Yahoo Finance

Welcome back to Yahoo Finance. I'm Brian Sozzi alongside John Vandemore, Skechers CFO. John, thanks so much for joining us.

Thanks for having us.

I would love to understand where the Skechers consumer is at right now here in the US. Can you break it down in a few words?

Yeah, few words will be the challenge. I mean, we have had a lot of success with our product innovation. I mean, we always say we're focused on delivering style, comfort and quality at a reasonable price to the consumer. And right now, that's resonating strongly. We saw fantastic growth in our DTC business last year. And we have continuing residents that's actually filtering now through the wholesale business. So our consumer is actually continuing to do pretty well.

Yeah, you did see a record 2.9 billion dollars in sales for Q2. Would love to understand if you're if you expect the consumer slow down or do you expect sales to keep up like that?

You know, that's the big question. Everybody's asking the same question. I would say right now what we see in our data is that consumer spend remains strong and within our portfolio, we're actually seeing consumers trade up into some of our higher end comfort technology. So from what we see, the consumer still looks really quite strong. Now, obviously, we're watching things just like everybody else. We're eager to see how the back half of the year performs, but so far, the data suggests that our consumer is spending and spending well.

How are you thinking about pricing moving into the holidays and into 2025?

We've been pretty cautious on pricing for a couple of quarters now. I think the sense that the consumer was either annoyed or tapped out by some of the price increases that emanated post-COVID is what's been dominating our thinking. Uh Now, that being said, we're continuing to offer more innovation, more comfort technologies in our shoes, and that is actually resonating with consumers so that they're consciously choosing to pay more for that product. Now, that's not pricing in our view, that's value. We're delivering more and consumers are willing to pay for it. I think that's going to be the recipe going forward. I don't think we want to see any overt price increases that pressure the consumer further after having dealt with so much inflation over the last couple of years.

Skechers football, Skechers basketball, even Skechers cricket. I you guys recently launched there. Do you think that consumers are are looking for innovation in that way? And are they looking for it from Skechers? Are they willing to pay more for these products? Why launch those specific lines now?

Yeah. Well, one of the things that we've seen is that we play a very significant role in being a very high quality but reasonably priced offering. And what we see because 60% or more of our revenue comes from outside the United States, internationally, there's a huge opportunity for a brand like Skechers to play a role in performance footwear. And so we're excited about that opportunity. There's also, you know, the chance that it can be a resident success and have a halo to the rest of our brands. But But we know we can deliver great product. We know it's good price. We know that athletes who have engaged with us have helped make that product resident at the consumer level in their professional sports. And so we think it's an opportunity. I wouldn't say it's the main growth driver we're looking towards, but we think it's an added element of what we can bring to the market, particularly outside the United States.

I want to speak on that. Uh China, obviously, a big market for Skechers. Are you seeing a slow down there?

We have seen over the last couple of months, and really kind of in Q2, in particular, a bit of a slowdown. It's important to remember that China is still in the process of coming out of their COVID lockdowns. And so we expect it to be a little bit bumpy. Long-term, nothing has diminished our appetite to continue penetrating in China. We think that our brand there resonates really well with the consumer. There's multiple avenues to grow. But it may be a little rocky in the short term. And I think that's largely because the consumer in China is still emerging from some of the challenges of COVID.

Do you expect it to balance out in 2025?

I do. I'm optimistic about 2025. 2024 may be a bit of a challenge going through the end of the year. We'll see. Uh incredibly important will be Singles Day in that market, which uh happens in the fourth quarter. So that'll that'll be a good telltale sign, but beyond 24 into 25, we think the growth opportunity in China is pretty significant.

How is Skechers planning for potential tariffs under a Trump administration?

Well, I would tell you this, first of all, tariffs seem to be a commonality between both administrations. Um and we don't think they're constructive at the consumer. And what we have seen recently is that when put in place, um that is a cost that can be passed on to consumers. We don't want to have to do that, but if that's the case and it's the choice between sustaining margins and being able to continue to deliver innovation and comfort, we may have to take action on price. Again, it's not what we want to do, but I think it's going to be what the majority of brands faced with a similar challenge from a cost perspective are going to have to do.

Are you thinking about diversification at all? Is that in the game plan for 2025?

Well, diversifying our product uh and production capacities has long been part of the plan. I mean, quite frankly, one of our challenges is we're growing so fast as a brand, you have to grow doubly fast if you want to change the balance of production. Uh diversifying into other countries, other markets has long been a plan and one we'll continue to pursue. But But I would also add we do significant business in China. We have very good partners in China from a manufacturing standpoint. So so we know that they still have a role to play as well.

I thought it was really interesting. You guys called out spot container rates as a potential headwind heading into end of 2024 or early 2025. What are you seeing there? And is this something else that other retailers might be experiencing as well?

Yeah, it's definitely a market-wide condition. I think the good news is we're starting to see those rate increases abate. Um I think that owes in part to some of the production limitations that, you know, we've all started to see from a demand perspective. Um what we expect is that rates will continue to become more modest to get back down into more historic rates. We don't think it's an enduring issue and it's certainly not as significant as what we saw post-COVID. That being said, we're going to be watching it carefully because it's a significant input into our landed costs.

John Vandemore, Skechers CFO, thank you so much for joining us. Back to you for more in Yahoo Finance.