Skechers U.S.A., Inc. (SKX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Phil Paccione, Corporate Secretary of Skechers U.S.A., and it is my pleasure to welcome all of you to Skechers 2020 Annual Meeting of Stockholders. We're excited to be hosting our first virtual meeting, which allows us to be more inclusive and reach a greater number of our stockholders via the web portal that we have provided. It is 11:00 a.m. and in accordance with the notice of meeting, I call this meeting to order. I have been appointed by the Chairman and the Board of Directors to conduct the required business at this meeting. Also, Ted Weitzman, who is associate General Counsel for the company, is serving as inspector of election today. He is also present on the call. As is our custom, we will answer questions following the formal portion of this meeting. Only validated stockholders will be able to ask questions in the designated field on the web portal, which you can already do, if you like. We are joined here today by BDO, our independent auditors, who will be available to answer questions as well. Though we won't be able to answer every single question, we will do or progress to provide a response to as many as possible. Please note that this meeting is being recorded. However, no one attending via the webcast is permitted to use any audio recording device. Declaration of Quorum. The Board fixed March 23, 2020, as the record date for determining stockholders entitled to vote at this meeting. A list of stockholders on the record date is available for your review on this meeting site. And after David has been delivered attesting to the fact that notice of this meeting was duly given. A copy of the notice and the affidavit of mailing will be incorporated into the minutes of this meeting. The inspector of election has informed me that as of March 23, 2020, there was 135,319,208 shares of Class A common stock and 22,407,803 shares of Class B common stock issued and outstanding. Each share of Class A common stock is entitled to 1 vote and each share of Class B common stock is entitled to 10 votes for a total of 359,397,238 votes, with the majority of the voting interest, which is 179,698,619 votes needed for a quorum. The count of shares of the company's Class A common stock and Class B common stock indicates 334,745,514 votes are present today in person or by proxy. This represents 93.1% of the outstanding voting interest of the company's capital stock as of the record date of March 23, 2020, which is a majority of the noted voting interest, and so a quorum is present for purposes of transacting business, and I declare this meeting to be duly convened for purposes of transacting business. On behalf of the Chairman and Board of Directors of the company, I would like send my appreciation to all stockholders who voted. Review of proposals. Now I will present the matters to be voted on. Proposal One is the election of directors. The current Board has nominated Katherine Blair, Geyer Kosinski, Richard Rappaport and Richard Siskind for election as Class III directors to hold office until the 2023 Annual Meeting of Stockholders or until their successors are duly elected and qualified. The Board of Directors recommends a vote for each of these 4 individuals. Proposal 2 is a stockholder proposal included in the statement -- proxy statement, The Congregation of Divine Providence and Portico Benefit Services, requesting adoption of a human rights policy by the Board of Directors. The Board of Directors recommends a vote against the stockholder proposal. Proposal 3 is the advisory vote to approve the compensation of our named executive officers, as described in the proxy statement, as supplemented. This vote, which is often called a say-on-pay vote that is currently held every 3 years is required as a result of the Dodd-Frank Act. It is a nonbinding vote, although the Compensation Committee and the Board will certainly take the results of the vote into account when making future compensation decisions. The Board recommends a vote for the advisory vote to approve the compensation of our named executive officers. Is there a representative for The Congregation of Divine Providence or Portico Benefit Services or the Socially Responsible Investment Coalition on behalf of the stockholders present, who wishes to make a brief statement regarding proposal 2.

Yes. It's...

Go ahead.

Can I go ahead and start?

Is this Anna?

Yes, it is.

Okay. Please state your name and please proceed with your statement. Please limit it to 4 minutes.

