of February, March is our marketing began to take hold and relaxation of guidelines to close doors and keep them restricted relaxed, both channels, went north significantly. Obviously, we have a more significant store base in our current online offering, but both grew tremendously in the back half of the quarter, evidencing like we said, the very strong demand for the brand that we saw is out there. I would note Jay though; we also saw that demand in the sell-throughs for our domestic wholesale partner. So, it was pretty broad brush demand for the brand evidencing itself in both segments.

Got it. Okay. Thank you. If I could ask you about the international distributor business, John I think you mentioned that there was a pretty significant, I think you got a marked improvement in the quarter versus the second half of last year, do you expect the same type of improvement, you know, quarter-over-quarter in 2Q for that business? Can you just tell us about how you see that business, you know, getting to the timing of when it gets to full recovery?

Yeah, it depends on what you’re – if you're looking at it relative to 2020, I think you can expect to see a similar improvement that you saw in Q1, probably a bit better. As you start to look at 2020, where we started to experience some of the declines last year, if you look at it relative to 2019, as well, you know, you're still going to see a challenge, which is kind of our high water reference point and what we're aiming for the business to get back to. But overall, yes, you'll see significant improvement going through Q2 to Q4 because we started to laugh the effects of last year, which were pretty severe.

Okay, got it. And maybe one more for me if I could. You know, there's a really big increase in the retail segment gross margin and the International segment gross margin. It sounds like a lot of that was ASP, maybe some mix, you know, can you talk about, you know why the gross margin guidance for the year is only flat to up slightly? Is it that you see some of the ASP gains, sort of one-time in nature just because of the unusual environment with stimulus and whatnot, or if you can just maybe talk about some of the puts and takes that are going into your gross margin forecast, that'd be super helpful?

Yeah, I mean, that the ASP experience, we don't expect to subside. I mean, the brand is selling well. Our comfort technologies that David referenced in his comments are performing exceedingly well. You know, we do expect as we talked about, there are some input cost pressures materializing in the back half of the year, plus that mix benefit gets a little less pronounced, because it is this quarter in particular, largely ecommerce influence, as the rest of the retail business comes back into play that has a slight downward pressure. Keep in mind though, you know, we're generating more dollars overall. So, it's definitely a good story at the end of the day, but most importantly I point out that ASP success is a true reflection of the quality of the product and how well it's selling through because again, we see that in our stores, we see that in our partner doors. And it's a reflection of people wanting the product and the technology that we're offering today.

Yeah, Jay we enforced the fact that it's a mixed issue. As distributors come back, obviously, they have a low impact on gross margin. And when you talk about gross margin and ASPs, you know, they're not often the same frame. We can keep the same margins with higher ASPs and end up with higher margin dollars, which is our goal to begin with. So, we anticipate that the margins will hold in there, even with the increase in lower margin businesses and the ASPs will stay higher. So, we’ll be a much more efficient company as we go through with this.

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

Okay, great. Fantastic. Really nice quarter, guys. And I wanted to ask about the ASP, just following up on Jay’s question. It sounds like you expect the strong ASP to continue, that the aggregate mix of ASP for the business will change just as the various pieces of business come back. Am I hearing you correctly on that? I just want to make sure I've got a good understanding.

Yeah, absolutely.

And so, I'm just trying to think about if there is any sort of supply demand imbalances out there that could be influencing ASP one way or the other, and if you feel like you're in a good inventory position, or if there are any, let's say supply issues that may be helping ASP at the moment that you would expect to unwind later in the year?

Well, we think our inventories are in great shape. As far as creating demand, it's not something we would do. We deliver at the prices we committed to. This was in the cart to begin with. I think what it shows is, less markdown cadence and a stronger base for our higher priced items as this comfort technology that we've been developing and putting in multiple shoes is now coming into its own. So, we have less markdowns, we have higher ASPs in our own retail. We assume all around the world, our wholesale partners will continue to take the benefit as well, as they open up. There were probably some imbalances as we moved along, but we never raised prices or changed anything for it; that just was part of our mix. I think we actually handled the imbalances, as well as anyone. We weren't significantly late. We delivered most on time. We were able to move things from countries that had closed down to countries that were operating. It's part of our core competency. So, I think, logistically, we came through this, as well as we could anticipate, and sort of spread the wealth to everybody we delivered to.

