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

Good morning, and thank you for joining us for this next session as part of the Goldman Sachs Retail Conference. I am thrilled to be welcoming Skechers. My name is Alexandra Walvis. I cover the discretionary brands and the apparel and accessories retailers here at Goldman. Skechers is a leading footwear brand and retailers known for a variety of styles and functions across genders and ages. Here to tell us a little bit more about the strategy and the opportunities ahead, we have John Vandemore, Chief Financial Officer. So welcome, John, and thank you so much for joining us.

Thank you for having us.

We're going to start with a high-level question. At the end of the fiscal year, you reached over $5 billion in revenues. You saw -- you've seen double-digit growth across regions, including double-digit growth in domestic wholesale, which is a place where several of your peers have struggled. Can you help us to understand what it is about your business that helps you to achieve that growth? And what are the next targets to continue that kind of long-term expansion?

Yes. Well first, I would always start with at Skechers product. Product for us is probably our first, second and third priority at all points in time. We focus on delivering to our consumers, what we always say are the 4 key quality: style, comfort and quality at a reasonable price. And that has always paid off for us in terms of acceptance of our brand domestically and internationally and has led to the type of growth we saw last year. And really, last year was a phenomenal capstone to many years of growing our brand across the globe. I also think the fact that we have uniquely grown our business to be significantly more internationally focused than most people realize. Close to 60% of our revenues derive from outside the United States, and that's where we see that complement of characteristics really fit well with a marketplace that craves a solution that isn't at the ultra-premium level and isn't at a private label level. And I think that's where we fit very well. In addition to that, I would just mention, we strive to offer our customer solutions across a wide range of footwear needs. So it's not just in athletic, although we have a great representation in athletic. It's not just in casual, where, again, we are a stalwart. But it's everything from children's footwear through occupational footwear like work product for health care workers, construction workers, first responders. And then all the way on the other end to sandals, to seasonal wear and boots. So I think it's the combination of our overt focus on the type of product we bring to market and staying true to those customer value propositions, but also doing so across a wide range of footwear needs, while maintaining that consistency of style, comfort and quality at a reasonable price. I think as you look forward to the future, quite frankly, we couldn't have been more thrilled with how we exited 2019. It was tremendous momentum for our brand, and it was fairly universal. In fact, we joked at the end of 2019 that the only thing that stopped us from claiming growth in every single market was a couple of markets that were enduring some form of civil unrest. Obviously, the pandemic has put a bit of a wrinkle in that for everybody. But what we know is throughout this pandemic, customers are still seeking out Skechers and seeking out, again, those value components that we bring to the market that we think we do fairly uniquely.

Given that the priorities are product, product and product, maybe we could talk a little bit about what's working in product at the moment. During this period, which has been very, very unique, what types of products or styles are resonating most strongly with consumers? How is that changing? How you're positioning the assortment into back to school and holiday and beyond? And in particular, could you comment on kind of any discretioncy between casual and performance styles?

Well the first thing I would say on the product side, because I think it actually predates the pandemic is we had witnessed very strong resonance for our focus on comfort with consumers. I think, quite frankly, over the years, consumers have grown weary of putting on footwear that isn't comfortable. And certainly, we all have those needs at work where women are forced, in some instances, to wear high heels. Men are wearing very traditional patent leather loafers and the like. And our focus on comfort before even the pandemic struck really resonated with consumers. So what we were seeing prepandemic was tremendous resonance for our comfort solutions. That was everything for the traditional GOwalk solution, which certainly put a lot of focus on comfort in the footbed, but also advanced solutions like our Max Cushioning, our Arch Fit, which is relatively new to the market, our focus on Wide Fit solutions for individuals who don't have that perfectly normal foot pattern. And so before the pandemic, we were certainly seeing a tremendous response from consumers for those types of solutions, our Fit solutions. I would say through the pandemic, that's accelerated because people are in a position where, obviously, many more people are working and schooling from home. That has put less need on having that traditional black and brown professional attire in your footwear. And so that's biased a lot more activity toward casual and athletic solutions. And that's certainly something that we have seen. But I would even point out that, that's not to the exclusion of other categories. Our work solution, which, again, is primarily focused on individuals who are at work and have requirements either for characteristics like fall protection or slip resistance or certain style patterns, people in the health care field, first responders, construction, where we uniquely bring to bear a solution for the marketplace, but it combines our Fit solutions, those have been doing phenomenally well for us. So I'd say that the broad trend, which I'm sure everybody has heard about or read about from many others, is a fairly pronounced shift away from dress toward casual and athletic. And we've certainly seen that. But I would even go so far to say it's really about comfort. And so products and solutions that deliver comfort to the consumer are the ones that are resonating most. And for us, that actually translate across the full breadth of our product line. And in general, though, is certainly emphasized by casual and athletic styles.

