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Skechers U.S.A., Inc. (SKX)

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SKECHERS USA, Inc. (SKX)

Q1 2017 Results Earnings Conference Call

April 20, 2017, 04:30 PM ET

Executives

David Weinberg - EVP, COO and CFO

Analysts

Scott Krasik - Buckingham Research

David Buckley - Cowen and Company

Jay Sole - Morgan Stanley

Tom Nikic - Wells Fargo

Corinna Van Der Ghinst - Citi

Dan Isaacson - Macquarie Capital

Christopher Svezia - Wedbush Securities

Sam Poser - Susquehanna Financial Group

Jeff Van Sinderen - B. Riley & Co. Inc.

Presentation

Operator

Greetings and welcome to the Skechers USA Inc. First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would know like to turn the conference over to Skechers. Thank you. You may begin.

Unidentified Company Representative

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 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 and Chief Financial Officer, David Weinberg. David?

David Weinberg

Good afternoon and thank you for joining us today to review Skechers' first quarter 2017 financial results. First quarter net sales increased 9.6% to $1.073 billion and represented both a quarterly sales record and the first time we surpassed the $1 billion in a single quarter.

The sales growth was primarily the result of a 16.8% quarterly increase in our international wholesale business and a 12.8% increase in our worldwide company-owned Skechers retail stores, which included retail comps of 2.9%.

Our international wholesale business comprised 45.7% of our total net sales for the quarter. Including retail, the percentage increased to 51.3% of our total sales. Our domestic wholesale business was relatively flat as we shipped 4.5% more pairs than the first quarter of last year but had a decrease in average price per pair of 4.8%, or $1.10 per pair. This is due to the shift in product mix including strong sales in our sandals and casual lines and BOBS from Skechers.

First quarter highlights include record revenues of $1.073 billion, gross margins of 44.4%, a strong balance sheet with $607.8 million in cash and cash equivalents or approximately $3.90 per diluted share, a 16. 8% sales increase in our international wholesale business, a 12.8% sales increase in our company-owned retail stores, which included 59 net new stores opened compared to the prior year period including 14 net new stores in the first quarter, growing our company and third-party-owned worldwide Skechers store base to 2,055 locations, with a net addition of 60 stores in the quarter.

International wholesale and retail now comprises more than half of our total business and holding our position in the United States as the number one walking, work, and casual brand and the number two brand for all women's footwear.

We'd like to note that the first quarter of 2017, sales growth came on top of challenging comparisons. The first quarter of 2016 had growth of 12.1% on our domestic business, 47.1% in our international business, and 23.2% in our company-owned retail stores.

Further, this year, we did not have the benefit of an additional day in February and Easter falling into March. We are pleased with the growth and strong market share we achieved and maintained in the first quarter of 2017.

Our worldwide backlogs increased low double-digits with all of our business units being positive and already in April, we have high single-digit comps in our global company-owned stores. We remain optimistic about our domestic wholesale business and expect our international business will continue to grow as we continue to deliver new offerings in every category.

Now, turning to our business in detail, our domestic wholesale business was relatively flat. This was the result of the decrease in price per pair of 4.8% and an increase in pairs shipped of 4.5%. The highest growth came from our women's sandals, BOBS from Skechers, men's casual and women's sport active lines, which have lower ASPs than our Sport and Performance business.

For our Spring business, we ran numerous marketing campaigns supporting our brands including new campaigns with Rob Lowe, Brooke Burke-Charvet, and Meghan Trainor, along with other campaigns supporting our men's and women's lifestyle lines. In addition, we ran a new campaign for Kid's Memory Foam and lighted footwear for kids.

Two keys, Skechers sponsored marathons occurred in the first quarter, the Skechers Performance Los Angeles Marathon and the Houston Marathon. Along with sponsoring these events, we ran commercials for our GOrun and GOwalk footwear as well as our growing Golf collection, which included our golf ambassadors, Matt Kuchar, Russell Knox, Billy Andrade, Brooke Henderson and Wesley Bryan, who just earned his first PGA Tour victory.

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