Fantastic. Great color. Thank you so much.

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

Thank you. Hi, guys. Terrific quarter.

Thank you.

And thanks for the guidance. With the inventory, looks like you've left yourself in a good position to capitalize on improving demand to that materialize 2Q, 3Q, and so forth. John, just looking at the guide, the second quarter and full-year guide implies you'll be more than halfway to the full-year earnings guide at the midpoint of the year, is there some significant incremental expense to flag in the second half of the year or is this just conservative assumptions on revenue and margin?

Well, you know, like many we derive our guidance based on a number of different scenarios we run. You know, the reality is mix has a pretty big impact here. It really depends on what happens relative to you know, for example, the International retail market. So, there's some latitude there. I would just note, broadly, you know, we are seeing a higher tax rate this year, which you know, I urge you to incorporate, because that's something that we feel is durable for the remainder of the year. And we have had some exposure to FX to the downside, which we saw this quarter. This quarter, we lost probably about $0.05 on, you know, an FX charge. So, we're incorporating all of that at once. But given the dynamics of the market, we felt this is a prudent way to give a range you can rely on. And then we'll obviously be working as hard as we can to get better than that. Given the significant unknowns on mix and influences there, it felt like a prudent path for us.

Alright. I'm glad you mentioned the tax rate, I was penciling like an 8% operating margin at that earnings number, but it seems like it’s probably a higher tax rate and therefore higher operating margin than that. I wanted to ask just kind of parsing out strengths in the quarter, a number of different variables to consider, your advertising was notable and highly visible that clearly drove traffic, could you see that immediately turn on the business and the e-commerce as you started to air the ads for some of the campaigns like the Max Cushioning and so forth?

Yeah, I mean, it absolutely had an impact. I think quantifying it specifically is a little challenging. Our advertising was extraordinarily well-timed. It hit as you were seeing many markets relax restrictions on traffic for consumers. And then it also, you know about the same time you saw the third round, I guess of stimulus hit, but there's no doubt it had an impact. And we saw it across the board. We saw it in e-comm, we saw it in the stores, we saw in our partner doors. It was tremendously effective. And as it was noted in the commentary, was focused on our comfort technology products, which are the ones that are really performing, you know exceptionally well, that ASP level. So it was a great combination and a great success for us.

We should point out; it worked around the world as markets opened. And there was a great demand created. Just from the lockdown, our advertising, we feel pushed it dramatically in our direction, which is why we perform so well in countries that have just opened up.

Great. And last one for me, just on the advertising, can you speak about plans for timing of advertising across the remaining quarters of the year?

Yeah. We don't anticipate anything out of the realm of normal, you know, on a relative basis. So, I would encourage you to look at, you know where we generally sit in different times of the years on a percent of revenue basis. Nothing outlandish anticipated there. And Jim just a follow up on, [you didn't have] one other thing to highlight on that, that EPS guide, you know as the mix tilts towards a market like China there is a minority interest impact too. So, that's one other thing to consider as you kind of carry down from an operating earnings perspective down to EPS. You know, more heavily tilted towards a market like that there is some minority interest impact that gets taken into consideration.

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

Thanks. I'll add my congratulations at all as well, really exceptional quarter guys. Two quick questions. Number one, Europe, you know, it's an important market for you guys. We've been hearing from a lot of other companies that it's still pretty tough there, lot of closures. I mean, obviously, you put up really impressive global numbers. Can you talk about Europe specifically, how much it was or wasn't a drag in the quarter? And then I have a follow-up on China. Thanks.