Thank you. Good day to everyone. My name is Anna Falkenberg, Executive Director of Socially Responsible Investment Coalition, and I speak on behalf of The Congregation of Divine Providence and Portico Benefit Services. I am here today to present and to ask our company's stockholders to vote for proposal #2 on the proxy to adopt a comprehensive human rights policy, which is critical and appropriate for a company with an expanding global reach. While it is the state's duty to protect human rights, it is the company's responsibility to respect human rights. As investors, we expect companies to demonstrate their respect for human rights across their operations and value chains as is required under the UN Guiding Principles for Business and Human Rights. The authoritative global framework for addressing business impacts on human rights. Companies do this through the disclosure of strong public commitments on human rights, implementing a rigorous human rights due diligence process and transparent mechanisms that enable disclosure and remediation of negative impacts. We believe these actions can ameliorate risks to business, including operational [indiscernible], reputational harm, financial loss and legal liabilities. A human rights policy is the first step in assuring shareholders that real and potential human rights risks, like forced labor, are acknowledged and processes will be implemented to address them. Apparel industry leaders like adidas, Gap Inc. and PUMA have adopted human rights policy statements, which is industry norm today. Forced labor is a salient risk in the apparel and footwear sector, which is characterized by globally complex and opaque supply chains. The apparel and footwear sector is also increasingly reliant on migrant workers who are extremely vulnerable to condition of forced labor endemic in supply chains. Our company has manufacturing suppliers in Vietnam and China. The U.S. Department of Labor has noted that footwear made in China and apparel made in China and Vietnam may be made using forced labor. The Australian Strategic Policy Institute in the report issued in April 2020 identified Skechers as a company directly or indirectly involved and benefiting from abusive labor programs involving Uighurs from the Xinjiang Uighur Autonomous Region. Today, our company's code of ethics or corporate code of conduct does not have any express provisions on respecting human rights or permitting forced labor. The supplier code of conduct has a single statement on the prohibition of forced labor and does not reference core international standards like International Labor Organization conventions. Further the company, in its 10-K filing, goes on to specifically state, the company does not control its suppliers' labor practices. Under the NGPPs, the company is responsible to respect human rights and is accountable for human rights risks arising from suppliers in its supply chain. U.S. law prohibits companies from buying any products from suppliers that have been made with forced labor. Human rights due diligence is the human rights risk management assessment progress prescribed in the UNGPs and the OECD Due Diligence Guidance for responsible business conduct. The latest 2019 Corporate Human Rights Benchmark, which assessed 200 companies across 4 sectors on their human rights performance score the company with a 0 on all 5 human rights due diligence indicators. We are concerned that a lack of public reporting and communication on human rights and how the company manages such risk suggests the company has not associated risks or determine how best to mitigate them. As long-term investors who view corporate accountability from a risk management perspective, which includes human rights risks, we are committed to work with the company to provide guidance and expertise to facilitate the drafting and adoption of a policy in line with international standards. And so we urge support of this proposal. Thank you for your consideration.

Thank you, Ms. Falkenberg. The proposal was previously made in accordance with the proxy rules and the company's bylaws and is deemed duly presented at the meeting. The Board of Directors has included in the proxy statement, a statement in opposition to the stockholder proposals, for the reasons set forth in the proxy statement, the Board believes that this proposal is not in the best interest of our stockholders. And accordingly, the Board has recommended that stockholders vote against the stockholder proposal. We -- now I want to announce that the polls are now open. Any stockholder who hasn't voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Stockholders who have sent in proxies or voted via Internet and do not want to change their vote, do not need to take any further action. We'll have a quick pause. [Voting]

Now that everyone has had the opportunity to vote. I now declare the polls for the 2020 Skechers U.S.A., Inc. Annual Meeting of the Stockholders closed. I have been informed by the inspector of election that the preliminary vote report shows that the nominees for election to the Board have been duly elected. The stockholder proposal for the adoption of a human rights policy by the Board of Directors has been defeated. And the compensation of the named executive officers has been approved by advisory vote. We'll be reporting the final vote results in a Form 8-K to be filed within 4 business days. Final comments in adjournment. If there's no other business, this concludes our meeting. On behalf of the Chairman and Board of Directors, I would like to express my sincere appreciation to the stockholders who attended the meeting as well as those who submitted their proxies but were not able to be present in person. There being no further business to be conducted, I declare, on behalf of the Chairman and Board of Directors, that this meeting is adjourned. Question-and-answer session. We have now come to that part of the agenda providing for a general question-and-answer session. We can begin with a few that we've received in advance of the meeting, if we had any, and then we'll take the stockholders' questions as being answered today on the web portal. Please note, we will attempt to answer as many questions as time allows, but only questions that are germane to this meeting. Okay. We did not receive any proposed questions in advance of the meeting nor do we have any on our web portal. Ladies and gentlemen, that concludes the question-and-answer period for our annual meeting. I want to thank you all for your attendance and your participation, and see you next year.