One more question on the product side. Are there any new product innovations or collaborations vouching in the second half of this year, indeed, in 2021 that you're particularly excited about? And then perhaps you could also comment on the opportunity outside of footwear, specifically in apparel? And how we should think about the expansion of that category over the next few years?

Yes. I think what you're going to continue to see us focus on right now is those Fit Solutions. Many, quite frankly, are just on the verge of coming to market prepandemic. And in many respects, I would share that we don't feel that they've gotten their full moment in the sun, so to speak. Of particular strength, see our Max Cushioning product, our Arch Fit solution, which combines medically informed design decisions about the footbed. A snugger fit for most has seen tremendous resonance and it's really just getting started. But I would say, broadly, what you'll continue to see us focus on is characteristics that we can actually extend across different subcategories of our line like Fit solutions that work for consumers. In terms of apparel, that continues to be, we think, a fantastic opportunity for the Skechers brand. We are, I would say, early stages in our penetration to the apparel market, although that does depend on different markets. In some markets, we're further along than in others. What we think will resonate with consumers is adherence to those same qualities that I mentioned in footwear, style, comfort and quality at a reasonable price and then delivered and leveraged through our fairly significant distribution platform, both domestically and internationally. And in some markets where we are further advanced on that build-out, we are seeing very strong resonance of the brand at the apparel level in addition to footwear. And in many instances, it being a meaningful add-on elements to what people come into the store to purchase, it will certainly take time to develop that over the globe, and every market is a bit different. But I would say that certainly remains a significant strategic opportunity for the Skechers brand long term. And one, we continue to focus resources on and we'll continue to develop solutions for going forward.

You mentioned a number of different products and a number of different verticals into which you sell, which gives you a very holistic view, I think, across the consumer. A couple of questions related to that. One, you mentioned that you were broadening your consumer appeal further. I think you're bringing in some younger customers to the brand, which is a topic of discussion, on the second quarter call. Can you talk a little bit about that and the opportunity there? And then, two, any kind of insights as we look across that customer base on how people have changed their shopping activity as we move through those?

Yes. And somewhat -- quite frankly, the answer to that goes hand in glove. Well first thing I'd say is, over the last couple of years, we have put more emphasis on a more youthful demographic that is both domestically and internationally. And I think it's important to keep in mind when thinking about the Skechers brand, we're talking about a global audience. So while there, I think, it's a perception domestically that we don't play as well in some of the more useful demographics, that's actually not true, certainly not when you pull the lens back and consider our penetration more globally. That being said, we put emphasis on developing styles and solutions for a more youthful demographic over the last couple of years. And we've really started to see that show some productivity for us, which has been fantastic. That's products like our BOBS product, our Skechers Street of solutions, which have actually done very, very well for us. In addition to that, obviously, the biggest transition we're seeing right now, which began at the early stages of the pandemic most pronounced, but, quite frankly, even before that, is the continuing penetration of e-commerce. And we've spoken for really the last couple of years, at least, about our desire to continue to grow that channel domestically and internationally. It's been the focus of significant time and energy and investment for us over the past couple of years. And indeed, this year, we're actually celebrating the conclusion and fruition of much of that investment. Coupled with the environment we found ourselves in, in the second quarter, I think it couldn't have been more well timed. And in that, we are finding the ability to target a different demographic or I should say a wider demographic lens because it's not to the exclusion of our tried and true demographics, but it's also opened up for us opportunities in a very targeted way to go after a broader range of customers. And that includes a more useful demographic, but also our tried and true kind of age range. And that will only continue. As I've said, we put a significant amount of investment and effort behind e-commerce. A lot of the early investment was on back-end technology to support our future growth in the business. Most recently, it's evidenced by our launch of a new website solution, a best-in-class website solution as well as native applications. It will be matched later this year or early next year with the relaunch of our Skechers Loyalty program all with an aim of continuing to build out that direct-to-consumer relationship that we find valuable. And I think consumers find valuable, particularly, in situation like we found ourselves in the last couple of quarters where their options to shop are more limited. And the e-commerce solution is more readily available, more familiar to most and also carries a broader selection than most can contemplate in a single retail footprint. The only caveat I'll put on that is, we're not investing in e-commerce to the exclusion of our physical retail stores. We actually believe they will continue to play an integral part of our solution to consumers. What we find when we talk to consumers and when we read about and research their buying behavior is that they want to have the ability to shop for the product across platforms, physical retail, mobile, desktop, whatever the case may be. And so we're continuing both veins of growth for our brand because we think it's the right solution for consumers, but it also matches very well with what consumer expectations are today. And we think that will continue to be increasingly important. And for us, it will be increasingly important to continue to deliver on those expectations by continuing to deliver solutions like buy online, pick up in store, which we recently started to trial in a significant number of our domestic locations, but would ultimately bring out across our retail estate.