Yeah, as we said in our prepared remarks, that was down slightly from last year and up from 2019. We thought it was a very strong performance in those countries that were open. So, if you look through the countries, they're obviously a dichotomy of those open, those closed, and those that had second waves that they came through, I think it's true to say that in the times we were open, no matter where we were open, we sold very well. And I think, because of how well we performed on the first openings in Europe, last May, June, and July, a lot of people felt they were short product going into the second closures, especially in the UK, and more predominantly in Germany and places like that. So they accepted a lot. They wanted to come out of disclosure, fully stocked, especially with our stock because it performed so well. So that helped our wholesale business in Europe, which was outsized to the number of stores that were closed. So, and it's also about – that's one of the things we take into account also, when we did our guidance, because we filled up so dramatically in places that were closed on our wholesale business. The longer it takes to reopen may have some kind of minor impact in the back half of the year. So, the sooner they open, we certainly have upside to wherever we stand because the performance is that good and everybody who has our inventory is depending on it.

Got you. That's helpful color. Thank you. And then quickly on China, I think it sounds like it's up 50% versus pre-COVID levels in the quarter, which kind of like puts you back on the prior trend. It seems like that you're getting a lot of pent-up demand there. Is that a fair characterization or is it new customers coming into the brand? Can you tell? We know where this, you know, really incredible numbers in China, where that, you know, the various sources of demand are and you know, how much, I mean, how big of a market can China become for you guys? It seems like there's a lot of runway there. And then are you seeing any impact from the boycotts of some other Western brands around the [Shenzhen issue]? Thanks.

Well, we're always dependent on new customers, and China does have a billion and a half people and more and more coming to the middle class or can afford the footwear as time goes by. So, we think this – well, we hate to say unlimited, but there's as much potential as anywhere in the world as we go to China. As far as the boycott, we haven't seen anything as yet, although we're obviously aware of it. And we have posted our own statements online. We ask everybody to read them rather than going to a political conference, as far as the conference call is concerned. China is a great marketplace for us. And obviously, we don't want to do anything that would – whether it's PR or political, do anything to do with those boycott plans or anything like that. So, we try to keep as clean as we can as far away and just watch our own business.

I would add Omar, you know, the e-commerce business performance there has performed exceptionally well. Part of that is obviously the natural trend in China to position online, but you have also seen as a result of the pandemic and even heavier influence on e-commerce success in the marketplace. And we've definitely reaped the benefit of that.

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

Hi, thanks for taking my question and congratulations on a great quarter. So, bigger picture, how do you view the opportunity in the domestic wholesale channel? You know, especially given the fact that a large competitor, you know, plans to pull out of some major retailer, and that if you can touch on the logistic issues that you mentioned in 1Q, and how do you see that playing out?

Yeah. I would first start-off by saying, you know, we feel like we've earned our performance in domestic wholesale. The last two quarters of 2020 we're very good. We are seeing very good underlying change. We ran into a timing issue this quarter. We are very optimistic about the balance of the year, but that we think largely earned by the strength of our product. You know, we welcome all of our competitors to pull out of the wholesale market if they so choose. Because we stand ready to serve those customers. Many of them, we worked very closely with to support the brand. David mentioned, you know, we work with them to support the price, especially on our comfort technology products. Because, you know, we believe that's a winning opportunity for everybody. So, we remain optimistic. We're proud of what we've accomplished, especially because it's still a mixed bag of results out there. Although we were very happy to see that, you know, the majority of our customers perform very well as markets emerge. And as you know, retail businesses started to see, you know, better customer traffic channel chance.

Great, thanks for that. And just a quick follow-up just wondering if you can dig into product a little bit more and how you're seeing trends evolved as, you kind of move into the recovery phase of the pandemic?

Well we are into that comfort technology footwear, which I think fits very well. And the product – it's across a broad range of product and product looks, and certainly styling, but we're into comfort, and style. So, we have it everywhere. And we constantly are creating new categories that we can compete in. So, I think even now, as we go through it, people are into more comfort. And we're a company that is dependable as far as delivering orders through difficult times. So, I think we're seeing both. The styling, the product, the inventory, also the sell-throughs as we go through this created a quite a demand for the product. We actually could ship significantly more, if we would have brought it in early enough. But we try to sit back and let the market come to us. And we notice a high demand. And we're turning our inventory, certainly on the wholesale level very quickly, which means there's a high demand for the product and prices should hold up and we sit in a good place.

Perfect. Thank you so much.

Our next question comes from the line of Laurent Vasilescu with BNP Paribas. Please proceed with your question.

Good afternoon. Thanks for taking my questions. John, I think in the press release, it talks about domestic wholesale business decreasing 0.9%, due to timing of shipments. Two quick points of clarification, was that a shipment delay from 4Q to 1Q or 1Q to 2Q, and can you possibly parse out the size of that shipment?

You know, I knew somebody would ask, I didn't know it would be you Laurent. It was a shift from first quarter to second quarter. It was, you know, we had a variety of logistical challenges we had to face that David referenced. Our team did a great job, by the way, net, net overcoming most of those, you know, this was just a timing situation. I don't want to get into, you know a full quantification, but we would have seen results similar to, if not slightly better than what we saw, you know, the last half of 2020, definitely would have been up and we expect that to carry into Q2.

That's great to hear. John, you have approximately $1.5 billion of liquidity on your balance sheet, your share buyback program expired in February, should we anticipate another buyback program? And how do we think about the right amount of liquidity on the balance sheet going forward?

Yeah, I would say, you know, at the moment, it's still an uncertain environment, I think our first priority on any excess cash, it would be to probably repay the facility that we drew at the beginning of the pandemic. We're becoming, you know, more and more confident that we're at least past what could be or could have been a significant liquidity event. You know, from there, our number one priority is deploying cash back into the business where we can, and we obviously, you know, by virtue of the investments we're making, see a lot of opportunity for that. After that, you know, we discussed it, you know, regularly with the board to let them make an evaluation. I don't want to get into guessing on how they'll perceive things. But I would say, you know, we feel very good about the investments we're making in the business. Those are the highest ROI opportunities. And if there's more of those we'll put the cash there, and then we'll look at other opportunities over time.

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

Good evening. Thanks for taking my question. Sorry, I was on mute there. Nice job on the quarter and managing through the pandemic. I guess just a follow-up on the traffic front. Maybe if you could talk a little bit about the improvement from December up until now since we don't really have year-over-year data? And then I'm just curious, have you seen that strength continue into April?

Yeah, I mean, you know, compared to 2020 it’s a little bit tough with some of the closures if you go worldwide, but I would say, you know what you saw – what we saw was January and February as we mentioned are pretty similar to what we saw in the fourth quarter of 2020. And then the market term things got better our perceptions. We definitely got better consumer, intent got better traffic, I mean everything got better at once. So, you know, the comparison point we give is that, you know comparable store sales, you know did a 180 and then some, you know, over the mid – from the mid-quarter on, and those have thus far sustained and even improved slightly again for us, as, you know, we saw markets like the UK come back online, because, you know, many international markets, you know, unexpectedly from our view in the quarter stayed close throughout. All of which is to say, again, it's a continuing trend we see, you know, we're certainly doing what we can to foster, you know more traffic at a consumer level. But I think the most encouraging aspect for us is they're coming to the Skechers brand, be it in our own stores, online, in our partners, we're seeing the sell-through, you know continue to manifest at very good levels.

Great. That sounds good. And then I guess, just on the wholesale front, is there any color you can provide just on, are you seeing any thoughts around how the wholesalers are thinking about the back half this year? I guess, particularly on the domestic front.

I think all we can say is, we're seeing good demand for Skechers. I don't know if that holds true beyond that. You know, we're working with, you know, most every account as we speak, getting ready for, you know, the back-to-school shipments and their orders for fall, winter 2021. Most of what we hear, at least relative to our product is encouraging. We've had very good performance, as we said over the back half of this quarter and expect it to continue as evidenced again in the strong sell through and pricing. I mean, I think that's a really good thing that we're seeing is it's holding up despite some higher AURs. And that's encouraging. And I think as David mentioned, we've done a very good job of delivering in difficult circumstances. There are just the logistical issues impacting the market. You know, we're not immune to, but I think we've done a very good job of navigating through those. And that's led us to see, you know, I think a higher receptivity to wanting to, you know, depend on Skechers to deliver to their consumers.

Like to add that our backlogs also indicate that there's a lot of dependency on us for the back half of the year, certainly on a comparable basis, and there are still some customers that are more leery not knowing what to do with themselves as this goes through and how it will last and how market conditions will change. And we don't know what the retail, you know, will look like as we go through, but we do know will be participating to a very large degree, and our backlogs indicate that we will be a premier player and the back half should nothing change dramatically from now to then.