You introduced the topic of channel shift, John, I had a few more questions on that. The store continues to be important. One of the questions that we're asking all of the companies at the conference this year is whether they expect to have more or fewer stores in the U.S. in calendar 2021 versus '19 for future versus past? Can you share how you're thinking about store fleet expansion at Skechers and perhaps where you envisage store versus online penetration being within your direct business over time?

Yes. I would definitely say for Skechers, we continue to see opportunities to open physical retail stores. That may not be the same type of stores that we've opened in the past. Obviously, we're more focused today less on mall-based -- certainly, B and C location mall-based offerings and more focused on growing our stand-alone store footprint. We refer to them as our big box or warehouse style stores. But think of those as freestanding solutions with a broader product range that really appeals to a solution for the whole family across the breadth of our product lines. And we'll continue to grow that. It may not be at the same pace that we've seen over the last couple of years, but we'll continue to grow that really for 2 reasons. First, we don't believe, by any stretch of the imagination, we're fully penetrated domestically in that solution. There's more opportunity for us. And I would add, there's probably more attractive opportunities today as more and more retailers pull back from the market. That leaves space, that leaves opportunity that we actually find very attractive characteristics to occupy. But in addition to that, we want to be able to provide our consumers the Skechers product. And in some markets, you've seen other retailers pull out. So bringing that product to market is almost a necessity to serve the customer need. But also being able to deliver a true omnichannel solution tailored to our customers is extremely important. And that's difficult to do if you're only operating in an e-commerce vein. Now obviously, we'll always be thoughtful about, and we continuously monitor our stores for the appropriate level of productivity. We continue to rigorously manage the store fleet for that. But against that backdrop and against what we think the opportunity is for the brand, we continue to see a path towards growing our store count overall. In terms of the penetration, we hesitate from giving an overt penetration number for channels like e-commerce because we want that to come in the right fashion to our business, which is we want to continue to grow the physical footprint and the revenue there and we want to continue to grow our e-commerce. But what we ultimately care most about is an agnosticism between those 2. Because at the end of the day, a consumer doesn't say I'm buying a shoe from Skechers online or I'm buying a skew from a Skechers store. They just care that they're buying Skechers product. And I think it's going to become increasingly important for businesses to fully embrace and, quite frankly, knock down the walls between those sides of your business because they really need to operate very fluidly to deliver consumers what they crave, which is the product that we deliver. So in our eyes, penetration levels are fairly irrelevant between e-commerce and retail. But what we really care about is continuing to grow our brand and ultimately continue to grow share in the marketplace.

Can you elaborate, John, the opportunities on the real estate side that you see? I know a lot of retailers are talking about the ability to -- or perhaps the potential to see lower rents going forward. Are you having any negotiations with landlords and other opportunities to renegotiate or to renew at lower rents? And I suppose the other part of that comment may have been related to the real estate opportunities with respect to opening new stores in good centers that have perhaps been vacated by others.

Well really, it's about both, Alex. And I think you've heard a lot from retail in general about efforts to go back and renegotiate existing rent structures. And that's something, I think, everybody's moved forward with, in some way, shape or form. But I think really, this situation, in particular, as well as just the general impacts of the struggles of some retailers lately have led to an environment whereby there have been more stores than retailers care to operate. And that creates opportunity. Look, I think if you step back at the end of the day, there is a very few number of retailers right now who are growing stores, growing their brand. I think, thankfully, Skechers is one of those. But in a market that is seeing more attrition than growth, I think that puts brands that are growing in a better position. I also think this -- the effects of this pandemic are going to change fundamentally the dynamics between landlords and brands looking to grow their physical footprint. We're already starting to see that in some situations where the opportunities are biasing towards a structure that's more favorable in our eyes to the way we want to conduct business. And that will be something that takes place over time. But I definitely believe Skechers sits uniquely with a few others in the position of both wanting to grow the store base, being able to do so profitably and then also looking into a market that probably has more availability than has been the case in the past. And important in that is to be able to continue to grow, again, both channels and drive solutions for consumers that meet their needs.

You mentioned on the second quarter call, you've seen stronger traffic and sales within the big box and outlet locations. Can you share over time and indeed, more recently, the discrepancy in performance between different formats? And how that changes your thinking about the shape of the Skechers fleet by format going forward?

Yes. I mean, I think it's a little bit of an unfair comparison, though, because we must recognize that the effects of the pandemic and what it's garnered in terms of a response from various governments and agencies, none of which, quite frankly, have been entirely consistent across the landscape have had different effects. And the best example I can give you, even if you have a Type A property mall-based location that traditionally does very well, if that property is closed to traffic, it's very difficult for that store to perform. So I think it's all got to be considered in the context of the environment in which every store is operating. That being said, what we've generally seen, and I think you've heard others comment upon is that freestanding solutions, those that are not contained within a mall, a complex, either a Type A, B or C classic mall structure or even an outlet mall structure, those are doing the best. They offer the widest selection for us. They have actually tended to do better for us over the last couple of years to begin with. But I think in this situation, they're subject to the fewest restrictions. Many have opened sooner than other opportunities for shopping. And so they've definitely shown us the best recovery so far vis-à-vis what we saw in Q2. I would say next best for us has been the outlet category. And that's been heavily influenced again by location. There's some outlet solutions that are heavily reliant upon tourism, for example. Those have struggled as tourism has significantly reduced. Others are more localized shopping opportunities, and those have done better. So it really depends almost market-by-market as well as what level of restrictions exist in that marketplace, owing to the pandemic and its resurgence. And then the concept stores for us, which tend to have the greatest concentration in malls, which have also coincidentally suffered the most from the restrictions placed on them and their operations by local governments and municipalities, those have recovered less well thus far. But I think that stands to reason given the impacts of the virus and the associated responses from the government. And I would also just note, in general, we've seen certainly an alignment between how stores operate generally and how restrictive those governments and municipalities have been with regards to individual's ability to go out and shop and traffic patterns. If the virus and certainly when the virus surged again in July, we saw impacts to traffic. And that had a corresponding impact to comparable store sales. And I think you've seen a lot of people comment on that, and I think that stands to reason. I would note throughout that, though, we're certainly continuing to see strength in e-commerce. So for us, albeit a bit colored by the unfortunate consequences of the pandemic and its ability on people to get out and shop, the fact that our brand continues to resonate with customers. And they continue to seek out our products online has been a very encouraging message underneath all of that.

John, you shed a few comments there on some of the current trends that you're seeing in the business. I wonder if we could address that for a moment. You mentioned e-commerce remaining strong. You mentioned some pullback in some of those states that's seen a resurgence in the virus. I wonder if you could comment on anything you care to share on back-to-school trends. There is a question on that coming through the webcast. And I'll just use this moment to remind folks who are tuning in that please do submit questions through the webcast and we'll try to weave them into this discussion. So John, over to you on current trends.