Our next question comes from the line of Sam Poser with Williams Trading. Please proceed with your question.

Thanks for taking my questions. Can you give us some idea of the size or the penetration of Arch Fit and Max Cushioning within, like within the product mix outside of, you know, within the overall product mix right now?

I don't even know how to relate to that. I mean, it goes into so many products to add it on. I think the best way to put that is, we see ourselves as a comfort technology company and all our big selling products have comfort and technology in them whether it's Arch Fit or Max Cushioning, [or – and Hyperburst]. We have something to offer in almost all our shoes. So, it's fair to say, it's the biggest piece of our line. It's not that it's an item that fits in the shoe. And that shoe is what carries the game. It's very broad based in multiple styles and multiple categories, and all fits with the comfort technology that exists within the brand as a whole.

Thanks. And I got two more. One, can you give us some idea of how big the e-commerce business is these days and how you're thinking about of the full-year? And two, you know, you mentioned it, I think once in the call so far, but what is the – what do you believe the impact of stimulus was because, you know your business kicked in right as the checks came at and at the same time that your advertising kicked in. So, can you give us some view of how you believe stimulus in the U.S. is impacting the overall business right now?

Yeah, the stimulus effect is tough to pick out, Sam. I understand the nature of the question, but as you point out, you know, we really had three major factors hit at once. What we believe is that the marketing was probably the most powerful because it really drove awareness. And it was, you know, on the products that we also then saw pull through. Obviously, the relaxed restrictions in many markets had effect that was a little bit more sensitive geographically. In some areas, it was a big effect, in others, the market had been open for a while. So, really depends on the geography there. So, overall, it probably wasn't as pronounced. And then the stimulus checks came in at about the same time. But, you know, we've tried to look at it in detail, it's just very difficult to tease out, you know that number overall. What I would say is, on the e-commerce question, if we take into consideration the totality of our e-commerce business, so, you know, domestically internationally owned markets, you know, China, it's definitely in a mid-teens number this quarter, which, you know, is definitely an overall positive trend in the trajectory of our e-commerce business.

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

Yeah. Excellent, thanks for taking my question guys, and congrats on managing the business through the pandemic and growth you're seeing into this year.

Thanks, John.

Just off to e-commerce up another triple-digit number, at least domestically, can you tell us – can you give us some color on where this business is from a total top-line perspective? The demand for the brand digitally is clearly there. In terms of the economics of the business, how much more can you scale your own digital business within the DTC platform?

Yeah, I mean if we're looking just at the domestic side of the business, e-com was close to 20% of that business. Honestly, it's hard to put a top on it, because I think what we will see on a continuing basis is that digital-only transaction volume will continue to grow. And just to be clear, this quarter eye-popping numbers again, the team did a great job, but it was still not comparing against the pandemic-infused online buying of last year. We actually suspect that next quarter, the domestic number will be a bit more challenged, because you're going to be comparing against a window where the only opportunity to buy product was online. So, this is kind of the last quarter before that, very difficult comparison but overall, we absolutely believe the business can continue to grow. It will be a more important component of our total direct-to-consumer business in the omni-channel capabilities that David mentioned and referenced in the call, because that's where we see consumers going. They want a seamless ability to transact with the company online, maybe at a mobile device, a desktop device in the store and to trade between those and that's why the investments we've made in the new POS platform, in the new technology platform, and our forthcoming re-launch of loyalty are all going to be materially beneficial long-term, but it's going to take some time for that maturation to occur. I would also just say, I believe that we're getting better as an organization, fine-tuning our capabilities in digital marketing, which will help and continue to help the business, and that's an advantage we saw this quarter as well. And then, more broadly, stepping back, I'd say, we're very excited about the opportunity to begin launching in countries in which we're not yet penetrated from a company-owned online presence. And so, as we roll out the new platform and technologies across the globe, we're super excited about what that will mean then for our brand in those markets and our ability to begin offering direct consumer online capabilities as well.