Yes. I think the encouraging aspect of what we've seen subsequent to Q2 is almost every channel is getting better. Now obviously, Q2 was a significant pressure on the business as a whole, the shutdown, in particular, both domestically and internationally. And I'd say, almost every channel is getting better as a result of that. Our wholesale business has certainly seen a resurgence as retailers begin to open their doors and I think start to see a traffic pattern and consumption rate that they can start to rely on to inform their thinking about orders. If anything, quite frankly, we probably had a net positive and people looking to move up orders, I suspect that's a combination of both the consumption they're seeing at their stores. But also when the pandemic hit, really a lot of wholesale partners of our simply stopped all deliveries, all receipts in response to the situation. I mean I don't know that they had much of a choice, but it was certainly a fairly consistent response we saw was to cut off and cut down on orders, cut down on receipts to wait out the major elements of the shutdown. And as things have recovered, I think they've recognized in some instances that perhaps they cut too much or the demand that came back was stronger than they anticipated. So we've definitely seen a resurgence on the wholesale side that's been encouraging. I would probably echo that for the international markets. Europe, we've definitely seen somewhat parallel the United States, albeit without as much of a virus resurgence, which has, I think, helped them move up that recovery curve a little bit better than most. I say that, but you should recognize Europe is not one country, it's a multitude of countries. We've had some markets actually that have performed exceedingly well, like Germany is a great example for us, and others that have probably taken a more U.S. like curvature to their recovery. When you look to Asia, obviously, the first to be significantly impacted by the virus, in particular, China, Korea and some associated markets. We've seen them recover to a higher point on that curve, and it actually has happened last quarter, even some growth and that continues. We see continuing positive signs coming out of China because they've gone through this cycle more completely than other markets, but also markets like Korea. In our direct-to-consumer business, the trends I spoke about are what we're continuing to see as things are getting better. They're getting better at different paces across the world, but they are generally getting better and largely in line with a market's recovery from the virus as a whole. The one aspect to that, I'd certainly give you is, obviously, in past years, the back-to-school season would have been a fairly significant element buying behavior, certainly domestically over this quarter, but even in other international markets. And without kids going back to school, that's not as prevalent. You can almost see, in some instances, market-by-market where schools are reopening or the activity is significantly advanced from others that there is a bit better performance. But I would say, generally speaking, we're not expecting at this point to see a back-to-school season similar to last, certainly not in timing. I think there's an open question as to whether or not maybe it just elongates over the balance of the year, but we're certainly not going to see the intensity of back-to-school shopping that we would normally have witnessed over the third quarter. That's definitely not in the cards at the moment. But overall, we're encouraged by the continuing improvement we're seeing across the globe. We're cautiously optimistic that, that will be allowed to continue if the virus remains at least at similar levels of activity as it is today, though we're also conscious that there could be a situation where the virus reemerges in a significant way, and that will have an effect on our business. And if it is, I think we're poised to react quickly, similar to what we did in the second quarter and with an eye towards ensuring that our brand will continue to navigate these circumstances successfully.

With all of the uncertainty and indeed several risks still in the end market, how are you planning your business for holiday across channels? How are you planning your own inventory receipts? And you mentioned just then that you are well positioned to chase should demand materialize better than expected. If you could elaborate on that, that would be of great interest also.

Yes. I think the way you just described it is probably the best way to describe our posture. Certainly, for the orders we have, we're continuing to work to deliver on those. And we have, I would say, modest expectations about what the holiday season is going to bring. But we want to position ourselves to chase actively opportunities as opposed to find ourselves in a position where we're over inventory. That's been our posture throughout this environment. Our general sense was that there was going to be volatility over the balance of 2020 once we recognize the effects of the pandemic. And so important to us was to emerge from this year in a healthy position to continue to drive the growth of the brand. And so I think I would probably best describe it as we're cautiously optimistic, but we probably are biased towards the lean side of things over the balance of the year so that at the end of 2020, we're poised to get back to growth in 2021, provided the pandemic cooperates and it certainly doesn't provide any incremental roadblocks to operations like what we saw in Q2. So I would probably say at the moment, we remain in that cautiously optimistic bias towards the lean position, but we are also ready to chase. And we have been chasing where opportunities avail themselves to continue to fulfill our customer demands.

John, you mentioned 2021, that gives me a nice opportunity to ask a couple of the questions that we have for all of the company presenting this year at the conference. The first question is by what stage you'd expect sales to return to the levels that you saw in 2019? And then the second question is by what stage do you expect margins to return to the levels that they were in 2019? Or more specifically, should margins be higher in 2021 than '19 or lower? And I know that you're not giving specific guidance at this point, but perhaps you could help us think through your plans for growth and margins going forward with reference points to the past.

Yes. I mean, obviously, that's an incredibly difficult to answer to give with any degree of precision. What I'd say is, there certainly isn't any restriction from a product perspective, from a brand perspective, from an execution perspective for Skechers to get back to 2019 levels as soon as consumer discretionary appetite gets back to that same level, which is to say, we have the product, we have the marketing, we have the execution, we have the capabilities to be right back at '19 levels as soon as conditions avail themselves. If we have a healthy consumer base, we have lower lingering effects from whatever economic fallout from the pandemic that extends into 2021. That's certainly a feasible window of opportunity because we're certainly prepared to be able to deliver that. But it will depend on how strong and how quickly the consumer comes back. At this point, I certainly don't envision 2021 being like 2020. I think that's going to be the unique year in this pantheon. Now whether or not we can get fully back to '19 levels, again, that will be determined. But I certainly wouldn't put any expectation out there that it would extend into 2022. I think we could easily get back to, again, all things equal to above '19 levels in 2022, but it will depend on how consumers and consumer health comes back. If it's the same or better than what we saw in '19, and again, that's a global consumer, then we'd be encouraged by that. And we'd be poised to grow beyond '19. In terms of margins from a gross margin perspective, actually, we've held our gross margins pretty well and continue to expect that will be the same case. In terms of operating margins, it is going to be top line influence. There's certainly a piece of our business that requires a return to '19 levels to get back to those operating margins. But that's a lot of because of what we have invested in the G&A to deliver a business that is significantly bigger, even, quite frankly, than 2019. I mean the one thing about Skechers, I'm sure, most recognize is we have been unabashedly, unafraid to invest in the future of this brand because we know this brand is not limited to even 2019 levels. And we continue to prepare for an opportunity for this brand to be beyond $5 billion to $6 billion to $7 billion and beyond. So we're not going to, in any way, reduce our opportunity to operate at those levels. Even if it takes a little bit longer to get there now because of the effects of the pandemic, we want our brand to continue to grow. And so the infrastructure that we've invested in for that continues to remain important to retain and to build upon. And so that does require a bit of that top line return to get our operating margins back to where they were in '19 and then to continue to grow them from there, which is certainly our long-term objective.

And one of the -- particularly, one of the key drivers of gross margins, your pricing and promotional activity, can you share with us how you're thinking about both the promotional environment and the level of promotionality expected at Skechers specifically into the holiday season? And then medium term, another of the questions that we're asking all of the companies at the conferences, how they're expecting that think power vis-à-vis the consumer to trend? I know that we went through product and innovation, which is clearly relevant here for Skechers. But any thoughts on that as well as we think about the longer-term pricing and gross margin would be of interest.

Yes. So I mean, I think just get to the pricing side, I mean, we really haven't seen -- we haven't struggled with pricing. If anything, to be honest with you, I think, in many ways, we've underappreciated the pricing capability we have. Now look, we're not a price-driven business, we're not a commodity. We're delivering a combination, as we said, of style and then comfort and quality at a price. And so it's always going to be a dynamic balancing those out to meeting with consumer expectations. That being said, I think in many instances, we continue to learn about the value of what we're delivering. And in some instance, I'd tell you, I think we underappreciate that. And so I would tell you, we're not going to be a company that looks to price 2%, 3% every year, just to grow our share of either the margin that's out there for our retail partners and us or from the consumer. But we will continue to be, I think, active in looking at how we can extract the right amount of value for the product quality that we deliver because we continue to think in kind of a pound-for-pound manner. Our product is as good as anybody's out there, in many instances better. And so we want to make sure we get fair value for that. But that's also a dynamic calculus that continue on. In terms of the promotional environment, I'd say, coming out of the pandemic, you certainly saw a lot more promotional activity as people reopen stores. In many respects, it's similar to what we saw in China. There were -- there was promotional activity to encourage consumers, quite frankly, to get back into a shopping pattern that was more observable before the pandemic. That being said, we haven't seen that get to anything of what we would describe as extreme levels. And certainly in our own portfolio, we haven't felt the need to go to extremes in that. And I think part of that goes to the expert inventory management we undertook during the pandemic. And part of that is also in line with what we're seeing in the marketplace. At the moment, I would not say our expectation is for abnormal promotional activity in the next couple of quarters. But we're also mindful that it's a competitive situation. So we'll need to watch what other brands do. But in terms of our own retail footprint, in terms of our own product direct-to-consumer marketing, we're not seeing a need really to be drastic in our promotions. But we'll continue to watch and see how the market performs broadly and how other brands perform. But I certainly don't think you'll see Skechers be the leader in promotional activity, absent any other efforts because we don't think, quite frankly, it's required for the inventory levels we currently possess nor is it required to motivate consumers to come find our product because we're seeing, again, a very strong resonance for the brand, for the product in the direct-to-consumer channel. [Audio Gap]