Got it. That's helpful. And then, maybe I would shift to the margin profile of the business, your gross margin has been consistently moving higher really over the last five years and there hasn't been a lot of variance to it, particularly on the downside and it's been on a structural uptrend. It sounds like ASP are moving higher, you know your DTC business domestically is doing very well, just curious, where do you think gross margins can go over time, given the consumers responding to innovation you're putting in the product, ASPs are moving higher, your e-commerce business is getting better? Within that double-digit operating margin that you've targeted over time, where do you think gross margin goes, it's been on a structural uptrend for a while now.

Yeah, and that's by design, right. Our strategy is to continue to grow this business internationally, which generally carries accretive gross margins and to grow it in the direct-to-consumer channels. I mean, I think if you ever take the last year or so out of the mix because you have so many different factors coming into play at a gross margin level, what we see underlying though is that continuing trend toward positivism. We have some input cost pressures arising this year, which we've talked about, the transportation costs going up, some raw material pressure. So, I would think about some of the pricing is keeping up with that. But overall, we think that mix continues to benefit us over the long haul. I don't think you're going to see a 350 point bip jumps every quarter, because that's heavily influenced by some mix dynamics. But I think improving incrementally every year is definitely part of the plan. The only thing I would say, that could hold us back on that is that we also grow in some of the lower margin businesses like David mentioned, the distributor business, great operating margin for us, but it's a lower gross margin, still business we want to have, very profitable for us. But if that grows at a higher clip, it will simply dilute that mix benefit, but that still means we're making more money as a company, which is ultimately our goal.

Our final question comes from the line of Brian McNamara with Berenberg Capital Markets. Please proceed with your question.

Hi guys, congrats on the strong results, and thanks for taking the questions. So, we have seen two pretty material changes from you guys in the last week or so, in terms of disclosures. With the proxy statement released last week, you had noteworthy changes in the compensation structure, and this is the first full year guidance that I can recall you offering. With clear momentum in the business, I'm just curious what drove these changes?

It's just a natural evolution, how we run the business. We're continuing to grow the brand, that still remains our number one priority, but we always look for opportunities to make the business better, you know first at a product level then [at marketing them] throughout the back of house. It's not the only improvement, it's probably just the ones you guys see, but we've made tremendous investments throughout our information technology, infrastructure, we continue to advance markets across the globe. So, there is a lot going on in that bay and I think those two, in particular, are just the natural evolution of us being in a position to be able to manage our business with better visibility in some respects, but also aligning with some market practices and others, but I wouldn't want you to take away that that's the only improvement, just the ones you see are it, because even in the last couple of years, we've made tremendous strides in many areas of the business, which I'll pitch in to say, I don't think we get enough credit for because we're not great at [just chest beating] but, even David mentioned, on this Earth Day, we have one of the largest LEED certified distribution centers, we think in California, at least, if not the country, and we're adding on to that with the same level environmental sensitivity. We're doing that here. We don't talk about that stuff a lot, but I think those – I think are improvements in the way we run the business more aligned with kind of the ESG attention that's out there, that don't often get appreciated. So, just I'd say one more step in improving the business and continuing to grow into really the Number 3 footwear provider in the world and maybe even north of that.

Great, thanks. And then, just one quick one on India, how did India perform in the quarter relative, I guess, to your expectations, and how is that recovery taking hold? Obviously, it was one of the more impacted markets from the pandemic last year.

Yeah, it performed quite well through the end of the quarter. It certainly met our expectations. They were on target to pre-pandemic levels, but this new shutdown, especially for Delhi and Mumbai. While it hasn't closed down the whole country and we continue to do business there, it obviously will have impact until it's done as far as that particular business is concerned.

Yeah, just for color, we were excited to potentially try to make a visit as our first international market to hit post-pandemic. And heading to India was in our short-term plans, but obviously that's been derailed. But it doesn't in any way diminish our optimism for the country long-term, we still think it has tremendous prospects for our brand, in particular, and we're excited about it. We just wish them the best in this phase of their dealing with the coronavirus pandemic.

Ladies and gentlemen, this does conclude today's question-and-answer session. This also concludes today's call. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.